Friday, February 20, 2015

Retirement 2.0

Last week I had my annual eye exam. When I made my appointment the receptionist told me the doctor was only seeing patients now on Monday, Tuesday or Wednesday. During my checkup I congratulated my doctor on his pending retirement. I guess I was being presumptuous because he growled back, “I’m not retiring, I’m just seeing patients three days a week.” I then asked if he had plans for retirement, my guess is that he is in his mid-70s. Again he snarled, “Why would I retire? I like working, what would I do if I retired?” He went through the usual list of male retiree hobbies: golf, fishing, and travelling but none of these appealed to him.

I have had this conversation with many older male clients over the years and I am still puzzled. If you have worked your whole life and saved enough money so you don’t have to work, why would you still go to the office every day? Many men will say, “If I stay at home my wife will get mad at me?” That answer has always confused me, and maybe I’m being na├»ve, but why would your spouse be mad at you because you are going to spend more time together?
The day that I don’t have to work anymore I won’t, and there are plenty of other things that I want to do.

Why is it for some people that the idea of retiring is taboo, is it a sign of weakness or insecurity? Do we define who we are by the hours we spend in the office, sitting at a computer?

Last weekend, the New York Times had a great article,, on retirees and having a second or third act in their lives. The idea of retirement for my generation and younger generations should and will be different than our parents’. We are living longer and the idea of hanging it up at 62 and moving to Florida may be dated.

I like the idea of a second act for retirees; volunteering in schools, mentoring, and teaching. Who better to teach younger people than those who have the life experience and time to give back?

I will have had nearly thirty years of experience in the financial services industry when I decide to leave my desk. I look forward to mentoring younger advisors and college students on how to achieve financial freedom. I would also like to own a wine shop.

Retirement planning should not be purely about money; how much you will need or how much you can afford to spend. It needs to be more holistic. Ask yourself, “What does life look like after I leave my 9 to 5 world? How will I find fulfillment?” Life is not linear; it’s never a straight line from point A to B. There are health issues, or the company you work for decides you are no longer necessary. Mentally we need to think ahead to prepare for these options and hone our interests in a new world.

Retirement should not be a death sentence. It has so much more to offer than playing golf or cards. Retirement is a second act to do something completely different, give back and enjoy.

The subject of retirement is very interesting to me; I invite you to share your thoughts.

Friday, February 13, 2015

Star Struck

This week I am happy to post an entry from our recent hire Zach Scott. You know you are building something special when a new member of the team buys into the culture of the firm so quickly. The Kool-Aide must be strong here!
I admit it. I’m a college hoops junkie. And when my team is competitive, I can’t get enough. Even during the off-season I’ll scroll eagerly through websites, trying to figure out whether or not the latest recruit has decided to commit to my team and lead us to glory on the hardwood. And when a coveted high school player, or, in the terminology of high school sports ratings agencies, a “five-star recruit”, accepts a scholarship to play for my team, I get weak in the knees. I will start imagining wild scenarios, and even the most far-fetched speculation starts to seem plausible. I completely forget that these kids are 18-year olds who have yet to play a single game at the collegiate level.

That’s why, while watching the Super Bowl last week, I was intrigued by a statistic one of the announcers cited during the course of the game. Speaking about the ratings system used to gauge high school football players, the announcer, Al Michaels, stated that neither team’s starting lineup featured a single athlete deemed a “five-star recruit” upon high school graduation. And as far as four-star recruits are concerned, only seven players in the starting lineups of both teams were rated that highly. In fact, Seattle’s star quarterback, Russell Wilson, was only a two-star recruit coming out of high school, according to some ratings agencies, and yet, if not for one questionable throw at the end of the game, he would likely be considered one of the most successful NFL quarterbacks of the past decade.

The ratings system used to evaluate high school basketball and football athletes is a lot like the one used by investment fund ratings firms. One of the more popular firms, Morningstar, uses the same star system to evaluate five- and four-star funds (the two highest possible ratings). The only problem is that its ratings system’s predictive value, much like that for high-school athletes, has not, for the most part, adequately anticipated success. For instance, in his book The Only Guide to a Winning Investment Strategy You’ll Ever Need, Larry Swedroe cites a study by The Hulbert Financial Digest that tracked the performance of five-star funds (as rated by Morningstar) for an eight-year period between 1993-2000. According to the study, the total return on Morningstar’s five-star funds averaged 106 percent, while the total stock market, as measured by the Wilshire 5000 Equity Index, returned 222 percent over the same period of time. Even John Rekenthaler, editor of Morningstar Mutual Funds, is quoted in Swedroe’s book as stating that the star rating system is “just a way to sort funds according to past success.” In other words, the ratings given by Morningstar are entirely retrospective; they are not indicative of a fund’s future success.

My point isn’t to demean the ratings agencies. Clearly, there are highly-touted high school athletes and investment funds that live up to the hype based on their past performance. But these tend to be the exception, not the norm. Much like a college team’s success is unlikely to rise or fall based on a single player’s past performance, successful investment portfolios are more often than not diversified in nature and consist of carefully selected investment vehicles that have been evaluated in relation to a particular investor’s individual circumstances.

While there’s a certain allure to seeing how the unpredictable will be quantified, any good sports fan knows that just because your team obtains the five-star athlete, that’s no shoe-in for a successful season.

Friday, February 6, 2015


I admit it—I am a big fan of Guy Fieri and his television show Diners, Drive-Ins, and Dives. Basically, Fieri drives around the country visiting local restaurants that serve their community and have a certain “hometown” feel to them. Fieri has a limited vocabulary for describing the dishes he tastes, but he is entertaining and seems like a genuinely good guy. Most of the time a great dish is said to be “off the chain,” as in Wow, this is awesome!
The last few episodes have been about diners, drive-ins, and dives in Italy. I’m not sure if the concept carries over to Italy, but Fieri has been exploring small mom-and-pop restaurants around Tuscany. I love Italian food—it’s my favorite cuisine. The ingredients are fresh, and most importantly, the dishes are simple; there is not a lot of complicated preparation and technique. The sauces are typically made of tomatoes, garlic, and onion. If you want to spice it up, throw in a pepper.

Investing should be the same way: simple. As I’ve said before, the keys to successful investing are: diversify, own broad-based indices, keep your costs down, stay the course, consistently invest new funds, and rebalance when necessary. Most mistakes are made when we let our brains interfere with our decision-making ability. Like cooking, the more you fuss with your investments (selling, switching, etc.), the more likely you are to ruin your dish.

I am also a big fan of Samuel Lee of Morningstar. Morningstar is an investment research company, and Sam writes and edits its newsletter, Morningstar ETFInvestor. He’s a smart guy. (If you’re on Twitter, follow him @etfsamlee.) Lee recently wrote a great piece outlining the importance of keeping investing simple. His point, in a nutshell, is that simple portfolios are easiest to understand. You can discern risk better—basically the concept that less is more—and there is not a lot of overlap in terms of strategies, ideas, and securities. The less complicated something is, the easier it is to understand. For example, I have an iPad and a Microsoft Surface. Both are tablets, but for the life of me, I can’t figure out how to operate the Surface; there are way too many movements and swiping gestures to remember. The iPad is the poster child of simplicity to operate. Turn it on, tap your app, and enjoy.

There is an art to keeping it simple, something I try to practice every day. Keeping it simple does not necessarily mean easy, but it is a way to have more time to enjoy the things you really want to do. I will leave you with a quote from a character I admire, Winnie the Pooh. Pooh is the Zen master of simplicity: “It’s more fun to talk with someone who doesn’t use long, difficult words but rather short, easy words like ‘What about lunch?’”