Category: Investments

Major technology companies are in a race to develop artificial intelligence (AI). There is also a rush between countries to gain a first mover advantage in this area. Developing AI is a top priority for the Chinese government, and they have been investing heavily in this burgeoning field. This week, a Chinese company called SenseTime, raised $620 million, giving it a valuation of over $4.5 billion.

UBS has declared AI the fourth industrial revolution. The first revolution being steam power, the second, electricity, the third, information technology, and today, it’s AI. UBS describes AI as tools and programs that makes software “smarter” and leverages self-learning systems by using multiple tools like data mining, pattern recognition, and natural language processing. Deep learning allows machines to analyze a vast amount of data in a short-time.

The Harvard Business Review wrote that AI is the most important general-purpose technology of our era, particularly machine learning (ML) — that is, the machine’s ability to keep improving its performance without humans having to explain exactly how to accomplish all the tasks it’s given. Within just the past few years machine learning has become far more effective and widely available. We can now build systems that learn how to perform tasks on their own.

AI is in its infancy stage and the big opportunities have not been tapped. AI has yet to surpass human performance in certain areas, but it’s around the corner. The Harvard Business Review ended it’s article with the following line – If managers aren’t ramping up experiments in the area of machine learning, they aren’t doing their job. Over the next decade, AI won’t replace managers, but managers who use AI will replace those who don’t. I would add that if entire companies do not leverage AI, then they will lose market share to those that do.

Elon Musk, who is the visionary entrepreneur that founded PayPal, SpaceX, and Tesla, is one of the few voices against advancing this technology. He believes that AI is more dangerous than nukes. As one of the early leaders in this area, Musk has seen first-hand, the power of AI. He invested in a company called DeepMind that was purchased by Google in 2014. There he saw how AI was accelerating at a breakneck speed. If you want to learn more about Musk’s crusade against AI, here is the entire article on this topic last year.

I expect that big data will be one of the biggest growth drivers in the coming decade. This mega-trend is part of the reason why growth stocks have vastly outperformed value stocks this year. This new competition is fueling profits throughout the technology sector. This is an area that I will continue to research more to discover new investment opportunities.

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There are many different types of investment risks. I thought a good exercise would be to apply the different investment risks to Bitcoin. This is not a recommendation to buy or sell Bitcoin. It is not considered a security and the SEC does not regulate it (yet).

Bullish case for holding Bitcoin

• Inflation risk – This is the risk of losing your purchasing power because the value of your investment doesn’t keep up with inflation. Bitcoin has a limited supply of 21 million coins, which is one of the main reasons why the price continues to rise. 80% of all bitcoins have been mined. If there was an announcement that another 100 million Bitcoins were being offered, the price would crater (this won’t happen).  There is no better inflation hedge than an “asset” with limited supply and increasing demand. To date, Bitcoin has been the perfect hedge against central bankers printing money and keeping interest rates too low.

• FOMO risk –The Fear of Missing Out risk reaches its climax when investment returns are the largest. An unheard of 2,100%+ return in one year can do psychological damage to people in search of easy money created out of thin air. Warren Buffett calls Bitcoin a mirage. Many people have gotten rich with a small amount of money. There is a story of a pizza delivery driver accepting payment in Bitcoins back in 2010. If he held on to the Bitcoins, he would be worth over $100 million. People can do some crazy things when FOMO risks peak. State regulators have commented on people maxing out credit cards and taking second mortgages to buy Bitcoins. Some people have also sold their houses to buy bitcoins.  FOMO risk takers have been well compensated. As Bitcoin keeps rising, there will be more home equity lines taken out, until the FOMO risk suddenly transforms into the fear of losing everything (FOLE) – I just made that one up. 🙂

• Disruption risk – If global currencies are getting disrupted by virtual money, then you better hedge against your U.S. dollar weakening. For instance, if a Venezuelan citizen converts his or her Bolivar into Bitcoins, and their money goes up 3,000%, then there has been a global wealth redistribution. This is a good reason why third world countries and people with low standards of living are flocking into Bitcoin. The astronomical rise in Bitcoin is due to international buyers, especially the Japanese.

Bearish case for holding Bitcoin

• Liquidity risk – This is the risk of selling and getting a fair price when you want to sell. Bitcoin has 100% potential loss of liquidity.  If everyone heads for the exits at the same time, it’s safe to say you won’t be able to log into your Coinbase account to sell. It has been very common for wallets and exchanges to freeze withdrawals with only limited volatility. A run on the banks was common when there was a fear that banks were running out of cash. I’m 99.9% confident that there will be a run on the exchanges at some point. Even if Bitcoin appears to stabilize in price and consolidate over time, the risk will not disappear. The poor Thanksgiving turkey always has a great year of feeding up until the holiday.

• Concentration risk – Most of the crypto-currencies are held by a very few fortunate people. If they decide to sell to “diversify” into real money, those buyers who are late to the party will be the ones that suffer the greatest losses. The lucky few that were early are the ones that will sell first to the late comers who do not believe that they are putting their hard earned money into the biggest bubble of all time. The later comers will have no idea why their money will evaporate overnight when the Bitcoin millionaires covert to real currency all at the same time.

• Political risk – Central bankers around the world are warning about holding Bitcoin. At Janet Yellen’s press conference, she called bitcoin a highly speculative asset, not a stable store of value, and it is not legal tender. I believe the SEC at some point will step up and begin to regulate trading on the exchanges or ban credit card payments for Bitcoin. They are well aware of the abuse and wild west trading environment where any thing goes. The amount of criminals that have been attracted to this wild west type of trading environment increases the probability that this will not end well.

• Credit risk – Bitcoin has no intrinsic value and doesn’t pay interest. The credit risk is a 100% loss because Bitcoin is worthless. The only thing backing Bitcoin are the largest holders of Bitcoin. They support the price and manipulate the market price. They have programmed computers, which are called bots to continuously buy and sell. If you had billions to lose in Bitcoin and there were no rules in place, you would make sure the price appeared safe. As long as there is public demand, the larger holders can make more money. As soon as the general public gets smart and comes to their senses that this is the greatest scam of all-time, then the bubble will stop inflating. The miners of Bitcoin who run the network need a high price to afford their electric bill and to buy new equipment. One bitcoin transaction now uses as much energy as your house in a week.

Nuveen Asset Management’s Bob Doll said on CNBC this week that a cryptocurrency crash could have a spillover effect into markets. I’m in complete agreement with him that, “the longer bitcoin mania goes, and the bigger it gets — the worse it is for the stock market.” I never thought that I’d sell stocks because of Bitcoin, but it is a new possibility in 2018. The government has been non-existent in stepping up regulation of Bitcoin and if Bitcoin crosses the $1 trillion threshold in market cap, it might be too late to police it. Over time, I believe the conversation will change to Bitcoin being a systematic risk to the entire global economy. If there are more and more people who prefer to hold non legal tender currencies over legal currencies, then capitalism and the stock market will have real problems.

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Last week I was quoted in the Sun Chronicle by a local reporter. The reporter needed a few quotes for an article that she was writing on long-term care. She had read a recent study that showed more people were putting off buying long-term care insurance. Her conclusion was that people were too busy and planning wasn’t at the top of their list.

My quote that made the paper was, “When you should start planning depends on a number of factors,” he said. “The process today is a lot more complicated now than it used to be.” “You definitely want to start early, looking at financial plans,” Zikes said, “but you have to weigh the benefits for yourself.” Yes, that is not a typo, she called me Mitch Zikes throughout the article. 🙂

My wife thought my answer wasn’t all that informative and sounded a bit uneducated. I explained to her that was the first thing that I said before giving the reporter a lengthy answer. It wasn’t that I was misquoted, but all the important details from our conversation were left out of the article. I disagree with most of her conclusion that people don’t have the time to think about planning for sickness and death.

I believe that people don’t buy long-term care insurance as much because it is getting more and more expensive. Only a few companies now offer insurance and the premiums are very high. Premiums can continue to rise even after you buy the coverage. Women on average can pay up to 30% more than men. Years ago, long-term care insurance was very cheap and underwriters underestimated the costs of nursing home coverage. This put many insurance companies out of business paying out claims.

Many financial advisors make their clients sign forms that they decided against buying long-term care insurance. Family members often sue financial advisors when they learn that mom or dad didn’t have long-term insurance.  What the family doesn’t realize is that the premiums have become unaffordable. If you read the fine print of these policies, there is also a maximum number of days or years that it will be covered. It is only likely to save on average $125,000-$250,000.

The reporter wrote that I said planning depends on a number of factors when considering long-term care insurance. She left out all the factors from her article. They are cumulative savings, health, expenses/budgets, income, goals, and the most important is attitude towards money. People have different attitudes towards money, and many would rather invest the premiums in the stock market rather than buy the insurance. If you get sick early in life, the long-term insurance is a better choice. If you get sick much later in life, your investments should be able to cover the cost of care.

Another consideration is many long-term insurance polices don’t start until you’re almost permanently disabled for a certain time period. You need to demonstrate you have lost the ability to engage in at least two activities of daily living: eating, bathing, dressing, toileting, walking and continence. Many buyers of long-term care are surprised to learn that recovery from major surgery is not covered. It might be better to have the money accessible in an investment account to pay for these costs.

I always recommend a long-term care quote for clients that are interested in learning more about their options. The conclusion that they usually reach is that they are either rich enough to cover the nursing home care, or too poor to afford it. There are also other strategies to cover nursing home care such as buying life insurance. Heirs can get a nice inheritance if it is not used for nursing home care. These insurance premiums will also not rise later in life unlike long-term care insurance.

I’m glad that I was able to help the reporter reach her deadline, but the article would have been more informative if she added all the details about why less people are buying long-term insurance. I might have overwhelmed her with my lengthy response to her question, when all she wanted me to say was that people should start planning earlier. My quote to her that the financial process is more complicated that it used to be and everyone should weigh the benefits themselves, would have been much better at the end of this article.

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Personal finance expert Suze Orman wrote this week that the new retirement age is 70. Not a month or a year before. She pointed to the retirement risk of longevity. Expected longevity for men and women has risen 10% since 2000. According to the Society of Actuaries, men who reach 65 are expected to live to the age of 86.6 and women to the age of 88.8. The numbers are even higher for more affluent households.

Suze wrote that the first 15 years are easy, but you need to support 30 years and not 15. She also pointed to a Fidelity study that a 65-year old couple retiring in 2017 will need $275,000 to cover their health-care costs in retirement. Health expense has become an ever-increasing risk to a successful retirement.

Other risks during retirement include inflation, long-term care, stock market, and interest rate risk. I would add that a new type of risk is political risk. Regardless of your political affiliation, the rules of the game are changing. I prefer that politicians don’t meddle with Medicare, retirement plan rules, and Social Security.

A successful retirement is maintaining your standard of living until the end of your days. Suze’s advice that the new retirement age of 70 really doesn’t ring true with me. The reality is 50% of people expect to keep working past age 65, but only 15% actually do so. The average retirement age is 61, up from 57 in 1991. There are 31% of people entering retirement before age 60. The main reason that I see why many people don’t work past 65, is that employers have forced them into early retirement. There are not many companies looking to hire a 69 year old for a full-time position. I find that many people who continue to work into their 70’s and even 80’s do so because they enjoy many aspects of their jobs.

My major concern is that the government might play a hand in pushing out the average retirement age. Fiscal deficits will eventually force politicians to raise the age of full retirement for collecting Social Security. The full retirement age used to be 65 for everyone born in 1937 and earlier. The government then moved the full retirement age to 66 for most baby boomers.  They further climbed it to 67 for everyone born in 1960 or later. It’s only a matter of time until they move the full retirement age to 68 or older.

The biggest consideration for any retiree is Medicare eligibility. Medicare can be the deciding factor for when people retire. Medicare coverage starts at age 65 and is the best health insurance on the market. Early retirees learn quickly that private health care before the age of 65 is very expensive. Personal savings are usually drained paying for these premiums.

The health and quality of life is most important to retirees. This is where Suze’s advice falls short. Her argument is based on life expectancy and not the quality of life. Life expectancy statistics are meaningless to me.  All of my retired clients would support the fact that their best retirement years will be spent in their 60’s and not their 90’s. Suze’s advice to the general public is just that, a blanket statement written to capture headlines. No two financial circumstances are alike and the final decision to retire will always be a personal decision.

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This week many of the major U.S banks reported earnings. These quarterly reports were exactly what they should be for a bank, which is very boring. They are reporting higher revenue and earnings than 1 year ago.  U.S. banks have now become cash cows.

There are still many investors who believe that banks can’t thrive when interest rates are low. These investors have failed to realize that the low interest rate environment has been a boon for profitability. Even though interest rates have been very low, banks are extremely profitable. In the past, banks had trouble making money when interest rates were low. This was because of something called net interest margin. The net interest margin for a bank is the interest rate spread between deposits and loans. The higher the spread, the higher a bank’s profits. This spread is very important for a bank. Banks can create more profit by borrowing cheap in the short-term and lending high in the long-term. They prefer a larger yield differential, or a “steeper” yield curve.

Bank stocks will tend to rise on days when interest rates rise. I believe that this is now the incorrect way to value a bank. If banks had it their way, they would prefer for the economy to be exactly the same way as it has been for the past 5 years. It is much more important that there is stable employment and a strong housing market. The low interest rate and slow growth economic backdrop have been a great combination for a bank’s profitability. Banks can now generate more income from fees and they rely less on the spread between interest rates.

Ten years ago, before the credit crisis hit, banks were highly leveraged, had lower capital ratios, and they didn’t have solid underwriting standards. Now fast forward a decade, banks have rebuilt their balance sheets, have tightened lending standards, and have diversified their revenue streams. The operations inside of a bank have also become much more efficient. Banks have closed branches, lowered headcount, while continuing to invest into technology.

A well-known bank analyst reported that banks are swimming in so much excess cash that they don’t know what to do with it. Most banks have been returning cash to shareholders in the form of rising dividends and share buybacks. The largest U.S banks are now buying back shares at a greater rate than many cash rich technology companies.  I expect that this pace of buybacks and dividend increases will only increase over the next few years.

I will continue to favor banks as long as the housing market stays strong and the unemployment rate remains low. I’m much less focused on falling or rising interest rates than most other investors. The banking system has helped to facilitate economic growth and should continue to do so as long as banks keep their future earnings reports very mundane.

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Professionals and individuals alike make major financial decisions based solely on past investment returns. This is a huge mistake. Given that the average 5-year return of the S&P 500 now stands at 15%, these hypothetical returns show unrealistic promises of high returns.

Most financial advisors use market hypotheticals in their presentations to make the case that their investment model is superior.  They hope that the unsuspecting investor will ignore the warning “past performance is not an indicator of future outcomes” in fine print and will chose the investment or financial advisor that shows the greatest return potential.

Throughout my career, I’ve seen the worst investment mistakes made when people chase past performance. Here are five helpful tips on how to avoid this mistake:

Gimmick – There is a very large presentation book filled with charts and graphs that show hypothetical performance and no actual performance.

Tip – Make your decision based more on the investment philosophy and experience of the advisor or firm who will be managing the money. Is the investment process repeatable? What are the qualifications of the advisor?  

Gimmick– A mutual fund fact sheet is shown with very high returns.

Tip – Ask the advisor for the worst 1, 3, and 5 year returns for that same investment. 

Gimmick – A model portfolio based on risk and no actual returns is presented.

Tip  – Request to see actual returns of clients. If real returns are not available, ask to see a client reference list.   

Gimmick – A proprietary mutual fund is selected by the financial advisor. This is an investment managed by the company that you are meeting with.

Tip – In 99.9% of the cases, this mutual fund has much higher expenses and has likely underperformed its benchmark. Ask to see if there is an exchange-traded fund equivalent with lower fees and higher returns.

Gimmick – An annuity is recommended by showing you hypothetical returns with income expectations for life.

Tip – Request to see what the total expense will be for that annuity over a 5 and 10 year period. Determine when the original investment principal is exhausted. 

At this point in the market cycle, investors need to be very cautious on selecting their investments based on past returns. I have seen more and more hypothetical investments from other financial advisors that will not be repeated. It is very easy to construct models that are backward-looking and misleading. My recommendation is to tear them up and recycle the paper.

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I recently finished a book titled Zero to One, which was written by Peter Thiel. Peter is an entrepreneur and investor, who started PayPal in 1998. After he took the company public, he made the first outside investment in Facebook, and since that time has been an investor in hundreds of startups. The book stems from a course on startups that he taught at Stanford in 2012.

He wrote that successful people find value in unexpected places and they do this by thinking about business first from principles instead of formulas. The same could be said of all successful investors. Making investments based on formulas or technical analysis does not lead to successful investment outcomes over fundamental analysis.

This week Bill Gross wrote (and underlined) in his April Investment Outlook that “equity markets are priced for too much hope, high yield bond markets for too much growth, and all asset prices elevated to artificial levels that only a model driven, historically biased investor would believe could lead to returns resembling the past six years, or the decades predating Lehman. High rates of growth, and the productivity that drives it, are likely distant memories from a bygone era.”

Bill also wrote that “Northwestern’s Robert Gordon has long argued that lower productivity may now be a function of having picked all of the “low hanging fruit” such as electrification and other gains from 20th century technology.”

Bill has one of the greatest bond investment track-records, but I know that Peter would not agree with much of this statement. Peter wrote in his book that new technology tends to come from new ventures – startups. These startups build a different plan for the future.  They are both imagining and creating the new technologies, while questioning received ideas and rethinking business from scratch. Peter believes in the power of planning and he writes that long-term planning is often undervalued by our indefinite short-term world. In July 2006, Yahoo! offered to buy Facebook for $1 billion. Mark Zuckerberg scoffed at the idea. The rest is history.

I believe that this way of thinking can be applied to many of the companies that have been the big winners in our economy. Eight of the top 10 companies in the S&P 500 companies are continuously innovating. Of these top companies – Apple, Google, Microsoft, Amazon, Berkshire Hathaway, J&J, and Facebook – all share the similar characteristic of being a monopolistic power. Peter defines a “monopoly” as a kind of company that’s so good at what it does, that no other firm can offer a close substitute. He believes that the reality is that there is an enormous difference between perfect competition and a monopoly. Either a business has it, or it doesn’t.

The cash flows for these monopolies require much less capital investment and more human capital. Outsized profits come from these monopolies, in turn, leads to higher stock appreciation. To paraphrase Peter, creative monopolies give customers more choices by adding entirely new categories of abundance; they are powerful engines for making it better. A company such as Apple only becomes a monopoly when people will pay even more money for a product. A search engine such as Google’s cannot be replicated. Hasbro is one of the most popular companies in our local area and they have been a very creative monopoly. I have a few clients who work there and you would be surprised that none of them think of their company as a toy company, rather it’s a technology company that specializes in entertainment.

Geopolitics and what happens in government is important, but not nearly as much as investing long-term in companies that are developing creative monopolies. There is a premium to own many of these types of businesses and this will likely remain the case even through these volatile markets.

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I’m continuously evaluating potential market risks that can derail the market. I’m also always searching for new investment opportunities and the next big idea. There is one new technology that will have an enormous impact on the economy. My father just purchased a new car and he can’t stop talking about all the high-tech features. He is most excited about the driver-assist technology such as lane-assist features, and the adaptive cruise control that maintains a steady distance from the car in front of him. This is the next big idea. It’s not marijuana penny stocks. I’ve had many people looking for marijuana stock ideas, but I’ve found more companies that I’d like to bet against. I’m sure that there might be one or two big winners, but good luck finding them in the weeds.

The computer has evolved from your desktop, to your phone, and is now going into your car. The autonomous vehicle technology is going to change the automotive industry and disrupt transportation industries for years to come. Similar to the iPhone, which reshaped the telecom industry, I expect autopilot to have a substantial impact on the automotive industry. All the major technology companies are spending massive amounts of money to develop their own version of an autopilot system. Even self-driving trucks will become common on roadways. According to estimates by the American Trucking Association, there are approximately 3.5 million professional truck drivers in the United States. While these jobs are not currently at risk, there could come a time when this once stable industry is disrupted.

There is much debate over how safe these driverless cars are. The U.S. crash investigation into Tesla’s driver-assistance autopilot ended up suggesting that the feature actually increases safety. According to the data that Tesla provided investigators and data from a Bloomberg article, “installing Autopilot prevents crashes—by an astonishing 40 percent.” The group of people that this technology will benefit the most, are the elderly or people with physical disabilities. Florida’s roadways might one day be filled with more self-driving cars than actual real drivers.

There have already been many winning investments in this area. To name a few, companies such as Google, Tesla, STMicroelectronics, NXP Semiconductors, Apple, Nvidia, Mobileye, Delphi Automotive, Bosche, Tesla, Nissan Mercedes-Benz, Uber and Audi are the current leaders creating prototype vehicles. For select companies, investors are willing to look past quarterly earning misses and are focusing more on the potential for future market share.

I’ve been researching the companies with the most cutting-edge technologies. Even though we are still in the early infancy of developing this technology, many of these companies are already trading at rich valuations. As a value investor, I prefer to buy investments at a much lower price. If we get a market sell-off, this is one area that is at the top of my shopping list for my clients who have a higher risk tolerance.

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My grandmother is 105 years old. In her 90’s, she could name every single U.S. president. I never thought she would be adding Donald Trump to that list. I must have inherited my love of history from her. I’ve read over 30 presidential autobiographies. And yes, I hope to also be able to name all the U.S. presidents in my 90’s.

This week, $1 trillion of value was wiped from bonds, while global stocks gained $1.3 trillion. Investors scrambled to re-balance portfolios from the ‘Clinton’ portfolio to the ‘Trump’ portfolio. For those investors in a U.S. balanced portfolio, this week was almost a wash. The table below shows the weekly change of the potential winners and losers of a Trump presidency.

These wild moves in the market may prove to be premature as actual policy remains uncertain.  President-Elect Trump doesn’t even know yet what he is going to be able to accomplish.  I believe that a Trump presidency just increased the level of risk in investors portfolios, but also the potential for higher returns.  Donald Trump‘s win on Election Day is no different than Britain’s stunning vote to leave the European Union. This global movement towards more isolationism will continue to spread globally. I expect more global uncertainty as this movement continues to unfold.

In September, Trump said that the Federal Reserve’s ultra-low interest rates created a “false economy” and that “at some point the rates are going to have to change.” He pointed out that the Fed’s policy created a speculative stock market bubble. Trump is going to have to change this rhetoric if he wants to accomplish his agenda. This week, the 10-year Treasury yield jumped the most in 3 years from 1.82% to 2.12%. The hope is that interest rates will remain low as overseas buyers step in to buy our Treasuries because their rates are closer to zero. Bond investors fear that his plan to stimulate the economy could result in a balloon to the budget deficit and an increase in inflation.

In the past, Congress has been reluctant to challenge the bond market’s power. James Carville, who was the lead strategist for President Bill Clinton, coined one of the best quotes that summarizes this point,

“I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter,” he said. “But now I would like to come back as the bond market. You can intimidate everybody.”

I believe that the only thing in the world that can intimidate President-Elect Trump, is the bond market. His entire agenda from cutting taxes for corporations, changing the tax code, building walls, removing trade agreements, creating massive infrastructure spending, forcing companies to build factories in the U.S, and adding tariffs will not only need a check written by Congress, but it will also need the bond markets approval.  The early vote from the bond market isn’t looking positive. If interest rates rise sharply, Trump’s vision of a “false economy” better morph into a “real economy”, or the stock market will have disappointing inflation-adjusted returns in the years ahead.

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

The challenge that many retirees face, is constructing a portfolio to meet their funding goals. This challenge becomes even greater with interest rates near all-time lows and market values near all-time highs. Millions of baby boomers are discovering that their nest egg is not going to generate the income that they need to meet their budgets in retirement.

The question that everyone wants to know, is how much money they can withdraw from their portfolio without depleting their life savings. There is only one chance to get this question right.

In retirement, preserving the portfolio while managing for risk is essential for a successful outcome. The reality is that there will be a test along the way from a significant market correction that will cause second-guessing on whether or not the asset allocation is correct.

I believe to make matters worse, more and more retirees have bought into the notion that passive management is a far superior way of investing than active portfolio management. Indexing has become the rage as most major benchmarks have had enormous gains. Leading the way is the S&P 500 (SPY), with an average 15.36% return over the last 5-years. There is no shortage of commentary praising the merits of indexing. Almost a decade ago, Warren Buffett made a million-dollar bet that the S&P 500 would beat the gains earned by a high-powered hedge fund with a team of managers at the helm. It looks as though he is going to win this bet by 40% as the hedge fund managers have struggled.

It goes without saying that investors have very short-term memories. Investing in only the S&P 500 or having a large overweight would have been viewed as imprudent just a few short years ago. For example, a 65 year old, who retired back in 2000 over the course of their retirement years, would have experienced the following 5-year average returns of the S&P 500.

• Jan 2000 to Dec 2004 = -10.96%
• Jan 2007 to 2011 = -1.27%
• Jan 2004 to Dec 2008 = -10.48%

In this example, investing in only the S&P 500 would have resulted in major budget shortfalls 8 out of 16 years. With the market near an all-time high, investing in only passive investments with no focus on active management is not the most appropriate advice for a retiree. This lousy investing advice perambulating the internet is setting up for future disappointment. I believe that diversification through both active and passive investing, with an eye on valuations, is the best way to manage a portfolio. Similar to politics, the best solutions are usually found somewhere near the middle and not at the extremes.

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.