Independent Wealth Management
Who scrutinizes your investments and portfolio managers, designs and tests your retirement and education plan, searches for new investment ideas, patrols insurance agents and mortgage brokers, shows you how to reduce your investment costs and income taxes, monitors your 401(k), promptly responds to your email, provides one monthly statement, day-to-day net performance across all of your accounts and does all of your paperwork so you can retire and enjoy that trip to Italy? We do! (Please contact us for a no cost, confidential consultation.)
Entries by Rafael Velez (33)
Bear Market Advice
Are you are running out of patience with this market? For every piece of good news it seems there’s a corresponding bad news item. For every company exceeding earnings expectations, there seems to be one guiding future earnings lower. In this generally negative setting the market seems incapable of grabbing a foothold and frustration has become the rule.
But that’s often what markets do – frustrate people. Even legendary investor Warren Buffett of Berkshire Hathaway, affectionately called the “Oracle of Omaha” by his followers, experiences occasional frustration with the markets. But his frustrations are different than those of most people’s. He is frustrated when the markets are high. Why? Because as a value investor he can’t find any bargains to buy. Our point is that frustration with the markets affects us all. Some sell into that frustration. Others, like Warren Buffett, are waiting to buy that frustration at bargain prices. Which side do you think you want to be on?
Investors Behaving Badly
Behavioral Finance explores the way investors make decisions. Economists presume we are rational human beings, coldly weighing the pros and cons of our decisions. The reality is that we don’t behave that way, we have bias’ and emotional attachments. Here are three psychological tendencies that, if you can avoid, will probably lead to better investment decisions.
Anchoring – The idea that investors put too much emphasis on irrelevant data. An example is the break-even fallacy. Often investors realize they have made a mistake...
College Savings Options
529 Plan - These investment programs are designed with one basic purpose in mind – providing families with an easy and effective means to save for future college costs. But they also have tax, retirement and estate planning implications that extend far beyond this basic purpose. Unlike most other tax-advantaged programs, 529 plans are open to everyone; no matter what their income level or the age of their children or grandchildren.
You won’t get a federal tax deduction for your contribution to a 529 plan, but you will receive the benefit of tax-deferred earnings. Any growth in your account...
Thinking Out of the Style Box
As portfolio construction has become increasingly complex, many investors (and advisors) have turned to a simple and convenient tool to bring structure and discipline to their portfolios — the style box. Style boxes have become so widely used that the familiar grid has become the standard representation of asset allocation and diversification. While it’s hard to question the utility of boxes, there is growing evidence that the interests of investors might not be best served by rigid adherence to the common application; style-box investing.
The Long and Winding Road
Enduring financial principles, like music, can last generations. Benjamin Franklin gave us many examples such as, “a penny saved is a penny earned” and “early to bed, early to rise makes a man healthy, wealthy and wise.” Thomas Jefferson would tell us, “never spend your money before you have it,” and Miguel de Cervantes would warn that, “all that glitters is not gold.”
I have also learned firsthand that “The Beatles” are still selling millions of albums every year. Interestingly, my ten-year old daughter is obsessed with the group. She has...
Buy Long Term Care Insurance?
As the U.S. population continues to age, the number of individuals requiring extended care for chronic, debilitating conditions increases. Chances are that you, a relative, or someone else you know will be among them. Nursing home costs now average between $30,000 and $90,000 per year depending on your geographic location. As a result of these high costs, an extended nursing home stay could quickly ravage your income and savings. Medicare typically begins to provide benefits at age 65, but only for some skilled care for a short time period -- not for the ongoing assistance that many elderly people ultimately require.
Because of this widespread need and drastic increase in the cost of nursing home care, long-term care insurance (LTC) has become a popular method for transferring the potential financial burden. If you are middle-aged or younger, buying long-term care insurance may not be high on your list of priorities. However, the worst...
Advice for 401(k) Retirement Plans
Remaining inactive in the stock market is one of the keys to investing. There is an increased probability of error when looking at the stock market when prices are setting new lows or highs. A better idea; find something to take your mind off of the “noise” in the financial markets. Warren Buffett of Berkshire Hathaway plays bridge and his partner Charles Munger works on his mental models to fill the time. Challenge yourself to delay decisions at least one day, as this is an effective tool for investors to make sound decisions. Warren Buffett once said, “It is better to do nothing at all than to do something stupid.”
Sustainable Competitive Advantage
Companies can be evaluated on several aspects of their business including the firm’s competitive advantage over current or potential future competitors. The four main factors utilized to define a company’s competitive advantage or “Economic Moat” are:
High Customer Switching Costs are the one-time expense or inconvenience a customer would incur to switch from one product to another. The more customers are “locked in”, the more likely a company can pass along added costs to them without the risk of loser the relationship. Consider the effort...
Magazine Cover Indicator
An old adage on Wall Street is - "sell when Business Week's cover says buy."
The most famous example of this is the 1979 Business Week cover "The Death of Equities." Some facts from the article: Baby boomers won't save. Gold is a safe long term bet. In retrospect, equities were as inexpensive as they were during the Great Depression…and were on the verge of a historic bull market lasting until 1999.
How could Business Week have been so wrong? We would suggest that it is because the publication's staff does a wonderful job of merely reflecting the conventional wisdom. The editors and staff cannot...
Rafael Velez
in Behavioral Finance
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The Enemy of Performance - You!
In our practice, we encounter enthusiastic new investors who devour current editions of Money Magazine, Forbes or the Wall Street Journal in an effort to accelerate their personal learning curve and become more educated about the market. In reality, they may be better off combing through back issues of Psychology Today – because there is considerable evidence that investor behavior is the key determinant to long term results.
