posted on January 17th 2018 in Austin CFP Team Posts with 0 Comments /

The beginning of a new year is always a wonderful time to reflect on life in an attempt to change things for the better.  With that in mind, I’ve decided to gather some pearls from my favorite sources: my clients and our experiences together, and our elders.

This is for you, a shared treatise on some of the lessons from folks like you dealing with the same financial issues you are. I’ve prefaced each section with thoughtful quotes from a book in my library, “Wisdom of the Elders, The Ultimate Quote Book for Life” by Bohdi Sanders, Ph.D.

“Proverbs are short sentences drawn from long experience.” — Cervantes

I hope you find them helpful.

Change & Health

“One cannot step twice into the same river.” — Heraclitus

Every client I work with has friends and family. In the past year, some clients have experienced significant change such as medical issues and death. Thankfully, they have been prepared financially so they can focus on the demands required during these times — although some have been more prepared than others despite the advice given. This year, take the time to consolidate your documents and allow your financial advisor to have full knowledge of your financial affairs before events like these occur to better help you and your family when the river starts rising.

Family & Legacy

“From children you must expect childish acts.” — Danish proverb

“It is harder to deal with the weeds once they have spread.” — Chinese proverb

Alas, we do not choose our family. Adults can be children and children can be adults. You can never tell how relatives will react when it comes to inheritance and estate control issues. Rest assured, you or your family members will find out at some point. That’s why it’s very important to put a lot of thought into your wills and trusts, how they are structured, who will be managing the investments, and who will be trustee and executor. In the past year I saw family dynamics begin to slide sideways for a client, but thankfully everything was in place to avert a storm and the entire family stepped up in a positive way once lines of communication were open. To ensure your wishes are followed with minimal complications, my golden rules are as follows: 1) Review your trusts with your estate planning attorney and financial advisor, 2) Name a third-party corporate or private fiduciary trustee/executor as opposed to a friend or family member, 3) Name a wealth advisor in your trust documents to manage the investments for trusts and beneficiaries, and 4) Ensure comprehensive powers of attorney are in place.

Making Decisions Based On Short-Term Performance

“Beware that you do not lose the substance by grasping at the shadow.” — Aesop

“A thing does not therefore cease to be true because it is not accepted by many.” — Benedict Spinoza

Comparing investments on short-term performance is of no value and making investment decisions on the same is grasping at shadows. I would say most investors have a hard time accepting this because they are just emotionally wired to look at short-term performance. You need 10, 20, and 30 years or more of data to establish actionable investment decisions for portfolio construction. On any given year, it might appear certain investments are not working like you want them to, but if they are in our portfolios, it’s because they have stood the test of time (decades) and serve a purpose in managing risk and reward throughout all market cycles. As a wise portfolio management team points out, sound investment structures need to be sensible, persistent over time, pervasive across markets and cost-effective to capture. Short-term investment comparisons simply fall short in all categories.

The Advisor/Client Relationship: A Partnership

“Wisdom is easy to carry but difficult to load.” — Czech proverb

“Many receive advice, only the wise profit from it.” — Syrus

If you are a client of mine, then by default, you are a good listener or better than most. But everyone has their moments where the water becomes murky and that’s why I’m here, to impart the wisdom from folks who are much smarter than me. My real challenge is actually loading the wisdom to my clients. Once done, it is much easier to carry. If you do not understand something, just ask.

Planning, Persistence, Diligence

“Great fortunes depend on luck, small fortunes depend on diligence.” — Chinese proverb

“We should live as though our life would be both long and short.” — Bias

You may gamble and get lucky, but it’s probably wise to not count on it. Persistent and diligent investment management will be a safety net and can in fact create a small fortune over time. These same strategies will also help preserve great fortunes for those who have created them. Planning is essential in both cases and I encourage everyone to leverage the financial planning resources I have available. Live today as if it is your last, but plan for a long life as well.

Final Reflections

“If you wish to know the road up the mountain, ask the man who goes back and forth on it.” — Zenrin

“When you drink from the spring, be thankful of the source.” — Chinese proverb

In the 15 years I have been providing financial advice, I have been up and down the mountain many times with clients and professional colleagues, in symposiums, and through certification and continuing education. With all that, I am thankful for my clients, the things we share, and the work I do for you and your families. All of this boils down to our reason for working together: to protect and benefit the people we love.

2017 Q4 Index Review

(Table disclosures and performance for periods greater than one year are annualized. Selection of funds, indices and time periods presented are chosen by the client’s advisor. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio. Past performance is not a guarantee of future results. Russell data copyright © Russell Investment Group 1995-2013, all rights reserved. The S&P data are provided by Standard & Poor’s Index Services Group. MSCI data copyright © MSCI 2013, all rights reserved. Barclays Capital data provided by Barclays Bank PLC.)

The final quarter of 2017 turned out to be very similar to what we saw in Q3: healthy positive returns across the board. As in Q3, Emerging Markets led the indicated equity indexes in Q4, with a 7.5% return. One of the thematic changes in Q4 from Q3 is that the S&P 500 beat the Russell 2000 in Q4; the opposite was true in Q3.

Simply put, Q4 was a quarter full of good news: U.S. factory activity hit 13- year highs, the IMF raised the 2018 global economic outlook, U.S. hiring was at a sweet spot in December and inflation seems relatively in check.

Last year — 2017 — turned out to be a banner year for investors who were able to fully participate in the markets. Even bondholders did well, especially if they were globally diversified as noted by the Global Agg Bond Index (unhedged), which returned 7.39% for investors in 2017.

Three interest-rate hikes (March, June, and December) signaled the Federal Reserve’s improving confidence in the U.S. economy and resulted in a federal-funds rate that rose above 1% for the first time since September 2008. The Feds’ paring back of its balance sheet was done with minimal volatility and the economic optimism was further fueled by serious tax cuts in the U.S. and recovering oil prices across the globe.

At some point, the markets will have absorbed all the optimism of future opportunities and prices will level and correct. But for the multitude of asset classes represented in a well-diversified portfolio, this equilibrium and those corrections will happen at different times and different magnitudes, which creates opportunities and reaffirms the complexity of trying to time investment decisions for more than 12,000 securities around the world.

So, some words of investment wisdom as we look forward to 2018: ensure you have the proper equity exposure in your portfolio to capture the rewards of risk, but don’t forget to ensure the appropriate fixed income exposure to help insulate against the volatility of risk, which is sure to come.

about the author: Morgan H. Smith Jr. IMBA CFP®

Morgan Smith Jr. IMBA, CFPMorgan H. Smith Jr. IMBA CFP, who has been a fee-only financial planner for over 12 years, specializes in wealth management for successful families, business owners, retirement plans and institutions requiring a disciplined fiduciary process.

An Assistant Professor at the University of San Diego, Morgan has been a frequent speaker to many professional organizations and has appeared on CNBC, Fox Business New Live and is a founding member of the Strategic Trusted Advisors Roundtable.

Learn More and/or Contact Morgan

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