Category Archives: Investment Planning

2013 Garrett Planning Network Retreat

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The Garrett Planning Network 13th Annual Retreat was recently held in Kansas City, Missouri. I am a member of the Garrett Planning Network. It is a group of about 300 financial planners that offer financial planning on an hourly basis, each member owns their own firm. I have written about the Garrett Planning Network before.

I attended the conference and earned continuing education credits by going to various educational programs, which I need so that I can keep my designations and licenses such as:

  • CERTIFIED FINANCIAL PLANNER™
  • CHARTERED RETIREMENT PLANNING COUNSELOR℠
  • NAPFA Registered Financial Advisor

During the four day conference I attended various educational programs such as:

  • State of the Industry
  • The 7Twelve Portfolio: A Better Balanced Portfolio
  • Long Term Care Planning – Past Present Future
  • Estate Planning Update
  • And others

Ron Rhoades, JD, CFP ®  of ScholarFi, Inc., gave one of the Keynote addresses on the state of the Industry:  Will Fiduciary Duties be expanded – by the DOL or the SEC? In the fast-paced presentation, professor Rhoades covered various trends about the CFP Board, marketing of financial services and future effective business models.

Craig L. Israelsen, Ph.D. gave a keynote address on the 7Twelve Portfolio: A Better Balanced Portfolio. Laurence B. Siegel, another keynote speaker, spoke on Wake up and Smell the Coffee! Investors are Poorly Prepared for Retirement – A Balance Sheet Solution.

Throughout the year, the Garrett Planning Network, has three or four conference calls each month.  One of the most beneficial outcomes of my annual trip to this retreat, is getting together with this group in person. On Thursday I was with a group of Garrett Planning Network members and Sheryl Garrett as Sheryl rang the closing bell at the BATS Global Markets stock exchange, the third largest exchange in the world. We took a tour of the exchange.  It was inspiring to learn about the volume of trades that goes through there.

Another a highlight for me, is that I met Gail Marks Jarvis and she signed a copy of her new book for me. She is a very knowledgeable journalist for the Chicago Tribune and really roots for the consumer.  One discussion point that really connected with me was something she mentioned at the book signing table.  She talked about the fact that investors do not care about percentages they care about dollars.  Their dollars.  I agree wholeheartedly.  It is something that I have kept in mind for years when I talk with someone about what allocation model is best for them.

Garrett Planning Network is a terrific group of professional financial planners who, like me, work with clients on an hourly basis.  We share ideas and act as a resource for each other all year, so it is so nice to get together once a year and see each other again.

Financial Resolutions

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I believe that just about everyone has some sort of financially related To Do item sitting on their To Do list.  And they have every intention of taking care of it.  However, so many other more time critical things seem to keep the financial items from getting to the top spot of the list.

If you are going to resolve to get some of your financial To Dos To Done, what actually matters – how it got done or that it got done?  I will come back to that thought in a minute.

When people come to see me they have accumulated a list of tasks, and it is so easy to see how  that happens in our busy lives.

You take a new job – a nice jump up the career ladder.  Something needs to be done with that old 401(k).  But what?   You’re busy with the new job right now.   So you put it on The To Do List.

Your income is higher now with the new job, should you have more life insurance?  Or is the life insurance at work enough?  You did buy some whole life from that guy that came to the house when you first got married.  Is that still the right policy for you or not?  So you put that on The To Do List.

Your kids are getting older, and you haven’t saved as much as you had intended for college.  How much can you afford to put away for their college vs. how much should you be saving for our own retirement?  Well, the kids are in middle school, you have a couple more years, so you put it on The To Do List.

At work they keep changing your investment choices and you don’t know what to pick.  You don’t have the tools to see all of your investments together and create a diversified portfolio that incorporates all of your accounts, but you know that you need to do it one day.  But you don’t have the time right now.  So you put that on The To Do List.

Sometimes when potential clients meet with me in the free Get Acquainted meeting they tell me that they feel bad about not taking care of these things themselves.  I stress to them, that I do not want them to feel that way.  I tell them that when I have electrical problems at the house, I call an electrician.  And when I have serious plumbing problems I call a plumber.  I have had a handy man come to the house a few times to work though lists of little things that were annoyances.  Sometimes you call in a professional to help you with your list.  And it feels great to work on that list.

So if you are making a resolution to get your financial To Do items To Done, make a plan to either do them yourself, or to contact a professional to help you do them.  Because when you mark them off the list, what actually matters – how it got done, or that it got done?

Resolve to take action today!

Have a Wonderful New Year!

Modern Portfolio Theory revisited

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Yesterday morning I attended the St. Louis Chapter of the Financial Planning Association meeting to hear a presentation titled “Modern Portfolio Theory 2.0.”  It was excellent, no surprise, because it was presented by Michael Kitces  MSFS, MTAX, CFP®, CLU, ChFC, RHU, REBC, CASL whom I often describe as a “walking brain” when discussing him with peers.  He is also the author of a reference book I own, and to which I often refer.

Michael came in from the Washington DC area to share his research on market and economic history, the accompanying signals and data, and what it has told us about subsequent market performance.  He also had ideas for how this information could be layered on top of Modern Portfolio Theory in a tactical way to mitigate some risk in client portfolios.

Modern Portfolio Theory

In the 1950’s, Dr. Harry Markowitz pioneered the idea of considering your investment portfolio as a whole unit, rather than as individual securities, when measuring risk and expected return.   He determined mathematically, that you could put investments in the portfolio that had a bit more risk (more volatility) and yet create less volatility in the portfolio as a whole.

This reduction in volatility was accomplished by having investments that were not completely correlated, meaning they did not move in tandem.  So when one investment zigs another one zags.  In effect, when you have multiple investments moving in different amounts of up and down directions at different times, it creates a smoother path overall.

There are different steps involved in implementing Modern Portfolio Theory.  I gave a “plain English” version of the Asset Allocation step in my blog post “Peter Cottontail Makes A Lousy Investment Advisor!” which explains the reasons for diversification and rebalancing a portfolio.

Modern Portfolio 2.0

In his presentation Michael pointed out three factors that make following Modern Portfolio Theory, without any adjustment, challenging.

  1. Returns – they seem to vary for an extended period of time
  2. Standard Deviation – there are distinct high and low volatility periods
  3. Correlations – became close to 1 during the recent crisis

He shared with us different valuation data points, macroeconomic information, and technical trend analysis information to evaluate when considering adjustments to Modern Portfolio Theory inputs.

I have seen Michael speak on similar topics and can see that his research is expanding, he shared more data points and ideas for implementation than in the past.  I look forward to seeing where the research leads.

Michele Clark in the News: US News and World Report

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I was interviewed by US News and World Report recently about 401(k)s.  My thoughts appeared in an article on their website this week entitled “10 Strategies to Maximize Your 401(k) Balance.”

When Emily Brandon from US News and World Report called me I shared with her an idea for making it easier to save more in your 401(k), and we talked a bit about the new fee disclosure rules in 401(k)s and what that means for employees.  We also talked about the importance of adjusting your investment portfolio as you get closer to retirement.

If you would like to read the results of our conversation, and how she interwove it with the conversation she had with two other advisors, you can read the article here: 10 Strategies to Maximize Your 401(k) Balance.

Annuity Planning Tax Traps

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St Louis FPA meeting

This week I attended the St Louis Chapter of the Financial Planning Association meeting at which John Olsen, CLU, ChFC, AEP gave two presentations Tax Traps in Annuity Planning and Index Annuities: Looking Under the Hood.  John serves as an expert witness in the area of annuity contracts, and is an author of books and articles.  He co-authored a book, with Michel Kitces, MSFS, CFP©, CLU, CHFC, to which I often refer; The Annuity Advisor.  It has been a helpful resource because many new clients come to me with existing annuities, and every annuity contract is different.

Annuity ownership

One of the biggest take-aways that I gleaned from the session was to pay careful attention to the titling of the annuity, who owns it, who is the annuitant, and who is the beneficiary, not only to make sure that client’s wishes will be followed upon their passing, but because of the potential tax ramifications.  John shared many examples of instances where client wishes were not met, and some that had negative tax consequences.  Especially important is who’s death triggers the benefit, and to check with the issuing insurance company to see how they handle a situation when the owner and annuitant are different.  He gave examples of how different insurance companies handle the same situation in different ways.

If the owner and annuitant are the same, generally things are more straight forward, if they are different, you want to check with your insurance company to see how they handle the death of either and make sure that it follows you wishes.