Monthly Archives: February 2014

Change

One of the really neat things I’ve learned over the years is to use symbolic shorthand. I distinctly remember a first day in a Suffolk University class called “The Psychology of Women,” and the professor wrote two simple symbols on the chalk board (I know I’m dating myself now) to say “This is the class you’re in.”

As a long time student of psychology, I’ve observed over and over that people HATE change, even if it’s a good change. Change makes humans uncomfortable. I’ve created a shorthand graphic of  my own that symbolizes how most people seem to feel about a lot of things: “No Change!” It would look something like this using a mash up of the symbols for “no” and delta (the triangle symbol) for “change.”

One thing that has not changed is Warren Buffett publishing his annual letter to shareholders in Berkshire Hathaway. In the upcoming version, Warren Buffett looks back at a pair of his real estate purchases and the lessons they offer for equity investors. It’s a great read and I recommend that you click through to it here in John Mauldin’s Outside the Box. There are many classic Warren Buffett quotes in it, but here are two that resonated with me:

“With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.”

“Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of “Don’t just sit there — do something.” For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.”

The Periodic Table of Investment Returns  depicts annual returns for eight asset classes, ranked from best to worst. Each asset class is color-coded for easy tracking. Well-known, industry-standard market indexes are used as proxies for each asset class. We use the version that SEI Trust publishes called Destination: DIVERSIFICATION, Asset Class Returns: Annual Returns for Key Indices (1994-2013) Asset Allocation Risk and Reward: Annual Returns (1926-2013).

The notable box to focus on is the plain gray one representing the 60/40 diversified portfolio which is actually the most popular choice of our clients and a typical traditional mix. How appropriate! Gray for dull and boring–no change. The observation that always occurs to me is that the gray 60/40 box is never the best and never the worst and most often in the middle, right where most people are most comfortable.

So in conclusion, if like most people you like no change, our advice is,  “Just sit there–do nothing.”  No change might be the best course after all.

Advertisements

Risk and Guaranteeing Your Retirement Income

Risk—It’s all around us but what is it?
Twenty-five years ago, my parents gave me an inspirational poster that hangs in my office with a lithograph of a sailboat that says: “RiskYou cannot discover new oceans unless you have the courage to lose sight of the shore.” Appropriate for me since I’m a sailor. I understand that risk because I do like to see the shore and when plotting the course to a distant destination like Provincetown from Boston. It does make me a little uncomfortable when I lose sight of the shore about halfway there.
I often counsel clients, friends, and family about taking “compensated (or more likely not taking un-compensated) risks.”  When asked to define risk,most of our clients tell me “it’s the risk of the stock market going down” when what they really mean is it’s the “risk of my account going down all the way to zero because of the stock market decline.” Interesting, because that has neveractually happened to any of our clients in their entire lives. Also interesting because the “headline risk” of what might be happening in the stock market is not as relevant to your accounts as you might suspect, since the exposure to the stock market in a typical Compass Capital managed account is approximately less than 40%. In other words, 60% of a typical account is NOT in the stock market. Correlations to the market are another topic.
It seems risk is an individually perceived concept. While the typical investor is focused on systemic market risk or volatility risk and perhaps inflation risk, the two risks that get my attention most as a planner and advisor are “event risk” and “longevity risk.”
Event risk by definition is unexpected. Therefore, it is important to have a flexible retirement solution in the event liquidity is needed. Having the ability to adjust distributions from a portfolio on an as-needed basis can be critical. The exogenous event risk is simply the wildcard that upsets the applecart and blows all of our predictions about expected outcomes away. It’s the “Black Swan or the two standard deviation event.”  Think of any of the major meltdowns that have occurred for seemingly trivial and unrelated reasons or the ones that we don’t even know exist yet.
Longevity risk is a really interesting and in my opinion the most dangerous risk. I usually plan out to age 100 for clients when preparing a financial planning scenario. Typically the client says, “I’ll never live that long, although my dad is 91and going strong.”  To which I reply, “What if you’re wrong?”  “What if you outlive your money?”  To win that bet you might need to lose and die before you’d otherwise wish to.
Possibly the largest single concern for retirees is that they will outlive their assets. Even sizable portfolios can be rapidly depleted given a combination of unsustainable distribution levels and/or an uncooperative market. Longevity risk is a greater concern now more than ever.  In the U.S. today life expectancy at birth in 2013 is 78.7 years. For U.S. men, the average life expectancy is 76, while it’s 81 for U.S. women. Furthermore, if we look at couples at age 65, at least one person has a 50% chance of living beyond age 92 and a 25% chance of living to at least age 97. Planning to age 100 does not seem like such a stretch.
Want to know your life expectancy? You can use Social Security’s simple Life Expectancy Calculator to get a rough estimate of how long you (or your spouse) may live http://www.socialsecurity.gov/oact/population/longevity.html
Considering advancements in healthcare, these trends are likely to continue. Unlike our fathers, fewer retirees than in the past will receive distributions from defined benefit pension plans. The days of working 40 years for the same company and receiving a percentage of salary during retirement are coming to an end for many. In 1980 there were 148,000 private sector defined benefit plans compared to just 47,000 in 2004. Also in 1980 there were 30.1 million active participants in defined benefit pension plans, but by 2004 that number fell to only 20.5 million.  These statistics suggest that a lower percentage of retirees’ income is being received in a regular “paycheck-like” manner. The responsibility of both funding and managing retirement assets—a tall order given that many investors make poor investment decisions, and don’t save enough—now falls squarely on the shoulders of the individual.
The risks that you face while drawing down your assets are much different than the risks you face while in your accumulation stage. Therefore, traditional portfolio risk measures such as standard deviation or beta are not necessarily the best benchmarks for measuring risk. Measures such as inflation risk or longevity risk, on the other hand, are much more important and relevant to an investor in distribution mode.
So what if you could add guaranteed income protection to your current investment strategy? We all routinely insure health (sickness), life (death) auto (accidents), home (fire, theft) and other property, but have you insured your retirement income (running out of money)? We now have the tools to offer you protection from the potential of outliving your money. Compass Capital Corporation, as your investment advisor, now has the ability to offer a way to combine our investment strategies with a Contingent Deferred Annuity (CDA) offered by Transamerica Advisors Life Insurance Company.  We can now structure guaranteed withdrawals as early as age 60 that may increase with age and/or interest rates. Investors can lock in 4-8% as a Coverage Percentage depending on their age at lock in and will never decrease as long as the account has not been subject to excess withdrawals.  Automatic step ups are permanent. There are no surrender charges and the investor can turn off the guarantee at any time. You do not need to buy an annuity in the traditional sense with all of its many layers of fees and surrender charges.
 
This CDA solution is called the RetireOneTransamerica II Solution and is an effective way to insure against the risk of outliving your money. A prospectus is available which discusses the risks charges and expenses and should be read carefully before investing. Call us for more information if that is a discussion you’d like to have.

Q1 2014 Investment Strategy and Capital Markets Outlook by Capital Guardian Wealth Management

As we recently announced, Compass Capital has embarked on a joint venture with Capital Guardian LLC and an immediate benefit of our association is access to their research. We are pleased to offer you a copy of the Capital Guardian Wealth Management Q1 2014 Investment Strategy and Capital Markets Outlook which shares their viewpoints regarding the macroeconomic outlook and asset allocation.


Attached, please find the Capital Guardian Wealth ManagementInvestment Strategy and Capital Markets Update for Q1 2014. This outlook is the collaboration of numerous individuals within the firm and represents our views regarding the economy, the capital markets and strategic/tactical asset allocation.
The Capital Guardian Investment Strategy Committee maintains a positive outlook for equities for 2014.  US equities continue to offer value when looking at the spectrum of global asset classes, but developed market stocks are becoming more interesting as global economies improve and valuations remain attractive.  The committee continues to be cautious towards fixed income and recommends keeping portfolio duration low and adding exposure to floating rate instruments. 
As 2014 begins, market participants are focused on the overall strength of the economy and prospects for the corporate sector.  On the economic front, growth and employment have steadily improved over recent quarters, prompting the Fed to embark on scaling back its asset purchase (tapering).  However, the Fed has also promised to keep rates low for an extended period and has expressed concern over the low level of inflation.  While asset purchases will be winding down, the Fed is still in an extremely accommodative stance by historical standards, which provides a backdrop of liquidity that should be supportive of growth.
  • U.S. equities are not as attractively valued as they were at the beginning of 2013 but should benefit from a better economic backdrop in 2014.  
·        Equity valuations among non-U.S. developed markets are relatively cheap and should see multiple expansions as their economies and corporate fundamentals improve.
·        Despite attractive valuations, Emerging Markets may continue to experience drawdowns and volatility as their economies shift to slower more sustainable consumption based markets.
·        We continue to recommend a careful approach to fixed income investing – avoid longer duration securities, remain with high credit quality, and include floating rate notes.
·        Municipal bonds continue to look attractive when compared with similarly-dated treasury securities, though security selection is key.
·        The CG investment committee expects coupon-returns for high yields as spreads are relatively tight, though justified by strong credit fundamentals, similar to 2013.
·        Alternatives can provide diversification benefits to portfolios as many managers target equity-like returns with lower-than-equity volatility, while others aim for low or negative correlations to broader stock and credit markets.
We hope the attached report provides you with an informative view of the economic and market factors that resulted in our investment recommendations.
Best regards,
Brian

Brian T. Kirkpatrick
Chief Investment Officer
Capital Guardian Wealth Management
Phillips Point Building
777 South Flagler Dr · Suite 1701
WPB, FL 33401
bkirkpatrick@capitalguardianllc.com
561.839.1100 main
561.839.1115 direct
561.644.4517 cell
561.839.1101 fax

Get to Know Tricia Welsh, CFP, and Compass Capital Corporation Trusted Financial Advisor

Tricia Welsh, CFP®

by Compass Blogger- Susan Scheide

I have never wanted to be one of those women who “have it all,” meaning both a family and a career.  It seems too complicated and difficult to me.  But I have the privilege of working with one of those women, Tricia Welsh.

Tricia Welsh

Tricia, like Compass partner John Ahern and me, has a military family background.  Her father was a pilot in the Air Force.  She was born in Bitburg, Germany when her father was stationed there.  He was a member of the 22nd Fighter Squadron; a unit whose members included Buzz Aldrin and Ed White of NASA fame.

Tricia moved often as a child – leaving Germany for Manhattan Beach, California, when she was two, then off Dayton, Ohio at the age of seven.  Her family finally settled in the Washington D.C. area where they stayed through her high school years.  Tricia’s father did a stint at the Pentagon, was a fighter pilot in Vietnam, and moved a few more times, finally ending up at NATO in Naples, Italy.  When he retired, he did so as a full-bird Colonel.  During this time, Tricia’s Mom earned a PhD in American History from the University of Maryland.  What a busy life this family must had led, with lots of exposure to different cultures and I’m sure a lot of good stories!

No doubt it was the influence of her father’s career as a pilot that got Tricia interested in flying.  She has had a pilot’s license for many years now and one of her best flying experiences was when she finally got to take her Dad up in a plane a few years before he passed away.  “He didn’t seem nervous at all, which was pretty amazing since once I was flying to meet him in New Jersey, and got lost and never made it.  I quickly got my instrument license after that flight,” Tricia told me.

Tricia and her father, ready to take flight

Tricia spent much of her financial career in New York City.  Her work experience there including working at two well known business magazines – Forbes and Fortune – and in between those two jobs, working on Wall Street as a trader in the securities industry.

Tricia received her Certificate in Financial Planning from Boston University and passed the Certified Financial Planner exam in March 2004.  She also holds an MBA in Finance from New York University’s Stern School of Business and a Bachelors of Fine Arts degree from Pratt Institute in Brooklyn, N.Y.

Here is how Tricia summed up her early career:

“I was working at Forbes Magazine in sales promotion – second job out of college and got my MBA at night during that time.  When I graduated I started working in one of the money center bank professional development training programs – that was a 9 month stint and when training ended I got a job on the securities side where I was involved in both institutional sales and trading.  Eventually I was put in charge of the Fed Funds Desk at Irving Trust where we bought and sold overnight money in the billions every day – it was the most exciting (though stressful) job ever!  After the Wall Street gig I worked at Fortune Magazine as a reporter specializing in the financial markets.  For seven years I worked with the most amazing and brilliant group of people.  I moved to Boston in 1997,gave birth to my third child and took a few years to think about what I wanted to do next. Since I had always been interested in personal finance from my days at Fortune, I decided to get my CFP, and here I am at Compass in a career that is unbelievably interesting and fulfilling.”

Tricia shared an article she wrote on her early days with me, and said I could share it with you. Training, money, and courage can turn a passenger into a pilot.

Tricia lives in Hingham now.  She has three children; Patrick, Julia, and Claire.  Both Patrick and Julia are at the University of Vermont, and Claire is still at home with Tricia, three orange cats who are brothers and two turtles.

“Our favorite time together is probably skiing”, Tricia told me.  Her children all started when they were 3 years old, and they have enjoyed many family trips out west where the mountains are MUCH bigger.  They also ski regularly in Vermont where they have a condo, conveniently close to the college her children attend.  Tricia and her longtime boyfriend Andy are heading out to British Columbia in a few weeks for their first helicopter skiing experience.
Tricia having fun

I know that all of Tricia’s children are musical – Patrick played the trumpet in the jazz band throughout high school, Julia still plays the violin and oboe in University of Vermont’s orchestra and band, and Claire is a budding singer/songwriter with many of her songs on iTunes.   So I asked her about how music played such a big part of their family life, and here is what Tricia, proud mom, had to say:

“We always thought music was important. I played the piano growing up, and their Dad still plays it. We had Patrick take piano lessons in kindergarten when we moved here, but I think it really started with the Hingham Before School Strings Program – starting in third grade children can elect to play a string instrument and each of my children did that – Claire and Patrick played the cello and Julia always played the violin.  In fifth grade band starts in school and so Patrick switched to the trumpet. The band and orchestra teachers in Hingham are absolutely amazing – they really inspire the kids.  Claire started piano lessons and singing in fifth grade and sometime in middle school stopped the cello and concentrated on being a singer/songwriter.  I am lucky to have so many great and different kinds of music in my house.”

Tricia and her children

 Tricia is friendly, funny, and very smart.  She has an incredible sense of style, and even on casual Friday manages to look chic and pulled together.  It’s hard not to like a woman who laughs when we sometimes refer to her as “Corporate Barbie.”    She’s also a talented writer, and never fails to offer me useful editing advice when I go to her to proofread something.

I consider Tricia’s investment advisor style very approachable.  In addition to providing financial planning and investment management for individuals and families, she has an expertise in providing services to people going through life changes, like divorce and death.  She is thorough and easy to understand, and doesn’t use excessive jargon.  I needed to help my recently widowed mother understand her financial situation, and Tricia was extremely helpful to both me and Mom.

As the only female advisor at Compass Capital Corporation, I joked that this blog entry had to represent all womankind.  What a powerful example Tricia is from my point of view.  A mother, a sister, a friend, an athlete, a pilot, and a Certified Financial Planner! 

It’s great to have a woman advisor in the office, and I really enjoyed learning a lot of new things about her while working on this piece. 

Thank you to Colonel Al Bryniarski for your service to our country, and thank you Tricia, for sharing a bit of your personal story with me.