Preparing to Get Hit by Life

Life is what happens to you while you’re busy making other plans,” John Lennon sang in a verse of Beautiful Boy. Mike Tyson put it more bluntly, “Everybody’s got plans…until they get hit.”[i]

I think back to my early 30’s when the .com bubble was expanding. Business was good in the financial trades, with stocks rising 20% every year and customers literally standing in line to invest. Retirement seemed a certainty by the time I was 40. Along the way, a new baby, a move to California, a “once in a generation” bear market, another baby, a move back to Texas, another “once in a generation” bear market, and a foolish notion to start a new business now have me approaching 50 and planning to work for the foreseeable future.

While some may argue differently about the bear markets, most would probably agree that none of those life events were catastrophic. But what if something had happened that truly altered my plans, or those of my family?

Probably the most obvious catastrophe that most people think of is an untimely demise. The odds of that happening are pretty low when you are in your 30’s. For example, according to the Social Security Administration's cohort life tables, a 30-year-old male has a 98.5% chance of living to age 40, 95.5% chance of making it to 50, and a 90.5% probability of reaching his 60th birthday. Ladies have even higher odds of reaching the golden years, with nearly a 94% chance. With odds that high, it isn’t surprising that term life insurance is relatively affordable.

Insurance works best when it is used to protect against low probability but high impact events, such as premature death. Nevertheless, paying an insurance company for 20-30 years of protection that is very unlikely to be used isn’t high on the list of expenses most folks look forward to paying. But the thought that our families would have to move because they can’t afford the mortgage or that the kids would be forced into debt to pay for college are enough to motivate me to write that check each year.

But there are other risks that are more likely to impact you than an early death. According to the SSA’s Disability and Death Probabilities, a male born in 1996 has about a 20% chance of becoming disabled before retirement age. Unlike death, with a disability you not only lose your earning potential but continue to need to support your family AND yourself.

Both life and disability insurance are important tools for protecting yourself from a knockdown blow, but they will cost you. How much you should buy can vary based on your personal goals, attitude towards risk, and family situation. An independent financial advisor may be your best resource for helping you answer the question of how much and then find solutions that suit you.

In addition, other steps to protect you and your family from a potential KO are:

Establish liquidity. An emergency fund with several months’ worth of expenses set aside is the easiest solution, but establishing credit before it is needed can also be effective. A line of credit or a credit card may be difficult to obtain or more expensive to use if you wait until the primary breadwinner has stopped winning bread.

Review the beneficiaries on your accounts and insurance policies. These designations work very efficiently to transfer assets after death without going through probate. However, failing to name them, or having the wrong ones (i.e. ex-spouses, minor children) can complicate or ruin your plans.

Write a will. Clearly state who should inherit your property and take care of your minor children, pets, etc. Appoint an executor that is willing and able to execute the will when the time comes.

Consider trusts. There is a myriad of trust types that accomplish different objectives. They can help avoid probate, protect assets from creditors, and insure they ultimately pass to the heirs or causes of your choosing.

Set up health care directives. Living wills, medical power of attorney, and HIPPA authorizations spell out your desires, who can make decisions, and who can even talk to doctors about your condition. These tools can insure that your wishes are followed in the event you aren’t able to communicate and help avoid emotional conflicts between well-meaning family members.

Establish durable power of attorney. In case you are unable to make financial decisions, having a trusted person (spouse, child, etc.) appointed as your attorney-in-fact that can handle your affairs can make life much easier on your family.

Title your assets correctly. All the steps previously mentioned can be voided or made more complicated by not titling assets correctly. On a financial statement, it is helpful to list the registration of all your assets so that your financial planner or attorney can help identify potential disconnects with your plans.

Finally, it’s also a good idea to put a recent copy of your financial statements, wills, trusts, insurance policies, deeds, and other important documents in a place where they can easily be accessed by your attorney-in-fact or executor.

Don’t know where to start? Get in touch to discuss your plans.

 

 

[i] https://www.brainyquote.com/quotes/quotes/m/miketyson379007.html?src=t_plans

Is the Market Due for a Wrench?

July marked the ninth consecutive month of positive returns in US stock markets. Rising tides lift all boats, but that hasn’t stopped some from taking credit.

Whose fault will it be when the inevitable downturn occurs? There will be plenty of blame offered, but you can be certain that at least one character won’t accept any of it. Believe me!

Since 1987, August has been the worst month for the S&P 500®, according to the Stock Trader’s Almanac. Also noted in the Almanac is that volatility typically picks up around this time of year. Given that the CBOE Volatility Index (also known as the VIX) hit its lowest level since 1990 last month, it wouldn’t be a shock to see some red numbers in the near term.

What also won’t be surprising is that someone will get credit for being the portfolio manager or trader that “predicted the selloff”, even though there is scant evidence of anyone consistently able to outguess the markets. In fact, in his 1973 book, A Random Walk Down Wall Street, Burton Malkiel argued, “A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”

But perhaps Mr. Malkiel was just observing (unknowingly) that expected returns actually increase by using this method to manage a portfolio. Sound crazy? Then check out this month’s Issue Brief from DFA titled Quit Monkeying Around!

Come to think of it, that might also be a suitable response to a certain Tweeter in Chief after his next late-night tirade. Rest assured, if the market wilts in the August heat, it may not be our fault but we’ll be right by your side with our Accountable Wealth Management. Get in touch if you would like to discuss.


Quit Monkeying Around!

August 2017

In the world of investment management there is an oft-discussed idea that blindfolded monkeys throwing darts at pages of stock listings can select portfolios that will do just as well, if not better, than both the market and the average portfolio constructed by professional money managers. If this is true, why might it be the case?

The Dart Board

Exhibit 1 shows the components of the Russell 3000 Index (regarded as a good proxy for the US stock market) as of December 31, 2016. Each stock in the index is represented by a box, and the size of each box represents the stock’s market capitalization (share price multiplied by shares outstanding) or “market cap” in the index. For example, Apple (AAPL) is the largest box since it has the largest market cap in the index. The boxes get smaller as you move from the top to the bottom of the exhibit, from larger stocks to smaller stocks. The boxes are also color coded based on their market cap and whether they are value or growth stocks. Value stocks have lower relative prices (as measured by, for instance the price-to-book ratio) and growth stocks tend to have higher relative prices. In the exhibit, blue represents large cap value stocks (LV), green is large cap growth stocks (LG), gray is small cap value stocks (SV), and yellow is small cap growth stocks (SG).

For the purposes of this analogy you can think of Exhibit 1 as a proxy for the overall stock market and therefore similar to a portfolio that, in aggregate, professional money managers hold in their competition with their simian challengers. Because for every investor holding an overweight to a stock (relative to its market cap weighting) there must also be an investor underweight that same stock, this means that, in aggregate, the average dollar invested holds a portfolio that looks like the overall market.[1]

Exhibit 1.       US Stocks Sized by Market Capitalization

For illustrative purposes only. Illustration includes constituents of the Russell 3000 Index as of December 31, 2016, on a market-cap weighted basis segmented into Large Value, Large Growth, Small Value, and Small Growth. Source: Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Please see Appendix for additional information.

For illustrative purposes only. Illustration includes constituents of the Russell 3000 Index as of December 31, 2016, on a market-cap weighted basis segmented into Large Value, Large Growth, Small Value, and Small Growth. Source: Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Please see Appendix for additional information.

Exhibit 2, on the other hand, represents the dart board the monkeys are using to play their game. Here, the boxes represent the same stocks shown in Exhibit 1, but instead of weighting each company by market cap, the companies are weighted equally. For example, in this case, Apple’s box is the same size as every other company in the index regardless of its market cap. If one were to pin up pages of newspaper stock listings to throw darts at, Exhibit 2 would be much more representative of what the target would look like.

When looking at Exhibits 1 and 2, the significant differences between the two are clear. In Exhibit 1, the surface area is dominated by large value and large growth (blue and green) stocks. In Exhibit 2, however, small cap value stocks dominate (gray). Why does this matter? Research has shown that, historically over time, small company stocks have had excess returns relative to large company stocks. Research has also shown that, historically over time, value (or low relative price) stocks have had excess returns relative to growth (or high relative price) stocks. Because Exhibit 2 has a greater proportion of its surface area dedicated to small cap value stocks, it is more likely that a portfolio of stocks selected at random by throwing darts would end up being tilted towards stocks which research has shown to have had higher returns when compared to the market.

Exhibit 2.       US Stocks Sized Equally

For illustrative purposes only. Illustration includes the constituents of the Russell 3000 Index as of December 31, 2016 on an equal-weighted basis segmented into Large Value, Large Growth, Small Value, and Small Growth. Source: Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Please see Appendix for additional information.

For illustrative purposes only. Illustration includes the constituents of the Russell 3000 Index as of December 31, 2016 on an equal-weighted basis segmented into Large Value, Large Growth, Small Value, and Small Growth. Source: Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Please see Appendix for additional information.

So…Throw Away?

This does not mean, however, that haphazardly selecting stocks by the toss of a dart is an efficient or reliable way to invest. For one thing, it ignores the complexities that arise in competitive markets.

Consider as an example something seemingly as straightforward as a strategy that holds every stock in the Russell 3000 Index at an equal weight (the equivalent of buying the whole dart board in Exhibit 2). In order to maintain an equal weight in all 3,000 securities, an investor would have to rebalance frequently, buying shares of companies that have gone down in price and selling shares that have gone up. This is because as prices change, so will each individual holding’s respective weight in the portfolio. By not considering whether or not these frequent trades add value over and above the costs they generate, investors are opening themselves up to a potentially less than desirable outcome.

Instead, if there are well-known relationships that explain differences in expected returns across stocks, using a systematic and purposeful approach that takes into consideration real-world constraints is more likely to increase your chances for investment success. Considerations for such an approach include things like: understanding the drivers of returns and how to best design a portfolio to capture them, what a sufficient level of diversification is, how to appropriately rebalance, and last but not least, how to manage the costs associated with pursuing such a strategy.

 

The Long Game

Finally, the importance of having an asset allocation well suited for your objectives and risk tolerance, as well as being able to remain focused on the long term, cannot be overemphasized. Even well-constructed portfolios pursuing higher expected returns will have periods of disappointing results. A financial advisor can help an investor decide on an appropriate asset allocation, stay the course during periods of disappointing results, and carefully weigh the considerations mentioned above to help investors decide if a given investment strategy is the right one for them.

Conclusion

So what insights can investors glean from this analysis? First, by tilting a portfolio towards sources of higher expected returns, investors can potentially outperform the market without needing to outguess market prices. Second, implementation and patience are paramount. If one is going to pursue higher expected returns, it is important to do so in a cost-effective manner and to stay focused on the long term.


Appendix

Large cap is defined as the top 90% of market cap (small cap is the bottom 10%), while value is defined as the 50% of market cap of the lowest relative price stocks (growth is the 50% of market cap of the highest relative price stocks). For educational and informational purposes only and does not constitute a recommendation of any security. The determinations of Large Value, Large Growth, Small Value, and Small Growth do not represent any determinations Dimensional Fund Advisors may make in assessing any of the securities shown.

 

[1]. For more on this concept, please see “The Arithmetic of Active Management” by William Sharpe.

Time for a New Pickup?

This summer has been a rough one for my old pickup. In early May, as the thermometer starting rising, my air conditioner went kaput. That cost me about $600 to make the repairs. Then, last week, alarm bells starting ringing and a red light shaped like a battery flashed on the dash. Unfortunately, it wasn’t a relatively affordable battery that needed replacing. Rather, it was a much more expensive alternator. After forking out another $500, the thought crossed my mind that it may be time to look for some new wheels.

New vehicles are probably the worst “investments” we make. It is not unusual to see the value decline by 50% in the first four years after driving off the dealer’s lot. That knowledge has led me to adopt a philosophy that I will drive our cars and trucks until “the wheels fall off” before buying a new one. As my unexpected repair expenses have accumulated though, some reminders of how expensive new cars can be helped to scratch that new car (or truck) itch.

I started with a quick visit to Kelley Blue Book® to see roughly what a new 2017 Ford F150 Platinum edition (the same model of my current pickup) would cost. $53,383 was the “Fair Purchase Price” that was indicated. Ouch, that was about all I needed to realize I am probably doing the right thing by continuing to drive my old pickup a while longer. But I can’t write an Accountable Update without analyzing it further, so I started checking out the values of older models, too.

I saw that a used 2013 model in good condition has a trade-in value around $26,000, which would be a pretty good indication of its actual value. Compared to the new price of $46,100 back in 2013, according to an article I found on Autotrader.com, it looks like the value has fallen just under half over the last four years. Of course, when you add in the approximate $3,400 of tax, title, and license costs in Texas (per this calculator on Carmax.com), plus whatever else you let the F&I guy talk you into at the dealership, and a 50% decrease per presidential term appears to be a good estimate.

That translates to a -15.91% annual rate of return. Put in dollar terms, a new $53,383 pickup would drop the following amounts over the next ten years assuming annual depreciation at that rate:

Depreciation.jpg.png

Depreciation Illustration

$53,383 pickup with annual depreciation of -15.91%.

 

In the first three years, that’s a total of $21,641 of lost value versus only $12,868 over the next three. If you put 12,000 miles a year on the vehicle in this example, the depreciation cost per mile is 60.11 cents in the first three years versus 35.74 cents for the next three.* Consider that the IRS mileage rate in 2017 for business is only 53.5 cents per mile. You could also supplement your income by driving for Uber, but their base mileage rate starts at $1.06 per mile, and you would still need to buy gas! 

Remember that commercial that showed a guy driving an old car that spit change out of the air conditioning ducts? Driving a new car is like that, but exactly the opposite.

Some potential good news, especially if you are in the market for a new car, is that “…millions (of) cars that were leased two or three years ago, many of them used compact and midsized cars with low mileage, are heading toward auction lots and used car dealerships. That surge in supply threatens to depress prices for new and used vehicles…”, according to an Autonews.com article from earlier this month.

Some may be asking if a lease may make more sense than buying, but the lease amount incorporates the expected depreciation, taxes, and interest into the payment. At the end of the lease, you would then start the whole process over again, insuring that you are always paying the highest amount of depreciation. Plus you typically add in mileage penalties and wear and tear charges. 

There is nothing quite like that new car smell, except that you may find adding to your retirement account, the kids’ college, or travel funds are even sweeter. You can certainly reduce the amount of depreciation each year by driving a new vehicle longer, but buying the used pickup in the example above would mean you could add an extra $3,000 per year towards goals that may make you a lot happier.

If you would like to discuss any of those plans, get in touch.

If you are in the market for a car, it looks like your timing could be pretty good. As for me, I think I’ll stick with my old pickup for bit longer.

 

*Arithmateic error corrected from earlier version 

Quick Announcement

I'm taking a break from the Accountable Update this week due to a travel conflict, but I do have an announcement to share. Taigon Chen is the newest addition to the team at ATX Portfolio Advisors, beginning this week as my first intern.

Taigon is a sophomore at the University of Texas, majoring in Aerospace Engineering and Business Administration. He is from Sugarland where he was Valedictorian of William B. Travis High School. In his spare time, he enjoys trading stocks, designing and building airplanes and computers, and playing the guitar. 

Taigon will be focused on learning about investments and financial planning, as well as some of the technology and operational aspects of the business. Please join me in welcoming Taigon!

Getting What You Don’t Pay For

Please consider the investment objectives, risks, charges, and expenses carefully before investing in Mutual Funds. The prospectus, which contains this and other information about the investment company, can be obtained directly from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Does that sound familiar? If you scroll to the bottom of this webpage, you will see this common language encouraging you to read the prospectus of any mutual fund you are considering for purchase. But even if you heed the call to read this legally required disclosure, you probably aren't seeing the whole picture.

For example, did you know that funds also produce another document that discloses how much the fund pays in trading commissions? Those expenses are not included in the fund's expense ratio and are typically expressed as a dollar amount on a financial statement that can be found in the Statement of Additional Information (SAI).

This is just one example of the type of diligence that you, or an advisor on your behalf, should be conducting when considering the inclusion of mutual funds and Exchange Traded Funds(ETFs) in your portfolio. Funds and ETFs are required to produce these disclosures in prescribed formats. Throw in holdings reports, typically produced semi-annually but sometimes more frequently, and you have the information you need to start making informed decisions.

This week I share the July 2017 Issue Brief from DFA titled Getting What You Don't Pay For. It provides a quick insight into why the information found in documents such as prospectuses and SAIs matters. Enjoy the short read and have a great weekend!


Getting What You Don’t Pay For

Costs matter. Whether you’re buying a car or selecting an investment strategy, the costs you expect to pay are likely to be an important factor in making any major financial decision.

People rely on a lot of different information about costs to help inform these decisions. When you buy a car, for example, the sticker price tells you approximately how much you can expect to pay for the car itself. But the sticker price is only one part of the overall cost of owning a car. Other things like sales tax, the cost of insurance, expected routine maintenance costs, and the potential cost of unexpected repairs are also important to understand. Some of these costs are easily observed, and others are more difficult to assess. Similarly, when investing in mutual funds, different variables need to be considered to evaluate how cost‑effective a strategy may be for a particular investor.

Expense Ratios

Many types of costs lower the net return available to investors. One important cost is the expense ratio. Similar to the sticker price of a car, the expense ratio tells you a lot about what you can expect to pay for an investment strategy. Exhibit 1 helps illustrate why expense ratios are important and shows how hefty expense ratios can impact performance.

This data shows that funds with higher average expense ratios had lower rates of outperformance. For the 15-year period through 2016, only 9% of the highest-cost equity funds outperformed their benchmarks. This data indicates that a high expense ratio is often a challenging hurdle for funds to overcome, especially over longer horizons. From the investor’s point of view, an expense ratio of 0.25% vs. 0.75% means savings of $5,000 per year on a $1 million account. As Exhibit 2 helps to illustrate, those dollars can really add up over longer periods.


Exhibit 1.       High Costs Can Reduce Performance, Equity Fund Winners and Losers Based on Expense Ratios (%)

Exhibit 2.       Hypothetical Growth of $1 Million at 6%, Less Expenses

The sample includes funds at the beginning of the 15-year period ending December 31, 2016. Funds are sorted into quartiles within their category based on average expense ratio over the sample period. The chart shows the percentage of winner and loser funds by expense ratio quartile; winners are funds that survived and outperformed their respective Morningstar category benchmark, and losers are funds that either did not survive or did not outperform their respective Morningstar category benchmark. US-domiciled open-end mutual fund data is from Morningstar and Center for Research in Security Prices (CRSP) from the University of Chicago. Equity fund sample includes the Morningstar historical categories: Diversified Emerging Markets, Europe Stock, Foreign Large Blend, Foreign Large Growth, Foreign Large Value, Foreign Small/Mid Blend, Foreign Small/Mid Growth, Foreign Small/Mid Value, Japan Stock, Large Blend, Large Growth, Large Value, Mid-Cap Blend, Mid-Cap Value, Miscellaneous Region, Pacific/Asia ex-Japan Stock, Small Blend, Small Growth, Small Value, and World Stock. For additional information regarding the Morningstar historical categories, please see “The Morningstar Category Classifications” at morningstardirect.morningstar.com/clientcomm/Morningstar_Categories_US_April_2016.pdf. Index funds and fund-of-funds are excluded from the sample. The return, expense ratio, and turnover for funds with multiple share classes are taken as the asset-weighted average of the individual share class observations. For additional methodology, please refer to Dimensional Fund Advisor’s brochure, The 2017 Mutual Fund Landscape. Past performance is no guarantee of future results.

For illustrative purposes only and not representative of an actual investment. This hypothetical illustration is intended to show the potential impact of higher expense ratios and does not represent any investor’s actual experience. Assumes a starting account balance of $1,000,000 and a 6% compound annual growth rate less expense ratios of 0.25% and 0.75% applied over a 15-year time horizon. Taxes and other potential costs are not reflected. Actual results may vary significantly. Changing the assumptions would result in different outcomes. For example, the savings and difference between the ending account balances would be lower if the starting investment amount was lower.


While the expense ratio is an important piece of information for an investor to evaluate, what matters most when gauging the true cost‑effectiveness of an investment strategy is the “total cost of ownership.” Similar to the car example, total cost of ownership is more holistic than any one figure. It looks at things that are readily observable, like expense ratios, but also at things that are more difficult to assess, like trading costs and tax impact. It is important for investors to be aware of these and other costs and to realize that an expense ratio, while useful, is not an all‑inclusive metric for total cost of ownership.

Trading Costs

For example, while an expense ratio includes the fund’s investment management fee and expenses for fund accounting and shareholder reporting (among other items), it doesn’t include the potentially substantial cost of trading securities within the fund. Overall trading costs are a function of the amount of trading, or turnover, and the cost of each trade. If a manager trades excessively, costs like commissions and the price impact from trading can eat away at returns. Viewed through the lens of our car analogy, this impact is similar to excessively jamming your brakes or accelerating quickly. By regularly demanding immediacy like this when it may not be necessary, the more wear and tear your car is likely to experience and the more fuel you will end up using. These actions can increase your total cost of ownership. Additionally, excessive trading can also lead to negative tax consequences for the fund, which can increase the cost of ownership for investors holding funds in taxable accounts. The best way to try to decrease the impact of trading costs is for funds to avoid trading excessively and pay close attention to effectively minimizing cost per trade. Employing a flexible investment approach that reduces the need for immediacy, thereby enabling opportunistic execution, is one way to potentially help accomplish this goal. Keeping turnover low, remaining flexible, and transacting only when the potential benefits of a trade outweigh the costs can help keep overall trading costs down and help reduce the total cost of ownership.

Conclusion

The total cost of ownership of a mutual fund can be difficult to assess and requires a thorough understanding of costs beyond what an expense ratio can tell investors on its own. A good advisor can help investors look beyond any one cost metric and instead evaluate the total cost of ownership of an investment program—and ultimately help clients decide if a given strategy is right for them.


 

Source: Dimensional Fund Advisors LP.

There is no guarantee investment strategies will be successful. Diversification does not eliminate the risk of market loss. Mutual fund investment values will fluctuate and shares, when redeemed, may be worth more or less than original cost. The types of fees and expenses will vary based on investment vehicle. Investments are subject to risk including possible loss of principal.

All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

Q2 2017 Market Review

As summer heats up, the US stock market stayed hot by posting its seventh consecutive quarter of positive returns. Much of that growth recently was led by large growth stocks, such as Facebook, Amazon, Netflix, and Alphabet (formerly known as Google); but small company growth stocks provided plenty of heat, too. Value stocks trailed growth stocks across all size ranges.

The Federal Reserve made no changes to monetary policy during the quarter but did start to release some of their discussions about how they may wind down the $4.5 trillion of bonds they bought with printed money following the Great Recession. While US and global bonds turned in a positive quarter, the tightrope between deflation and inflation that policy makers will be forced to traverse while unwinding the world central banks' unprecedented balance sheets would make even the Flying Wallendas nervous. All eyes are certain to be glued to Ms. Yellen and her global peers in coming months.

International markets, both developed and emerging, outperformed domestic markets, while commodities and REITs lagged. Longer maturity bonds and high yield corporates were the strongest performers in the fixed income markets, but the increasing noise about quantitative tightening has led to increased volatility.

It has been a good ride over the last couple of years. Long ago, I gave up trying to predict what the next short term moves in the market may be, but we should react to what market prices are telling us from time to time. Recently, we have rebalanced some portfolios due to drift from target allocations and aligned our models more closely to global equity weightings. While we all hope that Q3 produces a screen as green as Q2, at some point we will see red. By taking some gains off the table now, we hope to keep our clients in step with their risk tolerance and capacity while taking advantage of the benefits that diversification can provide.

If you have concerns about your portfolio or level of diversification, get in touch for a free review. In the meanwhile, stay cool and enjoy the Q2 2017 Market Review!

4 Letters Worth Repeating...Again

In early 2016, I was watching one of the cable business channels when a guest predicted that the stock market would crash on a particular day the following month. He even narrowed it down to what time of day the crash would occur.  

After discussing last week how different folks can arrive at very different conclusions when viewing the same data or charts, I was reminded of this article I wrote for the Accountable Update last year. The original, 4 Letters Worth Repeating, T-I-M-E, was good enough that I find it worth repeating, again. I did fix some questionable syntax and updated the charts with data through 2016. 

The article may be easier to read on ATXAdvisors.com than the email version due to the way some of the slides are formatted. Enjoy between the fireworks and BBQ this weekend and have a safe and Happy Independence Day! 


4 Letters Worth Repeating

This week, there was a story on a major "financial" network that predicted not only that the US stock market would peak on a particular day in March, but that it would happen after lunch. Appropriately, that network refers to itself with a 4-letter word.

But really, how considerate of them? With that level of detail, we should all be able to ride our unicorns down to Wall Street after sleeping late and enjoying a nice brunch, with time to spare to put in our sell orders before the bottom falls out.

I can think of a couple of 4-letter words for that kind of "news".

John Maynard Keynes is credited with uttering, “The market can stay irrational longer than you can stay solvent.” The famous (or infamous to some) economist made that observation after he had lost most of his money in ill-timed currency trades using borrowed money in early 1920. He was supposedly betting against the German Deutschmark as Deutschland struggled to recover after The Great War. Of course, in hindsight, he was right to see the black clouds building over the Weimer Republic that ultimately ended in hyperinflation and the rise of the National Socialist German Workers' Party (also known as the Nazis).

It turns out he was right about everything but, WHEN.

Decades later, investing legend Peter Lynch observed, "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." I suppose, though, that practical advice is much less likely to keep you glued to your TV set.

The reason it is so hard to know in the short run how any asset may perform is that the market reflects the aggregate expectations of all market participants, all the time. Folks that are willing to buy an asset are competing with folks who want to sell. When they agree on a price, they both feel that they are making the best deal. The buyer anticipating the asset will increase in price faster than other investment alternatives, the seller that the money will be more effectively invested elsewhere.

At ATX Portfolio Advisors, we believe that while the market incorporates all available information to drive stocks to fair value, we also believe that stocks may have different expected returns. In other words, there are certain characteristics that have resulted in returns that are greater than average that have persisted over time and across markets.

For stocks, there are four characteristics, or dimensions, that compelling evidence shows persistently over time. First is the market itself—stocks have higher expected returns than T-bills. Other characteristics include—company size (small vs. large), relative price (value vs. growth), and profitability (high vs. low).

The chart below documents the historical premiums that the size, relative price, and profitability dimensions have produced over time frames that reliable data is available. As you can see, the premiums have persisted over long time frames across different types of markets.

The next set of charts show the yearly relative performance of dimensions in US, Developed International, and Emerging Markets stocks. The blue bars indicate years in which the market, small cap, value, and profitability premiums were positive. The red bars indicate years in which the premiums were negative. A positive premium indicates out-performance (e.g., small cap stocks outperform large cap stocks); a negative premium indicates under-performance (e.g., small cap stocks under-perform large cap stocks).

Over these periods, positive premiums have occurred more frequently than negative premiums across all dimensions. BUT, the premiums can and do vary widely from year to year and can experience extreme and prolonged negative relative performance. In other words, there is no free brunch.

This is why we say you should take a longer-term view and stay disciplined during periods of volatility or under-performance of any premium. Over longer periods however, we have observed a higher frequency of positive premiums.

This next set documents the relative 5-year annualized performance of return dimensions in the different markets. When looking at longer time spans, observations of premiums are more consistent compared to one observation in any given year.

As you can see, there are fewer negative (red bars) 5-year periods versus positive (blue bars) periods. The difference is even more pronounced in historical observations of 10-year premiums as illustrated below.

Please remember that despite the higher frequency of positive premiums, outperformance may not be consistent, even over longer periods of time. Long-term investors should consider that premiums are never guaranteed and can undergo periods of negative returns in both relative and absolute terms.

All we have to do is look at the last 10-year period to remind ourselves of these facts, as many of the premiums have been smaller than historical averages.

10 Yr Dimension Performance.jpg

If the first several slides show why we stick to our strategy of owning the total market with weightings tilted to those dimensions that have demonstrated historical premiums, it is the last set that illustrates why our philosophy isn't likely to change when short term divergences from historical averages occur. They clearly show that the longer our investment period was, the more likely we were to see a premium in all of the dimensions. That's not nearly as exciting as screaming about market tops or bottoms, but it is pretty compelling evidence to stay the course no matter how loud the carnival barker chorus.

If nothing else, all of this reminds us of the old adage, “Time in the market is more important than timing the market.” T-I-M-E, now that's a 4-letter word worth worth repeating.

If you or someone you know lacks the time to plan and manage your portfolio, let's get acquainted.


Index descriptions available here.

Ink Blots or Evidence? Research Shows Profitability Matters

What Do You See.jpg

My morning routine, after coffee and exercise, is to review customer accounts for any needed actions, check emails, and if time allows, surf through several financial web sites. I look for news, insight, opinions, and occasional inspiration for Accountable Update articles. Yesterday, these two headlines stood out on one popular site:

  1. “This chart shows that stocks may be primed for a pullback”
  2. “Top strategist sees screaming 'buy' signal for stocks, here's the chart”

QUIZ: Can you guess which story the following charts were part of? (Answers can be found below)

Chart A

1498077814_20493351_TN_DIGITAL_CHART_LINE_A_BUY_v2.jpg

Chart B


It never ceases to amaze me that perfectly intelligent people believe that these financial Rorschach interpretations can somehow predict the future, despite overwhelming evidence that these techniques are only reliable at earning some active managers extra fees. What shouldn’t surprise anyone are the lengths people will go to convince others to pay them for no good reason, such as the ability to see illusory correlations in data.

Investing in the broad markets while overweighting investments with observable and persistent “premiums” is the type of evidence based investing I believe in. While chartists will tell you that recognizing repeatable patterns is a reliable way to determine when to buy or sell, I have yet to see any credible evidence suggesting that is the case. The headlines above illustrate the anecdotal nature of these techniques, as one of these “strategists” will certainly proclaim they were right, eventually.

A preferable approach, at least for me, is to start with well-diversified portfolios, then emphasize areas of the market with higher expected return potential. I can't make heads or tails (or is it shoulders?) from ink blots, but I did enjoy this Issue Brief from Dimensional that shows how one of these areas of higher potential, stocks that are currently profitable, was identified and tested through academic research.

Enjoy the slightly wonky read and get in touch if you would like an analysis of your portfolio that doesn’t involve a psychologist.

(Quiz Answers: Headline 1 goes with Chart B; Headline 2 goes with Chart A)


Evolution of Financial Research:
The Profitability Premium

Since the 1950s, there have been numerous breakthroughs in the field of financial economics that have benefited both society and investors.

One early example, resulting from research in the 1950s, is the insight that diversification can increase an investor’s wealth. Another example, resulting from research in the 1960s, is that market prices contain up-to-the-minute, relevant information about an investment’s expected return and risk. This means that market prices provide our best estimate of a security’s value. Seeking to outguess market prices and identify over- and undervalued securities is not a reliable way to improve returns.

This long history of innovation in research continues into the present day. As academics and market participants seek to better understand security markets, insights from their research can enable investors to better pursue their investment goals. In this article, we will focus on a series of recent breakthroughs into the relation between a firm’s profitability and its stock returns. As we will see, an important insight Dimensional drew from this research is how profitability and market prices can be used to increase the expected returns of a stock portfolio without having to attempt to outguess market prices.

DIFFERENCES IN EXPECTED RETURNS

The price of a stock depends on a number of variables. For example, one variable is what a company owns minus what it owes (also called book value of equity). Expected profits, and the discount rate investors apply to these profits, are others. This discount rate is the expected return investors demand for holding the stock. The impact of market participants trading stocks is that market prices quickly find an equilibrium point where the expected return of a stock is commensurate with what investors demand.

Decades of theoretical and empirical research have shown that not all stocks have the same expected return. Stated simply, investors demand higher returns to hold some stocks and lower returns to hold others. Given this information, is there a systematic way to identify those differences?

OBSERVING THE UNOBSERVABLE: CURRENT AND FUTURE PROFITABILITY

Market prices and expected future profits contain information about expected returns. While we can readily observe market prices as stocks are traded (think about a ticker tape scrolling across a television screen), we cannot observe market expectations for future profits or future profitability, which is profits divided by book value. So how can we use an unobserved variable to tell us about expected returns?

A paper by Professors Eugene Fama and Kenneth French published in 2006[1] tackles this problem. Fama and French have authored more than 160 papers. They both rank within the top 10 most-cited fellows of the American Finance Association[2] and in 2013, Fama received a Nobel Prize in Economics Science for his work on securities markets.

Fama and French explored which financial data that is observable today contain information about expected future profitability. They found that a firm’s current profitability contains information about its profitability many years hence. What insights did Dimensional glean from this? Current profitability contains information about aggregate investor’s expectations of future profitability.

MEASURING PROFITABILITY

The next academic breakthrough on profitability research was done by Professor Robert Novy-Marx, a world-renowned expert on empirical asset pricing. Building on the work of Fama and French, he explored the relation of different measures of current profitability to stock returns.

Profits equal revenues minus expenses. One particularly important insight Dimensional took from Novy-Marx’s work is that not all current revenues and expenses have information about future profits. For example, firms sometimes call a revenue or expense “extraordinary” when they do not expect it to recur in the future. If those revenues or expenses are not expected to recur, should investors expect them to contain information about future profitability? Probably not.

This is what Novy-Marx found when conducting his research. In a paper published in 2013,[3] he used US data since the 1960s and a measure of current profitability that excluded some non-recurring costs so that it could be a better estimate for expected future profitability. In doing so, he was able to document a strong relation between current profitability and future stock returns. That is, firms with higher profitability tended to have higher returns than those with low profitability. This is referred to as a profitability premium.

Around the same time, the Research team at Dimensional was also conducting research into profitability. They extended the work of Fama and French and found that in developed and emerging markets globally, current profitability has information about future profitability and that firms with higher profitability have had higher returns than those with low profitability. They also found that this observation held true when using different ways of measuring current profitability. These robustness checks are important to show that the profitability premiums observed in the original studies were not just due to chance.

Their research indicated that when using current profitability to increase the expected returns of a real-world strategy, it is important to have a thoughtful measure of profitability that provides a complete picture of a firm’s expenses while excluding revenues and expenses that may be unusual and therefore not expected to persist in the future.

THE CUTTING EDGE: NEW RESEARCH

Many papers documenting profitability premiums globally have been written since 2013. An exciting forthcoming paper[4] by Professor Sunil Wahal provides powerful out-of-sample US evidence of profitability premiums. Wahal is an expert in market microstructure (how stocks trade) and empirical asset pricing.

Fama, French, and Novy-Marx’s research on profitability used US data from 1963 on. Why? Because when they conducted their research, reliable machine-readable accounting statement data required to compute profitability for US stocks was only available from 1963 on. Hand-collecting and cleaning accounting statement data and then transcribing it in a reliable fashion is no easy task and presents many a challenge for any researcher.

Wahal rose to those challenges. He gathered a team of research assistants to hand-collect accounting statement data from Moody’s Manuals from 1940 to 1963. By applying his (and his team’s) expertise in accounting, combined with a great deal of meticulous data checking, Wahal was able to produce reliable profitability data for all US stocks from 1940 to 1963. Using this data to measure the return differences between stocks with high vs. low profitability, Wahal found similar differences in returns to what had been found in the post-1963 period.

This research provides compelling evidence of the profitability premium pre-1963 and is a powerful out-of-sample test that strengthens the results found in earlier work.

THE SIZE OF THE PROFITABILITY PREMIUM

So how large has the profitability premium been historically? Large enough that investors who want to increase expected returns in a systematic way should take note. Exhibit 1 shows empirical evidence of the profitability premium in the US and globally. In the US, between 1964 and 2016, the Dimensional US High Profitability Index and the Dimensional US Low Profitability Index had annualized compound returns of 12.55% and 8.23%, respectively. The difference between these figures, 4.32%, is a measure of the realized profitability premium in the US over the corresponding time period. The non-US developed market realized profitability premium was 4.51% between 1990 and 2016. In emerging markets, the realized profitability premium was 5.21% between 1996 and 2016.


Exhibit 1: The Profitability Premium

Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. Actual returns may be lower. See “Index Descriptions” in the appendix for descriptions of Dimensional and Fama/French index data. Eugene Fama and Ken French are members of the Board of Directors for and provide consulting services to Dimensional Fund Advisors LP.

Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. Actual returns may be lower. See “Index Descriptions” in the appendix for descriptions of Dimensional and Fama/French index data. Eugene Fama and Ken French are members of the Board of Directors for and provide consulting services to Dimensional Fund Advisors LP.

CONCLUSION

In summary, there are differences in expected returns across stocks. Variables that tell us what an investor has to pay (market prices) and what they expect to receive (book equity and future profits) contain information about those expected returns. All else equal, the lower the price relative to book value and the higher the expected profitability, the higher the expected return.

What Dimensional has learned from its own work and the work of Professors Fama, French, Novy-Marx, and Wahal, as well as others, is that current profitability has information about expected profitability. This information can be used in tandem with variables like market capitalization or price-to-book ratios to extract the differences in expected returns embedded in market prices. As such, it allows investors to increase the expected return potential of their portfolio without trying to outguess market prices.

 

[1]. Eugene Fama and Kenneth French, “Profitability, Investment, and Average Returns,” Journal of Financial Economics, vol. 82 (2006), 491–518.

[2]. G. William Schwert and Renè Stulz, “Gene Fama’s Impact: A Quantitative Analysis,” (working paper, Simon Business School, 2014, No. FR 14-17).

[3]. Robert Novy-Marx, “The Other Side of Value: The Gross Profitability Premium,” Journal of Financial Economics, vol. 108 (2013), 1–28.

[4]. Sunil Wahal, “The Profitability and Investment Premium: Pre-1963 Evidence,” (December 29, 2016). Available at SSRN: ssrn.com/abstract=2891491.

 

GLOSSARY

Book Value of Equity: The value of stockholder’s equity as reported on a company’s balance sheet.

Discount Rate: Also known as the “required rate of return” this is the expected return investors demand for holding a stock.

Out-of-sample: A time period not included or directly examined in the data series used in a statistical analysis.

Market Microstructure: The examination of how markets function in a fine level of detail, this can include areas of inquiry such as: how traders interact, how security orders are placed and cleared and how information is relayed and priced.

Empirical Asset Pricing: A field of study that uses theory and data to understand how assets are priced.

Profitability Premium: The return difference between stocks of companies with high profitability over those with low profitability.

Realized Profitability Premium: The realized, or actual, return difference in a given time period between stocks of companies with high profitability over those with low profitability.

 

 

INDEX DESCRIPTIONS

Dimensional US Low Profitability Index was created by Dimensional in January 2014 and represents an index consisting of US companies. It is compiled by Dimensional. Dimensional sorts stocks into three profitability groups from high to low. Each group represents one-third of the market capitalization. Similarly, stocks are sorted into three relative price groups. The intersections of the three profitability groups and the three relative price groups yield nine subgroups formed on profitability and relative price. The index represents the average return of the three low-profitability subgroups. It is rebalanced twice per year. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Source: CRSP and Compustat.

Dimensional US High Profitability Index was created by Dimensional in January 2014 and represents an index consisting of US companies. It is compiled by Dimensional. Dimensional sorts stocks into three profitability groups from high to low. Each group represents one-third of the market capitalization. Similarly, stocks are sorted into three relative price groups. The intersections of the three profitability groups and the three relative price groups yield nine subgroups formed on profitability and relative price. The index represents the average return of the three high-profitability subgroups. It is rebalanced twice per year. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Source: CRSP and Compustat.

Dimensional International Low Profitability Index was created by Dimensional in January 2013 and represents an index consisting of non-US developed companies. It is compiled by Dimensional. Dimensional sorts stocks into three profitability groups from high to low. Each group represents one-third of the market capitalization of each eligible country. Similarly, stocks are sorted into three relative price groups. The intersections of the three profitability groups and the three relative price groups yield nine subgroups formed on profitability and relative price. The index represents the average return of the three low-profitability subgroups. The index is rebalanced twice per year. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Source: Bloomberg.

Dimensional International High Profitability Index was created by Dimensional in January 2013 and represents an index consisting of non-US developed companies. It is compiled by Dimensional. Dimensional sorts stocks into three profitability groups from high to low. Each group represents one-third of the market capitalization of each eligible country. Similarly, stocks are sorted into three relative price groups. The intersections of the three profitability groups and the three relative price groups yield nine subgroups formed on profitability and relative price. The index represents the average return of the three high-profitability subgroups. The index is rebalanced twice per year. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Source: Bloomberg.

Dimensional Emerging Markets Low Profitability Index was created by Dimensional in April 2013 and represents an index consisting of emerging markets companies and is compiled by Dimensional. Dimensional sorts stocks into three profitability groups from high to low. Each group represents one-third of the market capitalization of each eligible country. Similarly, stocks are sorted into three relative price groups. The intersections of the three profitability groups and the three relative price groups yield nine subgroups formed on profitability and relative price. The index represents the average return of the three low-profitability subgroups. The index is rebalanced twice per year. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Source: Bloomberg.

 

Dimensional Emerging Markets High Profitability Index was created by Dimensional in April 2013 and represents an index consisting of emerging markets companies and is compiled by Dimensional. Dimensional sorts stocks into three profitability groups from high to low. Each group represents one-third of the market capitalization of each eligible country. Similarly, stocks are sorted into three relative price groups. The intersections of the three profitability groups and the three relative price groups yield nine subgroups formed on profitability and relative price. The index represents the average return of the three high-profitability subgroups. The index is rebalanced twice per year. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. Source: Bloomberg.

 

Source: Dimensional Fund Advisors LP.

The Dimensional Indices have been retrospectively calculated by Dimensional Fund Advisors LP and did not exist prior to their index inceptions dates. Accordingly, results shown during the periods prior to each Index’s index inception date do not represent actual returns of the Index. Other periods selected may have different results, including losses. Backtested index performance is hypothetical and is provided for informational purposes only to indicate historical performance had the index been calculated over the relevant time periods. Backtested performance results assume the reinvestment of dividends and capital gains.

There is no guarantee investment strategies will be successful. Diversification does not eliminate the risk of market loss.

All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

Eugene Fama is a member of the Board of Directors for and provides consulting services to Dimensional Fund Advisors LP. He is a professor of finance at the University of Chicago, Booth School of Business. In 2013, he received a Nobel Prize for his work on securities markets.

Ken French is a member of the Board of Directors for and provides consulting services to Dimensional Fund Advisors LP. He is a professor of finance at the Tuck School of Business at Dartmouth College.

Robert Novy-Marx provides consulting services to Dimensional Fund Advisors LP. He is a professor of finance at the University of Rochester, Simon Business School.

Sunil Wahal provides consulting services to Dimensional Fund Advisors LP. He is a professor of finance at Arizona State University, Carey School of Business.

 

 

 

[1]. Eugene Fama and Kenneth French, “Profitability, Investment, and Average Returns,” Journal of Financial Economics, vol. 82 (2006), 491–518.

[2]. G. William Schwert and Renè Stulz, “Gene Fama’s Impact: A Quantitative Analysis,” (working paper, Simon Business School, 2014, No. FR 14-17).

[3]. Robert Novy-Marx, “The Other Side of Value: The Gross Profitability Premium,” Journal of Financial Economics, vol. 108 (2013), 1–28.

[4]. Sunil Wahal, “The Profitability and Investment Premium: Pre-1963 Evidence,” (December 29, 2016). Available at SSRN: ssrn.com/abstract=2891491.

 

Age Gaps, the Fed, and the Landscape

Recently, I was interviewed by Money magazine regarding planning for couples that have large age gaps. I apparently said something cogent, as I was quoted in the June 14 article titled Money, Marriage and a Big Age Gap: 6 Ways to Make Sure Your Retirement Is Safe. Check it out!


Also this week, in a widely anticipated move, the Federal Reserve raised its benchmark lending rate by a quarter point to 1.25%. Given that the rate increase wasn’t a surprise, it probably isn’t the reason traders saw fit to take profits in the stock market over the last couple of days, especially in some of the hotter sectors. Perhaps the bigger news was the announcement that they may start allowing some of the principal and interest payments on the $4+ Trillion (that’s 4 million MILLIONS) of US Treasury Bonds and mortgage-backed securities to roll off their balance sheet and not be reinvested.

The effect of allowing the Fed’s bond holdings to shrink will be to take some cash out of the economy which will likely keep a lid on growth. If they get it right, maybe we’ll be back to “normal” in the next few years. Get it wrong and perhaps the doom and gloom predictions of either a deflationary death spiral or rampant runaway inflation will come to pass. No pressure, right?

The bond market certainly has not behaved as if it believes we’ll be needing wheelbarrows to cart our cash to HEB any time soon. In fact, interest rates are holding near all-time lows, which points more to an anticipated slowdown versus the economic expansion that recent equity returns seem to indicate.

I can’t provide any insight into what the markets will do tomorrow, next month, or even next year. I can remind you, though, that rarely has one come out better over ten-year periods by betting against stocks. Just look at the last decade for a reminder.

In June of 2007, the bond market saw interest rates spiking while the S&P 500® was peaking, albeit about 40% below today’s levels. If you had owned a fund approximating the index, you would have seen your account balance drop by nearly half in the following couple of years although you would have been rewarded with dividend payments around 2% a year. On the other hand, you could have just played it safe and just bought a 10-year Treasury Bond around a 5% yield to maturity. Had you done that and reinvested your interest and dividends, you would have had a much smoother ride but today you would have about half as much as the equity fund owner, as illustrated in Exhibit 1.

Exhibit 1. Chart created in Kwanti Portfolio Lab. Past performance is not indicative of future results. You cannot invest directly in an index.

Exhibit 1. Chart created in Kwanti Portfolio Lab. Past performance is not indicative of future results. You cannot invest directly in an index.


Finally, my friends at Dimensional Funds have released their 2017 Mutual Fund Landscape. In this annual report, they analyzed US mutual fund returns and accessed manager performance relative to their benchmarks. This year’s edition, like previous years’, shows strong evidence that most fund managers fail to outperform their benchmarks. Not only that, but the fact that some have fleeting success doesn't seem to predict they can repeat the performance, as seen in Exhibit 2.

Exhibit 2

Exhibit 2

If you're concerned that your plan may not address unique situations such as an age gap, or if the current market has you worried, get it touch for a review.

Get in Shape to Improve Your Fiscal Condition

One day soon, if predictions are right, your home’s artificial intelligence network will realize when you are running low on laundry detergent, order it for you from a robotic warehouse, and deliver it to your doorstep by drone within the hour. Our grandkids may one day wonder what it was like to live when you had to drive yourself to a store. It may even get to the point where people “experience” places and events without ever leaving their recliners while being served milkshakes by android butlers.

Meanwhile, 36.5% of the US population already is obese, according to the Centers for Disease Control and Prevention. That is more than double the 15% figure in 1990. At that rate, where do you suppose we’ll be 25 years from now when technology has eased all the burdens of modern life?

The recent Aegon Retirement Readiness Survey offers some frightening insight. In their 2017 edition, they show that while 89% of Americans say health is a concern in retirement while only 48% think about the impact their lifestyle choices make long-term. Apparently, the other 52% are content to eat, drink, and be merry today while assuming tomorrow may not come.

Tomorrow will come, however, and the costs will be staggering both to individuals and society. In fact, according to a recent study published in the Journal of the American Heart Association, out-of-shape folks spend $2,500 more per year than those that are more fit. That adds to other studies showing that workers that exercise make more money and that being obese has a similar financial impact to not having a college degree.

These findings add to the growing body of evidence of other benefits of exercise, such as having a lower risk of developing chronic diseases like arthritis, cancer, diabetes, heart disease, and stroke; not to mention improved cognitive function and bedroom performance.

Health and wealth planning frequently go hand in hand. Health insurance, long-term care, disability, medical power of attorney, and Health Savings Accounts are just some of the considerations to address in anyone’s financial plan.

Physical fitness, like a retirement account, is built over time through hard work, determination, and discipline. Even with all the recent debate around how the US healthcare system should work, we can all agree that staying healthy, having more money, and living a higher quality life are worth the effort of eating a few more veggies and working up a sweat.

Do you have 7 minutes? Try this workout highlighted in a New York Times article a few years ago. Getting in shape is a lot like saving for retirement. Progress can be slow and we may suffer the occasional setback, but progress IS progress and good health is worth more than any bank balance.

So, get out of your chair and get moving! If you need help with your plan, get in touch.