Posts by sylvia

Building an Evidence-Based Plan — April 2017

April 27th, 2017 Posted by Investment Strategy, Uncategorized 0 thoughts on “Building an Evidence-Based Plan — April 2017”

Intro: THE FOUNDATION FOR A BETTER WAY TO INVEST    

“Control what you can control.” —David Butler, co-CEO, Dimensional Fund Advisors

By following the above five words from Butler, investors can help simplify their complex financial lives. Out of thousands of pages of scientific research, a cornerstone of evidence-based investing emerges: Control what you can control. Control the fees you pay and your trading costs. Control your tax efficiency and your asset allocation. Control how closely your emotions are tied to an up-and-down market. Bigger picture, you can take better control of your entire financial experience.

This article looks at foundational tenets of evidence-based investing, as practiced by OpenCircle, to give you confidence when you think of where you are and where you want to go.

DIVERSIFICATION

“Diversifying your wealth across a variety of market risks helps you remain on course and in the driver’s seat, even when the road ahead is uncertain.” —Manisha Thakor, director of wealth strategies for women, the BAM ALLIANCE

For an example of why we stress the importance of having an internationally diversified portfolio, just go back a few weeks. The first quarter of 2017 closed strongly for developed international and emerging markets (up 7.4 percent and 11.5 percent, respectively). This came when many investors had cooled on international stocks after they significantly underperformed U.S. markets from 2008-2016. But not so long ago (2002-2007), the MSCI World ex USA Index returned 128.7 percent compared with 42.5 percent for the S&P 500 Index. Diversifying your portfolio so it has exposure to both U.S. and global equity markets allows you to capture market upswings and withstand its downswings over the long haul.

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Click here or the image to see the up-and-down nature of various asset classes on a year-by-year basis from 1992-2016 as well as their 20-year annualized averages and the single best and worst years of these classes from 1997-2016.

All of this underscores the importance of being diversified and — the topic we’ll address next — being disciplined.

DISCIPLINE

“Inactivity strikes us as intelligent behavior.” Warren Buffett

Buffett is really smart and really good at making money. But he makes an important point when it comes to someone having the ability to outsmart the market. “Success in investing doesn’t correlate with IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people in trouble investing.”

Too many investors buy stocks during upswings when all feels good and sell during downward spirals when uneasiness seeps in. This lack of discipline can cause investors to be on the sidelines when markets rebound, causing missed opportunities. Click here or the image to see the cost to investors when they miss the best one, five, 15 and 25 days of market performance during a 45-year period.

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Patience and prudence are central to an evidence-based strategy. Stay true to your well-devised plan while rebalancing periodically. Doing so will keep your portfolio in line with your target allocations and will enable you to capitalize on buy-low/sell-high opportunities.

MANAGING RISK

“The makeup of your portfolio depends entirely on your unique ability and willingness and need to take risk.” Larry Swedroe

Swedroe, a prolific author and the director of research for the BAM ALLIANCE, says the ability to take risk is largely defined by the investment horizon, the stability of an investor’s income and the need for liquidity. Swedroe says the willingness to take risk can be succinctly summed up through the “stomach acid” test. Can you stick to your plan even when the market goes down for an extended period? This includes rebalancing — selling what has done relatively well or held its value and buying what has done worse. The need to take risk is determined by the rate of return that is needed for you to reach your financial goals.

Picture3Of course, the word unique is critical as well. The ability, willingness and need to take risk are highly personal decisions. They vary for each investor’s specific circumstances. However, you can view general guidelines for prudent asset allocation decisions by clicking here or the image.

FOLLOW THE EVIDENCE

“It’s just fun to do research, learn new stuff, and potentially have an impact on the way other people are thinking about the world.” Kenneth French, professor, Dartmouth College

No room for speculation, prognostication or hunches, the evidence-based world is rooted in decades of objective research on the long-term behavior of financial markets. We use that evidence to tilt portfolios toward the asset classes that have delivered the highest returns over the long haul and should continue to do so. Click here or the image to see the return profiles of distinct asset classes during the period of 1931-2016.

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This research leads to plans that keep costs low, minimize risk and implement tax-efficient strategies. The evidence results in portfolios that are diversified domestically and internationally. Those same portfolios use fixed income to dampen volatility and address the risk tolerance of each investor.

To learn more, please be in touch with us at OpenCircle, 203-985-0448.

Minimize to Maximize Your Life

April 20th, 2017 Posted by Life Planning 0 thoughts on “Minimize to Maximize Your Life”

Less is more. That familiar concept has picked up momentum with a movement toward minimalism that has taken many forms. This minimization sensation has had an influence on what people are eating, how they are shopping, when they are using their electronics, and many other aspect of their routines — all in an effort to sharpen their focus and lead more fulfilling lives.

There’s a perception that being busy means you are really important. There’s also a reality that being busy means you aren’t at your best. Tim Maurer, our director of personal finance through the BAM ALLIANCE, says we tend to underperform when we’re overloaded. Slowing your pace can help you be more productive.

For example, instead of making your to-do list a mile long, then racing all day to try and cross off as many items as you can, cut it back to the few things that you truly need to address that day. Then, spend your precious time and narrow focus on those very things, allowing them to receive the attention they deserve.

Maurer suggests that when you are writing your selective to-do list, it’s best to put down your electronic device and do it with old-fashioned pen and paper. He states that emails and digital reminders distract and interfere with our planning, and that the act of having to physically write or rewrite a task forces us to ask whether it’s worth doing in the first place.

You may also want to take a step back and look at the big picture of your calendar. It may be possible to cancel some upcoming events that are not essential. Thank of it as decluttering your schedule. The “found” time can be used to complete items on your to-do list, or to unwind.

Minimizing can also mean paring what you’re wearing. Closets are becoming less cluttered as people are finding freedom by limiting their wardrobe choices, affording them fewer decisions and less stress during their routine of getting ready for each day. Another strategy is to pull one item out of your closet each day that is getting worn only by hangers. Do this for 30 days (each season as necessary) and then donate your collection of good-but-rarely-worn clothes to those who need them.

There are other daily habits you can adopt to help you slow down, such as:

  • Pause during the day to focus on breathing
  • Allow time for thinking
  • Go for a walk or do some slow stretches
  • To avoid over-committing, learn to say “no” gracefully
  • Turn off electronic distractions when you need to focus on the current task
  • Take time to celebrate accomplishments with friends and family.

 

Doing more with less is big in our world, and it’s not new or trendy to us. When it comes to this concept, we long have espoused the value of trading less; minimizing taxes; turning down the noise from Wall Street; decluttering our clients’ financial lives; and boiling down what truly matters to them, so they can create a clear life-plan to-do list.

We hope you enjoy these suggestions about minimizing for the sake of maximizing your life. Please reach out to us if you ever want to have a conversation about these or any other topics. We look forward to hearing from you.

Fiduciary Now. Fiduciary Always.

February 23rd, 2017 Posted by Financial Education, Life Planning 0 thoughts on “Fiduciary Now. Fiduciary Always.”

You may have noticed the word fiduciary bouncing around the news lately. The Department of Labor (DOL) announced in April 2016 that financial advisors who provide retirement investment advice would be held to a new fiduciary rule — that is, they would be required to put investors’ interests ahead of their own. What followed was applause in some corners, angst in others, and spirited dialogue and debate all around the room. Now, the fiduciary rule hangs in midair as the new administration has asked the DOL to review the wide-ranging implications if the rule is implemented.

What does all of this mean for our clients? Absolutely nothing.

We have already committed ourselves to the highest fiduciary standard — voluntarily, happily, and with a tremendous amount of pride. We avoid conflicts of interest, and provide guidance and services that are always the best for you.

No matter how things play out with the fiduciary rule, we are committed to doing what’s right for you. We don’t need a rule to guide us. We already do the right thing. We always have, and we always will.

The concept of working with a fiduciary has been awakened. There is now a broader awareness of what it means and how it helps investors. If you know someone who is currently not being served by a fiduciary advisor — someone we can help — please let us know. We are devoted to helping investors reach their highest aspirations by serving as their advocates.

We’ll close by sharing a comment from Tim Maurer, our director of personal finance through the BAM ALLIANCE. He says, “Fiduciary — to me, to us — is really about a state of heart, a state of mind. It’s the way we operate. It’s who we are. It’s the only way we know how to do things.

If you would like to discuss this topic, or any other financial planning matter, please give us a call at 203-985-0448. We look forward to hearing from you.

[Photo credit: Stuart Anthony on Flickr.com]

 

 

Financial Planning Glossary

February 14th, 2017 Posted by Financial Education 0 thoughts on “Financial Planning Glossary”

401(k) – A 401(k) Plan, according to the IRS, is a defined contribution plan where an employee can make contributions from his or her paycheck either before or after-tax, depending on the options offered in the plan. The contributions go into a 401(k) account, with the employee often choosing the investments based on options provided under the plan. According to other sources, a 401(k) plan is a qualified employer-established plan to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Plan sponsors are typically the fiduciary (see below), but can work with OpenCircle to transfer their liability as well as ensure that excessive fees are not leaching employees’ retirement funds.

Asset Management – Asset management is a systematic process of positioning, operating, maintaining, upgrading, and disposing of cash, securities, property and other valuables cost-effectively. The term is most commonly used in the financial world to describe people and companies that manage investments on behalf of others.

Balance Sheet – A balance sheet is an entity’s statement of assets, liabilities, and equity at a given point in time.

Bear Market – A bear market is a condition in which securities prices fall and widespread pessimism causes the stock market’s downward spiral to be self-sustaining. Investors anticipate losses and selling increases.

Bonds – Also known as fixed-income securities, bonds are debt instruments created for the purpose of raising capital. They are essentially loan agreements between the bond issuer and an investor, in which the issuer is obligated to pay a specified amount of money at specified future dates. There are four major bond types in the US markets: Corporate, Treasury (US government), Agency (US Government-Sponsored Enterprises or GSE), and Municipal (state, city or local government).

Broker – A broker is a person or company that is in the business of buying and selling securities (stocks, bonds, mutual funds, and certain other investment products) on behalf of its customers. A broker charges a fee or commission for executing buy and sell orders submitted by an investor.

Bull Market – The opposite of a bear market, a bull market is a condition in which share prices are rising. The resulting investor optimism leads to increased buying of securities.

Certified Financial Planner (CFP)® – Individuals who have been authorized to use the CFP® mark in the US have met rigorous professional standards and have agreed to adhere to the principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence when dealing with clients. Alex Madlener, founding principal of OpenCircle, is a CFP®.

Commission – A commission is a form of payment to an agent or broker for services rendered or products sold.

Diversification – Diversification is a strategy designed to reduce exposure to risk (see below) by combining a wide variety of investments within a portfolio.

Dividend – A dividend is a payment made by a company to its shareholders, usually as a distribution of profits.

Dow or DJIA – The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ (see below). The DJIA was invented by Charles Dow back in 1896.

Estate Planning – Estate planning is the process of anticipating and arranging, during a person’s life, for the management and disposal of that person’s estate during the person’s life and at and after death, while minimizing gift, estate, generation-skipping transfer, and income taxes.

Fee-based or Fee-only Financial Planners – Fee-only financial planners are registered investment advisors with a fiduciary responsibility to act in their clients’ best interest. They do not accept any fees or compensation based on product sales. Fee-only advisors have fewer inherent conflicts of interest, and they generally provide more comprehensive advice.

Fiduciary – A fiduciary, such as OpenCircle, is an entity who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other asset for another person.

Financial Advisor or Planner – A financial advisor (or adviser) is a qualified professional who renders financial services to individual and corporate clients to help them meet their goals. According to the FINRA (see below), terms such as financial advisor and financial planner are general terms or job titles used by investment professionals who also specialize in tax planning, asset allocation, risk management, retirement planning and estate planning.

Financial Planning – Financial planning is an ongoing process to help you make sensible decisions about money in order to better achieve your goals in life. See Financial Advisor/Planner above.

FINRA – FINRA, the Financial Industry Regulatory Authority, is dedicated to investor protection and market integrity through effective and efficient regulation of the securities industry. FINRA is not part of the government. It is an independent, not-for-profit organization authorized by the US Congress to protect America’s investors by making sure the securities industry operates fairly and honestly.

Hidden Fees – The process of investing may have hidden fees, or fees that are not always clear or fully evident. Fees that are not visible to investors, especially in mutual funds, may include managerial fees, compliance fees and marketing expenses. OpenCircle’s fees are not hidden; they are transparent (fully disclosed).

Investing – Investing is the act of committing money or capital to an endeavor (a business, project, real estate, etc.) with the expectation of obtaining an additional income or profit.

IRA (Individual Retirement Account) – An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.

Life Planning – Life planning is OpenCircle’s first step in comprehensive financial planning, based on the premise that advisors should first discover a client’s most essential goals in life before formulating a financial plan, so that a client’s finances fully support those goals.

Liquidity – Liquidity is a measure of the extent to which a person or organization has easily accessible cash (or assets that can be quickly converted to cash) to meet immediate and short-term obligations.

Market Price – Market price is the unique price at which buyers and sellers agree to trade in an open market at a particular time.

Margin –  Margin is a type of financial collateral used to cover credit risk. In investing, buying on margin refers to the practice of buying an asset and paying only a percentage of the asset’s value, while borrowing the rest from the bank or broker. The lender or broker uses the funds in the buyer’s securities account as collateral on the resulting loan’s balance.

Margin Call – A margin call is a demand by a lender or broker that an investor deposit further cash or securities to cover possible losses. (See Margin above.)

Money Market Fund – A money market fund is a type of fixed income mutual fund (see below) that invests in debt securities (such as US Treasury bills) characterized by their short maturities and minimal credit risk.

Mutual Fund – A mutual fund is a professionally managed investment vehicle that pools funds from many investors and trades in diversified holdings.

NASDAQ – The NASDAQ Stock Market, commonly known as the NASDAQ, is an American stock exchange. It is the second-largest exchange in the world by market capitalization, behind only the New York Stock Exchange.

NYSE (New York Stock Exchange) – The NYSE is an American stock exchange located on Wall Street in New York City. It is the world’s largest stock exchange by market capitalization.

Retirement Planning – Retirement planning is financial planning (see above) that is specifically conducted in anticipation of an individual’s retirement needs.

Risk – Risk is the potential of gaining or losing something of value. All financial investments carry some degree of risk, depending on type (stocks, bonds, mutual funds, etc.).

Short Selling – Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit.

Stock – Stock is a share in the ownership (equity) of a company. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater.

Trusts – A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.