10 Investment Pitfalls to Avoid

In the past 15 years, the stock market has crashed over 50% twice. We have witnessed housing bubbles, technology bubbles, biotechnology bubbles, and we could be in the middle of a bond bubble. Everyone has an opinion on what will happen next. There is so much noise in the markets that it is hard to know when to buy or sell. I won’t pretend to give you my latest market forecast but I can help you avoid potential investment pitfalls. Below are 10 facts that I have learned through experience over the course of my 17 year investment career that could help improve your returns. Many may view these facts as just my opinion but I feel confident that I could easily win the debate on each of them.

Fact #1 – The more you buy and sell stocks, the worse off you will do

Investment advice – Online trading companies glamorize wealth created through stock picking. The more you trade, the more money they earn off you. Limit the trading of individual securities and stay diversified. If you really like a stock in a particular sector, then look at the corresponding exchange-traded fund (ETF) in that sector. By staying diversified, you will limit the chances of a significant overnight price drop.

Fact #2 – Beware presentations based on historical performance and hypothetical analysis

Investment advice – If a wealth advisor or financial planner shows you a hypothetical analysis of investment performance of their model or allocation return, please keep in mind that it will be impossible to replicate those returns. If they show you a portfolio that earned 3,000%, I’d be happy to create a back-tested model for you up 4,000%.

Fact #3 – Selling is not an investment strategy

Investment advice – There are many wealth advisors who describe their investment process as knowing when to sell and they say that they can get you out of markets before a crash. These same advisors that “save” money on the downside will also most likely miss any potential market upside. The reality is that t’s easy to sell, but it’s hard to know when to buy back in.

Fact #4 – Technical Analysis does not work

Investment advice – Charts are a by-product of where a stock or index has traded in the past. They do not tell the future. If an advisor recommends a stock or index by looking at historical charts, in my opinion, they are just guessing. Turn the chart upside down and ask them what they think.

Fact #5 – Market timing is not a successful strategy

Investment advice – In my entire 17 year investment career working alongside the smartest investors in the world, there has not been one investor who tried to beat the market through market timing. The portfolio managers that I have worked with, all had the best access to information and understood that market timing was a losers game. Professional investors do not time the market nor should you.

Fact #6 – Concentrated portfolios will eventually blow-up

Investment advice – If you have a concentrated portfolio between 10-20 stocks, the odds are your portfolio will blow-up or underperform. Unless you own Berkshire Hathaway or other mega-cap stocks, you are asking for trouble. In most cases, you can generate the same returns with much less risk.

Fact #7 – Markets are inefficient and active managers can beat the market

Investment advice – The marketing effort of many of the companies that sell Exchange-Traded Funds (ETFs) have painted the picture that active portfolio managers underperform the market. Investing is similar to the PGA tour. There are a limited number of investors who do beat the market every year similar to PGA golfers who can consistently score under par. You will normally have to pay extra to invest with them.

Fact #8 – Individual stock picks are destined to blow up

Investment advice – I have never made money on a stock pick and I doubt you will consistently. I have listened to 1000’s of stock picks and it would be a coin flip on the ones that hit. Be very careful if you are investing real money into a recommendation from a friend.

Fact #9 – Asset allocation and diversification are ways to successfully build wealth over time

Investment advice – I believe that a diversified portfolio is the best way to achieve financial success. While asset allocation will not make you a millionaire overnight, it will help you lower your risk and increase your returns over the long-term in your portfolio. You will lower trading costs, increase tax efficiency, and become a better investor in the process.

Fact #10 – Working with a financial advisor can increase your returns

Investment advice – While selecting an advisor is based on personal preference, I believe that if you partner with an advisor that has over 10 years investment experience and knows how to integrate investing with financial planning, then you will be able to achieve financial confidence. Even legendary investor Warren Buffett does not invest alone. He has stated many times on record how working with Charlie Munger has been one of the key reasons to his investment success.


You have worked hard to earn your money. Do not fall for the 10 pitfalls that plague many other investors. Choose a financial advisor that can help you invest for the long-term and who understands asset allocation. If you would like to learn more on how I can help give you financial confidence or if you have any questions, feel free to give me a call at 508-207-8049 or send me an email to mitch@cgfadvisor.com.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.




Estate Plan – Protect your wealth

After a loved one’s death, there are often complications concerning money and understanding how to go forward financially. While it is hard to think about your own mortality in the event that you become ill or incapacitated, estate planning can help to plan for the inevitable. Estate planning can provide you with a great sense of relief knowing that the people you care most about will be protected.

Estate planning is not just for the wealthy. Some of the basics include not titling the accounts correctly, forgetting to update beneficiary information, and not having a will. Effective estate planning transfers your assets as you intended in a tax efficient manner that minimizes transfer costs, thereby helping to preserve the wealth that you worked so hard to secure. If you plan in advance, you can potentially save upwards of hundreds of thousands by avoiding probate, not losing your assets to the state, and by lowering your estate taxes.

Properly titled assets can reduce the burden on your loved ones at a time when they are still in mourning. The less decisions that need to be made when emotions are running high, the better your family will be able to cope with unexpected burdens. You can help to give yourself more peace of mind by working with an attorney to create these estate planning documents:

1) Will – A legal document that designates how you want your money to be distributed after your death. It also gives other instructions regarding your burial arrangements, or who will care for your children. You can learn more about the different types of wills here.

2) A power of attorney – A legal document that authorizes a trusted person to act for you in your place. An estate planner can help describe the different types of power of attorney’s. You can find more information here.

3) Medical power of attorney – A legal document that appoints someone to make health care decisions for you. There is also a living will which is actually not a will at all. It is a legal document that expresses your last wishes regarding end of life decisions.

4) Trusts – A well written trust helps to protect your assets and set forth who will manage your assets during your lifetime. A trust is a structure that gives legal title to the assets of one party who is the trustee and this trustee  manages your assets for the benefit of the beneficiary of the trust. Creating a trust can be helpful in the following ways:

  • Avoids complex probate
  • Distributes assets to heirs efficiently – create timetables for disbursements
  • Saves on taxes (generation-skipping)
  • Eliminates concerns for a family member who has a disability
  • Avoids unintended estate taxation of insurance policies
  • Dispels potential conflicts in cases of remarriage and extended families
  • Creates tax efficient charitable giving
  • Protects assets from creditors and lawsuits
  • Avoids medicaid “spend down”
  • Insures your assets are used for your benefit if you ever become sick

There are many different types of trusts that have been created for almost any type of financial situation that you can imagine. It is best to speak with an estate attorney about your particular circumstance. An estate planner will help make certain that your will and trust are coordinated. Assets such as a retirement account, life insurance policy, annuity, will pass directly to the named beneficiary on that account. Mistakes are made when these beneficiaries do not match your wishes in the will. This could potentially create unintended conflicts which may trigger unfortunate court battles within your family. It is critical that you understand how your assets are titled and the legal consequences of the titling. You should speak with an expert on the different ways that you can title assets. Common forms of property interests include Tenancy in Common, Joint Tenancy with Rights of Survivorship, and Tenancy by the Entirety.


You have worked hard to earn your money. Now is the time to take the next step and protect your wealth in manner that creates a plan for your loved ones . This will help to reduce the complications that may arrive financially if there happens to be a change in your health. The estate attorney I have partnered with can create an estate plan for you at a very reasonable cost. If you would like to learn more how I can help prepare your estate plan or if you have any questions, feel free to give me a call at 508-207-8049 or send me an email to mitch@cgfadvisor.com.


Mitch is a Certified Financial Planner™ and Chartered Financial Analyst whose passion is investing and helping others achieve their financial goals. Give us a call to schedule your free consultation and we can help give you peace of mind.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.

Planning for Retirement

You have worked hard and saved your entire life. How can you make your money last in retirement?

Step 1: Visualize the lifestyle you want in retirement

You need to paint a picture of what your retirement will look like. What is the lifestyle that you want to live? Where do you want to live? How do you want to stay active? What type of legacy do you want to leave?

Step 2: Make a budget

The next step is determining your spending needs. Write down a list of your daily living expenses. This cash flow analysis will help provide you with what your monthly expenditures will be. This analysis needs to be thorough and it is best to work with a Certified Financial Planner™ to compile this list. A good online worksheet calculator can be found here.

Step 3: Determine your cash inflows

This income typically includes Social Security, pensions, dividends, annuity flows, retirement account distributions, and general savings spend down. We recommend that you speak with a Social Security specialist before you make this decision. There are multiple strategies that you can take to maximize your benefits.  The Social Security website has online calculators if you want to do it yourself.

Step 4: Construct your portfolio

Asset Allocation and diversification is critical to staying retired once your retired. The most common mistake is only considering stocks. The proper asset allocation may include real estate, stocks, bonds, annuities, artwork, mutual funds, life insurance policies and exchange-traded funds. It is critical that you understand that you can’t control market returns, inflation, taxation, and other government policies. However, you can control your portfolio risk and the income that you will need. In my experience, a Chartered Financial Analyst (CFA) is the most qualified investment professional to help you with this step. Trusting a CFA, who is an asset allocation specialist, is equivalent to trusting a cardiologist to work on your heart. In my opinion, you need to work with someone who is an experienced investor and understands markets. Interview multiple advisors before you make your final decision. Do not trust the internet or a computer to provide you with this type of advice.

Step 5: Monitor for changes

Markets change and so will your budget in retirement. You need to continuously monitor the first four steps and make adjustments. Work with a financial advisor that can help keep you on track. The main question that you need to determine is how will your asset allocation change? This is a tricky question and needs to be addressed before you begin spending. Your personal risk profile will help answer this question. How much loss can your portfolio withstand? How can you manage downside losses in your portfolio? Again, you need a professional who can actively monitor markets and do their best to adjust your portfolio accordingly.

Other key considerations

We believe that it is in your best interest to create an entire estate plan as you enter retirement. Working with a Certified Financial Planner™ and estate attorney will help you to solidify steps 1-5. Most important, an estate planning takes into consideration saving on taxes, protecting your assets, and insuring your assets are used for your benefit. Trusts are not just for the wealthy. A well written trust will help eliminate concerns and give you peace of mind.

Mitch is a Certified Financial Planner™ and Chartered Financial Analyst whose passion is investing and helping others achieve their financial goals. Give us a call to schedule your free consultation and we can help give you peace of mind.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.

Learn from these Investment Follies

We have all committed financial blunders in our lives. The most successful investors recognize their past follies and will make adjustments to learn from their mistakes. Even legendary investor Warren Buffett has admitted to making enormous mistakes. He often cites his $400 million purchase of Dexter Shoes in 1998 using Berkshire stock as costing shareholders now in excess of over $5 billion as one of his worst investments.

While this mistake is large in scale, it was not critical given Buffett’s other successful investments. The difference between Buffett and many other investors is that he takes the time to calculate his mistakes and learns from them.  In my fee only practice, I tend to find two types of financial follies that you can learn from:

1) No yardstick – A proper benchmark helps you gauge financial success. These yardsticks are the benchmarks that you can judge total investment results. For equity investors, popular indexes include the S&P 500, Dow Jones Industrial Average, MSCI World, or the Nasdaq 100.

Investment Advice – Consider your risk profile, goals, liquidity constraints, tax situation, and time horizon. These life factors and constraints are unique to you. A good financial advisor will help you find the proper benchmark and then create an asset allocation that is tailored to your current situation.

2) Buying financially engineered products – The second type of error is the purchase of unsuitable investment products. The most abused products sold to the general public are annuities, non-traded REITs, leveraged exchange-traded funds, long-term care policies, gimmicky mutual funds, and buying closed-end funds during the initial public offering (IPO) period. These types of products tend to be sold on commission by advisors who may misstate or omit material facts in connection with selling these products.

Investment Advice – Understand the basics – know how they work and the charges that you will pay. The best way to accomplish this and compound wealth over time is through asset allocation and diversification. Be sure to ask the right questions and you should always seek a second opinion before you make a major decision such as locking into an annuity or buying a long-term care policy. In certain circumstances, insurance products such as long-term care and annuities are suitable only if your entire estate plan is considered.

As a fee only financial planner, I do my best to recommend the financial products and investments that I believe are the most appropriate for you to achieve your goals. I follow a fiduciary standard that requires me to put your best interest first. I can help you minimize investment blunders by constructing portfolios that are well diversified in ETFs and active mutual funds across asset classes, geographic regions, sectors, and market capitalizations.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.

All indices are unmanaged and cannot be invested into directly.

Avoid these 7 Financial Mistakes

In my fee-only investing practice, I help my clients avoid many of the common mistakes that people make on their road to retirement. Below is a list of the 7 most common investing and financial mistakes that you should avoid as you save for retirement.

Mistake #1 – No tax sheltered income
The best way to save for retirement is through deferring as much income as possible through an IRA or work retirement plan. In 1997, the Roth IRA was established which has turned out to be the best vehicle to save for retirement.  No matter your income level, you can contribute to a Roth IRA. Affluent investors utilize “backdoor” contributions as long as they don’t have existing pre-tax IRA’s. (please contact a tax advisor or myself for a full explanation)

Mistake #2 – Tax inefficient investing
It is best to avoid paying short-term capital gains. Instead use short-term losses tactically to offset them. Tax-loss harvesting is a technique used by the best investors to lower taxes while maintaining the risk/return profile of their portfolio. We believe that you should invest in a separately managed account or personalized portfolio rather than a mutual fund to maximize your tax treatment.

Mistake #3 – Investing with no investment philosophy
9 out of 10 portfolios that I give a second opinion on either take the shotgun approach to investing or are not properly diversified. The over-diversified portfolios are invested in six or more mutual funds across the world with no care for valuation. The other investment philosophy that I see is portfolios overweight in the hottest stock that has the most momentum. These portfolios are marked by low returns and high fees.

Mistake #4 – Not Keeping Score
What all the best investors have in common is that they keep score.  These investors select a proper benchmark and monitor those results to determine if their strategy is working. They understand the tremendous power of compounding and how exceeding this bar will make more money over time.

Mistake #5 – Not having an Estate Plan
Most of us are guilty of lacking a contingency plan because we believe nothing bad will ever happen to us. Trillions of dollars will be transferring generations over the next decade. While this conversation can be uncomfortable between family members, I advise that you should bring up this topic before your possible inheritance goes to the state.

Mistake #6 – Not fully understanding Social Security rules
With less companies offering Pension Plans, more retirees are relying on Social Security than ever before. Social Security is one leg of your retirement plan and you should work with an advisor who can maximize the most money out of the system.  Be sure to work with an advisor who understands the basic techniques to maximize social security.

Mistake #7 – Going it alone
The most successful investors have assembled their own team of all-star professionals. It is in your best interest to hire different professionals to prepare your taxes, invest your savings, and plan your estate. Your team should have letters after their names such as CFA, CFP®, and CPA. These designations mark professionals who are knowledgeable, believe in continuing their education, who maintain strong professional standards, and champion strong ethical behavior.

If you would like to have an accomplished investment professional with a Chartered Financial Analyst (CFA) designation personally manage your investments and a Certified Financial Planner™ advise you on retirement plan, feel free to give me a call at 508-207-8049, visit CGFadvisor.com, or email me at mitch@cgfadvisor.com.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock’s weight in the index proportionate to its market value.

The Key to Financial Success

The single most successful character trait that trumps them all is preparation. We have all heard the phrase that success is where preparation and opportunity meet. Whether it is preparing for a game, test, meeting, interview, presentation, or saving for retirement, the most successful people are the ones who are the most prepared. There were two noteworthy news items this week that apply to early preparation and there was also another example that received no press. The first story is when 2014 PGA Player of the Year Rory McIlroy, who was preparing for this years Masters tournament, found his way to the gym early one morning — only to be joined by Super Bowl-winning quarterbacks Tom Brady and Peyton and Eli Manning in their off-season workouts. “Friday morning, I got in the gym about 6,” McIlroy said Wednesday, “Brady walked in at 6:15, and the Mannings walked in at 6:30. That was my time to leave.” Tom Brady has said on record numerous times that he has gained his edge by being better prepared than the competition. The other news item this week that you can apply in a business context was a tweet sent from Apple’s CEO Tim Cook before the iwatch launch that got retweeted 6.2k times, “Got some extra rest for today’s event. Slept in ’til 4:30.” If the foundation of your company’s corporate culture is built on preparation, you are more than likely working for a successful organization that is differentiated from the competition.

The other not so newsworthy headline yet clear example of how preparation trumps all other character traits came from a personal experience. One of my clients started saving early and often and is now on their way to a comfortable retirement. While some of my clients are fortunate enough to accumulated stock options over their careers, most have to grind it out by saving a few percent of their wages each year. These clients are not accomplishing this through buying gimmicky insurance products, or other high expense financially engineered products. They are keeping it simple by investing in a diversified, high quality basket of companies via a Roth IRA and company retirement plan. This is the winning formula I try to replicate for all my clients – defer paying taxes and compound wealth over time. I believe the key to your current or future retirement plan starts with the investment decisions that you will make today and how well you will be prepared to meet your next challenge. If you would like me to help you prepare your retirement plan, feel free to give me a call at 508-207-8049 or email mitch@cgfadvisor.com.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.

Investment Regrets?

The National Basketball Association recently released statistics that evaluated all calls and pertinent non-calls occurring in the final two minutes of games, including overtime, in which the score was within five points.

Out of the 288 plays, they found a total of 41 incorrect calls or 14.2 percent of the time. The number of no-calls was much higher and included 34 out of the 41 reviewed calls.  Warren Buffett would categorize these non-calls as “errors of omission rather than commission”. Applied to investing, it is hard to believe that Buffett often states he misses more big winners than he loses in bad investments.

Another big error of omission this week was the Dow Jones Industrial Average adding Apple to the index. According to Bloomberg, if Apple was added back in 2008, the 30-company gauge would have reached 21,944.66 on 3/10/15 — almost 4,300 points above its actual level.

Similar to NBA referees, we subconsciously are making decisions by what Behavioral Finance theorists term “regret theory”. This theory states investors experience regret if they make a wrong choice, then take anticipation of regret into consideration when making future decisions. Investors’ regret can result in unnecessary risk aversion or lead investors to irrationally take more risk.

This week also happens to be the 5-year anniversary of the Dow Jones index hitting a low of 6,507 in 2009.  We can all reflect back to this time and determine if our portfolios were shaped by “regret theory” through the investment decisions that we may or may not have made at this time. Many people may not realize the major impact this market crash had on whether or not they will be able to meet their retirement goals. If you did not sell through this storm you should feel no regret. However, many investors look back and wish that they had taken even more risk.

I believe there are a few ways to avoid this regret. Investors that pay absolutely no attention to their portfolios and stay diversified, normally do well over the long-term. On the other hand, investors that are looking for the next hot stock tend to experience the most regret.  As a fee-only financial planner, I do my best to help my clients accumulate wealth over time by investing in businesses at a reasonable price, do their own analysis, stay diversified, take a value approach, and slowly compound returns over time.  Feel free to give me a call if you have any regrets on your investments or if you want to see how a customized portfolio would look based on your personal risk tolerance, values, and goals.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 actively traded “blue chip” stocks, primarily industrials, but includes financials and other service-oriented companies. The components, which change from time to time, represent between 15% and 20% of the market value of NYSE stocks.

Are you taking appropriate investment risk?

Since 2009, the U.S. equity markets have been on an unbelievable run – much like the 18-0 run the Kentucky Wildcats basketball team has accomplished this season. The similarities don’t end there.  The leadership in U.S. markets has been in Technology 2.0 companies, most of which have short operating histories. Similarly, the Kentucky Wildcats success is attributed to sophomores and freshman. This bull market has been frustrating to those investors who have either not participated nor taken enough risk. Even the Wildcat’s head coach, John Calipari, thinks his team is not taking enough risk. With only 3 turnovers in their last game, Coach Calipari thought his team needed to push the limits more and increase the amount of turnovers to around 11 per game in order to have continued success.

As a fee only financial planner, many investors have taken me up on my offer for a free second opinion on their portfolios. I find a majority of these investors are not taking the appropriate risks to reach their goals. These portfolios are either too conservative or are not diversified enough. Using the Wildcats analogy, these portfolios are either at 3 turnovers per game or risk 25 turnovers per game. I believe that in order to take appropriate risks, you first need to understand how to manage risk.  My job as a fee only financial planner and portfolio manager is to determine your risk profile, financial situation, values, and goals. Next, we need to make one of the following four choices to manage your investment risk.

1) Avoid it – Don’t invest
2) Transfer it – Shift the risk to an annuity or other type of insurance product.
3) Retain it – Invest yourself or follow Warren Buffett’s advice and invest in the S&P 500 index or passive fund.
4) Control it –Find an active portfolio manager who invests in undervalued companies that have high free cash flows, recurring revenues, increasing earnings, and defensible balance sheets. Even though Buffett recommends that the general public select option 3, all of his investments are in this option because he clearly understands risks and would rather buy companies that offer better value and have superior downside protection characteristics.

As a fee only financial planner and portfolio manager, all of my clients are put into category 4. Rather than follow the ETF trend, I believe that now is the time for option 4 and you need to invest with a fee only financial planner or in an active mutual fund. I believe the major drawback to investing in option 3 (major market ETF) is that your portfolio will likely participate in 100% of the downside. If you prefer to invest in a mutual fund, my recommendation is to review Barron’s Magazine The Best Fund Families of 2014. I believe investors with a long time horizon who are saving for retirement need to position for 11 turnovers per game because you will not be able to compound wealth over time if you don’t take calculated risks.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock’s weight in the index proportionate to its market value.

Could Private Equity Put Your Career At Risk?

In my role as a fee-only financial planner and portfolio manager, I am continuously evaluating the investment landscape for threats and opportunities that could impact my clients’ financial plans. I see a new potential career threat on the horizon that could at the same time negatively impact your investments. Part of my process as a fee-only financial planner is to evaluate both career risk and investment risk. I need to plan for the worst case scenario which involves losing your job, and at the same time, your investments crashing by over 60%. This type of scenario has occurred twice in the past 15 years and odds are it could happen again.

The biggest career risk for you could be another asset bubble forming which eventually bursts and takes your job with it. Market commentators over the past week have turned their attention to a key index milestone. The NASDAQ index is nearing the 5,000 mark set during the technology bubble reached on March of 2000. Is this a sign that the stock market is once again overvalued? If so, you may not have as much job security as you think. The last time the NASDAQ hit this level the economy went into a recession. According to the U.S Department of Labor, the collapse in technology companies cost over 3 millions jobs between Q1 2001 to Q2 2002.

I believe new innovation is the reason why the market is now hitting all time highs. FactSet recently reported that there has been a divergence between future earnings and valuations. Valuations haven’t been this high since December 2004. In my opinion, the U.S. stock market might be high relative to the past but there is no bubble. My concern as a fee-only financial planner is that another unknown asset bubble could be forming out of sight which could be just as harmful to your career and your investments. For example, the housing bubble, which many said would be contained to the financial sector, spilled over to the broader economy and cost a net loss of 7.9 million jobs from Q1 2008 to Q2 2009.

I am closely monitoring the impact that private equity is having on the market and potentially your career. Similar to the technology bubble 1.0, today there are new paper multi-millionaires being created overnight. The Wall Street Journal billion dollar startup club cited that there are now at least 73 private technology companies worth more than $1 billion dollars, versus 41 a year ago. Immense wealth is now being created for many who have been insightful or lucky enough to take part. This potential private equity bubble is spurring new innovation which is changing multiple industries at a remarkable pace. As a portfolio manager, my best investments have been in businesses that have fewer employees, lower capital expenditures, and are disrupting industries with new technologies.

As I wrote in one of my prior posts, this type of creative destruction could lead to career risk if your company is not maintaining their competitive advantages. If you work or have worked at these companies, then you are very familiar with how swiftly these changes are taking place. Time will tell if there is a private equity bubble and what the ramifications might be for your career and investments. My advice as a fee-only financial planner is to keep your networks strong and continuously develop your skill-sets.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.

The Nasdaq Composite Index is a market-capitalization weighted index of the more than 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks. The index includes all Nasdaq listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debentures.

Open letter to Marie Holmes and Other Large Windfall Recipients

Hi Marie,

First of all, congratulations on winning Powerball! Welcome to the social class of the 1%. You are in some serious need of professional financial advice. Having hit Powerball for $188 million, your first step should be to consult a financial team of experts. Believe it or not, the statistics are not in your favor – on average, around 90% of winners go broke in less than 5-years.  We have all heard the horror stories of NBA stars squandering fortunes and around 70% of ex-NFL players are financially stressed after a few years. Sports Illustrated had the bankruptcy number as high as 78%.

My recommendations for Marie are no different than if you received life insurance proceeds or a substantial inheritance, sold a business or real estate, cashed out a retirement plan, exercised stock options or won a large lawsuit. What should you do with this large windfall?

For starters, I believe you shouldn’t buy an annuity, life insurance, invest in private equity, buy undeveloped land, concentrate your wealth or speculate in any type of investment that hasn’t been in operation for at least 5 years.  Family members might be pitching new business ideas such as car washes, restaurants, or websites. Nobody will be thinking in your best interest.

My first advice is that you need to consult a team of experts. Your new wealth has created a net set of potential liabilities. For instance, you are now a target for a lawsuit and need to think asset protection. Your #1 problem will be how to overcome your sudden wealth feeling of “overconfidence”.  Most sudden wealth recipients tend to believe that they can buy anything at anytime.  This feeling of irrational exuberance is what usually leads to the ultimate bankruptcy. The typical questions that you need to answer are not much different from all my other clients such as:

  • How do I not outlive my investments and leave a legacy for my beneficiaries?
  • Should I invest in bonds, stocks, CD’s or all the above?
  • With interest rates near 0%, how can I live off the income?
  • How much money should I donate to charity and through which means?
  • Where should I live and how many properties should I purchase?
  • Does it make sense to pay off my mortgage or set aside money for education?

An estate planning attorney will help you will rethink an estate plan that may include trusts, a will, power of attorney, health care proxy, and other legal recommendations. In addition, the team of experts will include a certified public accountant, certified financial planner or an experienced financial advisor.  It is critical that you understand the net after-tax value of your windfall because you need to take into account gift taxes, estate taxes, and the impact of your new tax bracket for both the federal and state levels.

I believe the key to a comfortable retirement is that you will need to create two different streams of income. The first stream of income will cover all of your essential expenses for the remainder of your life, and this money should not be risked in the market. A financial plan will be essential to categorize these expenses. The second stream of income is much more complicated. You should seek a financial manager who has experience managing various types of investments at a reasonable fee.

If you need financial advice or help with your investments, I would appreciate the opportunity to speak with you. Feel free to call my office to schedule a consultation. You can learn more about my practice and how I work with clients by visiting CGFadvisor.com. And for you Marie, I look forward to hearing from you. 🙂

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Advisory services offered through Constant Guidance Financial LLC, a registered investment adviser.