A Financial Epiphany

Written by Kevin Painter | 10 January 2012

Jan. 6 traditionally marks the celebration of Epiphany when the Magi came from the East bearing gifts to visit the Christ child.  Many of us also have had our own epiphany moments as we stepped on the scales after holiday feasts and opened our year-end credit card statements in this week’s mail.  As we leave the celebration and joy of the Christmas season, we are encouraged to make resolutions to eat better, jog more, spend less and be nicer. 

Although we associate the word “epiphany” with the nativity story, the term also can mean “a sudden, intuitive perception of or insight into the reality or essential meaning of something,” according to Dictionary.com.  

The financial markets faced many challenges in 2011.  From the Eurozone crisis to gridlock in Washington, D.C., equity prices cascaded as the fear of recession peaked in late summer. 

Before you make the same annual resolution to live better (or perhaps you haven’t made any at all) or listen to a Wall Street analyst make his annual dart-throwing prediction,  take a moment to reflect on where you stand financially and where you want to be.  How did you withstand the massive downturns in the equity markets in the past five years?  Do you have a trusted adviser to give you advice on how to steer your boat through turbulent waters?  Most importantly, what do you do to mitigate the emotions of greed and fear when it comes to your financial life?

As you reflect on the past year, ask yourself if you met your personal savings goals, managed investment risk and most importantly if you’re closer to becoming financially independent than you were on Jan. 6, 2011.  If you didn’t have a plan and weren’t able resist making decisions based upon the major financial news headlines in 2011, let this be the moment the light shines.

 Jan. 6 can be your epiphany too. 

How to approach retirement, avoiding the mistakes of the Top One Percent

Written by Andy Oakes | 22 December 2011

In a recent article for the Wall Street Journal, Robert Frank examined some reasons behind the rise and fall of “the top one percent”.  In the article, he cites a report by Maria Elena Lagomasino, who runs a wealth management firm in Palm Beach Gardens, Florida, in which she asks, “How is it possible that people who are on top of the heap can fall so precipitously?”

 Three important factors include overspending, too much debt, and not properly diversifying investments.  If you are within five years of retirement, use these cautions to create your own three part Financial New Year’s Resolution. 

1. Before you can project how much income you’ll need in retirement, you need to know how much you are currently spending.  If you do not currently operate on a budget, create one to examine your cash flow.  Set up a simple expense tracking system.  For example, commit to using your checking account debit card for all spending over the course of a month.  Then use the monthly statement to categorize and prioritize spending, considering which expenses will follow you into retirement.
2. Examine your debt, and create a plan to eliminate it before retiring.  First, get out of credit card debt.  Next, take any remaining mortgage or other loans, and use an “amortizing loan calculator” to figure out how quickly you can pay off remaining debt.  The answer is your new retirement date.
3. Your investment focus will be shifting from building wealth to creating income, which requires proper diversification to manage risk.  The circular nature of retirement planning involves a back and forth evaluation of your income needs and your portfolio’s ability to create it.  As an example, if your retirement living expenses are $4,000 per month, and your Social Security and pension will make up $2,500 of that, your portfolio must make up the difference of $1,500.  That is an annualized supplement if $18,000, which represents a 5% return on $360,000.  The purpose here is to be realistic and prudent on an ongoing basis to ensure that you do not run out of money. 

So in your reflections of 2011, and plans for 2012, consider what steps you can take to improve your finances, especially if retirement is on the horizon.

Christmas Gift Ideas - 3 books to consider

Written by Andy Oakes | 21 December 2011

For our clients who have achieved financial success, giving assumes a prominent role among their financial priorities, especially this time of year.  And perhaps giving means all the more if you can endow a sense of responsibility with it.  Consider slipping a book like one of these into a family member’s stocking this Christmas.

• “Get a Financial Life: Personal Finance in Your Twenties and Thirties”, by Beth Kobliner
• “The Wall Street Journal Guide to Starting Your Financial Life”, by Karen Blumenthal
• “The Generosity Ladder: Your Next Step to Financial Peace”, by Nelson Searcy and Jennifer Dykes Henson

Can’t live with them; can’t live without them

Written by Hoy Grimm | 07 December 2011

With the holidays upon us, we have the opportunity to reunite with family from near and far and just because we are related to them, doesn’t mean we like them all. Inevitably, as we are enjoying the company of our kinfolk, it happens—the arrival of our nutty aunt or uncle. The one who is unconsciously adroit at turning the most innocuous conversation about stuffing or football into something that broadly offends. Attempting a graceful exit from our predicament, we are faced with the reality that we actually share the same DNA and we vow to keep our distance until next year.

Investment markets exhibit this familial dynamic. Markets by their open nature invite everyone to participate and even go so far as to create investments that appeal to the extremes of the spectrum. These riskier investments fluctuate in value more. The investment majority prefers the less risky approach while a few risk-seeking malcontents stir up things. You may never invest in options, futures or leveraged exchange traded funds (ETFs), but that doesn’t insulate you from the effects of the risk takers in the crowd who do.

The only way to avoid the volatility is to leave the markets altogether, and a number of investors appear to have done so. Banks now hold more than $10 trillion in deposit assets despite paying record low interest rates. Depositors are accepting a negative return after taxes and inflation. This is as irrational as investors placing leveraged bets in the stock markets.

At LeConte, we expect continued volatility in the markets. With so much cash on the sidelines, the market is overweight with investors who are comfortable with more risk. Despite the urge to find the nearest exit and avoid the nonsense, we realize that the alternatives have their own shortcomings. So, LeConte adopted an extremely diversified approach to combat the volatility during the past three years. Our core equity position in our advisory accounts is comprised of more than 1,000 individual stock positions. 

While diversification alone doesn’t completely insulate an investor from volatility, it might make your stay tolerable enough to keep you invested until the sideline money comes back and smoothes out some bumps. Whether it’s a dysfunctional family Christmas or a turbulent investment market, sometimes you have to go through it to get through it.