Investment Management

Getting On The Same Page: Investing With Your Spouse

When couples are on the same investment strategy page, it will help avoid some of the following situations.Are we speaking a different language?

Financial experts, thought leaders, and academics have written extensively about the role gender plays in investment styles, and the innate differences can be a source of conflict during financial planning.

Studies generally agree women feel less confident about investing, and prefer to keep more cash assets, while men can be overconfident, preferring to make more trades – with either style, a singular approach often adversely affects long-term returns.

Successful long-term investment strategies can be especially challenging to implement when a couple can’t agree on what to do with their nest egg – or when one investment style dominates to the detriment of the couple’s finances.

As an advisor, facilitating communication and building consensus between clients is so important. Being on the same investment strategy page will help avoid some of the following situations:

Over-Invested in One Asset Class

Pam and Kevin* were confident they had enough money to retire, and happily sold their high-priced home in the San Francisco Bay Area, relocating to a lower cost area in the Southwest. Kevin was a do-it-yourself investor and prided himself on growing the couple’s retirement savings. Pam was happy to let her husband handle the investments, and focused on managing the household finances.

For the first few retirement years the outgoing couple thoroughly enjoyed life without work, getting involved with the local community and volunteer opportunities, and taking full advantage of their newly free time. However, when oil prices plunged in 2015, so did the value of their investments.

Since 2009, Kevin had invested the majority of their savings in Master Limited Partnership (MLP) funds that invested in companies in the oil and gas industry. He was not alone – between 2010 and 2014, $44 billion flowed into these MLP Funds, primarily for their high dividend pay-out, but also to enjoy the growth of the oil and gas industry in the U.S. In 2015 the price of U.S.-traded crude oil declined 30%, but the shares of MLP’s fell over 44%.

The devastating loss in the value of their investment portfolio prompted Kevin and Pam to reenter the job market – they realized it was no longer sustainable to withdraw from their investments for living expenses. Retirement looks very different to them now, but they are recalibrating, and dealing with changed circumstances as best they can.

Trying to Time the Market

Ann and Paul* both worked for Silicon Valley technology companies for many years and saved enough to fund substantial IRA’s for retirement, and a good amount in taxable savings, as well. During the 2007-2009 recession Paul pulled all his money out of the market, and has kept it in cash. Ann recently rolled over her 401(k) to an IRA, and on Paul’s advice has kept that money invested in cash.

Because Ann and Paul have always kept their assets separate, Ann is now withdrawing from her IRA early (before Required Minimum Distributions begin at age 70 1/2) to pay expenses. She is very concerned because there is no growth in her IRA, and she sees the balance declining. Paul insists that it isn’t the right time to invest in stocks and bonds, and is convinced there is a huge market crash coming. Ann, however, understands asset allocation and diversification, and believes in investing for the long haul. The problem is, she can’t get Paul to see it her way, and she is hesitant to rock the boat.

What can be learned from these two couples, and their financial challenges (and opportunities)?

Although men and women may have innately different investment styles as evidenced by the stories above, when differing strategies come together they can create a strong complementary approach. As with every ‘battle of the sexes’ difference, communication is key.

If Pam had been more involved in decisions about how the couple’s money was invested, she may have urged Kevin to take a more balanced approach. In Paul and Ann’s case, her long-term outlook could have helped temper Paul’s urge to control things, and time the market.

If consensus isn’t possible, I would suggest the couple agrees to have each person invest a portion of their money individually – especially when the investments involve separate funds such as IRA’s or investment accounts. In the cases I reference, it would be the responsibility of Pam and Ann to educate themselves about different options, and to use that knowledge to make confident investment decisions.

In many cases, couples at odds over investment styles choose to go it alone – without the guidance of a professional advisor to help them find a middle ground.

My advice?

Having a portion of an investment portfolio invested in a balanced way is better than none at all.

And, of course, gender differences may not apply to all couples – every individual approaches investment decisions in their own unique way. Consider your own investing style — it might be the first step in open conversation with your partner about long-term financial goals.

*Names have been changed.

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NoBody Knows – And That is Why You Diversify

The Sun Tarot card

the sun tarot– Nobody knew that the yield on the 10 year Treasury would keep going down. – Nobody knew that the price of a barrel of oil would drop by 55%. – Nobody knew the Russian ruble would crash. – Nobody knew that Japan would dip into a technical recession. – Nobody knew that Europe’s tentative recovery would falter and fail. And this week, nobody knew, including Christine LaGarde, the director of the International Monetary Fund, that Switzerland was going to un-peg the Swiss Franc from the Euro. These are just a few of the surprises that happened in the last year that even the most experienced investors didn’t predict. These unexpected events can have either a positive or negative effect on stock and bond markets worldwide. Unexpected events like these are also why most investment professionals, including me, espouse the mantra of diversification. You’ve probably read about diversification in your employee benefits package when signing up for your 401 (k) or from reading investment articles or from your financial advisor. Diversification is what it sounds like – an investment strategy that combines a variety of investments (both U.S. and international, a mix of small and large cap stocks, and a variety of bonds) designed to reduce exposure to risk. However, diversification doesn’t just reduce the downside potential it also reduces the upside potential, in the end, hopefully providing a smoother portfolio trajectory. You might say, what?, why would I want to invest in a strategy that reduces the upside potential? Well, if you knew anyone that bailed out of stocks in 2008 or early 2009 and never reinvested, you will know the answer to that question. A portfolio with 100% invested in the S&P 500 in 2008 lost 37%, and if it had a good dose of large technology stocks even more (the NASDAQ Composite was down 41%). That unfortunate time in stock market history scared off a lot of seasoned and unseasoned investors. If instead, that 2008 portfolio was diversified with a dose of bonds in it, the loss would have been less and the investor, more likely to stay in the market. Which is the point – less volatility is more likely to keep a person invested for the long haul. In 2014, the more diversified your portfolio was, the less closely it would have matched the returns of the S&P 500, which was up 13.69%. The S&P 500 is the index along with the Dow Jones Industrial Average, (up 7.52% in 2014) most often quoted in the media. Below are the 2014 returns of various indexes representing the broader asset classes and geographic areas you would find in a diversified portfolio: REITS (Real Estate Stocks)                 28.0% Inter.Term Bonds                                5.97% US Small Cap Stocks                           4.90% Global Stocks (includes US)                4.0% Hi-Yield Bonds                                    2.46% Emerging Markets Stocks                  -1.8% International Stocks                           -4.90% Global Diversified Bonds                   -5.72% Europe Stocks                                     -7.10% Pacific Stocks                                      -7.10% Commodities(includes oil&gas)        -17.01% Russia Stocks                                       -44.9% As you can see, the returns were all over the map, and mostly down. It was not a great year to invest internationally and definitely not in energy stocks. But nobody could predict that going into 2014, in fact, back then it the world looked like it was poised for synchronized global growth. If you were in a diversified portfolio, you had another decent year, maybe nothing to jump up and down on the bed about, but decent. And, the good thing about decent years, even single digit ones, is that they add up over time. ——————– For additional food for thought on this topic, the attached charts illustrate the randomness of asset class and sector return year by year. Please note that the “AA” or Asset Allocator portfolio was created by and is for illustration purposes only. asset class returns s&P 500 sector returns

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Cultivating a Healthy Relationship with Money

Cultivating a healthy relationship with money is the foundation of a rich and happy life. Just like any other relationship, for your money to prosper and grow, it needs attention and care.

You don’t want to smother it with worry and fear, but you also don’t want to be neglectful. You need to get to know it, love it, and not be afraid to let it go, if you strike the right balance, it will always be there for you.

A little understanding goes a long way in our relationships, and it’s the same for money.The first step to understanding money is to figure out how much you need to live your life the way you want.

You can spend your whole life pursuing more money, or you can figure out what it takes to live and be happy. Money is a tool to fund your life – when you think about money as a tool, it’s easier to plan.

How much do you need?

How much money do you need to meet your financial obligations and commitments: the mortgage, the rent, your other fixed bills, your medical insurance, your kid’s education? How much is an important number because you if you can’t afford your basic lifestyle, life becomes one big worry about money.

Next comes regular saving. This step is hard. It trips many people up. It usually involves delayed gratification, and we don’t like that. It also involves investing. Investing can seem scary and complicated. But we must save for the things or experiences we want soon and in the future, and we must invest or our money will lose value due to inflation.

Retirement is the most daunting savings need of all because it involves large numbers and lots of assumptions – assumptions regarding our longevity, health, returns on investment, interest rates, to name a few. For most of us, social security is the only source of income we will have in retirement besides our savings. For this reason, saving at least 10% of income each year and more if behind is critical.

After you understand how much money you need to cover your emergency fund, your necessary expenses and your retirement savings, then you can focus on what else you want to create a rich and happy life. A healthy relationship with money means knowing that you can’t have everything. Instead, you figure out what in life brings you the most joy and satisfaction, and you prioritize those things.

You will know you have achieved a healthy relationship with money when you worry less about it and start feeling good about how you are spending and saving it. Get started working on this most important relationship now for a happier future.

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Interesting Financial Blogs – Really!

Woman reading a blog on her iPad

Woman reading a blog on her iPadWhen I get an extra hour in a day, I like to go on-line and read my favorite financial blogs. Not only do they keep me up-to-date on business news, but I always learn something that I can use in my life or share with clients. I have a feeling that this pastime is not shared with many (other than my financial advisor friends) but I do know that we all want to be smarter about our money. Be honest – how many of you made a New Year’s resolution that had something to do with your finances?

The following is a list of blogs that I promise, will inform but not bore. After all, money really can be quite interesting.

The BillFold is not your typical money blog. It’s about ordinary people and situations and it can be both silly and serious. Each post is related to money in some way, it just isn’t always obvious.  In the editors own words “We are a site about money. We are interested in people’s lives and how funds make those lives awesome and not so awesome.”

I enjoy The Business Insider finance blog, called Clusterstock because it not only reports and analyzes business news but it acts as an aggregator of the top news stories from around the web. It can be your one-stop shop for financial news.

Every year we read news stories about the World Economic Forum that is held in Davos, Switzerland where business, political, academic and other leaders gather to shape agendas for a better world. This same organization supports a blog on its website that is full of interesting articles about global economics.

Each business day I receive an email from The Seeking Alpha blog called Wall Street Breakfast-Must-Know News. It summarizes the top stock market and economic news and provides a link to the full article if I choose to read more. I find it to be an incredibly efficient way to stay on top of financial news.

Happy New Year!

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A Financial English Primer

Call it “finglish,” or financial English. Financial and economic terms dominate the news nowadays, amid talk of fiscal cliffs and eurozone troubles. Plus, new financial terms crop up all the time for a new product or strategy, like quantitative easing.

Since the news is particularly ripe with financial terms right now, it is a great time for us to learn some common finance terms. Some finglish terms are often confused and used improperly in the media. Hopefully, this will increase your financial knowledge, help you to understand the key issues we’re facing and communicate better with your financial advisor.

Six Finglish Terms You Should Know

Federal budget deficit. This term is in the news constantly and for good reason—the deficit is huge, at $1.1 trillion. This means that the federal government is spending $1.1 trillion more than it is earning in revenues over a year. Why? Because entitlement spending, interest paid on the national debt and defense spending are much greater than revenue from taxes. And when the economy is weak, as it is now, tax collections are down.

National debt. A lot of people confuse the debt and the deficit. The amount of gross federal debt outstanding is a difficult-to-imagine $16.2 trillion. The national debt increases or decreases based on the annual federal budget deficit or surplus. But a surplus has not been seen since 2003 and the deficit is now growing at a rate of almost $1 trillion a year. Together with the budget deficit, this debt was one of the reasons Standard & Poor’s gave when downgrading the United States’ credit rating last summer.

Entitlement spending. This refers to Social Security, Medicare and Medicaid outlays by the government. Though we pay into this system during our working years, with rising costs of healthcare and longer lives, much more goes out than comes in. Our country’s leaders know that entitlement spending has got to be reformed to fix the debt problem. But it’s a political minefield, and a divided post-election government will make change difficult.

Debt ceiling. The federal government is limited by law on the total amount of debt it issues. This limit is known as the debt ceiling. Currently, the debt ceiling is $16.4 trillion, an amount that we will exceed in early 2013. Fortunately, the government can continue to operate and pay its obligations through various accounting mechanisms and Congress will mostly likely vote to increase the ceiling.

Quantitative easing (QE). This is a weapon in the Federal Reserve’s arsenal to help the country out of a recession when all else fails. This is sometimes referred to as “printing money,” but this term is misleading since very few new paper bills are issued and the Treasury prints currency anyway, not the Fed. The Fed tends to use QE when it has lowered interest rates to close to 0% and the economy doesn’t improve. Quantitative easing increases the money supply by flooding banks and other financial institutions with capital through the Fed’s asset purchases in an effort to promote increased lending and liquidity.

The Fed announced the third round of QE on Sepember. 13, 2012. Each month, for as long as it takes, the Fed will buy $40 billion in bonds and mortgage-backed securities, and keep rates close to zero until 2015. Many economists are concerned that open-ended asset purchases could lead to inflation, as there is still a fixed amount of goods for sale (too much money chasing too few goods leads to higher prices).

Yield Curve. When the Fed expands the money supply, it intends to spur borrowing by lowering interest rates further out on the yield curve. The yield curve is basically a chart showing borrowing costs for bonds of different maturities.

Naturally, longer maturities of 10 to 30 years come with higher interest rates to compensate the lender (the bond holder) for parting with that money for a longer time. Short-term debt usually carries a lower interest rate. By driving down long-term borrowing costs, the Fed hopes to encourage businesses to borrow more so they can invest and hire people.

Becoming a Better Informed Investor

The list above is only the tip of the iceberg when it comes to finglish. There are many others terms that you should be familiar with. Getting used to financial terms makes you a more empowered investor and a more informed citizen. Don’t let seemingly arcane vocabulary turn you away from investing and pursuing your financial future.

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Stock Market Volatility Doesn’t Imply Direction of the Stock Market – It’s The Price We Pay for a Higher Return

Stocks, Bonds, Bills and Inflation

Stock market volatility doesn’t imply direction of the stock market – it’s the price we pay for a higher return. Repeat this phrase to yourself whenever you feel anxiety overcoming logic and you’re tempted to sell your stocks into cash. After you calm down, take time to review your portfolio to determine whether it’s allocated in alignment with your risk tolerance and your need for return on investment (ROI).

Risk Tolerance
To simplify the concept of risk tolerance, think of it as measuring how much volatility you can stand before you want to cash out. The riskier an investment is = the higher the return potential = the higher the volatility. “OK,” you say, “I can’t stand any volatility so I plan to sell all my stocks and transfer the proceeds to my savings account.”

Stop there. It’s not quite so easy. And repeat: “Stock market volatility doesn’t imply direction of the stock market – it’s the price we pay for a higher return.”

Return on Investment
Most of us invest because we want our money to grow. We want it to outpace inflation, to fund our key financial goals and to enable us to maintain our lifestyle in retirement. To understand how much ROI you need (and consequently how much volatility you will need to withstand) a few numbers are critical to know: How much you have now; how much you can add in the future; how much you will need in the future; and when you will need it.

If you are young and have many years ahead to save and invest, or if you have been a disciplined saver and investor, you may not need as high an ROI to reach your goals. If the volatility of the markets gets to you, you can rebalance into a lower-risk, lower-volatility portfolio. (This is accomplished by increasing your allocation to bonds or cash-like investments.) However, if you run the numbers and realize you have some catching up to do, seriously reconsider your desire to “run for the hills” and maintain an allocation to stocks.

Important Caveat
When determining your risk tolerance and need for ROI, keep in mind that the stock market isn’t the place to invest money in stocks that you’ll need in the short term (in 3–5 years). For example, retirees would be wise to keep 3–5 years of living expenses in very safe investments. A prospective new homeowner wouldn’t want to invest their down payment in stocks. In addition, it’s just smart to maintain an emergency fund of six months to a year’s worth of living expenses in cash-like investments.

The charts and statistics below illustrate the long-term return potential of stocks, bonds and cash.
Stocks, Bonds, Bills and Inflation

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Book Review: The Ten Trillion Dollar Gamble: The Coming Deficit Debacle and How To Invest Now

The Ten Trillion Dollar Gamble by Russ Koesterich

The Ten Trillion Dollar Gamble by Russ KoesterichU.S. federal deficits and the national debt are hot topics these days and for good reason. The federal deficit in 2010 was $1.3 trillion and the amount of gross federal debt outstanding (the national debt) is now $14 trillion. No one expects these to stop growing anytime soon.

Economists call the U.S. type of deficit a “structural deficit” because it isn’t temporary; the U.S.government habitually spends more than it takes in. Imagine if you ran your own personal finances this way. It would mean you spend more than you make each year and never pay your debt off—it just grows. Your creditors wouldn’t allow it and bankruptcy would surely be the outcome.

In The Ten Trillion Dollar Gamble: The Coming Deficit Debacle and How to Invest Now, Russ Koestrerich takes on this issue in straightforward prose that even a person unfamiliar with deficit economics can understand. In the first few chapters he explains the what, why and how of the U.S. deficit problem. He attributes the large and growing deficit to entitlement spending: revenue spent on Social Security, Medicare and Medicaid, compounded by our politician’s unwillingness to take action to reduce and control this spending. Koestrerich’s premise is that the largest pieces of the deficit pie, entitlement spending, along with the interest expense on existing bonds and defense spending, are politically untouchable. No politician wants to be voted out of a job.

Koestrerich concludes that the deficit isn’t going away and the result will be higher interest rates, slower economic growth and inflation.

In Chapter 2, Koestrerich explains why this matters to you—why slower growth, higher interest rates and inflation will dramatically affect the U.S. standard of living. As more government spending goes to paying interest on the debt, there will be less spending on more productive areas, such as job creation, education and infrastructure. Taxes will inevitably rise as a way to fund the deficit, hurting business and households alike. Higher deficits lead to higher interest rates on government debt which then extends to higher rates on consumer loans such as mortgages, auto and student loans. And in the worst outcome, inflation will start to rise, and each dollar will buy less goods and services, stretching already tight household budgets to a breaking point.

If you believe in Koestrerich’s worst case scenario, then Chapters 5 to 9 are for you.In them, he outlines investing strategies that can potentially protect your capital and make money in a deficit-run economy:


  • Reduce bond holdings, particularly U.S. Treasuries.
  • Focus your bond portfolio on shorter maturities.
  • Build bond ladders.
  • Raise allocation to municipal bonds.
  • Favor corporate bonds over government bonds.
  • Add international (including emerging market) bonds to your portfolio mix.
  • Add TIPS (if held to maturity).
  • If you need income, look to preferred and dividend paying stocks as bond substitutes.


  • Increase your exposure to stocks outside of the U.S.
  • Favor regions with better growth prospects and less debt, i.e. Canada, Australia, Germany, Hong Kong and Singapore.
  • Own stocks in countries that produce commodities, particularly energy, i.e. Canada and Australia.
  • Focus on U.S. companies that are large exporters of goods or services.
  • Give more weight in your portfolio to emerging markets, i.e. Brazil.
  • Overweight stocks that are more resilient to rising rates such as technology, energy and healthcare and own less in utilities, financial and consumer discretionary stocks.


  • Allocate a percentage of your portfolio to a broad commodity basket and gold.

Real Estate

  • Buying a larger home, a second home or some commercial property is a good strategy in the event of higher inflation, but buying REITS is not.

Koesterich does an excellent job of describing the ways to invest in these different asset classes and the book is a useful investment primer. He explains his recommendations in just enough detail and again, in prose that most investors can understand. I would recommend this book to anyone who wants to get a deeper understanding of our current economy and ways to invest, whether you believe we are on the road to a deficit debacle or not.

Note:  This book was provided to me free of cost by McGraw-Hill. Any investment strategies discussed above are not recommendations. Consult your financial advisor or conduct your own due diligence to ensure investments are appropriate for your risk tolerance and investment timeframes.

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