Investment Insights

I believe that the best chance that you have to retire and to stay retired is to have a personal investment manager oversee your entire investment portfolio. The selection of your investment advisor should be just as important as the selection process of choosing your doctor. You should place just as much emphasis on making medical decisions as you do your finances.  You should not place your trust in any financial advisor because they dress well, are a smooth salesperson, or work for a large organization.

A few years ago, the National Football League (NFL) created a Financial Advisor Program because they recognized that there were too many financial advisors who were unfit to provide investment advice. Many current and former players complained that they had lost their fortunes to investment advisers who hung out a shingle and tried to pass as a qualified expert. Most financial advisors claim to be an expert in something – banking, insurance, financial planning, taxes, estate planning, or retirement specialists.  I believe that it is very difficult for you to distinguish between who is qualified and who is pretending. I believe the first step to select a financial advisor is to use the eligibility requirements set-up by the NFL, which is as follows:

• College Degree – Bachelor’s degree from an accredited four- year college (many financial advisors might not qualify!). I would personally add an MBA as a bonus but not a requirement.
• Work Experience – A minimum of eight years of relevant work experience and have relevant graduate education training in the field of expertise. I believe 10+ years is a more appropriate experience level.
• Professional designations – Certified Financial Planner, Chartered Financial Analyst, Chartered Financial Consultant, Chartered Life Underwriter, Certified Public Accountant, Certified Investment Management Consultant, Certified Investment Management Analyst, Chartered Mutual Fund Counselor (I would add most important are CPA, CFP, CFA, and a bonus if you have more than one of these designations).
• Other important qualifications – Insurance coverage or surety bond coverage, no past regulatory discipline, and no personal bankruptcy.
• My personal considerations (not NFL’s requirement) – If your financial advisor is managing your portfolio, they should be able to tell you the price and value off-hand of 100+ businesses and investments globally without looking them up on the internet. They should understand most major industries, macroeconomics, politics, finance, and have shown a personal track-record of success in life.
• More tips – Consider the financial advisor’s pay structure – avoid commission based advisors and investment professionals who are not fiduciaries. If your advisor is from a large broker, then they are most likely held to a lesser suitability standard and is not required to do what is in your best interest.

If retirement is important to you, then I believe you should take the necessary steps to screen and interview your advisor. Work with a financial advisor who spent over half of their life acquiring the knowledge and experience to provide you financial advice. You should not settle for anything less.

Please feel free to review my work experience, qualifications, and full bio here. I’m also open to any of your questions on my investment process and my investment philosophy to help give you the financial confidence to achieve your 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.

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.

Summary

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.

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 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.

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. 🙂

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.

This week will go down as a classic case study of what happens to a company when they lose their competitive advantage. To nobody’s surprise, Radio Shack was delisted and is preparing to shut down and an announcement was made that Office Depot is being taken over by Staples. We believe that both of these companies were too slow to adapt to new technology and were unable to maintain their competitive advantage of mass distribution. Neither of these investments would have met our criteria of investing more like a shark.

Their tombstone should be a lesson to all managers:  Adapt to new technology and develop new leaders or suffer our fate.

We believe that businesses that are slow to adapt to new technologies and do not reinvest back in developing their employees will watch their competitive advantages erode slowly over time. Ten years ago each company had very talented managers and pristine balance sheets. What happened next can best be summarized in this Warren Buffett quote, “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

The reputation of Radio Shack and Office Depot was lost because their management teams did not transition to the digital age. They lost what Buffett coined as “moat”. A company with a wide moat has one or more of the following advantages: brand name, pricing power, distribution, or cheaper access to natural resources. The best managers understand how critical it is to maintain and widen their competitive advantages or moat.  Companies with a narrow moat typically have unfavorable downside protection and low visibility of future earnings.

We prefer to invest in businesses that reinvest into technology and talented employees in order to build the long-term success of the organization. The best leadership teams shape and exploit their respective company’s competitive advantages and continuously try to improve their teams’ personal development. Companies that invest in professional development and leadership training have a better chance of recognizing changing competitive advantages in a fast moving economy. Our portfolio comprises of stocks that are developing tomorrow’s leaders and are continuously striving to differentiate their competitive advantages from the competition.

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.

Both poker and investing are games of incomplete information. You have a certain set of facts and you are looking for situations where you have an edge, whether the edge is psychological or statistical. – David Einhorn

David Einhorn, who is the founder and president of Greenlight Capital, manages a $10 billion “long-short value-oriented hedge fund.” David started Greenlight Capital in 1996 with only $900,000 and he has generated roughly a 20% annualized return for investors.  David has taken advantage of misinformation from the media and used his edge to post outsized gains.  The media has recently turned its attention on deflate-gate. We will describe how Einhorn would make an investment decision using incomplete information on the subject of deflate-gate.

We believe that if the New England Patriots were a publicly traded company it would represent a once in a lifetime buying opportunity. The biased media coverage would have scared investors into a selling panic of Patriots shares. Since it is best not to invest with emotions, analyzing the known facts is your edge. Value investors use a method of discounting cash flows or calculating the asset value/replacement of a business. If the intrinsic value that they calculated is less than what the company is trading for in the open market than it’s a potential new buying opportunity.

The media has a very good track record of misinforming and confusing the public into making terrible investment decisions at some of the most inopportune times. As we have seen from much of the coverage of “deflation-gate”, many media members have labeled the Patriots as cheaters and liars. This rush to judgment may have tarnished the franchise brand and tainted the reputation of their hall of fame coach and quarterback but only temporarily. For an investor trying to determine whether or not to buy the Patriots stock, they would need to gain an advantage by taking all the known facts in the story and arriving at their own decision.

The one piece of information that they would need to make an investment decision would be to try and determine what happened to the air pressure in the football during the first half of the Patriots AFC championship playoff game. An astute investor would buy an NFL football and conduct their own experiment and put the ball through vigorous tests in different weather environments. One way to calculate the change in air pressure would be to calculate a physics equation called the Ideal Gas Law (pV=nRT).  This would give the value investor a statistical edge much the same how David Einhorn calculates the intrinsic value of a company. David would not rely on CNBC to give him a gut feeling whether or not to buy or sell. In the case of the Patriots, an investor would not watch and listen to ESPN talking heads test a football by throwing it around an indoor studio at room temperature.

If you were making this investment, you have done your due diligence and determined the probability of the football losing air in cold weather conditions and calculated the physics equation of the Ideal Gas Law. If the facts support your view that the Patriots are innocent than you have gained a statistical edge on incomplete information. Your new investment will have a huge payoff when the team is exonerated and the best part of it is that you just bought into one of the most successful teams in NFL history. Much like David Einhorn, we believe that the most appropriate way to make an investment decision is by using fundamental analysis rather than relying on the biased media for recommendations.

Go Pats!

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 recently climbed to a record high of 18,000 for the first time on December 23^rd.  Investors cheered this news and the media proclaimed that the bull market was heading even higher. There was no cheering from us at Constant Guidance Financial (CGF). We reflect back on Warren Buffett’s quote from his 1997 Berkshire Hathaway shareholder letter, “Disinvestors Lose as Market Falls—But Investors Gain.” Buffett’s point was that savers are able to deploy funds more advantageously at lower prices.  The stock market is the only market where people don’t like to buy “on sale”. If you are contributing to a 401(k) or other retirement vehicle and do not plan to retire in the near future, you should be hoping for less rosier headlines.

The Dow Jones Average is up nearly 175% since the low reached in November 2009. It is hard to believe that the index was at 6,547 such a short time ago.  While we prefer not to experience a significant market correction, we do prefer lower prices. We follow Buffett’s advice, “… smile when you read a headline that says, “Investors lose as market falls. Edit it in your mind to “Disinvestors lose as market falls — but investors gain.” As fundamental investors, we tell all of our clients who invest with as that we prefer lower markets. It is much easier to find better values when prices are lower.

In our view, there are not many bargains in equity markets these days. Investor confidence is at near all time highs, international investors are piling into the U.S. markets, companies are buying back record amounts of stock, and oil prices collapsed over 40%. Moreover, companies are flush with cash, jobs are plentiful, wages are on the rise, inflation is nonexistent, consumers are in a spending mood, and investors continue to buy every dip in the market. According to Barron’s Magazine, EVERY Wall Street strategist is bullish in 2015. They all expect to see a stronger U.S. economy next year.

At CGF, we do not make future market predictions because if we could accurately predict the market like the brokerage firms attempt, we would leverage our bet multiple times and plan to retire in 2016. We believe the best way to accumulate wealth over time is to find undervalued businesses and slowly compound returns over time.  We are constantly reevaluating our clients’ portfolios and looking for new investment opportunities. In the past, we were evaluating companies with earnings yield over 6%-8%. In this current market environment, the highest quality companies are now yielding between 4%-6%. Earnings yield is the quotient of earnings per share divided by the share price. We use earnings yield because we can compare the earnings of stocks to bonds. Earnings yield is the reciprocal of the P/E.  Today’s earnings yield is low relative to historic valuations; however, it is actually high when compared with bonds, CDs, and other assets. In this deflationary environment, many investors are satisfied with an average 4%-5% earnings yield versus an investment grade corporate bond with a 2% yield that has a 5-year duration. Earnings yield continues to favor equities. If interest rates begin to rise next year, then we would assume that equity markets would become more volatile. In the meantime, we will continue to hope for lower markets for our long-term clients and are willing to hold a small cash position for our clients nearing retirement as equity valuations remain slightly elevated.

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.

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.

Those of us who watch the hit TV show Shark Tank are very familiar with the panel of potential investors who consider offers from aspiring entrepreneurs seeking capital for their ideas. As investors, we are actually all “sharks” who make capital decisions on where to invest our money. Some investors hire wealth managers to make decisions for them and others prefer to make the decisions themselves. We believe the ultimate sharks are famed investors Warren Buffett and Charles Munger but the current panel of “sharks” are all well connected and great capital allocators. The sharks are never afraid of losing money as long as they believe the odds are tipped in their favor. We believe that thinking with the same mindset as the “sharks” will help you take some of the emotions out of these volatile markets.

We are all fortunate enough to live in country that offers some of the best investment opportunities in the world. However, some investors continuously monitor the markets for economic signs that might indirectly impact their investments. These questions usually apply to current events or headlines that capture readers attention. A few questions below seem to be the ones currently being debated.

• After the enormous relief rally, has the current correction ended?
• How low will the price of energy fall?
• How will falling energy prices impact the economy in 2015?
• Will the global contagion from the slowdown occurring in the rest of the world spillover into the US?
• Is it possible that Russia will default on its debt and will Putin lose power?
• Can the deflation/recession in Europe move to the US?
• If the Federal Reserve starts to raise rates at some point, will my investments lose value?

We can state with a large degree of confidence that very few investors can accurately predict the answers to these questions. However, most of the responses you hear will make for entertaining commentary on TV. As value investors, we think it’s best to have a mindset of a “shark”. The successful investors on the Shark Tank have an entirely different set of questions they try to answer before taking ownership in the business.

• How long will it take me to get my cash back and how much can this investment return?
• What is my potential downside risk in this investment?
• How much money can I possibly lose vs. the potential for upside?
• Do I understand how this investment works and what are the potential risks?
• Is this a scalable opportunity that can be leveraged?
• Are there high recurring capital expenditures to fund this investment?
• Can competitors easily replicate this idea and take market share?
• Will I be able to work with this management team/entrepreneur seeking capital?

We believe that the second set of questions is how you should be evaluating your investments. The first set of questions are all irrelevant to long-term investors who are properly diversified to their risk tolerances and goals. The second set of questions are much more relevant to making ongoing capital allocation decisions. If you think of yourself as a “shark”, your investment process will be much more decisive and your long-term investment results may improve.

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.