The Wealthy Barber

Today I had my hair cut by an awesome lady at Great Clips.  She recently moved to Atlanta from New York and she has a heck of a story.  She did all the talking and I did all the listening (and admiring). She is a middle-aged single, black woman.  She raised four children by herself.  When I sat down in the chair, the first thing she said to me was, “One of my neighbors got evicted yesterday, and my other neighbor was foreclosed on.”  I told her I was sorry to hear that. “Yes” she said, “it makes me sad.”  I agreed.  Then she launched into her story:

“I can’t believe how many people live beyond their means.  I save half of what I make and live on the other half.  I don’t have a cell phone and I’ve driven the same car for ten years.  If I don’t have a coupon, I don’t buy anything. You don’t have to live like a hobo or nothing but you’ve got to think about how you spend your money.  All my friends ask to borrow money from me because they know I have it.  I tell them, ‘if you didn’t pay $100 per month for your cell phone, you’d have money, too.  Put that money in the bank’.  It’s crazy that I see people waiting at a bus stop talking on their cell phones.  If they didn’t spend money on those phones, or beer, or cigarettes, they could have a car, even an old beat up one. Did you know that you can be a millionaire in ten years?  I know five people in my family that have done it.  I’ve only been working on it for five years because I raised four children by myself.  But now that they are all grown, I can save half of what I make.  In another five years, I’ll be a millionaire.  I’m teaching my oldest daughter about it, too.”

She is a remarkable woman, and it was one of the most enjoyable haircuts I’ve ever had!



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Filed under + Musings and Blolligaggings

Are Happy Days Here Again?

The stock market is a leading indicator.  It gives the collective opinion of future economic growth on a global scale.  Now that it’s revisiting past highs, it’s presumably predicting a sound global economy with solid growth prospects, or is it?

The best reason for the stock market to rise is in anticipation of growing GDP:  For example, Apple is selling more gizmos and its revenues and profits are growing, or Exxon is producing more fuel for emerging market countries that have an expanding middle class.  Two factors that influence GDP growth are fiscal policy (Congress) and monetary policy (the Federal Reserve and global central banks). Washington is dysfunctional and it will be forever.  That doesn’t mean that we’re doomed to the economic doldrums from now on.  Dysfunction is a relative term.  If Congress were slightly less dysfunctional, it could get out of its own way, which would benefit the economy.  For example, small businesses are the primary driver of job creation in the United States.  Both companies noted above began in a garage with two people that had good ideas and hired people (creating jobs) to implement them.  Now they’re the biggest companies by market capitalization in the world, employing hundreds of thousands of people. Small business owners and the jobs they create are the main casualties of rising tax rates, which presently appears to be the primary goal of Congress in the name of “income equality”.

The Federal Reserve, the Bank of Japan, the European Central Bank and the Bank of England are all printing money.  That money is sitting on their balance sheets.  It’s not being lent out.  If it were being circulated through the economy via lending we would see inflation.  When banks are eager to lend we will see a lot of inflation.

Investors make decisions to allocate their life savings based on what they expect Congress and the Central Banks are going to do.  They have a bad taste in their mouth from the credit crisis in 2008.  Many are not aware of how much risk they are really taking in their portfolio.  Some are chasing stock market returns hoping to recoup what they lost in the Great Recession while others are piled into bonds thinking that they are being safe.

Cash has a negative real return due to inflation but it has to be a part of a portfolio to meet short-term goals and needs.  When interest rates go up cash will benefit but it will still be a drag on performance.

Bond prices go down when interest rates go up.  With interest rates at 0% it is safe to predict which direction they will eventually go. We are in the foothills of a rising interest rate environment.  Interest rates aren’t going up until the economy is really growing and banks are lending money.  Inflation also negatively impacts bond returns.  Nonetheless, they are a key component of managing risk.  We’re using solid bond managers with a global perspective.  In the immortal words of Johnny Cash, our bonds “are everywhere, man”.

Stocks are going to do better than bonds and cash, especially if the trend of an expanding middle class in emerging market countries continues.  The stock market has done well the past few years but investors don’t really see it that way, especially if they sold stocks in 2008 and 2009.   If Congress exhibits a lower level of dysfunction going forward stocks would do very well in the next decade.

Real estate is one of the more reviled asset classes the past few years but I think it’s headed in the right direction.  It should do relatively well in the coming decade especially if inflation kicks up.  Mortgagees will benefit from higher inflation as well.  Consumer confidence has taken a huge hit with the bursting of the real estate bubble. I don’t think there are many “deals” left in real estate other than getting lucky and picking up a short sale, which is still a tedious process.

The stock market is at five year highs.  The GDP growth rate for the United States in 2013 is questionable.  In the fourth quarter we contracted unexpectedly by a fraction.  I’m not optimistic about the growth of the economy in the first or second quarter of 2013 based on Congress’ ability to lead and get out of its own way (and ours).  I think the main reason the stock market is doing so well right now is that there is nowhere else to allocate capital.  Stocks are more fundamentally sound than cash and bonds, and they are liquid, unlike real estate.  But stocks are also more volatile than cash or bonds and we could see a big sell-off when we get unfavorable news.  Investors are quicker to pull the trigger on stocks than they used to be and that short-term mentality is detrimental to their long-term goals.

The key to protecting our life savings is fostering a long-term perspective and proper asset allocation.  We need a certain percentage of cash, bonds and stocks to reach our long-term goals.  That percentage varies from family to family.  Investing is not the same as trading or speculating.  No one knows the future, especially me.  We design our clients’ asset allocation to manage their risk and maximize the likelihood of success measured in decades, not days.  Populating that allocation with the best components is critical.  The equity index funds and actively managed bond funds we employ are among the best building blocks of wealth available. Happy days might be here again, or they might not, but our clients are positioned to weather either eventuality to the best extent possible.  That is the basis for private wealth management with charity, prudence and fortitude.

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Filed under + Economics, Politics and Financial Planning

Planning for the Fiscal Cliff

The fiscal cliff will likely be averted but not artfully so.  Even if it was brilliantly navigated, GDP will  suffer in the first and second quarters of 2013.  Meanwhile the life savings of millions of investors around the world are going to be impacted.  The prudent thing to do is to focus on what we can control: our attitude and our behavior.

We can control our attitude by limiting our exposure to the white noise broadcast by the news media.   Often we see two brilliant people espousing opposite ideas that does nothing to help a family make good financial decisions.   For example, “Raising taxes on the families making more than $250,000 per year is the answer to our spending problems!”  I happen to the believe the counter-argument that “Raising taxes when the economy is growing at less than 2% and unemployment is at 8% is a recipe for recession.”  But all this noise is detrimental to our peace of mind and negatively impacts our ability to make good decisions. We can’t control the outcome of that debate but we can control the amount of risk that we take.

We manage risk by choosing the appropriate asset allocation to accomplish our goals and then populating that allocation with the best components available.  Most Americans have the bulk of their liquid wealth invested in 401ks and IRA accounts.  The key to navigating the fiscal cliff is to choose the proper percentage to be invested in stocks and in bonds and to give it time to work. There are a lot of risks in the financial markets, particularly in bonds.

Many investors believe they are investing conservatively by purchasing bond mutual funds.  Investors often choose bond funds because they have a higher yield than their peers.  What they don’t understand is that the higher yield probably reflects more risk in the underlying securities owned by the fund.  This is the next iceberg lurking below the surface of the water that is going to capsize retirement portfolios in the years ahead.

Your situation is unique and you deserve better than a “one size fit’s all” strategy.  I’ve read countless articles on what investors should do and my advice is to get advice.  Please discuss your situation with a Certified Financial Planner that you trust and get a customized asset allocation.  To learn more visit my website or to find the appropriate advisor for your family.  The National Association of Personal Financial Advisors (NAPFA) is the country’s leading professional association of Fee-Only financial advisors—highly trained professionals who are committed to working in the best interests of those they serve.

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Filed under + Economics, Politics and Financial Planning, + Retirement, Thoughts on the Market

Charles Schwab Tools for the iPad by Marc Williams, Retired Data/Telecoms Nerd

When you have someone like Todd (Fabyblus) Black looking out for your investments, you might not pay much attention to everyday access to your portfolio. However, for those of you who like to watch the market, access relevant news, stay up-to-date on investing concepts and keep an eye on your stash, Schwab offers a couple of iPad applications that make that easy. If you are an iPad user you are likely already familiar with these, but if not, here is a quick look at the “Schwab Mobile” and the “On Investing for iPad” apps. Both are available from the Apple App Store at no charge.

When you launch the Schwab Mobile app you are presented with the Market Overview screen, consisting of a very nice collection of key market data and news headlines. The obligatory ticker crawl runs across the bottom of the screen, along with a quote and watchlist tool. There is a feature to help you find local Schwab offices using Location services, which is especially handy when you’re traveling. It’s a well-designed layout which is easy to read and easy to navigate. From here you can log in to gain access to your account, drill down on more detailed news topics and other items.

The Schwab Mobile app provides secure access to your Chuck accounts, both brokerage and banking, so you can see balances and positions, review history, and if want, initiate trades. There is a very cool real time graphic display that shows current market activity of your portfolio components, and reports on their relative performance for the day. Access to realized/unrealized gain and loss reports are not available yet, but will be delivered in a future release of the software.

The app also provides access to your banking functions, but I have not tested any of these capabilities since I don’t have a banking account. Schwab advertises the normal functions you would expect, including managing accounts and paying bills online. The iPhone version of this app allows online deposits using the camera function, but this feature is not yet available on the iPad.

Overall, I’ve had a good experience with Schwab Mobile. The app design is very clean and logically laid out, and stability has been excellent. There is a setting to allow multi-tasking for this app on the iPad, which lets you move away from Schwab Mobile for a while to other tasks (like research) and then return without having to log in and out. The feature set is adequate in terms of light-weight management of your account, but it’s not the full-blown tool set and research center that you will find at the web site. But for its intended purpose of giving you remote access and control of your accounts, it works great.

Security seems sufficient thanks to SchwabSafe® Mobile, a set of features including strong encryption, login protocols and pattern analysis to detect suspicious account activity. You can also invoke an additional login layer with an optional security token, which makes it very difficult for someone else to crack in to your account. If you use this (or any other) application to manage your accounts while traveling, I recommend using cellular (3G) access instead of WiFi. Cellular is much harder to hack than an open WiFi network at, say, Starbucks. Also, be sure to keep your iPad locked with a passcode for an additional level of protection.

Schwab Mobile is currently available on iPad (all versions), iPhone (iOS 4 or higher recommended), Android devices (OS 2.1 or higher), and Kindle Fire. Note that all my comments are relative to the iPad only, as I have not tested any other platform.

The other iPad app I really like is “On Investing for iPad”. This is an online version of Schwab’s quarterly magazine On Investing that downloads the most current issue. If you are familiar with the publication you know it contains articles from key Schwab investment managers, investing strategies, fund performance information and much more. The content is the same for both print and online documents, but the iPad version offers some unique advantages (IMHO). The publication is very nicely laid out with logical navigation, is easy to read, and responds crisply to screen gestures. While reading, you can instantly share an article by email, Facebook, Twitter or LinkIn right from inside the app without leaving your place. Some articles contain sidebars with links to external additional information relevant to the topic. Many of these links are hot, so tapping on them takes you out to their location, such as or other sites. When you reopen the On Investing app you are returned to the same point where you left off. There is also a nice search function to help find items within the issue. The app can store back issues on your iPad which makes it easy to revisit older articles when you wish.

In general, On Investing for iPad is a well-done app that provides a pleasurable reading experience and lets you keep the publication handy on your device for access at your leisure. Currently, it is only available on the iPad.

There are many mobile applications for money management and investing but I think you will find these two very useful and easy to use. If you have any questions about them, you can contact me through Todd and I will be glad to help as best I can.

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Filed under + Retirement

Is This the End of the World?

Six years ago our expectations were for 3% GDP growth in perpetuity with double digit stock market gains and early retirement for everyone as they gradually unloaded their real estate holdings and checked into the Club Med.  Obviously, those expectations were flawed.  Nobody saw the Financial Crisis and the Great Recession coming.  Hindsight is 20/20 and it’s painfully obvious today that the real estate bubble had to pop but it’s impossible to see the future clearly whether you’re standing at the beginning of a boom or the beginning of a bust.  Nothing worked out the way we thought they would.  In my experience, very few things do.
Some people have lost hope because their plans for the future have changed.  I’m not one of them.  We can’t control how Congress or Central Bankers or the financial markets behave.  But we can control our behavior.  We can choose to be pragmatic, to make adjustments, to plan the best we can with the cards that are dealt to us, to have hope.
We choose how much risk we are willing to take by designing our asset allocation. We populate that allocation with the best components in each asset class.  Then we remain calm and maintain our long-term perspective.  I wouldn’t be surprised if we’re in for better economic growth than is currently anticipated.  Expectations are so low just about any positive bump would exceed them.  Maybe this will be the best fourth quarter and Christmas season for consumers in years?  We’ll just have to wait and see.

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Filed under + Economics, Politics and Financial Planning

Three Big Asset Allocation Mistakes

Central bankers have created a dangerous environment for the average Mom and Pop investor to create, protect and grow their savings. I’m  concerned that many families are taking on more risk than they realize.  Most investors are tilted heavily in one of three directions:
1. Too much cash.  Fear of loss is a powerful motivator.  Every portfolio needs some cash but too much cash is risky because it is earning negative real yields due to inflation.
2. Too much in bonds.  If a bond earns a higher yield it is because it is riskier.  Bonds move inversely to interest rates and there is only one direction interest rates are going to go in the next five years.
3. Too much in stocks.  Dividend yields on stocks are better than many investment grade bonds.  But stocks are much more volatile than bonds.  Even awesome stocks like McDonald’s and Coke and Altria.
The art of wealth management is designing the right recipe of these asset classes to manage risk appropriate to the emotional and long-term financial needs of our families.

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Filed under + Economics, Politics and Financial Planning

Volatility is Coming

The main risks we are facing are slowing global economic growth and the European currency crisis.  Both of these are political risks driven by fiscal (i.e. Congress and European Union Bureaucracy) policies of taxing and spending, not monetary policy (Federal Reserve, ECB, etc).  Central bankers cannot solve our problems, only politicians can.  Unfortunately, that isn’t very inspiring with the leadership we’ve experienced.  I believe the euro will survive but it will have fewer countries in the currency block during the next decade.

Financial markets are going to be manic depressive for the next four months.

1. The elections this fall will set the tone for economic policy in the coming decade with two polarized camps with completely opposite and contradictory solutions to our problems.  The Bush Tax Cuts expire in 2013.  The Obamacare tax hike will arrive shortly thereafter.

2. Europeans have implemented another short-term fix to their long-term problems.  The currency zone will shrink with Greece being the template for expunging countries.

3. I recommend that you watch “Duck Dynasty” on A&E and avoid financial news channels. They don’t add value.  They just create unactionable noise that is detrimental to peace of mind.  I also like Forbes magazine and the weekend edition of the Wall Street Journal.


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Filed under + Economics, Politics and Financial Planning