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How Does Your Door Fit?

Is by "design" or by "default?"

As I was reading Simon Sinek's recent offering, "Start With Why," a story he told early on in the book resonated with me, not only from the standpoint of entrepreneur/business owner but also from the perspective of wealth manager/advisor. 

It seems that a ways back,  some U.S. car manufacturers had visited a Japanese auto manufacturer and were watching the various tasks that were performed along the Japanese assembly line.  While much of the work was the same as "back home,"  the one thing the U.S.  delegation noticed that was missing,  was that in the U.S. there was a last person at the very end of the line who was tasked with whacking each car door with a rubber mallet to get the door to sit properly and line up with the overall body contour. 

When questioned about why step didn't exist in Japan,  the American's Japanese counterpart noted that "we design the doors to fit from the beginning, that's the difference." 

Many people treat their efforts at achieving financial success and as a result the life that they truly desire, in the same way as the American auto assembly line; they treat each and every financial transaction, be it, picking a money market account or deciding on an investment allocation for their 401k plan, about like a U.S. car door; whack it till it ultimately fits, even if it doesn't.

The "piecemeal"  approach is seldom ever going to be efficient and like the U.S. auto builders who had to pay a union worker to swing the mallet and purchase lots of rubber mallets for them to swing, generally, in the long run to be sure, it's going to be more much more expensive. 

Because we fail to choose a path to take, cobbling together financial assets and financial decisions seems the norm.  Without a well thought out plan, we have little context to balance our decisions against. Absent a well defined standard, almost everything is going to fit more-or-less, even if we have to hit it with a mallet to make it so. But the reality remains that it didn't really fit at all did it?

To be sure, it's one more thing checked off the list. But that doesn't make it either effective or right, does it?

The fact is, that on its surface, you'd have a hard time telling the folks with a well thought out plan and path from the ones without one. But, over time, as calamity and change have their influence, it wouldn't be hard to tell at all.  If you never had a plan, it'd be awful hard to stick to it. 

Set a course for your financial future and stick to it. Decide what you'll need to live the life you truly believe that you're entitled to based on a lifetime of work, then figure out how to get there.  There are steps, pragmatic and calculable ones, that put you on the right course. 

Find them. 

All You Really Need To Know.

Confusion is a good thing if you're fearful about moving forward. Confusion is one of the most reliable methods of ensuring you stay right where you are, without any requirement for change. 

When we're feeling especially fearful we focus on the uncertainties around us largely because those uncertainties fuel the confusion. And, keeping "confusion" active assures that we're likely to not take any direction action.

No matter how hard we try or how much analysis we look at, big decisions will never feel safe. 

One of the benefits of my work is the amount of data that there is that can be used in trying to help Clients resolve their personal financial issues. There are also an abundance of tools to use through which you can incorporate that data and fashion a reasoned and well thought out game plan.

Does that mean we should use all the data that there is?

We should if our goal is to create more confusion. 

Part of the "art" of Wealth Management planning lies in knowing how much data is the right amount of data.  As a rule, that would be the amount of data that allows for me to quantify why the "unacceptable today" has to be moved out of the way so that we can glimpse the "desired tomorrow." 

These concepts don't apply to only Wealth Management planning. They apply to all decisions of whatever kind. 

Taking action, beginning the steps toward resolution of a matter isn't going to begin with a focus on yesterday and tomorrow. You can talk about how you got here and where you'd like to be without ever once having to write down an action step. It all has to start from the realization that "today is an unacceptable tomorrow." 

All you really need to know is what's important now. 

If you can state that, you're on our way out of confusion and toward resolution and action.  

Living longer...Working longer.

The average age at which an American worker retires is now reported to be 62 and that's the highest self-reported average age in 23 years.  

A recent Gallup study showed that in 1993 the average age was 57 and even as recently as 2010-2012 the age hovered at around 60.

But for many, even age 62 may be too early.  No doubt that the average age has creeped up, with the lack of a reliable program of saving/investment during their lives, and/or the Great Recession "mark-down," it's not hard to understand the "need" to work longer. 

And, there are for sure, workers who are working because they love their work or they feel more fully alive and involved when they are pursuing their passion so they've chosen to continue at their life's work. And, I think,  we can be relatively certain that the extra money doesn't hurt either. Also, I'd bet that as the percentage of total jobs moves more towards "technology" and less toward, manual labor, we wouldn't be surprised to see the age creep even more in the future, just as a natural outgrowth of the societal impact on work itself. 

Ironically, about the same time as the Gallup organization was asking about retirement ages, they were also asking the American public what their biggest financial fear was and as you might image, not having enough for retirement came in at the top of the its at 59%. The harmony between "working longer" and "not having enough for retirement" is almost scary, but, this too is not to be unexpected. 

So what's the answer?

I think in the last few years I've written more than a few blogs about changes that need to take place in the workplace, whether that's that we provide new incentives for increasing investments in saving for retirement, develop a newer/better retirement plan system or some other improvements (if you're old enough you can remember when your pension might have been 66% of your highest three years average earnings).

Surely we can do a much better job on financial education, an area where we do very little in relation to what we could potentially do. Teaching people how to handle and manage money is a skill that pays benefits for a lifetime. And middle school, yes, middle school, is a good place to start. 

I think that actually planning for your future also pays substantive dividends (no pun intended) and if possible or preferred, people should commit to working with someone who can help them understand the financial structure of working toward, to and through retirement. 

What passes my understanding is how frequently we seem to refer to the retirement problem as if there's no existing means to remedy it. Odd isn't it that when we talk about childhood obesity or obesity in general we can pretty quickly come up with "diet and exercise" as steps that should be undertaken to stem the tide on weight gain. 

Likewise, shouldn't the first thing that comes to mind when we're talking about providing for our own financial security be something like, "set your goals, have a plan..?"  

So, what's the problem?

Over the thirty years that I've been in the financial services profession, there's been the often used saying that "more people plan their vacation, than plan their finances" and from what I've seen that is a true statement. 

But the key to all this may lie in the fact that we CAN plan our vacation and if we CAN plan that, then we've got the appreciation/understanding/ability TO plan anything else.  So whey don't we?

There a a host of rationale and irrational reasons we don't and a series of blogs could be written explaining, validating or invalidating almost all of them in some way. 

In the interest of brevity, let's conclude on this thought. 

"If you don't know where you're currently situated on a map, you have little idea in which direction your next step should be."

Figuring out where you are doesn't take planning it takes quantification. Figuring out where to take the next step means you've been moved to action, an often unintended benefit of the "quantification" process. This is the nexus at which we cross from "quantify" to "plan." 

Even if you're not a planner, take the first small step and "quantify."  

Knowing where you're situated is seldom ever a bad thing, trust me on this one.

Avoiding The Low Interest Rate Trap

For many pre-retirees and "in place" retirees, this extended period of low interest rates presents a financial conundrum; how to keep pace with rising costs, when your income specifically can't?

Feeble returns on safe investments such as bank deposits and bonds may hinder retirement income models for another decade according to a recent interview with Bill Gross, manager of the world's biggest bond fund. Currently the average yield on a five-year CD is about 0.8% compared with 2.26% back in 2009. 

But, for the record, the problem here lies not so much in the environment of low rates, as it does in the misguided approach that most American's take to retirement. 

It's long been said, that inflation, especially when it's lowest is at it's most insidious levels. With an average inflation rate of around 3%, retirees hardly notice year by year the rate at which their prices are rising.  When rates are low, inflation spends much less time as a topic addressed by the mainstream media, and the less that investors/retirees hear about it, the less that they factor it into their thinking in planning for their future. 

It's All In How You Look At It

America suffers from many ills as it relates to retirement. Many of those are self inflicted like the problem that low yields portend for keeping pace or actually enjoying retirement. But, many of those exact problems are caused by the perception of retirement. 

Striving to reach an artificial finish line such as "your retirement date" or turning 65 or collecting your first Social Security check, clouds our thinking.  Many retirees have a life expectancy much longer than they think that they do.  Given that, it might be best of we reframe the problem: 

"The finish line is your date of death, not your date of retirement.

I'd bet if we looked at the problem that way, we'd understand better that keeping pace with inflation and not relying on "fixed income" in a world of nothing but variables, probably isn't a wise path to take. 

The "income straight jacket" is especially concerning. 

The income straight jacket exists because too many American's believe that when they retire their time horizon for investing has now ended, they've made it, they got to the finish line. So, it would appear to be time to employ a different strategy.  Instead of investing for growth, the default becomes to position the portfolio to replace the very thing that they had when they were successfully making it (i.e., when they were working) namely income. 

Portfolios replete with high dividend paying stocks and fixed income abound. But there's a problem lurking in the shadows; when interest rates rise and the underlying value of their entire portfolio starts to drop, the decisions that need to be made become more problematic. 

Not only can't their portfolio income keep up because many of those rates are locked in; but the value of everything is declining as well, making the notion to initiate some change even more daunting. Who wants to sell as prices are dropping off the cliff?

Over the last few years there's been more than a few articles on the impact of lower than average interest rates on retirement and retirement income. But I'll submit that if you used bad math and poor judgement to build your portfolio in the first place, it's not a surprise that the "market" has found a way to make your bad decisions cost you. 

The Problem With Low Rates Is Our Reliance On Them Not To Be....

In and of themselves, lower than normal interest rates should not be much of a concern. Oh sure, they deserve some attention on how things are built and managed, but lower than average rates are not the death nell that we're hearing about. 

I'd bet that there are few people who are complaining that inflation (a number typically tied to the overall level of interest rates currently in play) isn't high enough or that you're ready to step up to the plate and have your mortgage and/or home equity loan rates move up to around 7%. 

Thinking that you're going to earn 8% on fixed income or bank investments when the inflation rate is 3% is about the same as the Client who would like to earn 10% on the stock market but just not have any isn't going to happen.  At point of fact, I'm not sure that it could happen. 

A local sports radio celebrity often comments about "mediocre" sports teams who seem to playing way better than they should be.  His comment about those teams seems true here as well; 

"The reality is that if your teams got problems, real problems, it's only a matter of time until those problems become real and your run is gonna end...."

Likewise for building a portfolio. 

Or a house, or a car, boat, sports team or business.  Weaknesses have an odd way of finding weaknesses in a relatively efficient manner. 

So stop waiting for rates to go up if for no other reason than you can't make that happen and start focusing on what you can do for yourself.

Sit down with someone who knows how to construct a plan for your retirement and your portfolio based on all the relevant factors, not just the ones we'd like to see happen. 

The Ostrich Problem

"After all, it feels good to keep moving, and who wants the frustration of discovering that they've actually been driving in the wrong direction...?

The snippet above is from an article at by Christian Jarrett on "The Ostrich Problem" and The Danger of Not Tracking Your Progress.  If you read the article you'll find a certain reference in there to yourself somewhere and it not to yourself most certainly to someone you love, or know well. (the fact that you don't recognize yourself is another ostrich problem.)


Now, I know that finance is my job and I tend to focus on it in most of the blogs I write so It shouldn't come as a surprise that I'm going to do it again. 

So, let's think for a moment about all the problems that the Ostrich Problem creates in the realm of personal finance and to help us all out, I'll list the ones that quickly come to mind; 

  • Bad investments
  • Bad insurance programs
  • Bad estate plans
  • Not having enough money for a goal
  • Not having enough money to retire
  • Not having enough money to stay retired
  • Leaving your heirs worse off than you'd ever imagined
  • Bad portfolio design

Ok, there's a few. 

Most of these maladies are caused by the simple fact that as humans; we avoid feedback loops that confirm the negative fears that we have. Like a plague we avoid them. And, this is what really compounds the bad decision.  I mean really, it isn't that we're somehow going to stop making bad choices but it's when we ignore them after we've made them that the damage starts to spread in an almost unworldly way. 

"The temporary pain of negative feedback is nothing compared with the crushing experience of project failure......."

Another snippet from Christian that rings so absolutely true. 

Risk in investing is and likely always won't be defined by market volatility. 

Risk in investing is the probability of not having the money you need when you need it. Think, daughter's wedding, kids college and worst of all, retirement. The problem with getting off course and not knowing it is that we have then no ability to initiate interim course corrections. 

I think that Christian might have it just right at the close of his article....

It's ok that you haven't been checking, now forgive yourself and start checking. 

One of the true benefits of planning lies not so much in it's ability to anticipate the future as it does in it's innate ability to quantify the present. 

"Bottle of red, bottle of white......"

Billy Joel suggested a choice of your favorite wine for that special date. That still "might" be a good idea, but read on. 

Daylight savings time has been tagged as a great opportunity to "check the batteries in your smoke alarm." I like it, it works, if you do it enough, one becomes the other, it's an automatic way to remember something important to do that might otherwise slip through a crack.  

So, here's another suggestion.....

This is Russell during one of our recent conversations where I explained we needed to cut back on buying cat treats.....note he's not happy. 

This is Russell during one of our recent conversations where I explained we needed to cut back on buying cat treats.....note he's not happy. 

How about setting a date each year to sit with your spouse, partner, family, or your pet if you were not to have any of the former to sit with, and talk about your "financial goals?" I mean really talk about your financial goals. (Yes, for the record, I do talk to my cat, Russell. (And, he pretends to listen but almost never agrees with me.)

If you can't or won't layout a well defined and professionally crafted plan, at least have an informal one. Even talking about specific goals can set you on the path to making strides at improving those things you've chosen to do better, such as;  

  • eliminating or cutting down credit card debt
  • living within a reasonable budget for Holiday shopping
  • saving more next year
  • getting your estate plan in order (has it really been that long since you last checked what your Will says will happen to the totality of your worldly possessions? Do you even have a Will done?) 
  • increasing your 401k contributions? 
  • figuring out what college is likely to cost

There's a long list of things that we could add, but that's not the point.  

The point is that "planning" starts with the realization that [a] there's stuff to get done and [b] there's usually some logical steps that can be taken to assure at least some progress towards getting those things done, right?  

So, be it Merlot, Chard' or Pinot, get comfortable, pour a glass for you and your significant other and get it going. Don't try to solve all the woes at once, pick one thing, state your intentions and then figure out how to make it happen.  

Where it goes from there is entirely up to you.  

Getting into a fight about it probably isn't recommended. 

So enjoy the process and the wine.