Hans Blake, CFA, CPA

Dangers of Backtesting Performance & Managers

August 7, 2019 by Hans Blake, CFA, CPA

Reading Time: 2 minutes On today’s Intelligent Money Minute, we’ll interview Rick Ferri on surviviorship bias and the dangers of backtesting performance and managers. During this episode, Rick defines survivorship bias and how it can skew one’s investing strategy. He explains how dataset information can be inaccurate due to the exclusion of closed funds. In conclusion, Rick highlights the difficulty in outperforming the market. At Intelligent Investing, you are the center of our wealth management philosophy. For that reason, we want to get to know you, your family relationships, your dreams, and goals, and not just on a surface-level conversation. Read more about our wealth management philosophy. Check out our previous podcasts with Rick on The Power of Passive Investing and Remembering the Legacy of Jack Bogle. We’ll be interviewing Rick on several podcasts regarding index investing, behavioral finance, and practical tips for retirees, so be sure to subscribe to our Intelligent Money Minute podcasts. Rick Ferri is a fellow CFA Charterholder, Marine veteran, author, and owner of Ferri Investment Solutions. He continues to write books and articles, provide educational webinars, and teach financial lectures.

Rick Ferri Bio

Rick Ferri earned a B.S. in Business Administration and an M.S. in Finance. He also holds a Chartered Financial Analyst (CFA) charter through the CFA Institute. After college, Rick served as a U.S. Marine Corps officer and fighter pilot for 20 years of active duty and reserve service. Rick’s investment career spans three decades and offers a history of empowering people to achieve their goals. He landed in the brokerage industry in 1989 where he learned the wrong way to invest. As a result of 10 frustrating years, Rick founded one of the country’s first low-fee investment advisory firms. Rick’s firm grew to a sizable business over the next two decades due to the explosion of interest in low-fee investing. This growth provided good-paying jobs to dozens of people and allowed Rick to take on business partners with whom he generously shared his equity. Rick left the firm a few years ago and is no longer an owner. Ferri Investment Solutions is Rick’s new firm. This modern concept provides even greater value to investors by “unbundling” adviser services whereby clients pay only for the time it takes to assist them. In addition, Rick’s industry consulting firm helps other advisers build their investment practices, and he has launched Core-4 Portfolios to provide simple model portfolios for use by a wide variety of investors.

5 Things You Should Do About the Capital One Hack

July 31, 2019 by Hans Blake, CFA, CPA

Reading Time: 3 minutes

Capital One Data Breach

Capital One said a hacker had compromised the personal information of more than 100 million people on Monday. It was one of the largest-ever thefts of data from a bank. A data breach at a major company exposes lots of sensitive information, putting millions of people at risk of online fraud. For the vast majority of those consumers, the breach appears to have exposed only relatively inconsequential details like names and addresses, rather than Social Security and bank account numbers. The bank said it was “unlikely that the information was used for fraud or disseminated by this individual,” and that no credit card numbers or passwords were exposed. Capital One says it will “notify affected individuals through a variety of channels.”

Unfortunately, hacking and data breaches continue to be more and more commonplace. Last year, it was Marriott. The year before, Equifax. Ironically, the news of the Capital One data breach came just a week after Equifax reached a $650 million consumer settlement stemming from the 2017 breach — highlighting the importance of digital security at a time when major leaks of consumer information are a fact of life. We think there are five things you may want to do about the Capital One breach.

1. Enroll in Credit Monitoring or Identity Theft Protection Service

While there is usually a cost involved with a credit monitoring service or identity theft protection, Capital One has promised to make free credit monitoring and identity protection available to anyone affected by the breach. Be sure to read the details, as you may waive your right to sue the company for the hack if you take advantage of the free credit monitoring.

2. Check Your Credit

This breach actually happened three months ago, so there’s a chance that your information is already being used. Check your credit report and make sure there’s nothing out of the ordinary happening. But keep in mind, most credit monitoring services only track your credit reports. They still won’t alert you to suspicious activity on your credit card or in your bank accounts. These services won’t prevent fraud from happening. But some do offer identity recovery services to help you regain control of your finances after identity theft occurs. The government offers a free resource for recovering from identity theft at IdentityTheft.gov.

3. Freeze Your Credit

This is an extreme step and might not be necessary, especially if you don’t know for sure that your information was compromised. A freeze blocks anyone from accessing your credit reports without your permission. But it can be an inconvenience for you, too. If you want to take out a loan or open a new credit card, you’ll have to contact the reporting agency to temporarily lift the freeze. It’s also not free. Fees to freeze your account vary by state, and if you freeze your credit, anyone who wants to use your credit to open an account needs a special Personal Identification Number (PIN). If you’re not planning on making any big purchases soon or opening any new credit cards, then it can be a good preventative move in keeping your credit safe.

4. Set a Fraud Alert

Setting up a fraud alert will make using your credit a bit of a hassle, but can keep you protected. If you set up a fraud alert, then a company will have to verify your identity before they can open an account in your name. You set one up by contacting a credit bureau (Equifax, Experian, TransUnion), and the alerts last 90 days.

5. Keep an Eye on Your Bank Statements, Credit Card Statements, and Taxes

It is wise to always review your bank statements and credit card statements for unusual charges, but especially after such a security breach. Also, hackers will sometimes use stolen personal info to file false tax returns to get refunds. That means if you file your taxes after them, you might get a message from the IRS saying your taxes have already been filed. If you can, make sure to file your taxes early.

You’re Not Alone When Placing a Parent in a Nursing Home

July 25, 2019 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

On today’s Intelligent Money Minute, we’ll interview Beverly Flaxington on realizing that you are not alone when placing a parent in a nursing home. Making the decision on whether or not to place a parent or spouse in a nursing home can be complicated and burdensome. The life adjustment that will ensue can take a significant toll on the family, so you need to be prepared. During this episode, Bev stresses the importance of implementing a network of friends and family to provide emotional and physical support. Our previous podcasts with Bev highlighted Should You Put Your Parents In Assisted Living? and How to Handle Long Term Care Regret.

The Hardest Decision a Child Will Make is a blog that talks about this tough subject. We’ll be interviewing Beverly on several podcasts regarding behavioral finance, and the emotional journeys one can embark on during retirement, so be sure to subscribe to our Intelligent Money Minute podcasts.

Beverly Flaxington, American businesswoman and founder of The Collaborative, holds the trademarked moniker, Human Behavior Coach®. She received this title for her years in professional consulting and the human behavior development industry. Also, Flaxington has authored seven books on personal and professional development.

Beverly Flaxington Bio

In addition to being a coach on changing human behavior, she is a three-time bestselling and Gold-award winning author, an international speaker, behavioral expert, and business development expert.

Bev has created a number of proprietary approaches to changing human behavior and helping companies reach excellence. In addition, she blogs for Psychology Today and answers human-related questions in Advisor Perspectives Magazine.

In 1995, Bev co-founded The Collaborative, a sales and marketing consultancy. The firm provides strategic and tactical support to help financial services and wealth management firms reach higher levels of effectiveness. The Collaborative specializes in delivering effective coaching, training, and proprietary consulting services.

How’s It Going To End?

July 18, 2019 by Hans Blake, CFA, CPA

The Truman Show is a 1998 science fiction film featuring Jim Carrey as Truman Burbank. Truman, the unsuspecting star of The Truman Show, a reality television program broadcast live around the clock worldwide, spends his entire life in the fictional seaside town of Seahaven Island. This giant set equipped with state-of-the-art technology can simulate day/night, weather conditions, and has thousands of cameras to watch him. During his college years, Truman was supposed to fall in love with and marry co-student and actress Meryl. Instead, he fell for Sylvia, an “extra.” Sylvia warns Truman his “reality” is fake. Outside of the show, Sylvia has become part of a “Free Truman” campaign that demands the end of the show and Truman’s freedom. Sylvia helps Truman realize he is a pawn within a greedy corporation and wears a red sweater with a pin that says, “How’s it going to end?”

The question on Sylvia’s button may be the same question on your mind when it comes to the market. How is it going to end? When is it going to end?

What is a Bull Market?

First, let’s define a bull market. A bull market is a market pattern that occurs when prices keep rising up 20% from a previous drop of 20%. A bull market can refer to the securities market (like stocks and bonds), but can also refer to other markets like housing.

How Will This Bull Market End?

The U.S. economic expansion entered a record 11th year, while the bull market in equities is a few months older. You may be asking yourself the same question Sylvia’s button asked. The three Ts– Trump, Tariffs and Trade wars, can be a wet blanket on the embers of growth, but the market can still go higher. The adage, “Bull markets don’t die of old age” may be true, but attempting to time when to get in and out of markets can be futile and dangerous to reaching your long-term financial goals. Always keep in mind that the bottom of a bear market is the start of the next bull market, and also remind yourself of your personal time horizon. The truth is nobody knows how the current bull market is going to end.

When Will This Bull Market End?

There is no expiration date for bull markets. Nobody has a crystal ball to say when the bear market will begin and how long it may last, which is why we believe it is prudent to maintain a diversified approach and focus on the things you can control and not let fear or greed dictate your next move in your portfolio.

Maintain Discipline

Warren Buffett famously said that like dieting, successful investing is far easier to understand than to accomplish—because it requires discipline. At Intelligent Investing, we monitor and rebalance portfolios with the goal of maintaining the amount of risk we jointly agreed to take. We have a strong philosophy and set of processes that strive to reduce the emotional component of managing wealth.

Preparing for the Next Drawdown

Remember your history. Big equity drawdowns happen time and again and tend to drag down typical investor portfolios with them. The S&P 500 drawdowns worse than 20% have happened 11 times since 1926. We will have a bear market, but studies have shown that attempting to tactically avoid the next equity selloff is likely to disappoint investors. Diversification and discipline are still investors’ best bet.

We are long-term wealth managers. We try not to get caught up in the loud noise of the markets and we encourage you to do the same. If you’d like a financial accountability partner who can help minimize financial stress to maximize your life, let us know.

The Journey Of Becoming A Widow To Financially Guiding Widows

July 11, 2019 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

On today’s Intelligent Money Minute, we’ll interview Dr. Kathleen Rehl on becoming a widow to financially guiding widows. Kathleen’s late husband challenged her to accomplish her purpose in life. As a result of his challenge, Kathleen shifted the focus of her financial planning practices. First, as a widow herself, Kathleen knew she needed to change her practice in guiding widows and focusing on them. While Kathleen had the financial background to help her in widowhood, she knew other widows did not. Second, Kathleen knew she needed to write a book. She wrote Moving Forward on Your Own: A Financial Guidebook for Widows to instill financial confidence in other widows. Kathleen desires that her book be gifted to widows in need of the “fog being lifted.” Therefore, she addresses 3 stages of widowhood: grief, growth, and grace. You can purchase Kathleen’s book here.

If you are a recent widow or know of a widow who may be in a financial fog due to the loss of their spouse, we’d love to help lift that fog so you can see your path ahead. On upcoming podcasts, Kathleen will talk about the three stages of widowhood- Grief, Growth, and Grace, so be sure to subscribe by clicking here.

Kathleen Rehl Bio

Kathleen M. Rehl, Ph.D., CFP®, CeFT® wrote the multi-award-winning book, Moving Forward on Your Own: A Financial Guidebook for Widows. Experiencing widowhood herself, Dr. Rehl empowers widows financially™ and inspires their advisors. Her work has been featured in the New York Times, Wall Street Journal, AARP Bulletin, CNBC, USA Today, U.S. News & World Report, Journal of Financial Service Professionals, Journal of Financial Planning, and other publications. Rehl owned a financial planning firm for 17 years before retiring to her “encore” career. She walks an hour daily, practices yoga, enjoys art and music festivals, writes poetry and makes art, loves her grandsons . . . and continues to evolve on her journey.

The Difficulty of Consistently Outperforming the Market

June 27, 2019 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes On today’s Intelligent Money Minute, we’ll interview Larry Swedroe on the difficulty of consistently outperforming the market. Over time, the markets are becoming more efficient, consequently making it harder for active managers to outperform. In this episode, Larry explains some reasons why there’s little to no evidence of persistence of outperformance. We have several upcoming podcasts that will feature Larry, so be sure to subscribe to our podcasts, if you haven’t already. He breaks the numbers down using an example from Charles Ellis’ white paper. According to Larry, if we look at history, around 20 years ago only 20% of managers were outperforming before taxes. After taxes, it was about 10% and currently, it is approximately 2% of managers outperform before taking into consideration taxes. Unfortunately, no advisor can consistently deliver outperformance in the market. At Intelligent Investing, we believe the dominant determinant of long-term, real-life returns will be the behavior of the client and advisor. This is why we strongly believe in behavioral teamwork. To learn more about our behavioral coaching, go to our philosophy page. You can also read “The Loser’s Game” by Charles Ellis here. We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts. Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.

Larry Swedroe Bio

Since joining the Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing. In his role as chief research officer and as a member of the firm’s Investment Policy Committee and Board of Directors, Larry regularly reviews the findings published in dozens of peer-reviewed financial journals, evaluates the outcomes and uses the result to inform the firm’s formal investment strategy recommendations. Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television shows airing on NBC, CNBC, CNN and Bloomberg Personal Finance. Larry is a prolific writer, contributing regularly to multiple outlets, including Advisor Perspectives and ETF.com. Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp. Larry holds an MBA in finance and investment from NYU, and a bachelor’s degree in finance from Baruch College.

My Personal Note from Art Laffer

June 18, 2019 by Hans Blake, CFA, CPA

On June 19, 2019, President Donald J. Trump awarded the Presidential Medal of Freedom to Arthur B. Laffer. This prestigious award is the highest civilian honor, which may be awarded by the President to individuals who have made especially meritorious contributions to the security or national interests of the United States, to world peace, or to cultural or other significant public or private endeavors.

Who is Arthur Laffer?

Arthur (Art) Laffer is an American economist and author who first gained prominence during the Reagan administration as a member of Reagan’s Economic Policy Advisory Board (1981–89). Ronald Reagan was thought to have based his 1981 economic plan on the idea that cuts in marginal tax rates would increase tax revenues. Laffer is best known for the Laffer curve, an illustration of the concept that there exists some tax rate between 0% and 100% that will result in maximum tax revenue for the government. He attracted attention for his supply-side economic theories, which held that reductions in federal taxes on businesses and individuals would lead to increased economic growth and in the long run to increased government revenue.

History of the Laffer Curve

On December 4, Dick Cheney and a young economist named Art Laffer sat at a booth in the iconic Hotel Washington—the same hotel that appeared in scenes from the Godfather II just months earlier. Cheney was U.S. president Gerald Ford’s deputy Chief of Staff and his boss, Donald Rumsfeld, were looking for alternatives to Ford’s plan to raise taxes. According to Laffer, raising taxes was a bad idea. Instead, if Ford really wanted to encourage economic growth, and therefore government revenue, he should consider cutting tax rates.

Laffer drew the famous Laffer curve on a napkin, which showed that starting from a zero tax rate, increases in tax rates will increase the government’s tax revenue but at some point when the rates become high enough, further increases in tax rates will decrease revenue. This occurs because higher tax rates become strong disincentives against earning (and/or declaring) taxable income. Cuts in marginal tax rates could, therefore, increase tax revenues.

Controversial Economist

Most economists agree that there is a point of diminishing returns where raising taxes becomes counterproductive. According to dissenters, Laffer has spent years suggesting the idea that almost any tax cut for businesses and individuals could potentially pay for itself. The real controversy was not necessarily the theory, but rather where the American economy stood on the Laffer curve. Laffer’s theory and the evidence subsequently gathered, caused economists to examine more closely the incentive and disincentive effect of taxes.

My Note from Art Laffer

I studied the Laffer Curve and how taxes affect businesses and individuals as part of the CFA Institute curriculum. I learned that altering tax laws can have unintended consequences as people sometimes want to avoid taxes at all costs (creating more loopholes). There are also psychological effects when it comes to how people view taxes. Economists say a tax refund is bad because you’re giving the government too much of your money. However, if you ask the majority of Americans, they really want their refunds–perhaps as a way of forced savings.

I reached out to Art and asked him to pen something he has learned over the years. Thankfully he sent back his nugget of wisdom on his letterhead and not on a napkin:

“Always remember you make your money in bad times, yet you collect it in good times. Your friend, Arthur Laffer”

We will be sharing more notes of wisdom from famous authors, economists, and businessmen and women. In the meantime, feel free to check out my note from Vanguard’s founder, Jack Bogle.

Rick Ferri’s Financial Heroes

June 12, 2019 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes On today’s Intelligent Money Minute, we’ll interview Rick Ferri on his personal financial heroes. During this episode, Rick highlights renown professionals that left a lasting impression on him. For example, Rick talks about the influence of Warren Buffet and his financial strategies. Rick also recounts the unsung financial heroes and how they impacted his life. At Intelligent Investing, we blend three schools of thought into an insightful, independent, and innovative intelligence. Learn more here. Check out our previous podcasts with Rick on Tips for Lump Sum Recipients and Practical Tips for Pre-Retirees. We’ll be interviewing Rick on several podcasts regarding index investing, behavioral finance, and practical tips for retirees, so be sure to subscribe to our Intelligent Money Minute podcasts. Rick Ferri is a fellow CFA Charterholder, Marine veteran, author, and owner of Ferri Investment Solutions. He continues to write books and articles, provide educational webinars, and teach financial lectures.

Rick Ferri Bio

Rick Ferri earned a B.S. in Business Administration and an M.S. in Finance. He also holds a Chartered Financial Analyst (CFA) charter through the CFA Institute. After college, Rick served as a U.S. Marine Corps officer and fighter pilot for 20 years of active duty and reserve service. Rick’s investment career spans three decades and offers a history of empowering people to achieve their goals. He landed in the brokerage industry in 1989 where he learned the wrong way to invest. As a result of 10 frustrating years, Rick founded one of the country’s first low-fee investment advisory firms. Rick’s firm grew to a sizable business over the next two decades due to the explosion of interest in low-fee investing. This growth provided good-paying jobs to dozens of people and allowed Rick to take on business partners with whom he generously shared his equity. Ferri Investment Solutions is Rick’s new firm. This modern concept provides even greater value to investors by “unbundling” adviser services whereby clients pay only for the time it takes to assist them. In addition, Rick’s industry consulting firm helps other advisers build their investment practices, and he has launched Core-4 Portfolios to provide simple model portfolios for use by a wide variety of investors.