The Antidote for Stock Market Hysteria

Just for fun, Google the words “market pullback.” There are over 2.2 million results–most of them market predictions–and the first page of results is dominated by calls for an imminent market reversal that the simple desk calendar has already proven false. 

However, despite their worthlessness, market predictions remain as predictable as market opens and closes. (And I predict no end in sight.)

But why?

First, there’s a clear profit motive. Apparent urgency leads to activity, and activity is still how most of the financial services industry makes its money.  

“Bullish predictions encourage investors to pour fresh money into the markets, helping asset management companies to enjoy rising profits,” the New York Times reported, noting that the Wall Street forecaster’s consensus since 2000 has averaged a 9.5% increase each year. They accidentally got it (almost) right in 2016, but in 2008, the consensus prognostication missed the mark by 49 percentage points (an outcome that makes your local weatherman seem like a harbinger of accuracy)!  

But not everyone’s positive either. My colleague and the co-author of the new book “Your Complete Guide To Factor-Based Investing,” Larry Swedroe, analyzed Marc Faber’s perpetually cataclysmic proclamations and rendered the good doctor “without a clue.”  

Why Busyness Isn’t Good Business

12 Experts Share Their Thoughts

It’s old news that we’re busy and that we wear our busyness as a badge of honor. But a new study found that Americans, in particular, are actually buying it. Specifically, the study concluded that Americans who always say they’re “busy” are actually seen as more important. Unfortunately, it’s all a charade.

Busy, busy, busy

Busy, busy, busy

Numerous studies have shown that busyness isn’t actually good business, and here’s the big reason why: It makes us less productive. We’re all susceptible to it, but If I’m saying to myself (and I have), “Woo, I’m busy; really busy,” I’m likely being distracted from the most important, most productive work that I could be doing. I may feel like I’m doing more, but the net result is actually less. And it often feels like it.

But not everyone wears busyness as a status symbol. In response to the research and their own well-informed gut feelings, many are finding enjoyment in more productive work at a less busy pace. I wanted to know how these people recognize when they’re devolving into busyness and what they do to stop the downward spiral, so I asked 12 thought leaders who’ve inspired me two simple questions:

  • How do you know when you’ve gotten too busy?
  • What is a technique that you use to “unbusy” yourself?

Here’s what they had to say:

The Three-Step Investor’s Guide To Navigating The Financial Advisory Fiduciary Issue

Originally in ForbesAs an educator in the arena of personal finance, I generally avoid matters of public policy or politics because they tend to devolve into dogma and division, all too often leaving wisdom and understanding behind. But occasionally, an issue arises of such importance that I feel an obligation to advocate on behalf of those who don’t have a voice. The issue of the day revolves around a single word: “fiduciary.”

At stake is a Department of Labor ruling set to take effect this coming April that would require any financial advisor, stock broker or insurance agent directing a client’s retirement account to act in the best interest of that client. In other words, the rule would require such advisors to act as a fiduciary. The incoming Trump administration has hit the pause button on that rule, a move that many feel is merely a precursor to the rule’s demise.

Why? Because a vocal constituency of the new administration has lobbied for it—hard. They stand to lose billions—with a “b”—so they’re protecting their profitable turf with every means necessary, even twisted logic.

The good news is that informed investors need not rely on any legislation to ensure they are receiving a fiduciary level of service. Follow these three steps to receive the level of service you deserve:

1) Ask your advisor if he or she acts as a fiduciary.

The Three-Step Investor’s Guide to Navigating the Financial Advisory Fiduciary Issue

It’s not a good sign if you get the deer-in-headlights look followed by “Fid-oo-she-WHAT?” If your advisor gets defensive, telling you that you’re better off with the status quo, that’s also concerning.

2) Ask your advisor if he or she acts ONLY as a fiduciary.

One of the biggest challenges facing investors today is that many advisors with a genuine fiduciary label are actually part-time fiduciaries. This is where it gets tricky, because there are at least three different regulatory requirements in the financial industry.

Those beholden to the Investment Advisers Act of 1940 and regulated by the SEC are fiduciaries already, and they have been for a long time. Those who sell securities—typically known as stock brokers and regulated by FINRA—are held to a lesser “suitability” standard. Those who sell insurance products may be beholden to an even lesser standard—caveat emptor, or “buyer beware.”

But what if your advisor is like many who are licensed sufficiently that they may act as a fiduciary when they choose, but may also take off the advisory hat and sell you something as a broker or agent? Do they tell you when they’ve gone from one to the other?

You want a full-time, one-hat-wearing fiduciary.

3) Determine if your advisor is a TRUE fiduciary.

This may be the hardest part, because it requires you to read between the lines. There are advisors who now realize that it’s simply good business to be a fiduciary. And while there’s nothing wrong with profitable business, you don’t want to work with someone just because they’ve realized fiduciary mousetraps sell better than their rusty predecessors.

Not everyone who is a fiduciary from a legal or regulatory perspective is a fiduciary at heart, and yes, it is also true that there are those who are fiduciaries at their core even though they don’t meet the official definition in their business dealings.

You want a practitioner who’s a fiduciary through-and-through—a fiduciary in spirit and in word.

“The annulment of the government’s fiduciary rule would clearly be a setback for investors trying to prepare for retirement,” says sainted financial industry agitate Jack Bogle. “But the fiduciary principle itself will live on, and even spread.”

Yes, the good news—for both advisors and investors—is that there is a strong and growing community of fiduciaries, supported by the Certified Financial Planner™ Board, the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA).

Advisors can join the movement. And investors can insist on only working with a true, full-time fiduciary.

The Ironic Conflict Of Interest Of The Fiduciary Financial Advisor

Originally in ForbesThe Trump administration’s move to delay implementation of the Department of Labor’s fiduciary rule has inspired me to delay implementation of my commitment to remain silent on matters of public policy and politics. It’s that important.

financial-aadvisorIt seems pretty obvious that those in the financial establishment who oppose the rule do so primarily out of self-interest. After all, it’s estimated that they will lose billions in profits if the final rule goes into effect. I get it.

But I was fascinated recently when a member of the media wondered aloud if my advocacy for a wider fiduciary standard was also simply an outgrowth of my own bias.

Indeed, who’s to say I’m not just grinding my own axe on this issue? Maybe I’m in favor of all financial advisors being held to a fiduciary standard because I’m a fiduciary financial advisor and part of a national community of financial advisors that supports the fiduciary standard.

That would be a convenient rebuttal from the anti-fiduciary community, but here’s the (huge) problem with that rationale:

While those in the financial services industry opposed to the rule understandably don’t want it because it cuts into their profits, the fiduciary community as it currently stands actually loses a clear competitive advantage if everyone has to be a fiduciary. Why? Apparently informed consumers actually like the idea that their advisor has to do what’s best for them. Imagine that!

Here’s how financial industry maverick Jack Bogle put it in his recent New York Times Op-Ed:

It simply doesn’t seem like a good business practice for Wall Street to tell its client-investors, ‘We put your interests second, after our firm’s, but it’s close.’

It’s bad business to be publicly against your clients’ best interest—and it’s good business if your competition takes such a stance.

Perhaps, then, fiduciary advisors are for the fiduciary rule simply because they’re, uh, fiduciaries.

Top 3 Reasons For Millennials To Choose A Roth IRA

Originally in ForbesMuch—too much—has been said and written about the relative superiority of Roth IRAs versus Traditional IRAs. The debate over which is better too often involves the technical numerical merits. In truth, the Roth wins in almost every situation because of its massive behavioral advantage: a dollar in a Roth IRA is (almost) always worth more than a dollar in a Traditional IRA. This is true regardless of one’s age, but the Roth IRA is even more advantageous for Millennials.

I must first disclaim that you can disregard any discussion of Roth or Traditional IRA if you’re not taking full advantage of a corporate match in your employer’s 401(k)—free money is still better than tax-free money. But after you’ve “maxed out” the match in your corporate retirement account, here are the top three reasons Millennials should consider putting their next dollar of savings in a Roth IRA:

1) Life is liquid, but most retirement savings isn’t.

Yes, of course, in a perfect, linear world, every dollar we put in a retirement account would forevermore remain earmarked for our financial futures. But hyperbolic discounting—and the penalties and tax punishments associated with early withdrawal from most retirement savings vehicles—can scare us away from saving today for the distant future. The further the future, the more we fear.

The Roth IRA, however, allows you to remove whatever contributions you’ve made—your principal—without any taxes or penalties at any time for any reason. Therefore, even though I’d prefer you to generally employ a set-it-and-forget-it rule with your Roth and not touch it, if the privilege of liquidity in a Roth helps you save for retirement, I’m all for it.

2) There are too many competing priorities.

Millennials are dropped into the middle of a financial should-fest. You should pay down school loans, save up for a home down-payment, drive a cheap ride, purchase the proper level of insurance, enhance your credit and save three months’ worth of cash in emergency reserves. All while supporting a healthy Apple-products habit and maintaining your commitment to sample every India Pale Ale micro-brew in production? No chance.

Most personal finance instruction tells you what your priorities should be, and if you’re looking for that kind of direction, I’m happy to help in that regard as well. But it’s also not a mortal money sin to employ some Solomonic wisdom and compromise between, say, two worthy savings initiatives—like short-term emergency reserves and long-term retirement savings. Therefore, while I can’t go so far as to suggest that you bag the idea of building up cash savings in lieu of a Roth, I’m comfortable with you splitting your forces and dipping into your Roth IRA in the case of a true emergency.  The challenge we all face is to define “true emergency” without self-deception. (And no, upgrading your vinyl collection or investing in beard balm aren’t true emergencies.)

3) Roth contributions cost you less today than they will in the future.

Despite my sincerest attempt, I couldn’t avoid the more technical topic of taxes—and nor should I, in this case. That’s because it only stands to reason that you’re making less money—and therefore paying less in taxes—at the front end of your career than you will be in the future.

Therefore, in addition to beginning tax-free compounding sooner, Roth IRA contributions—which are not tax-deductible—will likely “cost you” less as a career newbie than they will as a seasoned executive. At SpaceX. On the first Mars colony. Furthermore, you can also make too much to contribute to a Roth IRA, progressively phasing out of eligibility at income of $118,000 for an individual and $186,000 for a household.

Like Coachella tickets, the opportunity to invest in a Roth IRA may not be around forever. Tax laws and retirement regulations are constantly evolving, and who knows what the future may hold. This increases their value for everyone, but especially for those who could benefit from them the most—Millennials.

Filling That Career-Shaped Hole

Originally in ForbesMichael Brundage had everything working for him: a great marriage, healthy children and a successful career in commercial real estate. But something—something big, but invisible—was missing, and the result was a depressive streak that led my friend and colleague to pursue therapy.

Then, in the middle of an early session, his therapist discerned the problem, which she immediately shared with Michael: “You hate your job. That’s the problem.”

do-over-cover-2Initially, Michael protested, somewhat confused. He was good at his job—very good—and it paid well, ensuring a more than comfortable lifestyle for his family. Wasn’t that what a job was supposed to be about? Indeed, several generations of Americans have bought into the notion that our work is primarily—if not solely—a means, not an end in itself.

“As a culture, we’ve collectively bought into the lie that work has to be miserable,” writes career expert Jon Acuff in his newest book, Do Over.

Michael had learned, in his words, “what a long shadow not liking your job can cast over the rest of your life.” So he decided to do something about it.

He read voraciously, including Do Over, in which Acuff offers a method to career management regardless of where you stand on the love/hate job continuum.

Acuff’s counsel applies to four different types of career transitions that everyone faces:

What 2016 Taught Us About Investing

Originally in ForbesInvesting is a pursuit best liberated from short-term analysis that tends to mislead more than edify. But 2016 was one of those rare years that provided a lifetime’s worth of education in a brief period.

Here are the three big investing lessons of 2016 that can be applied to good effect over the long term:

1) Discipline works.

January was greeted with panic-inspiring headlines like, “Worst Opening Week in History.” While hyperbolic, the truth in headlines such as these may have been more than enough to scare off investors frustrated by seemingly unrewarded discipline in recent years.

With threats of international instability (Brexit) and domestic volatility (historically wacky election cycle), there were ready reasons to cash in even the most well-conceived investment plan, opting for observer status over participant. But to do so would’ve been a huge mistake.

Indeed, the S&P 500 logged an impressive 11.9% for the year, with small- and value-oriented indices pointing even higher.

2) Diversification works.

How can a simple, balanced 60/40 portfolio have better outcomes than investors who try to “beat the market”? Through diversification. In 2016, a portfolio that invested 40% in watching-paint-dry short-term U.S. Treasuries — and that also diversified its equity holdings among asset classes that evidence indicates expose investors to outperformance — had a good chance of matching or even topping the S&P 500’s return for 2016.

Ordinarily, translating any single year’s performance into a lifelong investment strategy would be a regrettable mistake, but in 2016 the market mirrored the historical evidence suggesting that certain factors direct us to particular investment disciplines worthy of emulation. Or in simpler terms, stocks make more than bonds, small-cap stocks make more than large-cap stocks, and value stocks make more than growth — and it may be a good idea to reflect this in your portfolio.

3) Prognostication doesn’t work and punditry doesn’t help.

“Man plans and God laughs,” according to a Yiddish proverb. No, I’d never attribute divinity to the imperfect market, but I’m happy to attribute fallible humanity to those who attempt to divine the market’s next move.

Every year, Wall Street oracles discern what the market will do through notoriously errant forecasts. Every day, an endless stream of talking heads rationalize the meaning of past market moves and presume to postulate its future direction. More often than not, they’re just plain wrong.

Or, as my colleague Larry Swedroe bluntly advises, “You should ignore all market forecasts because no one knows anything.”

Great Britain’s exit from the European Union was supposed to unhinge the global economy, but most have already forgotten the meaning of Brexit. The market then sent clear signs that it preferred one presidential candidate over the other, followed by a rash of recessionary predictions in the case of an upset. But the markets processed the monumental election surprise before the next day’s market close — doing precisely the opposite of what the “smart money” said it would do.

I don’t mean to suggest that the market will always ignore macroeconomic events and political surprises in search of higher ground. But.

The market is going to do whatever the heck it wants, regardless of the balderdash-du-jour pundits and prognosticators say it will do. It will peak when it “should” plummet and it will sink when it “should” sail.

The market’s most predictable trait is its unpredictability. But that, of course, is why we also expect a higher long-term reward for enduring the market’s short-term risk.

Again, there is more danger in drawing too many conclusions from a single year’s worth of market history, but these lessons learned in 2016 are worthy of application every year.

Top 5 Books To Put The ‘Personal’ Into Your Finances This New Year

Originally in ForbesBecause personal finance is more personal than it is finance, just about every step we take in our personal development aids us in financial planning, and vice versa.

top-5It is in better understanding ourselves that even the most confounding financial decisions are made simple. Therefore, it’s entirely possible for a seemingly non-financial book to have a meaningful impact on your financial life, while the reverse is also true.

Consider, then, this list of my choices for the top five (mostly) recent books that can improve your life, work and financial serenity in 2017:

5) The Whole 30: The Official 30-Day Guide To Total Health And Food Freedom is not your typical diet book. I don’t do those. But I am fascinated by various “life hacks,” small behavioral changes we can make in our diet, exercise and sleep patterns that make life more livable.

American Pension Crisis: How We Got Here

Originally in ForbesMy adopted home of Charleston might have been ranked the “Best City in the World,” but the state of South Carolina is earning a less distinguished label as a harbinger of the country’s worst pension crises. And yes, that’s crises—plural—because U.S. state and local government pensions have “unfunded liabilities” estimated at more than $5 trillion and funding ratios of just 39%.

What does that mean, exactly?

When a company or government pledges to pay its long-term employees a portion of their salary in retirement—a pension—the entity estimates how much it (and its employees) will need to set aside in order to make those payments in the future. An underfunded pension is one that simply doesn’t have sufficient funds to make its promised future payments.

Corporate pensions in the United States are in trouble, with the top 25 underfunded plans in the S&P 500 alone accounting for more than $225 billion in underfunding at the end of 2015. But states and municipalities are in even worse shape. This week, the Charleston-based Post and Courier estimated that South Carolina’s shortfall alone was at $24.1 billion, more than triple the state’s annual budget!

How did we get here?

There are two glaring reasons: poor investment decisions and greedy assumptions.

Why I’m Hoping The Trump Administration Doesn’t Kill The DOL Fiduciary Rule

Originally in ForbesAdvisors to President-elect Donald Trump have been vocal about rescinding the Department of Labor’s new fiduciary rule, introduced earlier this year to protect retirement savers from advice that isn’t fully in their best interests. The rule has already been under fire from the securities industry, and lack of presidential support could spell its ultimate demise.

As someone who has worked on both the fiduciary and non-fiduciary sides of the industry, I think revoking the rule is a bad, even dangerous, move. My rationale for such a position starts with my experience, early in my career, at one of the nation’s largest insurance companies.

“Look, you can set up your business any way you see fit after you’re successful. But right now? With a young family? You need to put yourself and your family first, and that means selling A-share mutual funds,” said my sales manager.

In other words, you must put your interests ahead of your clients’.

Fiduciaries are required to put their clients' interests ahead of their own.

Fiduciaries are required to put their clients’ interests ahead of their own.

As a brand new financial advisor, I was having a heart-to-heart with my supervisor after laying out my plan for creating a fee-based business within the agency, which would have meant recurring revenue for the firm but apparently in much smaller increments than were preferable.

“A-share mutual funds” are a variety with some of the largest up-front commissions—for both the salesperson and the company they represent. Variable annuities were even better, generating more of a “front-end load.” Whole life insurance was the pinnacle of up-front commissions.

In the newbie bullpen, we were encouraged to sell in various and sundry ways. The general agent in charge of the Baltimore metro area—the self-proclaimed “big dog”—was, indeed, a large man. A former starting lineman for a recognizable college football team, I’m quite sure that he routinely watched the classic Alec Baldwin “motivational speech” from Glengarry Glen Ross (turn the speakers down if you’re at work or children are nearby).


I recently discussed this topic on the Nightly Business Report (at the 9:05 mark)


My favorite anecdote from that time, though, was my general agent’s big fish story: “When you get a big fish on the hook, I want you to set a noon lunch meeting at the Oregon Grille.” (The Oregon Grille is an excellent restaurant north of Baltimore in pastoral horse country, where most of us had never dined.) “Go to the restaurant 30 minutes early and introduce yourself to the maître d’. Let him know that you’ll be returning shortly to the restaurant with a guest, and that you’d like to be referred to by name.”