How to Not Eat Cat Food

We are all just children staring at marshmallows.  

"Psychologist Walter Mischel… described the interaction between emotion and cognition in the famous marshmallow experiments of the 1960s and 1970s. They presented four-year-olds with a marshmallow, telling them that they could eat it at any time or wait and eat two marshmallows when the experimenter returned. They found that children who were able to wait longer did so by cognitive strategies such as covering their eyes, singing songs, or imagining that they faced a cotton ball rather than a tasty marshmallow." (Finance for Normal People: How Investors and Markets Behave)

Aren't we are all just children staring down the temptation of a marshmallow?   We know if we don't eat one now, we'll get two a little later.  So why is it so hard not to eat that marshmallow…right…this…second?

It's simple.  Our monkey brain places more value on rewards that are more immediate (even if they're smaller) than rewards that are further away (even if they're larger).  It's called "Hyperbolic Discounting".

That makes sense.   Our monkey brain has been around for millions of years.   It's been appropriately trained to worry about the present more than the future.  

Until the last 30 years, considering how your actions today affect your future wasn't all that important.  You worked.  You retired and got a pension for a few years.  You died.  

But now we need to survive for 30 years after the money stops rolling in.   This is a brand-new human experience and one we are not very good at yet.

So how can we beat our monkey brain and avoid eating cat food out of our kid's basement?

Cover your eyes.  Sing a song.  Imagine cotton balls. 

Just don't give your monkey brain the opportunity to decide.

Save first.   Don't give yourself the choice to save or spend because we know how that one goes.  PAY. YOURSELF. FIRST.

Set up automatic savings to put away at least 10% of your income - 401k, IRA, savings account.  Where you save it isn't nearly as important as just saving it.   And if you're an overachiever your bogey is 20%. 

Your monkey brain won't like eating cat food any more than you will.   Do both of you a favor and box it out of your decision-making process.  Your monkey brain is much better at running from saber-tooth tigers than saving for retirement.   

 

Disclaimer: This blog is for educational purposes only and should not be considered financial, tax or legal advice.  These statements have been simplified for illustration purposes.  Consult your financial planner or tax advisor for help with your specific situation.

The Only Three Times You Should Sell

Assuming you're already invested in a well-diversified portfolio of low-cost index funds, the only 3 times you should sell...EVER...is:

1.      Your financial goals change
2.      Your risk tolerance changes
3.      You portfolio needs rebalancing

That's it.  (And in that order.)  

It doesn't matter if your portfolio drops 20% in a month.    It doesn't matter who gets elected president.  It doesn't matter if another Great Recession happens.  It doesn't matter if an asteroid is heading for the planet.  YOU. NEVER. SELL...  


...Unless:

1. Your financial goals change.  If were planning to retire in 15 years, but woke up today and decided you will retire next year, then your financial goal has changed.  You need to adjust your portfolio to make it more conservative.  That will involve selling some of the aggressive investments and buying more conservative ones.

2. Your risk tolerance changes.  Risk tolerance is a finance-y way of describing what kind of rollercoaster ride you're comfortable with. Some people love the "Demon Drop from Hell" and other people prefer the merry-go-round.   But if "younger you" invested in the Demon Drop and "older you" now prefers the merry-go-round, then you need to adjust your portfolio accordingly.   That involves selling some aggressive investments and buying more conservative ones.

3. Your portfolio needs rebalancing.  Let's say your target portfolio is 50% stocks and 50% bonds.    Recently the stock market has done really well and the bond market has not.   As a result your portfolio is now 60% stocks and only 40% bonds.   So you need to rebalance back to 50/50.  That means you sell some of the stock investments and buy more bond investments.

As Warren Buffet said in his 1990 Shareholders letter:  "Lethargy bordering on sloth remains the cornerstone of our investment style."

And as Rick Valenzi said in his weekly newsletter July 26, 2018:  "Your portfolio is like soap.  The more you handle it, the less you have." 

 

DISCLAIMER:  This blog is for educational purposes only and should not be considered financial, tax or legal advice.  These statements have been simplified for illustration purposes.  Consult your financial planner or tax advisor for help with your specific situation.

Do You Have Enough Life Insurance?

Unless your kids are out of the house, then no.  Probably not. 

PLEASE NOTE: I do not sell life insurance.  I dropped my insurance license when I left Wells Fargo. I do not make a single, red cent from clients who buy life insurance.   

So what I'm about to tell you is conflict-free and completely objective. 

Life insurance replaces your income if you're gone.  It's that simple.  If you kick the bucket today, your spouse and kids will miss you.  But they'll really miss your income.

So how much life insurance do you need?  Let's use an example to find out.

Assume your living expenses are $10,000 per month, not including your mortgage payment which has a balance of $1,000,000.    You and your spouse both work and contribute equally to your monthly expenses.   And you want to pay for your two kids’ college educations, which will be about $250,000 each in 15 years.

If that describes you, then you would need a $2,000,000 life insurance policy today.   

  1. $2,000,000 is enough to:
  2. pay off the mortgage,
  3. send the kids to college and
  4. make up for the lost $5,000 of monthly living expenses.  

Now ask yourself  - Do I have enough life insurance?  Even if you’re paying for the "3x your salary" option at work, I bet you're still underinsured.

Clearly, I've drastically over-simplified things to make the point easy to understand.  

How much life insurance you need is very specific to you and your family.  Things to consider include - but aren't limited to: 

  • income
  • spending rate
  • savings rate
  • current savings
  • college goals
  • home ownership
  • risk tolerance
  • other financial goals…
  • and on and on and on 

As part of the financial planning process, a good Certified Financial Planner will complete a Life Insurance Needs Analysis to determine how much life insurance you actually need. 

Now if only you knew a good Certified Financial Planner… hmmm.   Oh wait… I've got a guy!

Check him out here - www.financialzen.com and schedule a free consultation here – www.calendly.com/financialzen   

Is Your Home a Good Investment?

We're talking about your primary residence.  Where you watch your kids grow up.  Where you have your friends over for dinner.  Where you watch America's Got Talent every Tuesday.

Is THAT a good investment?

And we're not talking about the pride of ownership.  Or the fulfillment of providing for your family.  Or the sentiment of all the memories you've built inside those walls.

We're talking cold, hard cash.  Dollars and cents.   Is your home a good financial investment?

To answer that we need 3 things:

1.       The increase in your home value

2.       Inflation

3.       Comparison to other investments

Let's look at the last 30 years.  Below is a chart mapping average home prices from 1988 to today for the Bay Area (Go Giants!) and the country:

image001.png

If you bought a house in the Bay Area in 1988 for $79,000, it'd be worth $390,000 today!  Not too shabby!   That's nearly a 500% total return!   That's an annualized return of 5.4%!

If you bought a house in Anytown, USA for $86,000, it'd be worth $248,000 today!   You tripled your investment!  Yay!!!

But what about inflation?  Whomp whomp.

Inflation has been roughly 3% per year since 1988.  When you factor in that a dollar today is worth much less than a dollar in 1988, the picture's not so rosy.

image002.png

If you bought a house for $101,000 in the Bay Area 30 years ago, it'd be worth $233,000 today in 1988 dollars.   That's a whopping 2.8% annualized return.  Boo!

If you bought in Anytown, USA for $111,000, it's now worth $150,000 today in 1988 dollars.  That's a 1.0% annualized return.   As the leader of the free world would say - SAD!

Finally, let's compare what the inflation-adjusted returns of the S&P 500 has done over that time frame.

Since 1988, the stock market has returned 7.6% annually (vs. 2.8% for a Bay Area home or 1.0% in Anytown).  That's adjusted for inflation and assumes you reinvest dividends.

If you forget inflation, it's annualized return is 10.4% (vs. 5.4% for a Bay Area home or 3.6% in Anytown).

So there are a LOT of reasons to buy a house - pride, fulfillment, memories - but making money isn't one of them.

 

Are You Committing the Gambler's Fallacy?

From the perennial classic - A Random Walk Down Wall Street

Each year a statistics professor begins her class by asking her students to write down the sequential outcome of a series of one hundred imaginary coin tosses.  One student, however, is chosen to flip a real coin and chart the outcome. 

The professor then leaves the room and returns in fifteen minutes with the outcomes waiting for her on her desk. She tells the class that she will identify the one real coin toss out of the thirty submitted with just one guess. With great persistence she amazes the class by getting it correct.  

How does she perform this seemingly magical act?  She knows that the report with the longest consecutive streak of H (heads) or T (tails) is highly likely to be the result of the real flip.

The reason is that, presented with a question like which of the following sequences is more likely to occur, HHHHHHTTTTT or HTHTHTHTHTT, despite the fact that statistics show that both sequences are equally likely to occur, the majority of people select the latter "more random" outcome. They thus tend to imaginary sequences that look much more like HHTTHTHTTT than HHHTTTHHHH."

Your monkey brain at it again. It tricks you into thinking that what just happened has an impact on what's about to happen.  

Like if you flip a bunch of heads, then a tails is surely coming, right? Your monkey brain feels like that's right.  It’s not.

It's called the gambler's fallacy. It often pops up when investors think that recent market performance has an impact on what will happen next. Like if the market's been up a bunch recently, surely it's going to come back down.    

Sound familiar? We've heard the expert talking heads (and neighbors and friend and family and coworkers) blab about how the market's going to drop just because it's been up for 9 years.

The thing about monkey brains is we've all got one, even the market "experts".

Of course, there are economic reasons hot markets usually precede short-term corrections and longish-term recessions. But those reasons have nothing to do with the mere fact that the market's flipped heads 9 years in a row. Correlation is not causation…but that's another topic for another day.

You vs. Your Monkey Brain

Our monkey brain.  Super helpful when we need to run from a saber tooth tiger.   Not so helpful when we need to make rational decisions.

This morning I cracked open a book on behavioral finance - Finance for Normal People: How Investors and Markets Behave..

Behavioral finance is a relatively new field.   It acknowledges that we are not rational beings driven by logic and critical thinking.  Rather we are we are irrational beings driven by emotions and shortcut thinking. 

The point of behavioral finance is to understand how your mind works, so you can prevent your monkey brain from making your financial decisions for you.   Like G.I. Joe said "…and knowing is half the battle."

Let's play a game.  Answer the following instinctively.  Without thinking.

“If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets?”

Was your answer 100 minutes?   Me too. 

Now think about it and answer again.   Ahhhh.  See it?  The answer is actually 5 minutes.

How about another one?  Quick!  Don't think!

"Consider a deck of twenty well-shuffled down-facing cards. You know that ten are black and ten are red. You win if you draw a red card. Now consider a second deck of twenty well-shuffled down-facing cards. You know that all twenty are either black or red. You win if you draw a red card. Which deck do you prefer to draw a card from?"

Did you choose the first deck?  So did I!!!

But reread it.  Ah-ha!.    You've actually got a 50% chance with either deck.  Your monkey brain at work.  (That one's called "ambiguity bias")

The reason your monkey brain can sabotage you is we make decisions with behavioral biases - assumptions our brains make to quickly fill in the missing gaps.

Again - super helpful if a saber tooth tiger is coming at you.   Let's not utilize the scientific method to determine if it wants to eat us.

But not so helpful when you hold on to an investment that's tanked because you lost all that money.  It only matters where it goes from here.  What you already lost already isn't part of the decision.  (That one's called "anchoring bias".)

People make financial decisions with their monkey brain every day.  Let's find out how that damn monkey works, so we can get it off our back and back to the ice age with its feline friend.

More to come….

Income Is Not the Same as Wealth

How much money you make is not important.  

How much money you have is.

From The Millionaire Next Door:
"Wealth is not the same as income.  If you make a good income each year and spend it all, you are not getting wealthier.  You are just living high. Wealth is what you accumulate, not what you spend. 

How do you get wealthy?   Wealth is more often the result of a lifestyle of hard work, perseverance, planning and most of all, self-discipline." 

If you're "income rich, savings poor" you are not going to enjoy the last 20-30 years of your life.  At some point, the income runs out.   "Working until the day you die" is not a feasible retirement plan.  Your body or your mind isn't going to let you. 

At that point, you will live off what you saved and Social Security.  If you haven't saved, then you'll have Social Security, which for a couple maxes out at $88,752…pre-tax.

The solution?   Save 20% of your income.  If you're over 50 and "lived high" for too long, save 30-35% of your income. 

It won't feel good at first.  It'll be a frustrating journey finding the things in your lifestyle you're willing to sacrifice.  But after the first year or two, you'll see your wealth build, and the progress you've made will motivate you to keep going.   You just need to get over that two-year hump.

The best time to start saving and accumulating wealth was yesterday. 

The second best time is today.

401k's - Great for Saving... Terrible for Investing

You nailed the interview, negotiated a nice, fat salary and completed the HR paperwork.

Congratulations on the new gig!  Good on you!

But in all the excitement of your new job, don't forget about your old 401k!

After you leave a company, you have options.   With your old 401k, you can: 

  1. Leave it behind
  2. Roll it over into your new 401k
  3. Roll it over into an IRA
  4. Take the money…pay Uncle Sam 50% in taxes & penalties… and run!

Just because it's an option doesn't mean it's a good one.    Obviously, taking the money out and paying taxes on the whole thing PLUS a 10% early withdrawal penalty (if you're younger than 59.5) is a terrible idea. 

Leaving it where it is or rolling it over into your new 401k aren't as bad, but they're only a little better.   Want to know a secret?  Come a little closer…

401k's are great for saving, but they are TERRIBLE for investing. 

Why?

Each 401k plan is different, but even the most robust 401k's offer only a limited number of funds to invest in.  You're options are limited to whatever Human Resources has picked out for you.

I've seen the investment options of hundreds of 401k plans.   And I can tell you from experience, the funds usually kinda suck.  (And that includes the Target Date funds I bet you're invested in right now.)

So you're forced to pick the best of the mediocre and call it a day…until you leave your company.

Once you leave, you can roll your 401k into an IRA - Individual Retirement Account. 

It's tax-free and penalty-free to do so.   More importantly, once it's in your IRA  you can invest in pretty much anything you want.   Instead of picking from the best of the mediocre, you can pick from the best of the best!  Woohoo!

Then you can invest in a well-diversified portfolio of low-cost index funds, which is how you should manage all of your "serious money".  And what's more serious than your retirement savings!?

Then as you progress throughout your career and get better and better jobs, you consolidate all of your old 401k's into the same Rollover IRA.  

If you have old 401k's laying around, we'd be happy to help.   Check out our website - www.financialzen.com - and if you like what you see, schedule a free initial consultation

Disclaimer: This information is for educational purposes only and should not be considered advice or a recommendation.   Speak to your financial advisor for help with your specific situation.

Only Two Ways to Invest

Picture a little boy running around a cruise ship.   Little Johnny runs up the slide, then down the slide.   Dives into the pool, then runs over to look over the edge of the ship.   

Around and around little Johnny goes.   Where he'll run next is anyone's guess.  If you're not his parents or in the wake of destruction it might even be mildly amusing. 

Little Johnny is like the short-term fluctuations of the market.  He's all over the place and just when you think you know where he'll run next, he does the opposite.  Trying to keep up with him or predict his movements will be an exercise in frustration and futility.

The cruise ship is the long-term market returns.  We know it will arrive at its destination no matter where little Johnny runs. 

As an investor, you only have two choices.  You can either chase around Little Johnny or you can sit back, relax and sip your daiquiri. 

Chasing Johnny means you chase returns, get in and out of the market and bet on stocks.

Sipping your daiquiri means you buy and hold low-cost index funds and just enjoy the ride.

Your choice.

Money's Like Soap...

…the more you handle it the less you have.

The unspoken secret to long-term investment success is…ironically…to do nothing.  Buy...and then hold.

Wall St. doesn't want you to know this.   Wall St. doesn't make money if you buy and hold. 

They make money from the transaction fees you generate for them when you buy and sell and then buy and sell again.

If you truly want to beat the system, don't try and beat the system.

Your future, happily retired self will thank you.

Who's Your "Guy" - A Broker? An Insurance Agent? Or a Financial Planner?

We are all called Financial Advisors… for now. 

The SEC is proposing restrictions on the use of "Financial Advisor" for brokers and insurance agents.

Why do they care?  Why should you care?

Because brokers and insurance agents are salespeople.   And while there is nothing wrong with salespeople, an informed client is an empowered client.  If you are dealing with a salesperson, you should know you are dealing with a salesperson. 

Here's why:

I'm at brunch with friends and the soon-to-be-dad lamented that he needs to finish his life insurance application.  The already-dad mentioned how cheap and easy term life insurance is.   Knowing I'm a financial planner, he then leans over to me and says, "I also bought a little whole life insurance."   Without even looking up, I said "Northwestern Mutual?".   "Yup" was all he responded. 

A little background is needed:  99% of financial planners do NOT recommend whole life insurance for young clients.  It's expensive insurance, a lousy investment and totally inappropriate for young clients.   Term life insurance is cheap and appropriate and the only life insurance a young family needs.  

So why did my friend's "Financial Advisor" at Northwestern Mutual - an insurance company - "recommend" a whole life insurance policy? 

Well, duh.   BECAUSE HE'S AN INSURANCE AGENT!  His job is literally to sell insurance. 

But his business card doesn't say "Insurance Salesman".   It says "Financial Advisor". 

Do you think if my friend saw "Insurance Salesman" instead of "Financial Advisor" on this guy's business card he would have bought a whole life policy he doesn't need?  

Probably not.

And that's just one anecdote of many.

Cross your fingers that the SEC passes this proposition.    It should be perfectly clear if you are working with a broker, an insurance agent, or an actual financial planner. 

The Wisdom of Warren Buffet

After the Berkshire Hathaway shareholders' meeting last weekend, CNBC interviewed Warren Buffet, Charlie Munger and Bill Gates this past Monday. 

Here are some valuable takeaways.

On buy-and-hold, low-cost, index investing:

…this time I went back to 1942 when I bought my first stock as an illustration of all the things that have happened since 1942. We have had 14 presidents. 7 Republicans. 7 Democrats. We have had world wars, 9/11, Cuban Missile Crisis. We have had all kinds of things. The best single thing you could have done on March 11th, 1942 is buy an index fund and never look at a headline... If you put $10,000 in an index fund that reinvested dividends… It would come to $51 million now.
— Warren Buffet

On "investing" in Bitcoin vs. stocks:

“When we buy a business [buy stocks or stock index funds]…we are buying something that at the end of the period we not only have what we bought in the first place but we have something that the asset produced. When you buy non-productive assets [like Bitcoin] — all you’re counting on is whether the next person is going to pay you more because they’re even more excited about it. But the asset itself is creating nothing. 
— Warren Buffet

Rick's note: This can be applied to any commodity - oil, natural gas, gold, silver, pork bellies…or GASP!…your house.   Don't "invest" in something that's only potential return is the next guy paying more for it.  Invest in things that produce - like companies in the form of stocks or stock index funds.

More on Bitcoin: 

And—it’s better if they don’t understand it. That’s the other thing about non-product— if you don’t understand it you get much more excited than if you understand it.
— Warren Buffet

Rick's note:  That thing you heard about that's too good to be true?  Educate yourself and truly understand it before you buy into it. 

On the company you keep: 

It’s very important in life to associate with people that are better than you are. It’s the most important decision — you will go in the direction of the people that you associate with.
— Warren Buffet

Rick's note: Amen.

 

Lastly, some reading recommendations from Warren and Bill:

Warren Buffet recommended: The Intelligent Investor by Benjamin Graham
Bill Gates recommended: Factfullness by Hans Rosling
Both recommended: Enlightenment Now by Steven Pinker

2 Year Anniversary

Young, bootstrapped small businesses eventually become a victim of their own success.  The business outgrows the business owner and he can no longer "do it all".  It's time to hire some help. 

This week marks the 2 year anniversary of The Financial Zen Group (can you believe it!?).   That feels like an appropriate time to legitimize the "Group" in The Financial Zen Group.  

James Carnahan starts this week.   He's part of a husband and wife team who have provided virtual assistant services exclusively for financial planners for over 25 years - check em out here.

He will handle all of our administrative tasks - paperwork, transfers and meeting prep/follow up to start with.   And because he only works with financial planners, he already know all the technology that we use which means he'll add value immediately.

This will allow me to spend more of my time doing the important stuff - talking to clients and  developing and implementing financial plans. 

You can reach James at (330) 310-3826 and james.carnahan@financialzen.com

The Wisdom of Rip Van Winkle

Did you know… on average, since 1900 there has been a market correction of 10% annually?  

Yes, ANNUALLY.  

Every year the market is down 10% at some point between January 1st and December 31st. 

And 5% corrections happen 3 times per year on average.

The markets had a 10% correction back in January-February.   But only after shooting up 6%.  

Up 6% - down 10% - for a net of -4%.  All inside of 6 weeks.   If you squint real hard, you can see that as a 10% correction.

Cool.  We're average!

But then we recovered 3.5%.  And now we're down -0.55% for 2018. 

If you had Rip Van Winkled it since January 1st and woke up to see your portfolio down 0.55%, would you Chicken Little it the rest of the year worrying about the 5% corrections yet to come?

Or would you just go back to sleep?

Own the Racetrack

Last week, the investment quilt taught us that chasing returns is a great way to slice your long-term return in half.   Buying and selling based on last year's… last month's… last week's returns is a surefire way to buy high and sell low.

And so we buy and hold…. and then hold some more. 

But what do we buy and then hold?   A diversified portfolio.

The "Asset Alloc." in the white boxes stand for Asset Allocation - aka a diversified portfolio.   Notice how it's never the best and never the worst.  A diversified portfolio loves the middle way (points if you picked up that zen reference.)

And because we know it will be in the middle over time, there's no anxiety about what to do.   We don't need to worry if NOW is the best time to buy or sell something.   

We don’t' need to worry if we picked the right horse because we own the whole race track. 

Investment Quilt.png

The Investment Quilt

Colors!  Pretty!!!

Investment Quilt.png

Each colored square is an ingredient in your investment stew.  If you're a client of The Financial Zen Group, most of these ingredients are in your portfolio.

The ingredients are sorted from top to bottom.  The best performing ingredients are at the top.  The worst are at the bottom. 

Look at the first column, for example.  In 2003 "EM Equity" aka Emerging Markets was the best ingredient.  It had a 56.3% return in 2003.   

The worst ingredient in 2003 was cash.   Cash only earned you 1%.

Make sense?

One of the many things the "Investment Quilt" teaches us is that past performance is a lousy indicator of future results.  Therefore you should not "chase returns" by getting in and out of the market based on what it just did. 

Follow emerging markets from year to year. 

It's either the best or the worst.  And it's usually the worst right after it was the best. 

If Wall Street has fooled you into thinking market timing works, then you'll probably invest after it was the best, just in time for it to be the worst.   And then sell it after it was the worst, right before it's the best. 

In other words, buying and selling at exactly the wrong times.  Studies confirm this happens consistently.  The average investor gets half of the market returns because they are always buying and selling at the wrong time. 

The solution?  Never sell.  Buy and hold and then hold some more.  We know the market's long-term return is 10%.  That's pretty darn good.  Why would you mess with that? 

We Make It Look Easy

There once was a man who had a squeaky hardwood floor. 

For months and months he tried to fix it.   But for the life of him he couldn't get the floor to stop squeaking. 

So he finally called a carpenter.

The carpenter came in, looked at the floor for a few minutes, took out one nail, hammered the nail into the floor and left.

Sure enough, the floor was fixed.  It didn't make a peep after that.

A week later the man received the bill in the mail.  It was for $200.   He was surprised that a few minutes of looking around and one nail cost $200.  So he called the carpenter asking for a detailed invoice. 

A week later the invoice arrived.  It read:

One nail……… $1
Knowing where to hammer the nail…. $199

The professional always makes it look easy because she knows exactly what to do.  But she only knows exactly what to do because she spent thousands and thousands of hours trying everything else first. 

Do you have thousands of hours to try everything else first? 

Run for the Hills...Again!

Editor's Note (doesn't that sound fancy?):  The universe really wanted to drive this lesson home.  As if on cue, between writing this last week and publishing it this week the market bounced back nearly 3% in just two days. 

The market dropped 6% last week.  EEEEKKKK!!!!!

Hope your bomb shelter's stocked up on shotgun shells and canned goods because we are running for the hills…again!

Surely we should worry this time, right? 

Only the smartest people read my newsletters, so I know you already know the answer.  Of course not.

Pictures are fun.  Below is a picture of market returns since 1980.  The gray bar is the total return for the year.  The red dot is the lowest point it reached that year.

S&P 500 Market Returns.png

Look at 1980.  At some point between January 1, 1980 and December 31, 1980, the market was down 17%.   Oh  noooooooo!!!!!

But wait.  

By the stroke of midnight on New Year's Eve, it was up 26% for the year!  Woohoo! 

It bounced back 43% from the lows that year.  That's one helluva year!  

All those people who dove into their bomb shelters when it was down 17% actually had nothing to worry about.   

And I bet you dollars to donuts before they dove for cover, they sold all their investments "before it got worse."  

Then I'll double down and bet they missed out on some - if not all - of the recovery because they were too scared to "get back in."  

So not only did they not bring in the New Year with 26% more money than they had a year before, but they were probably down 17% because they sold everything at the bottom and never got back in. 

As our Commander-in-Chief would say - SAD!

The lesson is simple.  Whatever is happening at this moment has ZERO predictive power over what will happen in the next moment.  

I'm sure when the market was down 17% in 1980 no one was saying "I bet it recovers 43% and finishes the year up 26%."  NO. ONE.

So what should we do?  Go to work.  Spend time with our friends and family.  Enjoy our lives. 

After all, we've seen this movie before.  We know how it ends.  If you're patient and give it enough time, it always has a happy ending.

Buyer Beware

Caveat Emptor.    Buyer beware.

If someone's job title contains the word "Advisor," you would think they'd be required to give you good advice.   Or at least advice they BELIEVE is good advice. 

It's so obvious everyone assume that's how it works. 

It doesn’t.

If your "Financial Advisor" works for a large Wall St firm or insurance company - Wells Fargo Advisors, Morgan Stanley, Merrill Lynch, Ameriprise, Northwestern Mutual, AXA, etc. -  he is NOT legally required to advise you in your best interest. 

Let's say Mutual Fund XYZ sucks.  And your "financial advisor" knows it.  But XYZ pays a big, fat commission that will help him win a company sales contest.  So your "advisor" recommends you buy it anyways.   That's totally okay in the eyes of the law.

Caveat emptor.  It's up to YOU to figure out that it sucks and he's trying to win a sales contest.

Good luck!

The Dept of Labor tried to change this.  They created the Fiduciary Rule which would require "advisors" at big brokerage & insurance companies to act like independent financial planners who are legally required to put their clients' interests above their own. 

It was supposed to become law last year.  Then it was delayed.  And last week it all but died.  The 5th Circuit Court of Appeals decided investors should fend for themselves

Buyer beware. 

Only fiduciary financial planners are legally required to put your interests above their own.  And only fiduciary financial planners are required to file a form called an "ADV Part 2" with the SEC each year. 

So if you don't want to figure out if XYZ is great or your guy is trying to win his sales contest, just ask to see their ADV Part 2.  If he doesn't have one, move on.

Here's mine.