About Richard M. Rosso, CFP

I'm a money manager; a writer at heart. I love to observe the imperfections and dig into my own. On occasion, it's a bloody ordeal.

How To Survive a Retirement: The 3 Questions.

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In the AMC’s hit drama “The Walking Dead,” where the world is overrun by rotting corpses with a desire to feed on the living, there’s something even greater to fear.

The survivors.

negan two

Staying alive in a post-apocalyptic society appears to bring out the worst of what’s left of humanity. People are ruthless killers. Strength in numbers is the best defense, yet poses an interesting dilemma.

One wrong move, one bad decision, and you’re history.

Just like that.

Sometimes, overcoming the most complicated of challenges comes down to the obvious. Nothing’s perfect however complexity fosters confusion which can shift focus, divert your attention. And when your enemies, especially within, outnumber you, it’s only a matter of time before.

Well. You know (it isn’t good).

negan three

The good guys devised a simple screening method.

An initial shield to determine if strangers they encounter are worth entry into their community.

Three questions.

questions

Let’s see how you do. Will you pass or fail?

Are you team material?

Or are you best left alone to fend for yourself?

How many walkers (corpses with an appetite for the living), have you killed?

To safeguard others, a survivor must be willing to take out the undead (a shot or blow to the head does it). Plain and simple. If your zombie kills are minimal or non-existent there will be doubts about your contribution to the survival of the group.

How many people have you killed?

Unfortunately there are instances when tough decisions must be made for the sake of self-preservation.  Best the number of walkers taken out exceed the number of people otherwise you may become a victim yourself.

Why?

Tread carefully. The reasons for taking out the living best be because of personal survival. Or request. You see -There are sad instances when victims of zombie bites would rather die honorably, in their control, rather than expire from the disease they carry.

They would rather not wake up. Walk around.

zombies walking

As I ponder the power of simple questions, whether in fact or fiction, I have come to realize how most situations, no matter how serious, can be broken down to three questions you ask yourself or others ask you.

When it comes to preparing for retirement, there are so many differing rules, theories, planning tools –  in my mind I need to consider retirement similar to a zombie apocalypse.

Sort of puts things in perspective, doesn’t it?

If today, you could clear all the noise, reduce retirement planning to what concerns you the most, what you need to do to protect yourself – What three questions would you ask?

As I work with individuals to formulate personalized retirement strategies, three questions emerge consistently. As a matter of fact, it’s rare when one of these queries doesn’t arise.

Once you strip out the confusion, target the basics.

Focus comes down to three main concerns.

Random Thoughts:

A confident retirement comes down to the money coming in to a household.

Cash flow is everything.

Question #1: How much spendable income may I have on a monthly basis post-tax to keep me, or me and my spouse comfortable for 20 years? Simply put, how much can I have?

Why 20 years?

Let’s face it. The odds of becoming a centenarian are as slim as the dead coming back to life. OK, not that slim but infrequent enough to understand that age 100 shouldn’t be a default setting for retirement plans.

Everyone I counsel is asked to complete the thorough, thought-provoking life-expectancy calculator exercise at www.livingto100.com.  Eight out of ten outcomes come in between 80-85 years old. Women average longer life expectancies at 83-86 years old. Per calculator results, men rarely live past 84 years old.

Thought leader Dick Wagner and author of the new book “Financial Planning 3.0,” in a recent interview with the Journal of Financial Planning, stated “financial planning is very, very young as a profession. If you believe that 1969 was the first year for the profession, then we’re into our 47th year. That’s not very many years if you compare it to other authentic professions.”

So who are we as advisers to indiscriminately assume that retirees are going to live to 100? I’m not sure why I see this occur so often. Maybe it feels safe. Perhaps it’s CYA. Regardless, it’s inaccurate.

Candidly, even if the profession were a thousand years old, longevity analysis would remain a slim, educated guess at best. I am 100 percent certain however that establishing retirement income plans to conclude at age ‘unrealistic’ is an exercise in disappointment. People won’t adhere to goals, milestones they find impossible to achieve.

Please plan for reality. Not fiction. A reach to age 100 will most likely lead to unsuccessful plan outcomes. You won’t feel secure enough to retire or you’ll wait too long thus placing the quality of life in retirement, in jeopardy.

If you believe, based on family longevity and state of health, that there’s a great probability of living to 100, by all means, don’t ignore preparing for the possibility.

The topic is challenging and uncomfortable to discuss. It requires acknowledgement of our own humanity.

A seasoned adviser doesn’t overlook or dance around the topic of longevity. He or she should handle the conversation with grace and honesty. After all, we are all going to die (and hopefully not return to life like in The Walking Dead).

It’s something we all have in common. We don’t seem to like to think about it happening before age 100, especially when it comes to retirement planning.

In the same interview financial futurist Dick Wagner continues his thoughts on the financial planning profession:

“The mission and purpose of financial planning is to work with individuals and families and their personal relationships with money and the fearsome forces that it generates. There’s something about ‘fearsome forces’ – it’s terrifying. I mean, it’s a quintessential challenge of the 21st century: just try to survive with this money stuff. People do something that’s really hard, which is to anticipate their needs of the last 20-30 years of their lives. Now how do you do that? You have no idea what your health will be, you have no idea what your date of death is, you have no idea how long you can continue to earn a living.”

Financial planners deal with plenty of their own fearsome forces. One source of angst is to have straightforward, yet sensitive discussions; balance the thin line between a portfolio and human life because as Dick Warner lamented, there are plenty of unknowns.

Take it from me – we’re not fond of zombies in the planning process but they do exist.

Before you look to have a retirement plan completed, take it upon yourself to go through a life-expectancy calculator. Sit with the outcome for a while. Do the results make sense?

Once you’re at peace with the information, share it with your financial planner. Incorporate it into your analysis. You’ll both be in sync. You’ll tackle fearsome forces together. The synergy will lead to reasonable goals, follow up and fulfillment.

Question #2: Will Social Security be there for me?

The assumption that Social Security is a dying social program, regardless of the generation, runs pervasive. Don’t underestimate the importance of properly integrating Social Security into your retirement arsenal. For the majority of Americans, this is their sole income for life.

So, let’s clear up several misconceptions.

According to financial planning thought leader Michael Kitces in a recent voluminous Kitces Report on the topic, the Social Security system is often considered “going broke” by 2034. At that time it’s believed the Social Security trust fund will be exhausted.

Most planning clients have a difficulty believing the funds will last that long. Per the analysis, the majority of benefits will still be paid through tax revenues on workers paying payroll taxes at that time.

Social Security recipients usually receive Cost-Of-Living Adjustments each year. An added bonus to an income you cannot outlive is inflation protection. Unfortunately, COLA is not in the cards for 2016 (a rare occurrence), however overall, Social Security remains the best lifetime income deal available to the masses.

It’s best a retiree in good health plan to wait until at least full retirement age (66, or 67) or possibly later to apply for Social Security. By the time I’m consulted for formal retirement planning, many recipients have already applied for benefits early – at age 62, in fear of not being “grandfathered” into the system and losing future benefits.

Unfortunately, unless a household is cash-strapped or a recipient’s health is poor, there’s rarely a reason to apply for Social Security before full retirement age.

Starting early will have a lasting impact to monthly payouts. For example, a person with a full retirement age of 66 who started Social Security at age 62 would experience a permanent 25% annual reduction in benefits.

When I began my career in financial services during the great bull market of the 80s and 90s, the numbers worked out favorably for a Social Security recipient to apply for benefits early and invest the difference.

Since the year 2000, this strategy has been less effective. Over the last sixteen years I’ve witnessed improving life spans, people working longer and unattractive returns on investment assets, which has made Social Security a formidable hedge against longevity and adverse portfolio conditions.

In addition, Social Security has become a stealth, forced ‘savings’ program for a majority of households stressed to save for retirement in the face of rising college costs, financially caring for elderly parents and adult children, underwater mortgages and chronic underemployment.

For most recipients, waiting until age 70 to take advantage of an 8% delayed retirement credit is a smart strategy. In a majority of cases a retiree should seek to postpone Social Security, enjoy a permanent 8% bump in benefits, along with annual COLA (Cost-Of-Living-Adjustments).

Question #3: What should I be afraid of? I don’t really know.

This retirement game is unfamiliar territory. You’re outside the safe or familiar zone (which in The Walking Dead, is a dangerous place to be). Don’t be shy. Nothing is off limits. After all, this is a new experience. You’re not an expert (yet) at this next life phase.

Why not ask a tenured planner what you should fear? Better yet – ask friends and associates who have been retired – what did they find scary about this new world? What had they overlooked? What are the mistakes they’ve learned from? What were their greatest oversights?

There could be enemies hiding in plain sight (it’s tough to trust anyone in a world overrun by zombies), that may be overlooked because you’re too close to the situation.

Frequently I receive questions about fear in retirement. They usually have little to do with money. Ostensibly, information regarding Social Security, healthcare costs in retirement and other crucial topics, is widely available. A comprehensive retirement plan will cover all important financial concerns as well.

What’s difficult to find because a person needs to live it to learn it, is information on how emotionally challenging it is to navigate from the accumulation side of the household balance sheet to the distribution mindset – The new reality where a retiree must depend upon his or her assets to survive. Being outside the protective walls of a job or career is rarely discussed in financial planning circles.

From my experience, it takes at least a year for a retiree to gain comfort with a change in lifestyle, a satisfactory portfolio withdrawal rate, a new purpose for a life away from the office.

Never lose sight of the power of simple questions.

If they can keep the survivors of a zombie apocalypse alive.

Think about what they can do for you.

 

 

 

 

 

 

 

 

 

Watch For Dust People: 5 Lines Of Defense.

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“You don’t have to try to keep the tears back.

You couldn’t cry if you wanted to. You couldn’t cry if you wanted to.

Even your thoughts are dust.

Even your thoughts are dust.”

Lucinda Williams

The Dusters thrive among us.

In the misty whirlwind of false, trenchant phrases and gut-hemorrhaging head games you’ll be captured.

The haze created by the escape, their false feelings that conclude in emotional entrapment, will set the outer reaches of your soul ablaze like high velocity, ghost-pepper shots to the eyes.

The singed ends of nerves you never knew you had will explode in dry fire, like staccato firecrackers going off in a cloying sulfur-mist tethered by a humid summer sky.

The lies will choke off your oxygen.

Your capacity to think straight will evaporate.

You’ll feel yourself shrivel from the inside out.

shriveled man

Because you’re gagging on dry death. 

Helplessly falling into the cracks of the parched splintered arteries.

Ground into a foundation of splintered bones and pulverized hearts.

And you won’t. Even. Know. It.

By the time you get it, you’ll be dried out completely.

The hour, the minute, the month, the year you’re shaken from their lives.

As they move to the next dirt destination.

You’ll re-live each terrifying moment.

So you see.

Sadly, you must understand.

Fresh victims are plentiful.  Always close.  In the wings. Waiting to be dried and shaken while you’re stirred.

Before a Duster rolls down to a new pubic town (population YOU).

Before they release you to a wind that flows on apathy and stinks with the rot of deceit.

Another poor soul is near.

Unaware.

This group? Get to know who they are.

Society is overrun with them.

They feed on on others to build themselves. They fire up egos. Their own.

The Dusters.

Beware of them.

Let me show you the way.

Let me help you understand.

Allow me to help you avoid the dusters.

Because.

If you’re a victim?

****************************************

dust people two

                  You’re gone already. 

It’s called an expiration date and it’s on your head right from the get go.

Random Thoughts:

Dusters don’t feel remorse. Apathy. Or anything.  The antics, every thought they possess, is based on an end game first. the grand exit. They re-live the escape plan. The goal for them is to leave with more than they entered your life with. Their timing is perfect.

Right from the start you are in a burning house with the door padlocked shut.

Dried meat. Turned into a jerk(y).

Oh who knows what keeps them around, sometimes for years.

I rattle this around in my head every day.

Good sex, a sympathetic ear, a travel bud, shared business contacts, an image boost, outright free stuff, a paycheck for nothing, a friendship controlled for personal gain.

Who knows?

The Dusters are indeed a diverse bunch. The breed is a non-partisan feeder.

They come from all walks of life.

Frankly, they represent an epidemic. One that’s going to be around a while because the ongoing deterioration into a Tinder culture demands it. And I fear it’s just begun.

I fear there are more of them than us, now.

So the odds are they will come for you, too.

You’re gonna get dusted.

It’s just a matter of time. The day you’re shaken, swept out to the dustbin of the past.

Once Dusters have gotten what they need from you or something/someone else to play with, you are dust (dead) to them.

And if  you’re stupid or unfortunate enough to fall in love with a Duster, you’ll ignore the signs because nobody can be that evil, right?

Wrong.

So. So. Wrong.

Dust storm #1– Dusters create grandiose exit-preparation stories. It’s a first assault. An initial test of your resolve. It’s an attack on your sanity. A Duster wants to gauge the power of your commitment to stick with them long enough to be damaged. Because you see, it’s not a conscious effort to hurt.

It’s a part of who they are.

So, let me ask – How much can you handle?

Duster victims are steadfast suckers.

Others are smart and flee quick.

Who are you?

stop stop

Dusters swirl words into flirty-dirty demons that revolve around and within you. It’s a tactic designed to confuse a victim before the slaughter.

Since Dusters don’t trust their own actions, naturally they can’t trust yours. In addition, they have not completely shaken the packed-on remnants of past particles (which is interesting) because they abhor how some of their victims have moved on to healthy relationships.

How dare they???

dust_by_forgottenx

You can’t make Dusters feel bad because they can’t feel. Anything. People who can’t help them and those who have outlived their usefulness are swiftly discarded.

You’re an ash in a flash.

Their love is not permanent. Frankly, there’s no such thing as love (outside of self) for this cancerous spin-off of the species. Oh, they’ll say they love you, they’ll promise long term just to keep you in the storm, as they’re not quite done with your bloody carcass, yet.

It’s like that monster grizzly. You know – In the DiCaprio film “The Revenant.”

Just when you’re convinced he’s finished tearing out your neck, ripping open your back, dragging you like a puppy toy, THE BEAR RETURNS. THE MAULING RESUMES. NO MERCY.

Each lie, a claw to the face: They’ll be a friend forever (slash). They’re working for you (slash #2). They have your back (final gash). Actions prove different. Over and over again.

Love does not reside in their core. It’s not at home there. It dies before it’s able to breach the wall.

The warm fuzzies are icy-knife-ies.

The world is indeed their stage and you’re merely rolling across, stuck in it, used in it, then released from it.

dust world They’re comin’, they’re comin’!

Dust storm #2: Duster emotions are fleeting, float light on the breeze, subject to change in a blink. There’s nothing in the soul when it comes to feelings.

Remember – Duster’s are always on the move even when still, constantly searching for exits. Lusting for the water of another’s life because the newest victims are the juiciest!

It’s how they prosper. Duster victims are flesh commodities.

Dust a dozen.

There are so many choices, so many people they can dry out, it’s like a feeding frenzy.

“Harvest time, all the time,”is their motto.

And surprise!

Look who’s on the menu..

human menu

Dusters are ghosts, shells of humans with important stuff missing. People are nothing to them unless you have something they desire. When a Duster shakes you off, it’s done with rehearsed platitudes, false language of leaving they’ve recycled from the dusty remnants of other departures. They’ll even fool your relatives. Suck in the kids!

Dusters thrive deep in finances.  They’re the cuts you never do anything about. They’re stealth hits that keep on hitting. Recently, I received an e-mail for fees, an auto-renewal from a service it took me 3 hours to cancel.

Most would rather have their money turn to dust before they halt this auto-finance terrorism. Take a day. Stop all auto-payments. Gain control. I know consumers who have lost hundreds, thousands, robo-paying for services they never use because it’s easier to pay than to stop. Huh? No.

Dusters rarely say “I’m sorry,” or admit mistakes. And why should they? You should bow. Die noble in their grace. Just dust, bury yourself before they get to it. After all, they’re terrific. You’re the reason they’re fucked up, remember?

As a matter of fact they’ll make you feel wrong for being right.

Remember that line from the classic film “Love Story?”

Love-Story.png

Yea, it’s nothing like that.

Not at all.

Identify Dusters with 3 simple inquiries. No kidding. To kill a Duster you must be the Duster (not for long because that’s not you).

Keep it simple. The best deaths occur in plain sight. Every minute. Not even Kojak would be able to figure it out.

kojak

Keep sucking, buddy. You won’t catch me!

Tell me about your long-term friendships. Dusters have few close friendships to speak of. That’s not a bad thing on the surface. Loners can be cool. You just want to get a handle on the quality of the relationships. How a Duster defines them.

If you can’t adequately get a handle on why and how these friendships are maintained, step back. If there appears to be a pattern of breakage and it’s always the fault of others, well you know what to do, right?

Describe your last break-up in detail, please. Dusters are expert ghosters. They refuse to face a victim in person, or communicate verbally, on a forever departure. They conjure up lame-ass, re-hashed excuses through e-mail or other electronic channels. This query is your most insanity-driven dive into the Duster psyche. Stay strong. You’re going in deep.

Break-ups aren’t perfect. You’re not looking for clean, neat separations. You’re seeking to identify respect for a former partner in the throes of a heartbreaking life episode.

Dusters hold below-zero respect for people who love them, especially at goodbye time.

Remember, this is their heart, a life code: They want to slap-clap you off their tails. Like they would from their jeans after a long journey on a dirty mud-cut of ground.

Tell me about something, an incident, you’re sorry about. My personal favorite. You know why? Because Dusters are rarely sorry. About anything! After all, it’s never them. Be sensitive to a consistent string of “remorse code.”

Let me explain.

Remorse codes are strings of negative roads well traveled.The same circle patterns of mistakes. Ghost-like breakups, busted engagements, cheating. Could be they’re tough heartfelt lessons. Perhaps your Duster has vowed never to do this to you. Or maybe you’re delusional and the next stop on the heartbreak express.

Have you fooled yourself, convinced yourself that it’ll be different with you?

Question: Are you up for the risk?

Are you willing to take the chance?

Well, if you do.

Then:

_ _ . _ _ _ _.. … ._ _. . . _ ..

(Morse Code for Godspeed).

morse code

It’s not Morse Code, it’s Remorse Code. Silly.

Dusters feel guilt but it’s merely an odd form of self-flagellation. A seemingly strange internal coping mechanism. A futile effort to connect with what’s shoe-string left of their humanity (who am I kidding?). There’s a peculiar sadness that arises their victims move on. Re-hydrate.

The ones who escape really irritate them. So much so they can’t visit the ground zeroes, the towns, where these survivors survive.  They feel something odd – REMORSE. Well, only because the ones left behind made it through the pain parlor. Their happiness, their recovery is Kryptonite.

Go figure.

Dust storm #3: Dusters will lament to you about the love or friend who got away. How they’ve mourned. How bad they feel. Really? They don’t. Take it as a warning. A brief wet spot they sit in with us three-dimensional mortals. It’s a worm hole you must crawl through. Listen. Discover. Run!

Dusters relish the stories they create. With disparate mental fragments of dark plot-lines, they form a sick square-fits-in-a-hole puzzle designed to validate an exit strategy, a distrust, even a hatred of their prey.

Dusters believe all people are bad so they must strike.

Destroy them first. Always.

Dusters are narcissists who frolic with sharp blades yet never cut themselves. They are expert slicers, compart-mentalists, molders.  They’ll work diligently to galvanize fellow Dusters against you to protect their personal lack of accountability and courage.

I tested this theory recently. I placed my head on the chopping block. It’s in the bloody basket. Rotting. It turned out exactly as I figured it would.

They are steadfast cowards at intimate human interaction, connection, above all else.

basketcase

Great movie from the 1980s: Basket Case.

It’s personally rewarding to discover people who are so damn good at Duster detection and deft at avoiding attacks from Dusters and their fuck-flunkies (not a dance move from the 1970s, or is it?).

I unfortunately, am not one of those special people, proficient in these skills.

Dusters will push, twist you into a different person. A human you’ll no longer recognize. The ultimate betrayal, the way they depart, the manner in which they leave frayed ends dangling like bloody entrails on a clothesline at a zombie laundry party, will drive you insane, out of your own skull.

You won’t recognize yourself. Your pets will avoid you. You smell different.

It’ll take time to return to the light, the living, the waters. The clear. The still.

Like a storm on the plains they’ll lift, carry, then drop you like a rag doll.

One day it’ll happen, you’ll look up. You’ll stop dragging what’s left of yourself across a gravel road and start all over.

You’ll be boarding the life train again. Sniff the spice off a summer breeze.

The light of day will no longer feel like night.

Oh, you’ve been there.

Sometimes it feels like exposed nerves are rubbing against broken and infected parts of my heart.

I wish Johnny Cash were still alive.

I would have loved to share my dust theory with him.

Would my thoughts be set to lyrical magic?

How would he take the words. Improve them?

Hmm, maybe this?

Dusters.

In this world.

As a new day bursts blue. Clear-on-clear.

They have their smoke eye on you.

For now.

I’ll wish you good thoughts.

I’ve walked there. I fear the footfalls.

And when the time arrives for you to be a target.

Or no longer play with the player.

Perhaps you’ll remember my words.

Heed the warnings.

Consider and respect my ongoing torment.

And dust the Dusters at their own dirty game.

I’m on your side.

Breathe in deep.

As deep can be.

Hold.

Release.

Walk.

Now you’re steady.

Prepared.

Thriving.

Dust free.

And a connect with the universe again.

Where it’s cool and clean.

And calm again.

dust free

*****************************************************************

Sidebar: The Dusters know who they are. They know this post is about them, don’t they?

They’re reading right now. In denial. Ready to strike. 

Listen. Learn:

Lucinda Williams’ Dust.

Writing is part of my healing process . A closure activity.

I hope ya’ll enjoyed this lil’ ditty.

Dedicated to my very clever friend – Tami Denny. 

Five Lessons from an Urban Supermarket.

Random Thoughts of a Money Muse

Damn you Google Maps, Google Earth, Google Detectives: Damn you all to hell!

heston damn you

The first/best “DAMN YOU ALL TO HELL!” ever. The original “Planet of the Apes.” I believe Hollywood has had the balls to remake this film like three times. 

Eckhart Tolle, known as the “father of inner peace” should be arch nemesis of this Google invasion of privacy, but I’m thinking he’s way too self-actualized to even sweat the effort. I can hear him – “who needs this Google you speak of?”

To arrest a mind troubled by the lambasting of ego, an individual must seize the now, the present. Today. This moment.

I’m sorry ET – I’m a work in progress. Always evolving. BUT THAT DAMN GOOGLE.

Tolle ego

Allows me, so easily, to scope out the physical landmarks from my history. It tempts me to unlock doors I prefer remain closed. Behind that granite-like barrier in my mind…

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Three Financial Lies that can Reset or Ruin your Retirement.

A version of this writing appears in MarketWatch’s Retirement Weekly.

The financial sector still gets a bad rap.

Seven years after the financial crisis.

Justifiably so.

banker hand cuffs

In his 2013 book “Finance & The Good Society,” economist Robert Shiller describes a utopia where finance can benefit today’s society. He identifies how financial innovations of the past, like insurance and pensions for example, improved the lives of the masses. The lauded professor at Yale shares his suggestions about the future of finance and how the industry can reform and prosper by serving the common good.

Can you imagine?

Yea, me neither.

I’m sorry to be cynical but you have a better chance of finding a unicorn in your driveway and taking it for a trot over a magical rainbow.

unicorn

The halcyon days for finance are over.

Today, in the shadow of the Great Recession, forgotten by Wall Street and insidiously faded into the fog of averages, the financial industry is more than ever a marketing machine designed to convince the masses to purchase products they don’t need and to stick with investments that offer more risk for less reward.

The pundits seek to convince, not enlighten. They warn (scare) that if we don’t invest in the manner they suggest, we are in great danger of outliving our money, the boogey-man of inflation will inevitably arise from under our cash and devour our nest egg while we sleep.

From behind their manipulated statistics, these ‘experts’ communicate in serious tones a cozy belief that your household balance sheet has recovered from the Great Recession.

You know better.

Now, more than any other period since 2008, retirees and those near retirement, are vulnerable to the lies that appear pervasively in financial media.

Survival depends on you knowing the difference between white lies that don’t matter and dark fabrications that have the potential to derail your retirement planning.

There are three financial lies you must ignore to preserve your wealth right now.

 Lie #1 – Cash is trash.

Many financial talking heads consider holding cash dangerous to their livelihoods. Why maintain cash when money could be allocated to expensive managed accounts or locked up in investment vehicles where ongoing fees can be charged.

These cunning souls know if they can convince you to remain invested at all times, especially when markets are sliding, then the financial firms they represent can continue to make a predictable revenue stream to appease shareholders.

The Real Value of Cash

The experts hope you fall victim to the behavioral pitfall labeled anchoring.  When emotionally connected to a loss, you’ll wait for that losses to recover to your original purchase price before taking action, even if the current value reflects a change in fundamentals. The opportunity cost of sticking with losing investments and waiting for recovery can be detrimental to your financial health.

Gregory L. Morris, author of “Investing With The Trend,” showcases how it takes on average, five years to recover from a 20% loss in stock prices (as represented by the S&P 500). Five years can add up to a healthy stream of fees if you ‘stick with the program.’ Don’t you think?

So, let me ask: How many five-year periods can you survive in the span of a human life, to break even?

Never underestimate the value of cash as a component of your long-term asset allocation.

Mainstream media will never embrace the concept of holding cash. They’ll tout long-term returns as the reason to remain invested in both good times and bad. Most individuals lack the “time” necessary to truly capture 30 to 60-year stock return averages.

For individuals trying to save for retirement, there are several important considerations with respect to cash as an asset class:

  1. Cash is an effective hedge against market loss. 
  2. Cash provides an opportunity to take advantage of market declines.
  3. Cash provides stability during times of uncertainty (reduces emotional mistakes)

It doesn’t mean you should be 100% in cash. Holding an increased allocation to cash during periods of uncertainty provides both stability and future opportunity.

When inflation is low and stock valuations as measured by Robert Shiller’s CAPE ratio is at 23x earnings which has historically represented the peak of secular bull markets, the significance of holding cash is revealed.

As the chart above outlines, if you purchase stocks when the CAPE is 6x and switch to cash at 23x, the adjusted return of $100 increases dramatically over time. Of course, cash will lose out during periods of above average inflation like in the 1970s, however holding and investing cash during periods of low valuations produced substantial outperformance compared to waiting for lost capital to recover.

At this juncture, increasing portfolio cash to 20-30% to weather the storm will not kill your returns. As a matter of fact, your portfolio will survive. You won’t need to alter your retirement plans.

Lie #2: Stocks average 10% a year.

SP total returns holding period

This lie may be the most lethal. Recently, I heard a pundit on a popular financial channel flippantly throw out a statement to an afternoon television audience. He said not to worry: Stocks average 10% a year if you hold tight.

Currently on their Twitter feed, a popular roboadviser called WealthFront which is an electronic portfolio asset allocator, regularly shares a chart alone and within blog posts. It shows how the growth of a dollar invested in the stock market appreciates to roughly $34,000 if invested from 1871 through 2015.

1871.

The president of the United States was Ulysses S. Grant.

Orville Wright of the Wright Brothers was born in August of that year.

Is 10% completely false. No.

Misleading, yes.

Is it realistic to base return assumptions for retirement planning on numbers many pundits share in the national media?

No.

From 1871 to present the total nominal return was 8.08% versus just 6.86% on a “real” adjusted for inflation basis. While the percentages may not seem like much, over such a long period the ending value of the original $1000 investment was lower by an astounding $270 million dollars.

Since 1900, stock market appreciation plus dividends has provided investors with an average return of roughly 10% per year. Historically, 4%, or 40% of the total return, came from dividends. The remaining return (60%), came from capital appreciation that averaged 6%.

There are several fallacies with the notion that the markets long-term compound at 10% annually.

The market does not return 10% every year. There are many years where market returns have been sharply higher, significantly lower or flat lined.

The analysis does not include the real world effects of inflation, taxes, fees, and other expenses that subtract from total returns.

SHOCKER – You don’t have 144 years to invest. Using ‘perpetual’ holdings periods for something as finite as a human life is plain irresponsible.

Lie #2 will allow false hope to permeate your retirement planning outcomes. Incorporating unrealistic return projections increases the likelihood of shortfall surprises later in retirement. Perhaps at an age where returning to work is highly unfeasible.

Then what?

This whopper will indeed sneak up on you. If you’re three years from retirement or in retirement, now’s the time to re-visit the return estimates that were used in your financial planning analysis.

 Lie #3: Annuities = bad.

For years, several well-known money managers and syndicated financial superstars, have overwhelmed print, social, television and weekend radio media outlets with negative and false information about annuities.

It’s like saying repeatedly – a paycheck for life should always be avoided.

The wide universe of annuities are given an unfair rap as financial professionals with an agenda play on investor misunderstanding. With irresponsible blanket statements like ‘annuities are high commission and good for brokers, not for you,’ this group exploits the masses’ ignorance for their own gain.

They play on a human behavioral pitfall called heuristics. Heuristics are mental shortcuts we employ to digest the onslaught of information we’re slammed with daily. As busy individuals with access to limited information, we create rules of thumb to quickly come to conclusions and make decisions.

Annuities, specifically variable annuities, a blend of insurance and mutual funds, have been the subject of bad press and regulatory scrutiny for decades. Justifiably so. With exorbitant fees and generous commission structures these products were sold inappropriately in many documented cases.

Today, novice recipients of the adverse messages recall how they were told, read or heard somewhere that annuities must be avoided. So it must be true.

What an injustice to investors who would benefit from these products.

To mitigate the risk of outliving a nest egg or as a replacement for conservative investments like bonds, deferred-income and immediate annuities can be used effectively to supplement Social Security and portfolios that cannot carry the retirement income responsibilities alone. These annuity types are affordable and can play an important role in a holistic financial plan.

To understand the truth about annuities avoid the ‘real story’ touted in media and advertising. There’s something ‘Fisher’ about this bullshit. As in Ken Fisher.

Instead, check out your resident state’s department of insurance website for objective information. Meet with a Certified Financial Planner who is compensated on an hourly fee basis to understand annuity types and to determine if a lifetime income option, in addition to Social Security, is suitable for your personal situation.

Unfortunately, dystopia thrives within the financial industry.

Now more than ever.

As we appear to be entering the storm of a bear market in stocks.

To survive you must dig deeper, stay vigilant, possess a healthy dose of skepticism.

Because pundits will not disappear as quickly as your wealth can.

And finance and the good society shall remain just a fairy tale.

All charts are the courtesy of Clarity’s Financial Chief Investment Strategist Lance Roberts.

Rules To Live & Die By: Life, Money & Otherwise.

Aside

I appreciate rules.

Rules derived from the heart and mind have saved me.

Rules, forged from experience, can safeguard precious resources – financial and otherwise.

They will protect you from losing your pants.

just got naked

Naked rules are best.

Pure, simple, raw.

Here are mine.

What are yours?

 

Random Thoughts:

Part I: Life Rules.

my life my rules

 

If a woman can’t listen to the Eagles’song Lyin’ Eyes without wincing, or quickly changes the station, run.

Beware of people who carry a stash of ’emergency’ condoms (indeed run, but feel free to have sex first).

You can’t wipe your ass enough (especially men – we’re the worst). When you believe it’s all clear in the deep, take another swipe. Just to be safe.

Never trust a person who rarely uses turn signals.

Be cautious of those who judge based on past mistakes when they’ve made the same ones or worse.

Don’t step back without looking (there’s a dog there, especially in the kitchen).

Never let open wine go to waste. Never. (Did I say never?).

Distrustful people are black pitch through the soul. Avoid them.

Be wary of those who can’t maintain close long-term relationships of any kind.

When I ignore rules I create, bad things happen.

Misjudgments remain with me. I see injury in the mirror every day. I lose a spark that will most likely, never return. Perhaps it’s part of a natural process, like aging.

Living without a personal guide book can hurt you.

Along with Clarity’s Chief Market Strategist Lance Roberts, we’ve created rules to help you protect and understand the key drivers of your wealth.

Remember – For every beginning there is an end. Investments have a shelf life. Eventually you’ll need to liquidate them to fulfill a financial goal, create a paycheck in retirement, gift to loved ones. Whatever. Money is to be spent, enjoyed.

Not hoarded.

And yes, you can indeed sell investments to protect capital.

Huh? What?

Sell: The scariest 4-letter word on Wall Street.  Just the mention of it and you’re branded a loon. Leprotic, running amok and licking the neighborhood children.

Part II: Investment Rules:

Cut losers short. Let winners run. Underperforming positions are reduced or removed from portfolios on rallies.

Set financial life benchmarks and take action. Every position purchased has a sell target. Investments without goals are arbitrary, which increases portfolio risk.

Emotional biases are not part of the investment management process.

Follow the trend. 80% of portfolio performance is determined by the underlying trend.

And the current trend is south. 

SP500-MarketUpdate-011516-2.png

When markets break their long-term bullish trend supports combined with important long-term sell signals and a sharp decline in momentum, it has historically denoted the start of a “bear market trend.” The red highlight denotes the start of the bear market. The yellow highlight shows the ensuing bear market completion.

Never let a profit turn into a “loss.”

Investment discipline is successful if consistently followed.

Losses are part of the investment process. Losing positions are regularly culled to reduce portfolio risk and free up capital for better investment selections. However, you can’t completely avoid losses. Sorry. If that’s the case you’re better off in certificates of deposit. You can minimize but not eliminate. You play, you pay.

Math-Of-Loss-122115.png

As fiduciaries of OTHER PEOPLE’S money, the biggest concern is not how much money we make during market advances, but rather how much we keep from losing during market declines.

While this seems counter-intuitive, in reality it is where long-term gains are generated. As William Lippman, CEO of Investment Management at Franklin Templeton quipped:

“Better to preserve capital on the downside rather than outperform on the upside”

A strict discipline of portfolio risk management will NOT eliminate all losses in portfolios. However, it will minimize the capital destruction to a level that can be dealt with logically, rather than emotionally.

This isn’t market timing, people. That doesn’t work. ‘All-or-none’ is a losing strategy. Never go all cash. From a management standpoint, this is a bad idea. Trying to “time the market” is impossible over the long-term and leads to very poor emotionally based decision making.

The objective is to reduce portfolio risk to manageable levels to preserve capital over time. We can do that by increasing and reducing our exposure to equity-related risk by paying attention to the price trends of the market.Odds of success greatly improve when the fundamentals are confirmed by the technical indicators (see? Another rule).

Don’t add to a losing position. This is called “averaging down” and rarely is it effective. How many investors are caught in the energy sector value trap? Or treated master limited partnerships ‘safe’ as fixed instruments?

The slide has been ugly and getting uglier.

XLE-011516

Don’t be a hero. Buying energy or “averaging down” at this juncture will most likely be hazardous to your wealth.

Markets are “bullish” or “bearish.” Remain neutral or long in bull markets. In bear markets be neutral and increase cash.

When markets or portfolio positions are trading at extreme deviations from long term trends, do the opposite of “the herd.”

If you haven’t trimmed positions yet –Wait for an opportune time. Most likely, a  market bounce is coming. Trim your weakest holdings into strength especially if your gut is in turmoil or you’re 5 years or closer to retirement.

A goal of portfolio management is to achieve a 70% success rate. No process is perfect. Consistency wins the long game.

Manage risk and volatility, not returns. Also, manage emotions. Humans are not wired to invest. Knee-jerk reactions, overconfidence, seeing trends that don’t exist will only destroy portfolio returns.

Never discount the importance of financial planning. The investment process is an element of a financial plan. An important one. However, it’s not the full story. It’s the sexiest chapter, I know.

There’s more to consider.

So we created.

Part III: Clarity’s Financial Planning Rules.

Take a holistic approach. Proper planning integrates all assets, liabilities and sources of income for a complete perspective.

Money is fungible. For planning to be effective, remove the mental boundaries around the dollars you earn and save so they may be allocated to their highest and best use.

Don’t discount Social Security strategies. Take steps to maximize earned benefits. Coordinate Social Security withdrawals with those of other accounts to minimize the impact of taxes.

Healthcare costs including Medicare, and senior housing options must be included in the planning process.

Successful plans are grounded in financial self-awareness which includes prioritizing needs and wants.

Conversations with loved ones and friends about aspects of your financial plan are important. Make sure your estate, gifting and future housing intentions are clearly communicated.

Don’t Get Fooled By Averages. The financial markets do not return 8% a year. A realistic financial plan includes variability in returns, including losses, over time.

Accountability Matters. A financial plan not followed is not a financial plan at all. Long term financial goals need to be broken down into monthly objectives and you and your adviser are accountable in meeting those objectives. (It is easier to consider a savings goal of $500/month versus $6000/yr.) Mental trickery works. Milestones broken down to millstones will convince your brain to take action. Move forward.

Rules.

Boundaries.

They work.

Follow them.

Survive.

With less wear on your face.

Less dark circles under the eyes.

You’ll preserve joy in your heart.

Stamina.

Will be yours.

And you’ll live to play another day.

For a glossy (fancy) copy of our investment and planning rules email me at RichardRosso@myclarityfinancial.com.

Charts by Lance Roberts. Sign up for his weekly market/economic newsletter at http://www.realinvestmentadvice.com.

10 Resolutions in ’16: Simple Steps to Your Financial Best.

Most likely money is at the top of your resolution list – Whether it’s to increase savings, pay down debts, find a new job, purchase a house or auto, financial aspirations abound in January.

Resolutions start strong. Unfortunately, as the novelty of a new year fades, so does motivation to stick to a list.

happy new year vintage

What if I told you that financial goals don’t need to be onerous to make an impact to your bottom line.

Millstones, as I call them, lead to milestones. You’ll be empowered, less frustrated if you keep your financial improvement list simple.

Here are ten ideas to consider for 2016.

Finally ditch the brick and mortar bank. An unusual event occurred after the Federal Reserve raised short-term interest rates by a quarter-point after seven years of holding steadfast to a zero interest rate policy. Several banks were quick to increase lending rates to creditworthy customers but kept deposit rates unchanged.

Historically, deposit rates on savings accounts, certificates of deposit, and money markets tend to correlate with changes in federal funds rates. Not this time. Savers lose again. In 2016 take a stand. Transfer your emergency cash or savings to a virtual bank. Online banks are FDIC-insured and with less overhead costs, offer attractive yields compared to a bank with physical bank locations. Several offer ATM fee rebates, too. Check out Nerdwallet’s list of top high-yield online savings accounts.

Keep an eye out for yet another refinancing opportunity. I know – Most financial ‘pundits’ are claiming higher interest rates in 2016. I see a sluggish economy ahead. Since mortgage rates are driven by demand and moves in the ten-year Treasury rate, don’t be surprised if 2016 provides another chance to refinance your home mortgage. A decision to refinance should be based on additional monthly savings and how long it will take to breakeven after closing costs. An easy-to-use refinancing calculator is available at www.zillow.com.

Initiate a balance transfer. According to Nerdwallet, the average American household carries $15,355 in credit card debt. Be proactive in 2016 and move your high-interest debt to a balance transfer credit card. If your household credit card balances are $5,000 or greater, consider reducing retirement contributions to the company match and direct additional cash to paying off credit card debt.

Use smartphone applications to save on purchases and track spending. Make technology your financial partner in 2016. Use the Mint app to track financial activity, Shopkick to browse products and find deals at major retailers. Download Ibotta, an Android and IPhone app that allows users to unlock rebates to earn cash on purchases.  

Buy off-season. Maintain an ‘off-kilter’ sense of finance. Purchase holiday décor and greeting cards after the respective season. Think Christmas cards in January. Shop for real estate during winter, summer items in the fall, and so on. Thepeacefulmom.com has thoroughly researched and lists by month the best times to buy everything.

Do a better job protecting your identity. Avoid public Wi-Fi to access secure information or shop, password protect your electronic devices and check your credit card statements monthly for suspicious activity. Place a freeze on your credit files with the three major credit bureaus. Before applying for credit a freeze can be removed easily using a password or PIN. There may fees to initiate security freezes. However, costs are nominal ($5-$10) and worth it to protect against identity theft. The Federal Trade Commission offers a FAQ  page to make it easier to understand how credit freezes work.

Check your credit report. Every January make it a habit to check your credit report for free at www.annualcreditreport.com. Examine your report closely for discrepancies and rectify promptly with the credit reporting agencies. The Consumer Financial Protection Bureau outlines common credit report errors to identify.

Curb your impulses. Make 2016 the year of the wait. Before a purchase of greater than $50, delay for 7 days. If you still want the item or service after the wait period, move forward. Holding off will reduce impulse spending and allow you to think before spending. Seven days has been an effective time frame from my experiences with people I counsel. If super-ambitious, wait 14 days. If you can’t wait days, at least give the decision 24 hours.

Purchase a shredder. Simple identify theft solutions remain effective. Shredding documents should be an ongoing exercise. Shredders are inexpensive. Invest in a micro-cut shredder for maximum security protection. I’m shocked by the number of times I’m told that shredding seems unnecessary. Throwing intact personal documents, bills, statements in the trash is asking for trouble.

Develop a money principle. Dig deep. Early in the year is a great opportunity to develop or fine-tune a money philosophy. Keep your thoughts short. Make them passionate. Consider how money fits positively in your life and what you can do to reach goals, control spending, reduce debts or earn a higher income this year.

Financial resolutions are strongest when simple. Consider these 10 small steps to financial enrichment and live a fiscally healthy new year.

 

 

The Shuffle: How To Make The Best Out Of Those Gift Cards.

 

A version of this writing appeared on Nerdwallet.com, Money.com & NASDAQ.com.

Every year a staggering $1 billion in gift card balances remain unused according to www.cardhub.com.

No wonder retailers love them. They rack up the sales.

Consumers get shortchanged by their own actions!

This year it’s time to be smarter and maximize the use of gift cards.

Here’s how:

Spend the entire balance at once. Consumers want their gift cards to last as longer as possible. We have a strong tendency to ‘hoard’ balances until we forget the card, lose track of the balance or the card expires.

Unlike having a saving or spending discipline, this is your time to SPLURGE.

splurge

Spend the entire balance at once. At a single location. Make a list of what you plan to purchase and go for it.

Go over the line. Here I am a money guy advising you to spend! Don’t attempt to be too cute and come in at or under the limit of the gift card. Remember your goal is to spend every dollar and not add to the $6 billion in unused balances. Set a boundary. I recommend 10-15 dollars above the limit to assure you’ve fully exhausted the balance.

Employ a smartphone partner. Through the free RAISE app you can sell your gift card balance (for a discount). Also, before you shop a favorite retailer check RAISE first to see if discounted gifts cards are available.

For example, I had a client find a $100 gift card to Home Depot for $65.

What a deal! Use gift cards year round to shop.

Request or send eGift Cards. Trash the plastic! EGift cards are electronic gift cards delivered through e-mail, text, social media or mobile applications. Most digital gift cards can be used in stores.

They’re easy to send, receive, and most important your balances can be tracked real time which means you’re more likely to spend your balances in full.

Check out www.giftcards.com, a comprehensive hub of information on how EGift cards work, how to personalize them, how to redeem and which ones top-ranked.

Set your own gift card expiration date. Forget the expiration date mandated by the issuer (yes, gift cards may have expiration dates). Set your own. I suggest no longer than one month from the date the gift card was received otherwise the odds of a balance going unused forever increases greatly.

Once your personal expiration date has been reached, sell your balance at www.cardcash.com. Recently, I reached a personal expiration with a $50 Kohl’s gift card. I sold it for $41.

Just follow three steps to get an offer, submit your gift card information, receive money once the order is confirmed and the card’s balance is verified. Quick and easy.

Over $138 billion is spent annually on gift cards. Sales are expected to grow at least 6% annually through 2017 according to the latest CardHub statistics on the gift card market.

So, a gift card balance should never go to waste again.

Not on your watch, anyway.

on watch