Intelligent Investing helps you understand all your employer options to ensure you make wise and informed decisions, so you know how to rollover your employer retirement plan assets. In addition, you’ll get an array of portfolio planning tools, research and education, so we can design a portfolio that aligns with your retirement goals and your ability and willingness to accept risk. Whether you have a concentrated stock position or a simple 401(k), we minimize financial stress to maximize your life.
[gview file=”https://investedwithyou.com/wp-content/uploads/2017/08/Nuts-and-Bolts-How-to-Roll-Over-Your-Employer-Retirement-Asset-Plan.pdf”]What the Solar Eclipse Can Teach Us About Markets
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How to Prepare for the Solar Eclipse Video
Ever since I was a kid, I’ve been fascinated with astronomy (not astrology–big difference). My neighbors introduced me to the planets and moon’s craters using a telescope on their back porch in Pennsylvania. I used to wake up in the middle of the night to watch meteor showers, took Astronomy as an elective in college, and have even been to a star party. (but that is for another blog). OK, so I’m an official geek. Well, this year is a big year for astronomy. Unless you’ve been hiding under the shadow of a rock (see what I did there), you know a total solar eclipse is coming.
The Great American Total Solar Eclipse
A solar eclipse is when the moon is in between the earth and the sun, and the moon blocks the sun’s rays. The first total solar eclipse visible in the U.S. in nearly four decades is expected to dazzle on Aug. 21, 2017. During the so-called Great American Total Solar Eclipse, the 70-mile-wide shadow cast by the moon will darken skies from Oregon to South Carolina. During most solar eclipses, the moon takes just a “bite” out of the sun — these are called partial solar eclipses. However, the August event will go down as the first total solar eclipse whose path of totality stays completely in the United States since 1776. How patriotic is that?
Historically important eclipse
Ancient cultures tried to understand why the sun temporarily vanished from the sky, so they came up with various reasons for what caused a solar eclipse. Legends surrounding solar eclipses involved mythical figures eating or stealing the sun, and others interpreted the event as a sign of angry or quarreling gods. Though the following story relates to a lunar eclipse which is where the earth’s shadow appears on the moon, it still applies:
On June 30, 1503, Christopher Columbus was stranded in Jamaica. The indigenous people of the island welcomed Columbus and his crew and fed them, but Columbus’ sailors cheated and stole from the natives. After six months, the natives stopped their food supply.
Columbus had on board an almanac and upon consulting the book, he noticed the date and the time of an upcoming lunar eclipse. He was able to use this information to his advantage. He requested a meeting that day with the leader and told him that his god was angry with the local people’s treatment of Columbus and his men. Columbus said his god would provide a clear sign of his displeasure by making the rising full moon appear “inflamed with wrath.”
On March 1, 1504, the lunar eclipse and the red moon appeared on schedule, and the indigenous people were frightened.
So what can the solar eclipse teach us about markets?
- There is a Cycle
- The Current Cycle Doesn’t Last Forever
- Don’t Misbehave Emotionally
There is a Cycle
Just as there is a schedule established for the location and time of eclipses, there are business cycles as well. The business cycle consists of four phases:
- Expansion– a period of economic increase or positive growth
- Peak– the highest turning point of a business cycle
- Contraction– a period of economic decline or negative growth
- Trough– the lowest turning point of a business cycle
The Current Cycle Doesn’t Last Forever
Columbus timed the eclipse with his hourglass, and shortly before the totality ended after 48 minutes, he told the frightened indigenous people that they were going to be forgiven. When the moon started to reappear from the shadow of the Earth, he told them that his god had pardoned them. Intelligent investors know that the current phase we are in doesn’t last forever. That doesn’t mean you should try and time the markets, but you should be prudent and be aware of where we are compared to historical averages. A diversified portfolio should be able to weather all phases of the business cycle. That doesn’t mean there won’t be losses, but the eggs shouldn’t be placed all in one basket.
Don’t Misbehave Emotionally
Many economists believe we are in the latter parts of the expansionary phases, while others believe this could be a new floor to new heights. It is important to not be fearful or greedy as we are likely in the mid to late parts of the expansionary phase of the current business cycle in the U.S. Below are some common emotions that people have when they face different market phases. Whatever your viewpoint, be sure to have an accountability partner who can help you weather the storms. Remember that behavioral coaching is one of the most important things an advisor can provide.
Unfortunately for the indigenous people, they didn’t have the knowledge about the eclipse and acted emotionally out of fear. However, you are now aware of the market cycles and with some help can protect yourself from the next downturn in the markets.
Blog Resources:
https://en.wikipedia.org/wiki/Historically_significant_lunar_eclipses
How to Get Naked with your Clients (Part 3)
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In earlier blogs, I talked about the Fear of Losing the Business and the Fear of Being Embarrassed. In this third and final blog, I will talk about Patrick Lencioni’s Fear of Feeling Inferior in his book, Getting Naked.
Toilet Trouble
When I was dating my then-girlfriend-now-wife in college, I went to see her parents for the first time over Christmas break. As you know, it is a good idea to be on your best behavior when you are meeting your potential in-laws. It was Christmas time 2003, and things were going pretty well. I liked her parents, and they seemed to be liking me…
Well one evening when we were playing card games in the kitchen, I dismissed myself to use their guest bathroom. I didn’t realize it at the time, but this was to be a defining moment in my relationship with Amanda and her parents. After using the restroom, facing a potentially embarrassing moment and feeling quite inferior, I sheepishly whispered to Amanda that I needed a plunger.
Amanda started laughing uncontrollably, making a much larger scene than I wanted. I couldn’t believe she was betraying me and making a laughing stock out of me before her parents. My face turned four shades of red with embarrassment. What I didn’t know at the time was this same guest bathroom toilet had been the source of many issues over the years and had trouble flushing–embarrassing other guests and family members. After we all had a side-splitting time of laughter, I realized I had nothing to fear, and there was no need to put up pretenses and feel inferior to my future in-laws.
Fear of Feeling Inferior
In Patrick Lencioni’s book, he mentions a third fear–the fear of feeling inferior. To avoid feeling inferior or being irrelevant or overlooked, we often try to achieve and maintain a high level of importance in clients’ minds. At some point, we all have made the mistake of projecting an image of ourselves that is much better than our true self. Whether it is holding our breath while taking a photograph to look thinner or covering up that acne before our first date, we all have been there.
The Intelligent Investing Solution
People don't care how much you know until they know how much you care. Share on XThe reality is clients are more interested in honesty and transparency than they are in confidence and perfection. One of our core values is truth. Intelligent Investing believes speaking the truth in love is better than making an “empty promise” the client may want to hear, but will hurt them in the long-run.
Competence is still relevant, and clients need to know that we have the knowledge and experience to help them. However, competence is not enough. My dad always said, “People don’t care how much you know until they know how much you care.” Let your clients know when you don’t have the answer to their complex question. It’s ok to be transparent and let them know you’ve been in their shoes.
The best way to differentiate ourselves from competition...is to be vulnerable with them. ~Lencioni Share on XHappily Ever After
Well, by God’s grace, Amanda and I have been married for 11 years now. We’ve had our embarrassing moments, but we have tried to be more vulnerable with each other. It still is a challenge, but we have grown closer through the years by letting our hair down and loving each other for who we are. I encourage you to give it a try and see what happens…you may be surprised.
Buy the Book
To continue learning more about getting naked with your clients, consider purchasing the book.
Getting Naked: A Business Fable About Shedding The Three Fears That Sabotage Client Loyalty
What Rising Rates Could Mean for Your Money
Intelligent Investing is able to stress-test your existing portfolio to determine what raising rates may do to your portfolio. We’d be happy to let you know what hidden risks may be lurking in your portfolios, and whether you are in an appropriate portfolio based on your risk tolerance. See the article below for what rising rates could mean for your money.
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How to Get Naked with Your Clients (Part 2)
In my earlier post, I mentioned that we must get vulnerable with our clients in order to build trust. This post focuses on the second step that hinders trust which is fear of being embarrassed.
Kindergarten Graduation
When I was in the final week of kindergarten preparing for graduation, my teacher, Mrs. Depew, sternly warned us to hold up our gowns as we went up the stairs in the auditorium so we wouldn’t trip on graduation night. I didn’t really pay attention during rehearsals, but (surprise, surprise) was constantly talking to my friends around me. Trying to win friends and influence people, I guess.
Well, the big day arrived and the auditorium filled up with parents, siblings, and grandparents who were excited about seeing their little one get that diploma that required knowing letters, shapes, and numbers. I remember waving excitedly to my family as I walked down the aisle, and they waved back. I was beaming from ear to ear with my blue graduation cap and bow tie and white gown. Unfortunately as I went up the steps, I tripped on my gown, and my bow tie untied.
Well, I held my fragile emotions together until I reached the church’s choir loft, and then I started crying. The girl next to me offered to fix my bow tie, and I turned four shades of red from embarrassment. I then recalled Mrs. Depew’s warnings about holding up our robes. How could I ever face the public again?
Most of the time, our embarrassment is blown way out of proportion, and we feel as though everyone is looking at us and laughing at us. This phenomenon is called the spotlight effect which says we think that others are paying more attention to us then they actually are. Research also shows that people who become embarrassed are more likeable. I hope that’s the case.
Fear of Embarrassment
Nobody wants to be embarrassed, but in order to get vulnerable with our clients, we must face this fear of embarrassment. I’m not talking about the fear of walking into a meeting with your fly down or having toilet paper stuck to the bottom of your shoe, I’m talking about a fear of embarrassment by not having all the right answers. I’m talking about the fear of being proven wrong in public.
To prevent embarrassment, leaders play their cards close to the vest, don’t share information with others, and don’t allow participation in decision-making. Share on XTo prevent embarrassment, leaders play their cards close to the vest, don’t share information with others, and don’t allow participation in decision-making. Unfortunately, this causes more work for the leader, as they are afraid to delegate, and employees don’t want to share their ideas. Arrogance breeds a fear of embarrassment.
Creating a culture where mistakes are celebrated as learning opportunities, risk taking is encouraged, and stupid or obvious questions encouraged will help mitigate this fear and lead to higher levels of trust in leaders’ relationships. This “nakedness” lets your clients know that you are just as human as they are, and no question is too dumb to ask.
Buy the Book
Getting Naked: A Business Fable About Shedding The Three Fears That Sabotage Client Loyalty
Fad Money
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In the fall of 2005, I was sent by my accounting firm to Birmingham, Alabama on a mission to help reinstate the fraudulent Accounts Receivables for HealthSouth’s financial statements. To burn off some energy from sitting at a computer most of the day, I ran semi-faithfully on the Hilton treadmills in the evening. In order to pass the time, I would turn on the television mounted in the corner, and was entertained by this guy named Jim Cramer on CNBC’s “Mad Money” which launched in March, 2005.
Jim would burn more calories than I did by running around his studio with his shirt sleeves rolled up, while yelling, “Sell, sell, sell!” or “Buy, buy, buy!” He would hit certain buttons which would make all sorts of sound effects, and he distracted me from the pain of getting through those first couple of miles. Like watching a car wreck on the side of the highway, I had a hard time turning the channel, and continued to listen to his passionate yelling.
After a few months of this entertainment, it became obvious to me that Jim Cramer was an entertainer, and not necessarily a financial expert. He had the same message, but interchanged stock names and tickers. I often wondered if anyone took his stock tips seriously, and what would be the results if they did.
Well, I found out there is a paper from two researchers at the University of Pennsylvania’s Wharton School that finds that Cramer’s picks have been less than scintillating.
On its website, TheStreet compares the return of the Action Alerts PLUS Portfolio to the S&P 500 plus dividends received but not reinvested. That’s because the portfolio donates the dividends to charity rather than reinvesting them. Launched in August 2001, Action Alerts PLUS Portfolio has been a centerpiece of the financial advice offered by TheStreet.com. PLUS Portfolio subscribers, who pay $15 a month, always get the recommendations before Cramer buys them for the portfolio. Likewise, subscribers get Cramer’s picks before he airs them on “Mad Money.”
When someone is screaming at you to buy anything, hold tight to your wallet Share on X
The lesson is that good investing is usually pretty boring, and when someone is screaming at you to buy anything, hold tight to your wallet. ~Jonathan S. Hartley, Matthew Olson, The Wharton School, University of Pennsylvania
Intelligent Investing believes that having a long-term investment philosophy is best.
Do not wear yourself out to get rich; do not trust your own cleverness. Cast but a glance at riches, and they are gone, for they will surely sprout wings and fly off to the sky like an eagle. ~Proverbs 23:4-5
All hard works brings a profit, but mere talk leads only to poverty. ~Proverbs 14:23
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How to Get Naked with Your Clients (Part 1)
Reading Time: 2 minutes
Turn Your Head and Cough
I remember my Junior High physical like it was yesterday. It was a warm summer day in Harleysville, PA. After doing many stretches and breathing exercises on the examination table’s parchment paper, my final task was to undress as an awkward adolescent in front of my family doctor. I remember worrying I might have cancer as one of my friends had recently died from Leukemia.
This temporary fear was eclipsed when the doctor told me to drop my shorts, turn my head, and cough.
Is there not a better way to check for whatever they are checking for?
After zipping up my pants, I asked him, “So doctor, how did I do”? He responded with “You passed with flying colors.” My face went pale, as I had never heard of that phrase, and had to ask my mom what that meant. I was relieved to find out that I was cancer-free, and able to play soccer that Fall.
Getting naked whether it be in front of a doctor, or in a gym locker room, can be humiliating…and most of us avoid these situations if we can help it. Unfortunately, in order to thrive in the business world, we must get naked (become vulnerable) in front of our clients and employees.
Getting Naked
Getting Naked is a business fable about shedding the three fears that sabotage client loyalty. Patrick Lencioni, the New York Times bestseller of “Five Dysfunctions of a Team” describes getting naked as becoming vulnerable with your clients.
Vulnerability is one of the fastest ways to build trust in a relationship. Share on XVulnerability is one of the fastest ways to build trust in a relationship. This is the foundation that all great teams must strive for.
Unfortunately, this “nakedness” is risky and can be uncomfortable, just like an annual physical. However, skipping the annual physical poses its own set of threats…perhaps they won’t catch a disease in the early stages, or be able to prevent a life-threatening illness. In the business world, problems can fester under the surface for a long time before resurfacing.
With great risk comes great reward. ~Thomas Jefferson
The Fear of Losing Business
Fear of losing business is the first of three fears and is very common, especially among entrepreneurs. You’ve got to make that sale at all costs. Don’t you? Sometimes leaders fear being vulnerable because it could be perceived as a sign of weakness, or evidence that their leadership isn’t needed. One way leaders can conquer this fear is by being “other-focused” rather than self-focused and remembering that their top priority is to help others succeed. So how does this play out?
When meeting with a potential client, your top priority shouldn’t be to “win them over.”
The number one goal is to help them with their needs. By stripping yourself of the need to close the deal, you focus on the other person and get to know them and their goals. Maybe they don’t even know what their goals and needs are. Maybe they won’t be great long-term clients. Maybe they will go to your competitor. If you set aside your fear that you will lose business, your laser-like focus will be on them. Remember…your goal is to help them first and foremost. Even if they walk and go to your competitor, your job is to help them.
Helping others is like helping yourself. ~Henry Flagler
In part 2, we’ll talk about the next fear…the fear of being embarrassed.
Buy the Book
Getting Naked: A Business Fable About Shedding The Three Fears That Sabotage Client Loyalty
Mental Accounting 101
Reading Time: 2 minutes
Mental Accounting
Sally was once shopping for a quilted bedspread. She went to a department store and was pleased to find a model she liked on sale. The spreads came in three sizes: double, queen and king. The usual prices for these quilts were $200, $250 and $300 respectively, but during the sale they were all priced at only $150. Sally ended up buying the king-size quilt and was quite pleased with her purchase, though the quilt did hang a bit over the sides of her double bed.
This anecdote is an example of mental accounting (or psychological accounting) a concept first named by Richard Thaler. Mental accounting refers to the way individuals code, categorize, and evaluate events.
How Outcomes are Perceived
Mental accounting captures how outcomes are perceived and experienced, and how decisions are made and subsequently evaluated. This is illustrated by the anecdote above involving the purchase of the quilt.
People mentally frame assets as belonging to either current income, current wealth, or future income.
Another component of mental accounting involves the assignment of activities to specific accounts. Both the sources and uses of funds are labeled in mental accounting systems. People mentally frame assets as belonging to either current income, current wealth, or future income. In reality, since money is fungible (interchangeable), money is money, and shouldn’t be treated differently.
Self-control benefits
Mental accounting does have a positive effect in that it helps individuals achieve a degree of self-control. For example, by classifying part of your wealth as untouchable (e.g., dedicated to meeting children’s education expenses), you are less likely to use it to meet current expenditures.
Similarly, supermarket shoppers spend less money at the market when paying with cash than with their debit cards (and credit cards), even though both cash and debit cards draw on the same economic resource. In this scenario, knowing about mental accounting may cause you to pay with cash so you may spend less.
Mental Accounting in Investing
Unfortunately, when individuals place each goal and the wealth that will be used to meet each goal in a separate mental account, they may not consider the risk or correlations of the other mental accounts, resulting in portfolios that resemble layered pyramids of assets, as opposed to viewing the portfolio as a whole.
For example, if we were to ignore a large 401(k) account that is currently with your employer when we determine which Intelligent Investing portfolio is best for you, the end result may not be what is best to meet your current, short-term, and long-term needs.
Mental accounting influences asset location policy through focusing on individual goals (children education, living expenses, etc.) from a more rational/optimal look at the portfolio as a whole. In the example of “pyramiding”, the investor is focusing on investments with very low risk (guaranteed) while they could actually reach higher returns at the same level of risk through diversification (considering correlation amongst assets) to possibly reach all goals quicker.
This is one of the reasons why it is important to understand all of our clients’ assets. By looking at all investments as if they are part of the same portfolio, Intelligent Investing can analyze the investments’ correlations and determine a true portfolio allocation.
Read More Here: Mental Accounting, by Richard Thaler
