Investment Newsletter for the end of October, 2018

This month’s stock market was extremely ugly. The fear turned into a stampede. There were no news events. The US economy was a roaring success. Trade and tariff battles went quiet. But heck, let’s not let facts get in the way of a good panic. Sometimes the forces of fear win the battle. Sometimes the forces of greed win instead. Investing is about long-term allocations.

Today, I want to discuss the financial planning process. Financial planning is the prediction of how to allocate your financial resources to best match your needs. There are two relevant questions: what are your resources and what are your needs?

Of course, there are many guesses. Planners call them assumptions. We have to guess your future income, how long you will live, future investment returns, future inflation, future expenses, etc. There is very little value in fine tuning these guesses. Putting detail on a wild guess does not make the result more accurate. A better solution would be to make your best guess and update the plan every year. By revisiting the process, I get smarter.

Your financial resources include your anticipated income, investments and cash on hand, anticipated inheritances, divorce settlements, etc. It is essentially a list of your assets less your debts. Notes:

  1. All assets are listed at fair market value.
  2. I include future income as a resource. I am 59 years old. I have more or less 10 working years left. Hopefully more. 10 years of future cash flow has a value today.
  3. I do not include your personal home as a resource. Yes, it has significant value. But you spend money for your comfort not for the resale value. My landscaping makes me happy not rich.
  4. For this conversation, needs and goals mean the same thing. It is what you want to achieve and when. Common goals could be “ability to retire,” “not to run out of money before I die,” “accumulate money for Junior’s education,” and so on. The time frame matters. Retiring in one year is different than retiring in 30 years. You would have a different amount of time to accumulate resources. Risk would be very different as the young person would have much more time to fix mistakes.
  5. Because of the planning process, we can make incremental changes in life style. We can raise or lower spending, delay retirement, etc. These changes are the whole point of the process.
  6. Insurance is a good way to reduce the risk of failure. It is not, however, the only way. And insurance, generally, is a very poor investment choice.

I have worksheets set up for you to use. They are “A Very Simple Statement of Financial Condition” and “A Simple Statement of the Future.” I would be happy to send them to you. Send me an email.


Investment Fee Schedule

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the whole account. Compared to my old fee structure, under the new fee structure the cost for a $1 million account would be $500 lower per year and the cost for a $1.5 million account would be $1,500 lower per year. I will still waive personal tax return fees for accounts over $1 million. All services stay the same. I am just lowering my upper end fees. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my newsletter make sense? Do you agree or disagree with what I said?

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