No One Can Predict the Future

 

As the Dow reaches new highs, I see behavioral patterns in investors that can often lead to irrational decision making.  Humans have a tendency to act and react emotionally on both greed and fear. When the markets move swiftly in either direction, people get excited or scared and can lose sight of why they are investing in the first place, and bad decisions may be made.

 

Consider the fact that as an investor, if you take the time to plan and determine the most important things you want to accomplish in life, there is a required time commitment that coincides with obtaining these long-term goals.  There is a disconnect that occurs when people respond to external stimuli (i.e., what the market or politicians are doing today) and make decisions based on these occurrences. 

 

No one can predict the future.  Having a written plan and knowing what you are trying to achieve can provide a deterrent to irrational decision making.  I feel as a financial planner this is one of the primary services that we provide to our clients.  We work to keep people on track and help them avoid the knee-jerk reactions that could prove to be detrimental to achieving the most important goals in life. 

 

Doug Lennick, CFP, quoted, "Too many financial professionals try to predict the future.  It's a fool's game."

 

 A financial plan can help you prepare for whatever happens.  For example, if you need money in the next few months or year, you will have an appropriate place to take it from.  If you're saving in an investment with the goal of growth for future income, you keep that money off limits for short term needs. 

 

The reason most couples argue about money is that they haven't verbalized and written down what they want for their future.  The process of having this discussion with your significant other, of planning and dreaming about what you want your future to look like, is the first step in taking control of your financial life.

 

We can't predict the future but we can make educated guesses and monitor and make changes as necessary, as life continues to unfold before us.

 

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish and Associates.

 

“Investors have few spare tires left…”

“Think of an image of a car on a bumpy road to an uncertain destination that has already used up its spare tire. The cash reserves of people have been eaten up by the recent market volatility.”... Mohamed El Erian, CEO of PIMCO

We always hear the word volatility used in the media, by financial advisors and planners like me, but what does it really mean to you as an investor in dollars and cents? Sometimes a picture is worth a thousand words.

                       Low Volatility                                             High Volatility
                            Plan A                                                             Plan B
Year       Growth of $100,000    Annual Rtn.    Growth of $100,000     Annual Rtn.
1                    $110,000                             10.0%                     $134,000                       34.0%
2                    $115,500                               5.0%                     $121,940                        -9.0%
3                    $131,670                             14.0%                     $153,644                       26.0%
4                    $143,520                               9.0%                     $129,061                      -16.0%
5                    $162,178                             13.0%                     $169,070                       31.0%
6                    $165,421                               2.0%                     $167,380                        -1.0%
7                    $185,272                             12.0%                     $197,508                       18.0%
8                    $214,916                             16.0%                     $173,807                      -12.0%
9                    $227,811                               6.0%                     $210,306                       21.0%
10                  $257,426                             13.0%                     $227,313                         8.0%
                      Average Return                 10.0%                                                             10.0%
                      Compound Return              9.9%                                                               8.5%
                      Standard Deviation           4.5%                                                           18.6%           
  
Hypothetical portfolios for illustrative purposes only. Diversification does not assure a profit or protect against a loss.

This illustration looks at a low volatility vs. a high volatility portfolio.

The average rate of return is the same but the end result show that a lower standard deviation portfolio can compound at a higher rate of return and create more wealth over time. The longer the time period, the more pronounced the end result will be.

Most of the advertising done by investment companies show the average rate of return and may not explain the underlying volatility.

Here is another important point. A portfolio that goes down 50% requires 100% appreciation to get back to even.

In comparison, a portfolio that is down 8% only requires a recovery of about 9% to get back to even.

The greater the loss, the smaller the base on which your earnings can compound.

Yr     Growth of $100,000     Annual Return        Growth of $100,000     Annual Return
1                   $50,000                         -50.0%                                   $92,000                       -8.0%
2                   $54,500                           9.0%                                  $100,000                        9.0%

You can see from this example it would take years to get back to the original investment.

If you or your spouse is handling your own investments, make sure you both understand the risks you are taking on with your investment strategies.

If you don’t understand, or are unsure how to measure your portfolio’s risk, you may benefit from getting a second opinion or evaluation. The money spent with a professional could save you thousands of dollars in the future.

Knowledge is the power and you should understand the “whys” of how each investment made its way into your portfolio and the “how” of how this investment will help you meet your long term investment goals.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish and Associates.

To Risk or Not to Risk…


“October is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, March, June, August, December and February”….Mark Twain

All investments carry some type of risk. Today, I am going to focus on risk as it is measured by standard deviation (SD). Go on, keep reading. I hope I can make this an understandable concept!

Let’s use the example of choosing to invest between Product A and Product B. Product A has an expected rate of return of 4% with an SD of 2%. This means that about 2/3* of the time, this investment is expected to return between 2% and 6% (plus or minus 2%).

Product B has an expected return of 10%, but the expected SD is 20%. This means about 2/3 of the time Product B should return -10% to +30%.

In dollars, a $10,000 investment in Product A would be expected to grow in the range of $10,200 to $10,600 (again 2/3 of the time) over a one year time period. Product B’s return would result in a range from $9,000 (a $1000 loss) to $13,000. Product B has a greater reward potential but also greater loss potential than Product A. It is clear that Product B is “riskier.” Note: 1/3 of the time the gains and losses are even greater.

Another consideration to think about: if you had to liquidate your funds to raise money, you may have to sell your investment for less than your original investment. Understanding this concept is very useful in helping you determine what an appropriate investment would be.

The moral of this blog is to make sure you fully understand the risk you are taking before you make an investment. If you have the time and the temperament to take on risk, that is okay. The objective is to have all the facts in order to make the most informed decision.

In my next blog we will discuss the meaning of volatility.

*In statistics, the 68-95-99.7 rule — or three-sigma rule, or empirical rule — states that for a normal distribution, nearly all values lie within 3 standard deviations of the mean. About 68.27% (2/3) of the values lie within 1 standard deviation of the mean. Similarly, about 95.45% of the values lie within 2 standard deviations of the mean. Nearly all (99.73%) of the values lie within 3 standard deviations of the mean.

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.

Road Blocks to Creating Wealth


Do you have a substantial amount in savings, but lack confidence and knowledge when it comes to investing? This blogs for you!

As a Generation X , 90% of Gen X (those born between 1965 – 1982) are saving in their retirement plans at work, but only 15% said they knew they were on track to create the income they would need down the road, when they can’t or don’t want to work full time any more. If you are between 30 and 44, most of you have plenty of time to make a plan and create a way to monitor your progress. If you don’t have an end goal in mind, it is difficult to know if you are on track or not.

I often see young people come into my office that are saving appropriately, but their investment allocation is much too conservative to have their dollars working to help them grow their income account over time.

Have you heard of the “rule of 72”? It is basic financial concept that illustrates how many years it will take to double your money.¹ Let me give you a hypothetical example. Let’s say you are 30 years old, you have saved $50,000 and it’s earning 2%. By the time you are 66, the $50,000 would grow to $100,000 (72 divided by 2=36).

Let’s assume you invested in a diversified portfolio (small, medium, large companies around the world and some bonds in a hypothetical portfolio that we assume you average 7% rate of return. Now, according to the rule of 72, your money doubles about every 10 years. In dollars, you would have accumulated over $500,000 in the same 36 years. This of course is just a hypothetical example. My point is how you diversify your investment may have a huge impact on your future income. It could be the difference of $4,000 per year in retirement vs. $20,000 from the same starting point.

If this makes sense to you but you’re not sure how to apply it to your own personal situation, take the time to meet with an advisor or take a class on investing. Maybe start a group of other like minded friends and do an investment work club and ask an advisor to come in and facilitate to make sure you understand the why’s and how’s of what you’re doing in your 401k and other investments.

¹ 72 is divided by the interest percentage per period to obtain the approximate number of periods required to double the investment.

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.

Create a Budget – Make a Plan

Are you trying to get your spending under control? Are you in the position that you realize that you need be saving more, but need the basic skills needed to put together a plan to map your future? If this resonates with you, read on…

Many women struggle with money management. First, get rid of any guilt you may feel about what’s happened in the past. You can’t change the past and it’s important to focus on what you can do right now, in the present. I am addressing this blog to a group of our population known as Gen X.

As a generation, the Gen-X’ers (those born between 1965 and 1982) have a propensity to spend more than they earn (40%), and not surprisingly, the majority (60%) don’t even have an emergency fund.

If you are in this or a similar situation, whether you are single or are in a committed relationship, take the time to sit down and really look at your spending patterns.

In order to save you have to pay yourself first, or make yourself one of the line items on your automatic bill pay. If you wait until the end of the month to save what’s leftover, this will never happen.

Analyze what you spend on entertainment, clothes and other discretionary “stuff”. You may be very surprised at how much money is wasted that could help you start a new financial future.

If you are in debt, make a vow to yourself to pay off the debt. Set up a goal and look at it every month. Write it down. I will pay off my debt in xx months. If you are single, find a friend or a trusted colleague to help keep you on track. Remember a goal with no end date is nothing more than a dream.

Don’t procrastinate another day. If you need help or encouragement, send me an email. When I was 34 years old, I was over $40,000 in debt, a single mom, and my income was less than what I owed. It can be done if you are committed to a better future for yourself and your family.

Today I am a successful business owner and have met my goal of being one of our firms tops clients.

If you’ve achieved the enviable goal of being debt free and have accumulated a comfortable savings account, we will address the next steps in my next blog.

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.

“Some Day My Prince Will Come…or Not”




Young girls, teenagers, and college students are bombarded with images of getting married to the perfect guy, finding Mr. Right, and being taken care of by a man from an early age.

There are plenty of great female role models out there, but I am amazed at how many capable, intelligent young adult women do not start planning for their own future because they are waiting for Mr. Right to come along and take care of them!

Don’t get me wrong, women have come a long way. But I see many young women that put off dealing with their financial issues because they are waiting for a man who makes enough to take care of all their future needs. The reality is, Prince Charming may never come, or may not be the breadwinner you are looking for. This lack of self awareness often drives women to under earn, over spend, and push off taking control of their finances into the future.

There is nothing wrong with the desire to meet prince charming, but don’t ignore or postpone taking control of your life in the hopes that someone else will come along and solve your problems.

If you are in a low paying job, don’t waste your time and energy looking for a high earning man. Evaluate what you want out of life and figure out what you need to do to earn more money.

If you need inspiration, go out and buy the book “The Secrets of 6 Figure Women” by Barbara Stanny. It is an informative and empowering book.

Our earnings limitations are usually a result of our belief systems. If you have the desire to be more than you are today, earn more than you earn today, you may start feeling guilty or uncomfortable, thinking that somehow you don’t deserve it. The negative thought processes of using vocabulary that include, “I can’t”, “I won’t” or “I don’t,” can become self fulfilling prophecies. As Buddha observed, “All things that we are, arise from our thoughts.

Twenty three years ago when I entered the financial services business, I was scared to death. It was a struggle to come out of my comfort zone and enter into unknown territory. I had to tell myself I had unlimited potential. I told myself I could take care of myself and my daughter financially and would help others do the same. Did I believe this at first? No, but I wrote down positive affirmations, I wrote what my future would look like. I would recite positive affirmations in the shower. I knew being financially secure and independent was possible. I just had to squelch the voice in my head that tried to defeat me.

In my case, the pain of divorce forced me into action and I knew I had to go outside my comfort zone to change my life. The pain of a financial challenge is often the catalyst for taking action.

If you are facing a challenge, write down what your future will look like with you in charge!

Make a poster board (or use Pinterest) to post pictures of the positive things you will have in your future and a loving partner can be one of those. Look at it every day.

Take ownership and control and believe that you, and only you, can make the necessary changes to have a brighter future in which you are in control. Find a successful woman to mentor you so that you can affirm that what you want out of life is within your reach.

The beauty of this life is that all things are truly possible as long as you believe and are willing to work. In the words of my father, “the harder you work, the luckier you will be.”

I invite you to share your story with me on how you changed your life or how you plan to in the future.

Take charge!!



Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates

Lump Sum Pension – Is it right for me?

 

For the small percentage of folks out there that are still offered a pension by your employer (≈20%), lump sum vs. lifetime income requires a full analysis and should be done thoughtfully and thoroughly.

It still amazes me that people will come into our office to have a plan done to see which option to choose, and they follow up with, “I’m retiring next week or at the end of the month.” This is hardly enough time to fully analyze a situation to determine the best way to go.

If you go to a financial person and they are willing to answer that question at the first meeting, don’t walk but run out the door and get another opinion.

Why? Because you only get to make this decision once, and if you make the wrong decision it could cost you hundreds of thousands of dollars over your lifetime. There are a number of considerations to be made before you can make an educated decision.

Here are a few of them:

1. How is your health (and spouse’s)?

2. What benefits will your spouse be eligible for in the future?

3. What are your income needs?

4. Do you have aging parents / a child that needs ongoing financial support?

5. Have you discussed long-term care and health insurance costs in retirement?

6. Do you have other investments that offer future inflation protection?

7. Does the pension offer a cost of living adjustment?

8. Can your spouse live comfortably off of the reduced pension amount at the first death?

9. Do you carry life insurance? How much is it for and how long will it last?

These are just a few of the questions we explore before making a recommendation on what is best for each situation.

For those cost conscience folks out there who don’t want to spend the money on a financial plan, think again. It could be the best investment you can make to secure your financial future.

If you have specific questions, feel free to email me at kathy@fishandassociates.com.



Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates