What I Believe

Thanks for visiting my blog! Most of the posts are themed around evidence based investing, financial plan decision considerations, and how I believe financial advisors should behave.

Be prepared for content that sometimes goes against what you've been told in the past. Readers should be ready to embrace up to date industry thinking based on what is currently known to be scientific fact & theory. As with any scientific discipline, the best thinkers are those that recognize what we know now can evolve. As such, some of the information I present may become out of date. Consider consulting with your financial advisor, attorney, or tax advisor before taking action.

Here Are 10 Financial Principles I Believe In

FOLLOW A FINANCIAL PLAN. This implies first obtaining or creating a plan. If you don't have a plan, it's extremely difficult to know if you're on track to meet your goals. By hiring a professional , you may discover a missed opportunity with your work benefits, Social Security income, or an advantageous way to reduce your taxes. The expression "you don't know what you don't know" often applies in financial planning.

YOU CAN'T TIME THE MARKET. Most investment strategies try to outperform a benchmark. This method of conventional investing is failing investors. Investment strategies can usually claim some market outperformance at one point or another. But, the longer the measured time period, the greater the likelihood the strategy will fail to beat its benchmark. Successful investors simply buy the benchmark through an index fund or exchange traded fund (ETF).

AVOID THE FINANCIAL MEDIA. They exist to sell subscriptions or keep the viewer watching. To keep investors drooling over their content, most news headlines get turned into sensationalized stories. It's the NASCAR phenomenon - we go not to see the winner, but with hopes of witnessing a 20-car pileup. About all the financial media is good for is stoking fear and concern, which can cause portfolio anxiety and dumb decisions.

IN ORDER TO GAIN 10%, YOU HAVE TO ACCEPT -10%. Let me clarify. From 1926 - 2014, the S&P has returned an average annualized rate of return of 10.1%. However, in many of those years the returns have been worse than -10% ('30, '31, '37, '41, '57, '66, '73, '74, '01, '02, & '08). An investor buying stocks either individually or within a fund framework must accept volatility. Be prepared to watch your account fluctuate, sometimes a lot (more than -10% at times), in order to reach your long term goals.

USE AN INDEPENDENT, FEE ONLY FINANCIAL ADVISOR. Independents typically leave the sales centric Wall Street world to do what's best for clients. Truly independent firms aren't bound by products their companies permit them to sell. A great example of this conflict of interest is my old firm. I would've been fired had I ever recommended a Vanguard index fund. Additionally, a real financial advisor must not sell products. Similar insurance and investment products compensate advisors very differently. The better deal the product is for the advisor, the worse it is for the client. Choosing to reject commissions removes many conflicts of interest.

FOCUS ON WHAT YOU CAN CONTROL. What you can control: expenses, diversification, discipline, savings. What you can influence: tax deductions, risk, income. What you can't control: market returns, the media, tax rates, estate law. Spend your time addressing things you can control and influence, and let go of your hangups around things you can't.

THE BEST FINANCIAL ADVICE IS ADVICE ACTUALLY IMPLEMENTED. Many times in the context of a financial plan, I'll learn a client is better off doing something that goes against their thinking. We all have some level of confirmation bias, right? For example, mathematically it may make sense for someone to continue paying their mortgage versus paying it down early. However, if not paying down the mortgage at an accelerated rate causes financial anxiety, then the advice should be adjusted. In this type of scenario, as long as using available cash flow to pay down the mortgage at the accelerated rate doesn't sabotage other financial goals, then it's ok to bend the rules against logic.

AUTOMATE & SIMPLIFY. My mom still writes checks for many of my parent's monthly expenses. Only in the last year has she eliminated the US Postal Service in favor of paying online. Although she can now pay a bill using her new iPhone, why not just automate this financial task? What other financial tasks could you automate? How much time would you save? In terms of simplification, take a close look at your investment portfolio. How many stocks and funds do you own? If it's a lot, more doesn't mean your more diversified. Being diversified means you're diversified! Having a lot of "stuff" doesn't awlways equate with a reduction of risk.

HAVE THE CORRECT EXPECTATION. This goes for the relationship with a financial advisor as well as your investment portfolio. Advisors cannot predict the future. They can help you solve real problems like how to best utilize your benefits at work or how much you should be saving. However, we don't know what the market will do tomorrow or the next day. You should have an idea of what your chosen investment allocation has done in the past. We've all heard that the past doesn't equal the future. However, observing long term patterns can help us understand how we should expect our portfolio to behave in the future.

MARKETS ARE EFFICIENT. Academic research confirms that at all times stock prices reflect all available information. The price per share an investor pays represents the consensus of tens of millions of people. Think you know something those tens of millions don't? Probably not... As much as Wall Street wants the public to believe there are areas of the market that can be exploited, this idea represents great marketing but fails to deliver.

Each of these tenets could be expanded upon ten-fold (and I will). I hope you enjoy my blog and your stay on my company's website. I'll commit to adding content until every single reader tells me to quit! If you have any questions there's a message feature in the footer on each page of this website. Thanks for reading and have a great day!