Mark Zaifman's thoughts on Money, Global Economic Trends and Politics

On The Road to Retirement Planning

Posted by Mark Zaifman on Wed, May 04, 2016 @ 09:30 AM

On The Road to Retirement... “If you don’t know where you’re going, any road will take you there.”

path.jpgThe refrain "If you don't know where you're going, any road will take you there" was essentially a paraphrase of an exchange between Alice and the Cheshire Cat in Chapter 6 of Lewis Carroll's Alice in Wonderland: "Would you tell me, please, which way I ought to go from here?"

For many new clients I meet, especially clients that are in their mid-50’s and early 60’s and on the road to retirement, which way I ought to go from here is the question they most want answered and the question I most love responding to.

Pre-retirement, that precious time in our lives when we attempt to earn and save enough money to last us the rest of our retired lives is a daunting task for many an investor. Although as daunting a task it may or may not be, sticking your head in the sand is not the answer. Nor is thinking you’ll just keep working through your 70’s. Although that may be your noble intention, it may not be up to you.

For many, one of the most difficult parts of saving for retirement is simply understanding how much they need to save by the time they reach this milestone in life. In other words, many an investor is flying blind on the road to retirement, raising the probability of a crash landing.

The Danger of Lacking a Plan

Without a plan, people will often build their investment portfolios bottom-up, focusing on investments piecemeal rather than on how their portfolio as a whole is serving their objective.

Another way to describe this type of investor behavior is ‘fund collecting’. You’re drawn to evaluate a particular fund and if it seems attractive, you buy it, often without thinking about how or where it may fit within your overall investment strategy.

Without a clear and well-designed holistic investment strategy, you’ll be tempted to buy funds with high performance ratings only to see those same funds underperform immediately after receiving high marks.

While paying close attention to each investment may seem like the smart thing to do, this process often leads to you eventually owning a hodgepodge of mutual funds, stocks and bonds that do not serve your ultimate needs. As a result, your portfolio may wind up concentrated in a certain market sector, or it may have so many holdings that managing and tracking all these investments becomes a nightmare.

Most often, what causes your investment portfolio to get so off track are common, avoidable mistakes such as performance chasing, market-timing, or reacting to market “noise”.

On The Road to Retirement Success

If you know how much you need to accumulate in total savings by the time you intend to retire and you have an investment strategy that aligns with your core values and goals, then you’re either a Spiritus client or you’re a DIY and you’ve done your homework.

Here's what I’ve discovered by having the opportunity to help my clients prepare for retirement and then actually retire and live their dream. Nearly all of them said that it was only when retirement was about 5 years away that it started to feel real. So if you’re 5 years away from retirement, has it begun to feel real for you?

If and when it does begin to feel real, that’s when it’s time to assess where you are right now, financially speaking, and determine which road to take on your journey to retirement. And although any road may get you there, ‘there’ may not be even close to what you had in mind.

I used the Alice in Wonderland refrain because I meet far too many people that are taking any road they can find to retirement and falling for any sales pitch that promises extra high returns or offers a short-cut to the finish line. Caveat emptor.

Some are taking far too much risk with their investments when they’re only 5 years away from retirement. Some have no idea how much they need to save in order to maintain their desired standard of living. Some do not know nor do they have a retirement income plan that maps out their income streams in retirement and the extent to which they’ll need to tap their investment portfolio.

All that said, what causes me the most distress is how many people in their late 50’s and 60’s are worried sick about being able to retire. They stress and worry and they do not live life with joy. Instead they live in a state of fear and high anxiety.

As a recovering money worrier, one of my greatest joys in life is not the first, but usually the second financial planning meeting I have with clients as we co-create their retirement plan.

It’s at this second meeting, after having conducted a full analysis of their current financial picture that we get to discuss options and possibilities.

Options and possibilities, two words worth repeating as these are some of the most comforting words a client can hear from a financial planner when worrying about money has been a full-time occupation.

As in most everything, there’s no guarantee, yet I’ve seen many a chronic money worrier be liberated from fear around their money and eventually become fearless once they took the bold and courageous step forward and put their financial house in order. It’s a beautiful thing to watch and be a part of.

Photo by Pat Chiappa

Tags: investing, retirement planning

Long-Term Investing - Why 5 Days Over 10 Years Have Made All the Difference

Posted by Mark Zaifman on Tue, Feb 16, 2016 @ 10:26 AM


These past couple months, and especially the past few weeks, have been particularly nerve racking for investors. With memories of the last stock market crash still etched into our collective psyches, it’s challenging, even for disciplined long-term investors, not to get caught up in the frenzy.

Over the weekend, an article in the business section of my local paper caught my attention. The article that was published on February 11th, by Stan Choe of the Associated Press had the following statistic that made my long-term investor heart sing:

"Much of stocks’ long-term returns can come from just a handful of really big days, and it’s impossible to predict when they’ll occur. Miss them, and owning stocks gets much less lucrative. Two-thirds of the S&P 500's gain over the last decade has come from just five days".

“This is the whole point of why equities generate the best returns of any major asset class over long periods of time. They have higher volatility. If you can live with the higher volatility, you should be in a position to earn higher returns. I fully expect stocks ultimately will reach new highs".

This is worth repeating - 5 days over the past 10 years, just 5 random days, were responsible for 66% of the S&P 500’s gains. Wow, that’s amazing to me.

So what’s the moral of this story? It’s just illustrates once again how hard and nearly impossible it is attempting to time the market. By market timing I mean deciding to sell all your equity positions when the market is in a downturn and then having the insight of knowing when to get back in. As John Bogle often reminds us long-term investors; trying to time the market is mission impossible.

Seeing the market have a few good up days recently almost feels like a mirage after so many weeks of nothing but negative news. So let’s hope for the best but be prepared for another test of new lows. Until we see the market have a few back-to-back weeks of steady and sustainable upward movement, we’ll still be on this roller coaster ride, so please, stay buckled up.

All that said, anytime you feel the urge to sell and alter your long-term asset allocation because the markets are heading downwards, just remember to think about how over the course of 10 years, just 5 days made all the difference in the world to your investing success.


Photo credit by Joy

Tags: stock market

A Market Decline is Temporary-Selling at a Loss is Permanent

Posted by Mark Zaifman on Mon, Jan 18, 2016 @ 11:31 AM

rollercoaster-2.jpgHere we go again…..up, down, up, down. If this stock market roller coaster ride has you feeling anxious, you’re not alone.

Although the market crash of 2008-2009 is now thankfully in our rear view mirror, for all of us long-term investors that hung in there through the worst of it, starting the New Year off with such high volatility in global stock markets can easily spook even the most seasoned investor.

With all this recent volatility, expect to see lots of financial talking heads making predictions. Some will be dire, some will be optimistic. But at the end of the day, these are guesstimates, at best. Take everything, especially now when emotions are running high, with a grain of salt.

Many markets and asset classes are now in a “correction”. A stock market correction is when prices fall 10% from the all-time high. But - and this is important, corrections are generally temporary price declines interrupting an uptrend in the market.  It’s very normal for markets to have one, two and sometimes three corrections in one year, with markets still ending in positive territory at the end of the year.

Once markets began recovering from the 08-09 crash, what we experienced - very low volatility and strong annual performance, year after year after year, was highly unusual.

Although as enjoyable and profitable as it was, it was also dangerous because complacency can easily settle in when markets seem risk-free.

Why do I claim complacency is dangerous? Because it has a habit of causing investors to make rash and emotionally charged decisions once markets become volatile after unusually long periods of relative calm.

With markets rewarding investors so generously while at the same time seeing such low volatility, it’s easy in retrospect to now see how complacency settled into many an investor’s behavior. The remedy for this situation is the big D-discipline.

Do You Have The Discipline Needed To Stick With Your Investment Strategy?

Investing provokes strong emotions. In the face of high market volatility like we’re experiencing now, some investors may find themselves making impulsive decisions or, conversely, becoming paralyzed, unable to implement an investment strategy or to rebalance a portfolio as needed.

Discipline and perspective are the qualities that can help you remain committed to your long-term investment strategy. And yes, I know, that is much easier said than done, especially when it comes to something as crucial as your financial security.

In volatile markets, with very visible winners and losers, market-timing (getting out of the market now and at some point getting back in) is a dangerous temptation that you will face head on. The appeal of market-timing is exceptionally strong when you’re feeling over-confident or just the opposite, feeling scared.

What's key to remember if and when you’re feeling tempted to sell in this most recent downturn is this sound guidance from John Bogle, founder of Vanguard:

“Thinking you should get out of your stock allocation (1) then (2) get back in, when? You might be lucky once when you get out, but being lucky twice, knowing when to get back in? Nearly impossible odds to get that right twice."

Abandoning a planned investment strategy can be costly, and research has shown that some of the most significant obstacles you’ll deal with as you do your best to stay on track with your plan are behavioral: the temptation to chase performance, the allure of market-timing and the failure to rebalance.

Practice makes the master. Now’s your time to practice and flex your discipline muscle.


All indications are that 2016 will potentially be a very volatile year in global stock markets, so please prepare yourself for that, buckle up, and do your best to find your sanctuary from the noise. Although we can’t control the markets, we can control our response to what’s happening.

By being in control of your emotions, instead of the other way around, you’ll not only increase your resilience to these ups and downs, you’ll increase your self-confidence which in turn will help you stay on track with your investment plan when the going gets rough.

As I mentioned in the title of this blog, a market decline is temporary while selling at a loss is permanent. If the Vanguard S&P 500 fund that cost $190/share earlier in the year is now ‘on-sale’ for $172, from my perspective, that’s not a crisis to sell, that’s an opportunity to buy.

And as the “Oracle from Omaha”, Warren Buffet likes to remind us:

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”


Photo credit by Felicito Rustique

Tags: investing, stock market

Do I Need to Adjust My Retirement Income Strategy in 2016?

Posted by Mark Zaifman on Wed, Dec 30, 2015 @ 08:52 AM



It’s been a so-so year for investors in 2015. Lots of volatility throughout the year with little upside performance to show for it. I believe the title of this recent article says it best: The Year Nothing Worked: Stocks, Bonds, Cash Go Nowhere

With the recent enhancements high frequency traders have made, volatility looks to be the ‘new normal’.

In 2014, the Ibbotson/Morningstar asset allocation models we use when constructing portfolios projected an estimated return of 7.2% for a 60% allocation to equities and a 40% allocation to fixed income. At our firm, this would be considered a moderate risk portfolio.

Now, heading into 2016, Ibbotson is projecting a 5.27% return for that same 60/40 asset allocation. For investors with 10+ years before retirement, while not good news, it’s not the end of the world as you’ll have time to course correct if needed.

For those of you, including all my clients that are already in retirement and withdrawing from your portfolio or those getting close to the finish line; will your retirement income strategy need adjusting? The answer is yes. We’ll meet and update your plans first quarter of next year.

Retirement Income Planning

Think about how much time you spend throughout your working years managing your personal finances; managing cash flow, saving, investing, insuring, getting your kids through college, basically doing all the responsible things you know you need to do in order to save enough money so you can retire in style and never worry about running out of money in your old age. Call this the accumulation phase of your life.

Now, think about how much time you’re putting into the next phase of your financial life, the distribution phase. This phase begins once you start withdrawing from your portfolio. Compared to all the time you invested during the accumulation phase, monitoring, measuring results, course correcting when needed, how does that stack up with the time you’re investing in the current or perhaps soon to be next phase of your life?

I meet way too many people that are flying blind as they head into retirement. With no plan, no retirement income or tax strategy, the odds of crash landing into retirement are high. Sometimes it takes a conversation with a friend, colleague or family member, sometimes it’s a reoccurring nightmare of being old and homeless and other times it’s just a voice in your head saying it’s time to figure this s**t out that finally moves you into action.

Taking control of your financial future begins with assessing where you are today and seeing how that aligns with the lifestyle you desire in retirement. That’s your starting point. Does it take courage to take this first step? It sure does, big time. But once you take this major first step, the sense of relief you’ll feel, even if the news is not so good, makes it so very worth it.

For those that do not want to go it alone, this would be a good time to engage with an independent, fee-only financial advisor that works in a fiduciary capacity.  Of course, that’s a self-serving request, yet I can’t stress enough the potential value you’ll receive by having a professional objectively analyze your current financial picture.

To illustrate further what types of analysis you can expect to see when doing retirement planning, check out these sample reports produced using our financial planning software. My absolute favorite report is the net-worth outlook report on page 4. I like to think about this as a score card, so to speak. Being able to track your annual actual to projected net-worth goal helps hold you accountable to your plan and also signals when it’s time to course correct. The report starting on page 8 is also a favorite as it illustrates your withdrawal rate in retirement.

Keep in mind, these are sample reports with fictitious clients. The sample reports come in only one speed for illustration purposes - high net-worth, so please remember, all planning work is customized to your specific needs and net worth.

Finally, I’ll leave you with what’s been referred to in the financial planning profession as the:

‘Retirement Income Holy Grail’

  • Maintain my lifestyle and maximize my income from portfolio withdrawals, especially early in retirement.
  • Eliminate the chance that I could run out of money
  • Offset inflation and maintain my purchasing power
  • Avoid undesired changes to my spendable income
  • Preserve my nest egg for the people and causes I care about
  • *Practice Gratitude

*my addition

Always remember, retirement planning done well will inspire you greatly. After all, this is your life plan you’re designing, what’s not inspiring about that?


Photo credit


Tags: retirement planning

Finding Your Financial Balance in 2016

Posted by Mark Zaifman on Wed, Nov 25, 2015 @ 12:50 PM


The stock market is volatile. Your bills are skyrocketing. Getting a grip on your finances, however, goes beyond your checkbook. Take a good hard look at your relationship with money, and you’ll finally figure out how the two of you can start getting along.

Money is many things to many people. For some, it beckons and entices; others find it scary and confusing. Whatever the relationship, that rapport directly affects our ability to attract, spend and hang on to what we have.

Whether there’s $10,000 in our account or $10 million, we follow the same behavioral patterns. Changing our approach to money comes when we’re able to take a good honest look at the inner workings of our relationship with money.

So how have you been treating your money lately - and how has it been treating you? Maybe you feel inferior to it or you don’t take it seriously. Maybe it bullies you around or seems to skip town when you need it most.

Money as the Judge

For some, money speaks in harsh, critical tones. It’s disappointed in the way you’ve handled it and it tells you so. Maybe you feel that your money has no faith in you. When you see it that way, you won’t feel positive, and that will have a negative impact on how you deal with it.

Perhaps you feel bad that you didn’t read the full 27-page prospectus on your mutual fund or that you haven’t saved enough for retirement. The effect? You feel inadequate and incapable which is not a good foundation for a healthy money relationship.

To begin to turn things around, find out where that voice is coming from. Your parents? Financially savvy friends who think they know more than you? Get to the source of it and question it. But even more important, take note of what sound decisions you have made, (and there must be some) put the criticism in perspective, and work on honing your gifts rather than calling out your weakness.

Make Friends with Your Finances

Building a healthier relationship with your money starts with how you treat it. Every relationship has its own specific needs. Your mission is to discover what your money needs from you before you can get what you need from it.

Consider the attitudes about money you learned at an early age. Was it the root of evil? The Holy Grail? Did you learn to seek it at all costs, or never give it a second thought? What did your first dealings with money; allowance, babysitting cash, $10 tucked inside a birthday card, teach you?

Now, think of one of your closest relationships and quickly jot down five statements that describe the way you treat that person - for example, “I worry about her”, “I make him laugh” or “I’m there when she needs me”. Now write down five statements that describe the way you treat your money. Do you worry about it? Guard it possessively? Enjoy it? This exercise can give you some insight into how to make money your ally instead of your enemy.

Start Fresh in 2016

Love it or hate it, money and how we deal with it impacts our lives in so many ways. With the New Year approaching, there is no better time to invest in this crucial relationship than right now.

Finding your money balance takes time, patience and practice. Yet this investment of time and energy can reap dividends for a lifetime.

We learn early on to focus most of our attention regarding money on the external. How much we earn, where we live, the type of car we drive, where we shop, the clothes we wear, etc. All this focus on the external, (the ego), works to undermine our relationship with money and creates a toxic link of equating our self-worth with our net-worth. And when/if our net-worth drops, so goes our self-worth.

Why not make a commitment to yourself that 2016 will be the year you put the time and attention to your money relationship that it needs? Why not have 2016 be the year you liberate yourself from fear, worry and stress around money? Why not have 2016 be the year you set yourself free?

Bottom line - If a healthy and abundant relationship with money is your desire, then you’ll need to summon the courage to choose a different consciousness. This will not be easy and you will have many setbacks along the way. Yet once you’ve transformed your relationship with money and put yourself on the road to financial independence, the feelings of personal accomplishment and self-empowerment will blow you away.

Photo credit James Jordan

Tags: relationship with money

Is Your Retirement 10-Years Away or Sooner?

Posted by Mark Zaifman on Fri, Oct 23, 2015 @ 01:51 PM


If your retirement is 10-years away or sooner, you'll want to read, Get What’s Yours - The Secret To Maxing Out Your Social Security by Laurence Kotlikoff, Philip Moeller and Paul Solomon

One of the most overlooked elements of preparing for a successful retirement is deciding when to start drawing your Social Security. If you’re a married couple, the decision becomes even more complex.

Up until recently, the majority of people, usually by default, either started collecting Social Security at their full retirement age, early, at age 62, or waiting if possible until age 70. Simple on the surface right, three relatively easy choices.

Guess what. There are dozens of Social Security strategies that most people are unaware of. And remember, in the game of money, strategy is king.

Below are a few excerpts from the book Get What’s Yours - The Secret To Maxing Out Your Social Security that I hope entice you enough to read it.

“We’ve written this book to help people maximize the Social Security benefits they have earned and therefore, we believe, deserve to get. We three authors-Boston University economist Laurence Kotlikoff, journalist and aging expert Phil Moeller, and PBS News NewsHour economics correspondent Paul Solman-have spent years studying the system and making it intelligible to the public.”

“Why have we bothered to write this book? Because Social Security is, far and away, Americans’ most important retirement asset. And that’s not only true for people of modest means. Middle-income and upper-income households actually have the most to gain, in total amounts, from getting Social Security right. Toting up lifetime benefits, even low-earning couples may be Social Security millionaires.”

“So, this book is for nearly every one of you who’s ever earned a paycheck and wants every Social Security benefit dollar to which you are entitled-entitled because you paid for it. You earned it. It’s yours.”

“Social Security is the most complicated “simple” program you’re likely to encounter. This book contains minimal math. Rather it explains in the simplest possible terms the traps to avoid and basic strategies to employ in maximizing a household’s Social Security retirement.”

“We will point out Social Security’s windfalls and pitfalls-explain obscure benefits and more obscure penalties; benefit collection strategies like file and suspend (applying for benefits but not taking them)and start, stop, start (starting benefits, stopping them, and restarting them) We’ll also get into details of Social Security’s deeming rules (being forced, in some cases, to take certain benefits early at a very big cost)and related gotchas that can handicap you financially for the rest of your life.”

“We have embraced a model of human behavior based upon a competition among various internal “selves”. So our advice is to enfranchise one of them-the adult within; the long-term planner; the life preserver self. Keep reminding yourself: You are the guardian of your future self.

How was that for a good trailer? Hopefully, you’re enticed enough to put this on the must-read list.

For anyone you care about, please, turn them onto this book, it’s really that good, that important, that valuable, and believe me, they will be extremely grateful you did. As always, my suggestion is to pick this up from your local library. I’m sure there’s a waiting list, but unless you need it urgently, what’s the rush? And local libraries need all the support they can get.

To all my clients, you’re way off the hook as I got you covered. For a numbers/strategy geek like yours truly, this book is my candy store.

To all those with financial advisors already, this book is a must read if your advisor holds themselves out as a comprehensive financial planner or has chosen to work in a fiduciary capacity.

I receive great tips about books, articles related to financial planning or investing, latest tax strategies, you name it; from my clients on a regular basis and I’m very appreciative for that. It’s that collaboration aspect of my work that I love the most. So if you’re not in the habit of emailing your advisor suggestions or inquiring if they have read this book for example, give it a try. Helping them will help you.

Bottom line: Put simply, these three wise authors have ‘cracked the code’ on how to unlock the mystery of claiming Social Security benefits. Read it or listen to the audio book version or make sure your advisor has read it. As the saying goes - just do it!




Tags: book recommendation, investing, retirement planning

Sticking with Your Financial Plan When the Going Gets Tough

Posted by Mark Zaifman on Wed, Sep 30, 2015 @ 02:38 PM


Next week, your monthly investment statements will arrive via mail or email. And unless your portfolio has been invested 100% in Treasury Bonds, you’re going to see unrealized losses on your statement, as it’s been a terrible month/quarter in the stock market.

First thing to remember, those losses are paper losses, also called unrealized losses. When do they go from being unrealized losses to actual losses? Answer: When you actually sell the fund or stock that’s underwater.

With the resurgent popularity of tax loss harvesting, where your aim is to strategically sell securities at a loss to offset the capital gains in your portfolio, you welcome the opportunity to lower your tax bill at the end of the year by booking losses. With the recent correction in the markets still going on, there should be opportunities galore to harvest losses to offset gains.

Yet, while the benefit of reducing your overall tax bill by tax loss harvesting is a net positive, the challenge for many investors still remains sticking to their overall financial plan. Easy for most to do when the stock market is performing well, not so easy during very volatile times like we’re experiencing currently.

Stick with your plan….even when the market gets scary

Making changes to your investment strategy while global markets are going through a much needed correction is highly risky, potentially harmful to your financial future and could very easily backfire. Yet over and over and over again, statistics show that the biggest mistake investors make year in and year out is attempting to time the market, in other words, the proverbial mistake of selling low and buying high.

During emotionally charged times like we’re currently experiencing, it seems there’s always a person you know or work with that hears about someone they know, or someone that knows someone that has the true scoop about the markets and that someone has moved all their investments into cash or gold.

That’s right, this someone special with exclusive insider knowledge has sold everything and moved all their money into cash or gold because why? Well who knows why really? And has that someone really moved all their money into cash or gold? And if they did, what’s the point and more importantly, what’s the strategy post cash/gold?

So what to do during market volatility? Perhaps nothing.

If you're watching the recent market correction and wondering what to do, consider learning how to cope with volatility instead of changing your financial plan.

Often, the wisest thing to do during periods of extreme market volatility is to stick with the investment plan that you've already developed. Equity markets have reaped sizable gains over the past six years. Such setbacks, while unnerving, are inevitable.

A 'do nothing' prescription might be tough to swallow if you've been caught off-guard by recent volatility. But no action is an active decision, and can be the right decision for reaching long-term financial goals.

Here are a few simple tips to help you through the current market volatility.

#1: Recognize that volatility and periodic corrections are common in equity markets.

The key to getting through unexpected turbulence is to understand that swings in the financial market are normal—and relatively insignificant over the long haul. The best approach to protect portfolios is to diversify among a broad mix of global stocks and high-quality bonds so that you are better poised to buffer the declines in the equity market.

#2: Tune out the noise, and remove emotion from investing.

Seeing the same story at the top of every news site you visit, as well as seeing related portfolio fluctuations, is likely to worry you more than it should.

If you're a long-term investor, resist the urge to make drastic changes to your investment plans in reaction to market moves. You may find what's driving the overreaction in markets is nothing more than speculation.

Making shifts to your portfolio in hopes of avoiding a loss or finding a gain rarely works long-term. Investors who panicked and dumped stock holdings in 2008 and 2009, believing they could get back in when 'the coast was clear', likely suffered equity losses without the benefit of fully participating in the recovery. Vanguard research finds that a buy-and-hold approach outperformed a performance-chasing strategy by 2.8% per year on average during the 10-year period analyzed.

Also, try not to look at your accounts every day. It's unnecessary and may do more harm than good. Remember that portfolio changes, aside from routine rebalancing, can result in significant capital gains. And don't forget you need to know when to jump out of the market and then get back in—decisions few investors can and should tackle.

Rule #3: Make volatility work for you.

Save more, and continue to invest regularly. Boosting savings is important to your long-term financial goals. If you invest regularly through payroll deduction, an automatic investment plan, or a target-date fund, you're putting the market's natural volatility to work for you. Continue making contributions to take advantage of dollar-cost averaging. Buying a fixed dollar amount on a regular schedule offers opportunities to buy low during market dips. Over time, regular contributions can help reduce the average price you pay for your fund shares.

The Inaction Plan

If your portfolio is broadly diversified and has the appropriate balance for your financial goals, time horizon, and risk comfort level, sticking with it is a wise move.

Because no one knows what the future holds, a globally diversified strategy can be more advantageous than shifting too much in any direction. You can resist the temptation and save yourself the stress by tuning out the noise. It's okay to ignore volatility—that's part of the plan.

Bottom line: Emotions and investing can be a losing combination. Don’t abandon your investment strategy because the market is uncertain. Instead, practice being fearless.


Photo credit FrankieLeon

Tags: investing, stock market

Keeping Stock Market Volatility in Perspective

Posted by Mark Zaifman on Thu, Sep 03, 2015 @ 10:02 AM


It’s often impossible to explain stock market volatility until long after the dust has settled. And these past couple weeks of volatility are no different.

That’s why it’s a good idea to take day-to-day market events in stride and stay focused on your long-term objectives.

If you read the business section of a newspaper or watch CNBC or other financial shows, you’ll hear the talking heads discuss bull and bear markets, market corrections, and the like. As an investor, you should be aware of what these terms mean, but you should also know that it usually never makes sense to think about changing your investment approach based on today’s headlines.

The Markets are Unpredictable

From December 31, 1986, through December 31, 2013, the monthly performance of the Standard & Poor’s 500 Index ranged from a high of 13.47% (in January 1987) to a low of –21.54% (in October 1987).

However, despite the stock market’s ups and downs over that 25-year period (including bull and bear markets), the S&P 500 Index averaged a 10.30% annual return, a solid performance for investors focused on the long term.

4 Tips for Dealing with Stock Market Volatility

One of the most common mistakes investors make during bull markets is to move money into their “winning” investments in hopes of hitting it big.

Conversely, during bear markets, investors sometimes lose patience and sell the investments that are declining in value. Unfortunately, investors seldom get this timing right and react too late to be able to capitalize on gains or avoid major losses.

1) Maintain Your Balance Hold on to the mix of stocks, bonds, and cash investments that are tailored to your objectives, time horizon, risk tolerance, and personal financial situation.

2) Continue Investing Regularly Keep making regular contributions to your employer-sponsored retirement plan, IRA, and other investments so as to take advantage of dollar-cost averaging.

3) Make Change Gradually If you need to make adjustments to your portfolio, make the changes gradually and with clear purpose and intention. Do your best to not let your emotions override your long-term investment strategy.

4) Tune Out the Noise These days, investors are bombarded by an amazing amount of financial news and information. Try to ignore all the noise and keep your focus on your long-term goals.

The month of September, traditionally speaking, is usually a pretty volatile month in the markets. On top of that, the Federal Reserve will decide this month if it’s the right time to begin raising interest rates. So buckle-up, as this month could very well be a repeat of August, but with even higher volatility.

Then again, it could turn out to be a smooth ride through the month. It’s the uncertainty, the unpredictability of gauging where the markets are headed that will definitely make for an interesting September. Stay tuned…..

Photo credit Dave Herholz

Tags: risk management, investing, stock market

Bond Funds and the Prospect of Rising Interest Rates

Posted by Mark Zaifman on Wed, Jul 29, 2015 @ 01:21 PM


Since the stock market crash of 2008-2009, interest rates, especially the 10-year Treasury, have stayed historically low. Last quarter, the 10-year Treasury saw its largest rise since the end of 2013, halting a streak of five consecutive quarters of falling yields.

Most bond funds of all stripes, sizes and flavors have performed well since the crash. It’s been such a smooth ride, interest rates have stayed low for so long that it’s easy to forget bond prices don’t just go in one direction - up.

They can also go down in price as we’re seeing now. When interest rates rise, the prices of bonds fall, whereas when interest rates fall, the price of bonds rise. Wait, what?

If you’re confused, as most people are, about the inverse relationship between bond prices and interest rates, let me help.

For the sake of not getting too wonky and hopefully avoiding the risk of your eyes glazing over, below are some links to a few pages on Investopedia that help explain, mostly in plain English, how this crazy inverse relationship with bonds work and how that impacts your bond funds. Gain just enough knowledge to be dangerous.

Bond Basics: Yield, Price And Other Confusion

Why do interest rates tend to have an inverse relationship with bond prices?

How Does Duration Impact Bond Funds?

Bond Funds Hedge Your Stock Market Risk

Many investors, whether individual or institutional, hold a diversified bond portfolio primarily to mitigate the volatility inherent in stocks or other risky assets, while others, especially those in retirement, hold bonds for the income they produce as part of a portfolio spending strategy as well. However, with yields presently at or near historic lows, more investors view the bond market as abnormally risky.

The majority of thought currently is that when interest rates rise, the fixed income portion of an investor’s aggregate portfolio may face volatility and loss. Coincidentally, the phrase ‘bond bubble’ is gaining currency among the talking heads of Wall Street. So with all that said, please allow me to put this potential bond risk in context.

As interest rates begin to rise, some say that will happen in September, I’m thinking more like December, many investors will see the price of their bond funds go lower. Ouch! After the pain wears off, your next thought may very likely be - I need to do something. What should I do? Sell my bond funds, move into cash? Help.

Per Vanguards plain talk bulletin - Interest Rates, Bonds & Misconceptions:

- Rising rates reduce the returns of most bond funds in the short term, but can boost returns in the long term.

 - If you’re investing only for income (and can ignore fluctuations in your fund’s share price), rising rates won’t make much difference to you in the short term.

 - What’s essential is that you understand why you own the bond fund.

Interest Rate Rise is Good News for Long Term Investors

Rising interest rates are good news for long-term investors and here’s why. Yes, your bond fund prices will decline initially, but between five and seven years later, the portfolios returns are higher than they would have been if rates had not risen. How does that work?

Here’s the secret sauce about rising rates when you have bond funds in your portfolio. Remember, your bond funds generate monthly interest income. That interest income is reinvested monthly at higher yields and over time, those higher interest rates produce higher yields for your bond funds.

Summing Up: The Right Response

If you’re holding bond funds as part of a long-term asset allocation, rate changes are rarely a good reason to change your investment plan. In fact, as long as you reinvest your interest income-or invest new cash-higher rates can enhance your long-term total returns. And if you’re investing for income, rate changes won’t make much difference in the dollar amount of a fund’s income distributions, at least in the near term.

What about getting out of bonds before rates rise, then getting back in after rates have settled?

That approach sounds good in theory, but in reality, rate changes are impossible to predict with accuracy.

The best reason to take action is if you discover that your bond fund no longer fits your needs. Maybe your circumstances have changed. Or you may decide that you picked the wrong fund. Maybe you invested in a long-term bond fund, tempted by its relatively high yield, and now find you took on more risk than you bargained for. If you can’t tolerate any fluctuation in the amount of your principal, your best options are money market funds.

Whether interest rates are rising, flat, or falling, the same principle should govern all investment decisions. Know how each investment fits into your overall financial planning strategy and why you own it. If you can answer those questions, rate changes are just part of the markets’ daily spectacle.

So tune out the noise as much as possible and enjoy the rest of your summer.


Photo credit Banspy

Tags: bond funds, investing

Your Investment Strategy-Never Confuse Risk Tolerance with Risk Capacity

Posted by Mark Zaifman on Fri, Jul 03, 2015 @ 11:12 AM



If you have a financial advisor who manages your investments, at some point you most likely completed a multiple choice risk tolerance questionnaire and answered some version of the following hypothetical question:


If the stock market dropped 20% in one week, would you:

a) Sell 100% of your stock positions

b) Sell a portion of your stock positions

c) Use the downturn as an opportunity to buy at a lower price point

d) Not make any changes to your portfolio

So as you sit in the comfort of your home or office and contemplate the answers to the above types of what-if questions, thinking and feeling like you’re able to tolerate higher levels of risk is very common and easy to do.

After all, it’s one thing to imagine having the risk tolerance to see your portfolio drop 20% in one week and not panic. But in real life, when it really does happen, that’s when an investor discovers their true tolerance for risk.

If you slept well the night of the hypothetical 20% drop in the stock market, chances are you have a very high tolerance for risk and would most likely be considered an aggressive investor. Aggressive investors want to take risk, lots of it, and usually like to have portfolios constructed that have at least 80% of their investments on the equity side of the ledger if not 100%.

Risk Capacity

The other component of assessing risk is your capacity for risk taking. Never should an investor or potential investor confuse risk tolerance with risk capacity. To do so could and often will lead to awful consequences.

Say your risk tolerance answers assessed you as aggressive. At our firm, an aggressive risk tolerance score would mean a portfolio constructed with a 95% allocation to stocks and a 5% allocation to bonds. Stock market volatility is this type of investor’s best friend. This is a high risk, high reward investment strategy.

With a 95% allocation to the stock market, the potential hit to your portfolio if/when the markets have a wicked downturn would be significant.

Now imagine you retired in your early 50’s. You’ve been a risk taker your whole life, in fact that’s how you were able to achieve much of your financial success. You live large because that’s the way you roll. Your portfolio is your only source of income. So far, your high risk taking has been a winning strategy and you see no reason to change course.

Over the past few years, your annual spending has increased rapidly but you’re not concerned about it because your high risk investing strategy has paid-off in a big way. The bull market we’ve had has made you feel invincible. You invested in a start-up, purchased a second home, bought a new Tesla and racked up lots of new debt because the banks were making it so easy to borrow.

Then, a crisis somewhere on the globe occurs and the stock market drops 20% - not in a week, but in two days. You shrug it off, only to watch the market drop another 20% the following day. Suddenly, it dawns on you that although you have a high tolerance for risk, the capacity you have to take risk was not as high as you had imagined or hoped.

As you slowly start to assess the damage, you realize that the lifestyle that you’ve grown accustomed to is about to get altered in a big way. In order to meet your monthly overhead costs, you need to withdraw the same amount of money from your portfolio as you’ve been doing - only now, you’re doing it with a portfolio that’s lower in value by 40%.

To add insult to injury, after blowing through the 5% of bonds in your portfolio, and because you did not set aside any emergency reserve cash funds in the event of a stock market crash like this, you’re now forced into selling your stock positions at a huge loss. What were unrealized losses in your portfolio suddenly become realized losses.

In the course of one week, your life as you knew it, your lifestyle has changed dramatically. Loans and lines of credit you established over the past few years that seemed like no big deal now feel like an albatross around your neck. How did your life turn so quickly from living the dream to living the nightmare?

Eyes Wide Open

Although the above is a fictional story, there are plenty of people taking much more risk than they have the capacity to handle. Taking risk, even being an aggressive investor - it’s all good, but please, do not purely use a risk tolerance questionnaire to make that crucial decision. It’s just too important to rely strictly on that one data point.

A financial advisor looking out for YOUR best interests and not their own, will always go deeper and play the role of devil’s advocate by modeling worse case scenarios before recommending an investment strategy. Only then can you understand your true capacity for risk.

Many investors are do it yourselfers and going it alone has its advantages for sure, yet from what I’ve observed, most of these investors tend to focus too much on best case scenarios and too little on worse case.

So the moral of this story is - never confuse risk tolerance with risk capacity and never underestimate the value of a professional, independent and objective, second opinion. That opinion could and often is worth its weight in gold.


Photo credit Jake Rust

Tags: investing, stock market