Going Beyond Money to Find Meaning in Retirement Planning

Going Beyond Money to Find Meaning in Retirement Planning

By Joe In October of 2018, I had the opportunity to attend the annual BAM National Conference, a gathering of like-minded professionals who ascribe to the ethical, evidence-based values of the BAM advisor community. One speaker’s talk about everything beyond money in retirement planning was especially eye-opening. Alan Spector is now retired himself, from his position as Director of Worldwide Quality Assurance for the Procter & Gamble Company. He has also done a lot of consulting on management and quality assurance and has written four books. In his experience, people often ask, “Can I afford to retire?” and stop there. But there is so much more to consider. His talk, “Financial Planning: Beyond the Numbers,” shifted the focus of the conversation to what retirement will actually look like. While financial security is often the first concern, it is also important to consider what you need to do to ensure your retirement is fulfilling. For example, if you have a passion for experiencing the world through travel, you will want your financial plan to make it possible to do it in retirement. You assume that it will be a fulfilling experience. The trouble with assuming is that acting on passion in practice is often different from what we envision. It may turn out that travel actually takes you away from what you are more passionate about in practice. Once you start globetrotting, you may realize there are social organizations close to home you miss being more engaged in. Or there are charitable causes in which you long to take a leadership role. What Spector recommends is a concept he calls...
The S&P 500 Goes Supernova

The S&P 500 Goes Supernova

By Jared Kizer I think most investment professionals are generally aware of how well the S&P 500 has done relative to virtually every other asset class since the end of the global financial crisis (GFC). A bit more precisely, the S&P 500 is up 352 percent from March 2009 through October 2018 while international developed stocks, emerging markets stocks and bonds are up 140, 142 and 39 percent, respectively. What you might be surprised to know though (I certainly was) is that it’s almost impossible to simulate another same-length period where the S&P 500 had better risk-adjusted returns. In other words, saying the S&P 500 has done well during this period is a gargantuan understatement. As we will see, it’s done so well that it’s reasonable to ask whether anyone alive will ever experience a better performance period for U.S. large-cap stocks. The last sentence may sound extreme, but I think returns data for the S&P 500 illustrates just how mind-blowingly astounding the post-GFC returns experience has been. Using a technique called bootstrapping (also referred to as re-sampling), you can take the entire historical returns history for any asset class and build out an extremely large number of alternate histories of any length. For example, you can use the entire monthly returns history of U.S. small-cap stocks to build out 100,000 unique, 10-year-length histories to get a sense of what’s theoretically possible, performance-wise, over a 10-year period. As you might guess, bootstrapping is very similar to Monte Carlo simulation with the key difference being that bootstrapping directly utilizes historical data as opposed to simulating returns according to a particular...
Temperament Trumps Intellect in Investing

Temperament Trumps Intellect in Investing

By Larry Swedroe Legendary investor Warren Buffett famously stated: “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.” The reason temperament trumps intellect is that having the right temperament is what allows you to ignore the “noise” of the market and be a patient, disciplined investor, adhering to your well-thought-out plan through the inevitable bad times—times when even good strategies deliver poor outcomes. What does it take to be an investor whose temperament allows you to be patient and disciplined? My almost 25 years of experience as an advisor has taught me that there are seven keys to success. The first—and most important—one is that you need to understand the nature of the risks of an investment before you commit to it. 1. Understanding the Nature of Risks Before Investing When investment strategies are working, delivering positive returns, it’s relatively easy to stay the course. However, your ability to withstand the psychological stress that negative returns (or even relative underperformance) produces is inversely related to your level of understanding of the nature of risks of an investment. That means you have to understand the sources of risk (what could cause returns to turn negative or be below expectations) and return for an investment. You should also understand how the risks of each investment correlate with the risks of other investments in your portfolio (whether correlations tend to rise or fall when your other portfolio assets are doing poorly). 2. Know Your Investment History To paraphrase a noted Spanish philosopher,...
A Guide to Starting Family Financial Conversations

A Guide to Starting Family Financial Conversations

By Jeff Johnson I’ve been a close observer of the way families make, communicate and implement financial decisions for most of the last four decades. In that time, I have learned that many individuals and couples make family wealth and lifestyle planning decisions privately, then avoid discussing them with other family members because it’s an uncomfortable conversation. The family leader or leaders usually know it would be better, in many cases, to explain details, discuss issues, and secure commitments to and acceptance for the family’s financial direction. Clarity equals confidence, and being financially confident empowers a fuller life for all involved. Yet many, if not most, family leaders struggle to share the intimate specifics, fail to collaborate on decisions, or neglect to have reasonable and open conversations about a range of family wealth and life planning matters. In my experience, the reason for this is twofold. First, as I previously mentioned, it’s just plain uncomfortable (or, at least initially, easier to do nothing at all). Second, few people are trained to hold money discussions and just don’t know where to start or how to do it. So, you may ask, what exactly is involved in starting a constructive dialogue about your family finances and the decisions that affect them? Having worked with hundreds of families to meet their life and long-term financial goals, and based on my unscientific observations, here is where and how you might want to start your family’s next important conversation about money: 1. The late Stephen Covey, a legendary author and speaker, advocated planning by “starting with the end at the beginning.” Before sitting down for...
Fires in California Remind Us to Use Our Hearts and Heads

Fires in California Remind Us to Use Our Hearts and Heads

By: Joe Delaney At times like these, when record-breaking fire is again ravaging parts of California, we remember that our financial portfolios are not just numbers on paper. They are about protection for ourselves and our loved ones. They are also about our human desire to be good custodians of the world and empathic neighbors. Here in the San Francisco area, we at Lifeguard Wealth are having a lot of conversations with people about what they can do to help. We share our thoughts below. First, let’s summarize what’s happening in this state. Wildfire Update At the time of this writing, the Camp Fire in Butte County, northern California has become the most destructive and deadliest in California history, eclipsing last year’s Tubbs fire in Santa Rosa. CBS News reported on November 13th that it had burned through 130,000 acres and taken 48 lives. Meanwhile, the Woolsey and Hill Fires are burning to our south, northwest of Los Angeles. These have claimed over 100,000 acres and 2 lives. As always, high winds, high temperature and dry air are fueling this latest outbreak. Firefighters are doing their best to channel the blaze away from population centers, but many people have already lost their homes and business. There will be more destruction before this is over. How You Can Help (and Be Smart About It) There are many organizations you can support that are claiming to help. It is important to use both your heart and your head when the need is so great. If you do not have a personal relationship with a charity’s leadership, you must do your research...
Riding The Elephant: Mastering Decision-Making In Money And Life

Riding The Elephant: Mastering Decision-Making In Money And Life

By Tim Maurer The most compelling findings regarding financial decision-making are found not in spreadsheets, but in science. A blend of psychology, biology and economics, much of the research on this topic has been around for years. Its application in mainstream personal finance, however, is barely evident. Perhaps a simple analogy will help you begin employing this wisdom in money and life: The Rider and the Elephant. First, a little background. Systems 1 and 2 Daniel Kahneman’s tour de force, Thinking, Fast and Slow, leveraged his decades of research with Amos Tversky into practical insight. Most notably, it introduced the broader world to “System 1” and “System 2,” two processors within our brains that send and receive information quite differently. System 1 is “fast, intuitive, and emotional” while System 2 is “slower, more deliberative, and more logical.” The big punch line is that even though we’d prefer to make important financial decisions with the more rational System 2, System 1 is more often the proverbial decider. Many other authors have built compelling insights on this scientific foundation. They offer alternative angles and analogies, but I believe the most comprehendible comes from Jonathan Haidt. The Rider and the Elephant The author of The Happiness Hypothesis and a professor at New York University’s Stern School of Business, Haidt describes the two systems in a helpfully visual way: The mind is divided in many ways, but the division that really matters is between conscious/reasoned processes and automatic/implicit processes. These two parts are like a rider on the back of an elephant. The rider’s inability to control the elephant by force explains many...
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