Four of the Most Reliable Words in Investing, Coaching, and Parenting.

Patience, Discipline

“It’s tough to make predictions, especially about the future.” Yogi Berra

Armed with brainpower, insider information, and sophisticated tools, even the most powerful global institutions cannot outguess economic data and financial markets. One such institution, the U.S. Federal Reserve officially diverged from other central banks with a much anticipated December monetary policy  announcement, and Fed Head, Yellen, steadfastly exuded confidence in an ability to execute on central plans. While seemingly small now, this historic event does signal added change, uncertainty, and hypersensitivity to future news-flow.

Default risk, volatility and extreme downside in security prices were reintroduced in 2015. Well-intended 2016 forecasts are on the way to our inboxes, and these notes often serve only to confuse yesterday’s confident beliefs. Stocks, bonds, commodities, emerging markets, and currencies will continually jostle investors and prognosticators.

No crystal ball or “black-box” strategy guarantees consistent and successful market timing, so let us briefly examine four words able to more reliably trigger clearer thinking in times of added stress.

Patience, Discipline, Process and Customization have proven a helpful and mightily resilient decision-making framework throughout a career of investing, coaching, and parenting.

#1 Patience helps to promote less emotional decision-making. We have all been in that daunting place, a moment where reactions, words, and instructions are paramount to a more successful outcome. Take a mental moment or even physically remove yourself from a tough situation. Intentional breaths also enhance one’s ability to patiently respond when control is momentarily lost.

Quick Tip: Avoid an immediate investing decision if you have recently been exposed to the flashing of red and green price-change indicators.

#2 Discipline reinforces adherence to well-grounded investment strategies and financial plans. The temptation to impatiently chase the latest fad, change styles, or to abandon the “game plan” out of fear, often leads to instability more detrimental than whatever short-term deficit or problem exists.

Quick Tip: Avoid compromises or exceptions only made to make a decision work this time.

Fearful headlines and twitter feeds sell ads and keep people glued to screens, but fear does not make money in the stock market.

#3 Process translates into effective execution of less emotional disciplines. Successful investors, coaches, and parents rely on consistent process methods to evaluate reward-to-risk relationships. This ability is wired into survival–Is that a stick or a snake? Should we kick an extra point or go for two? What will tomorrow bring if the kids win the battle to stay up too late? Investors should define and document reward and risk targets to compare with current prices. Key stats and ratios can help to set the limited price you are willing to pay and the point at which a sale is appropriate for each holding. This preparation should be done prior to the potential constraints of euphoria or despondency.

Quick Tip: A scheduled routine to review financial plan health, asset, sector and security allocations, tax efficiency, all-in expenses, and risk-adjusted performance is important and helps to avoid random thoughts and decisions.

#4 Customization can produce more optimal bottom-lines over robotic or glide-path plans. Armed with patience, discipline, and a process for execution, the flexibility to adjust for the conditions on the field is critical. Hard-earned wealth is proactively built, so unique circumstances deserve collaboration and measured decisions. Simple strategies to achieve low cost, diversification, and risk management can be achieved while paying attention to the changing complexities of taxes, special requirements, and crazy markets.

Quick Tip: Be wise with model recommendations found in newsletters, popular media, or other widely distributed platforms. While often good advice on the surface, what is right for your neighbor is not always right for your family.

Happy New Year and Best Wishes for 2016!

It is tough to predict any 12 month period. This investing year is especially difficult with so many large players like China, the U.S. Federal Reserve, and the European Union attempting historic shifts alongside a daunting list of uncertainties. Besides turbulent markets, our basketball team is struggling, and we “welcome” our first teenager into the house. The written words of Patience, Discipline, Process and Customization will literally be turned to as reliable triggers to handle tough decisions (see pictured office whiteboard).

ABOUT THE AUTHOR:

Michael loves to empower investors with his expertise in securities and economic analysis, goals-based wealth management solutions, and FinTech smart decision-support tools. While directly managing over $5 billion in growth and retirement assets; his proactive advice and software innovations have influenced thousands of fiduciary advisors to better their practices and service to clients. He enjoys spending time with his wife and three boys, competing in USTA tennis, and mentoring others to succeed.

Email | Michael@empoweredportfolios.com

Twitter | @MichaelHakerem

CHINA: YEAR OF THE SCAPEGOAT 2015?!

scapegoat

It is a mistake to place sole rationale and therefore sole resolution in headlines like: China Fears Slam Stocks. China Data Hits Markets. China to Blame. Occupying the 8th position in the Chinese Zodiac, the Goat (or Sheep) symbolizes such character traits as creativity, intelligence, dependability, and calmness. Half-way through the Chinese New Year that began in mid-February, investors are steered to solely focus on Beijing’s corruption, lack of control, manipulation, and extreme volatility.

There is no doubt that China is HUGE in terms of the mood of her populous, politics, internal objectives, economy, and massive historical demand for Western luxury goods and infrastructure inputs like Copper, Iron Ore, and Concrete. It is disturbing to read stories of the Chinese government arresting and detaining traders to “resolve” its stock market problem. An extremely tense Pacific will become further inflamed as China celebrates the 70th anniversary of the defeat of Japan in WWII. A parade of 12,000 troops, 200 aircraft and dozens of tanks and missiles are expected to march down Beijing’s central Avenue of Eternal Peace and through Tiananmen Square on Sept. 3 — the day after the Japanese army surrendered to Allied forces in 1945. Still, global stock market turmoil, plummeting currencies, crashing commodities, and economic instability are problems not entirely “Made in China.”

The Maestro (I admit the pic is my cMaestroopy.) of the real orchestrated manipulation that impacts us today dates back many Lunar
cycles and from the United States. With complete humility, I will note there is no crystal ball at my shop. However, the source of the 2015 pullback is potentially deeper, more problematic, and more painful than simply laying blame on the recent Chinese stock market rout and slowing manufacturing data. The U.S. Federal Reserve as directed by Greenspan to Bernanke, and now Yellen, have led the world’s most powerful central banks into the most manipulated (no matter how well intended) and experimental monetary phase of our lifetimes.

The lack of control, manipulation, and volatility your investments are experiencing is most likely not China-centric so do not ignore the plethora of other concerns, risks, and opportunity sets. 

Unconventional tactics were used to counter the late 90’s Asian currency crisis, hedge fund blowups, and Y2K cash build-out. The bursting of the dot-com bubble in 2000 kicked off massive interest rate cuts via the Effective Fed Funds from 6.5% to 1% (2000-2003) with a repeated playbook during the 2008-09 Financial Crisis. When interest rate options ran dry, Fed Chair Bernanke revealed experiments like Operation Twist and a series of so-called Quantitative Easings (QE). The Fed balance sheet has skyrocketed from $600 billion to $4.5 trillion! Perhaps the counter-factuals would have been worse–the unwind from unconventional to normalcy represents an unknown larger than China.

Throw away advice lines like “normal pullback,” “another buy the dip opportunity,” or “healthy return to volatility” are less useful for concerned families no matter what happens this fall. 

Zero interest rates plus QE1, QE2, and QE3 created a massive misallocation of capital that has affected everything from rental properties, fracking, high yield bonds, share-buybacks and dividend payments, the US dollar, and stock market valuations. These trends have been on a tear so perhaps the recent weakness is the painful process of deflating back to reality–you or your trusted advisor should not completely discount this possibility.

So what is useful?

An emphasis on market-timing, outguessing economic releases, or using gut feel to manage portfolios is foolhardy for most of us. There are tremendously positive innovations in medicine, technology, and consumer goods worthy of your hard-earned investments. You still need to identify and navigate the right investing paths, know your portfolio’s return and risks trade-offs, and plan for the future with foundations based on your family’s realities.    

  •  Real communication and proactive, goals-based wealth advice: Watch out for canned, standardized, and biased steering.
  • Implementation should include a combination of core strategic investments, tactical satellite investments, and a relentless focus on client-centric management of risks, taxes, and fees: Watch out for mass produced, standardized, and advice that comes too quick and easy.
  • Special attention should be paid to the more controllable aspects of planning, spending, saving, and an extra margin of safety: YOU are the best qualified and most accountable for this part.

ABOUT THE AUTHOR:

Michael loves to empower investors with his expertise in securities and economic analysis, goals-based wealth management solutions, and FinTech smart decision-support tools. While directly managing over $5 billion in growth and retirement assets; his proactive advice and software innovations have influenced thousands of fiduciary advisors to better their practices and service to clients. He enjoys spending time with his wife and three boys, competing in USTA tennis, and mentoring others to succeed.

Email | Michael@empoweredportfolios.com

Twitter | @MichaelHakerem

5 Truths to Take Back the Wheel: Is Your Portfolio Driver-less?

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Steve Jurvetson via Flickr

Riding in the back of a Google robocar is probably thrilling! Now imagine your family, your business, and your hard-earned assets shaken side-to-side with sole reliance on a machine. Financial advice can often times focus on the rear-view mirror, drive the same speed for all passengers, and suffer from numerous blind spots when it comes to risk management.

Machines Can Break & Markets Can Bust Through the Cones

  • The #NYSE (New York Stock Exchange) was halted from 11:32 AM to after 3 PM on July 8th due to a computer error.
  • United Airlines issued a statement saying it suffered from “a network connectivity issue this morning” that grounded 4,900 flights worldwide.
  • The #ChinaMeltdown in equities has more than 50% of A-share listings halted for volatility. Since June 12, the Shanghai Composite has lost an unnerving 32%. The Shenzhen market, which has more tech companies and is often compared to America’s Nasdaq index, is down 41% over the same period.
  • Resolutions for #Greece have strong implications for the euro zone and contingency plans for larger neighboring countries. Importantly, what avalanche could this snowflake unleash?
  • Second-quarter earnings reporting season is set to ramp-up in a few weeks. Volatility and surprises are sure to come even as bottom-up operating earnings estimates for 2015 ($115.5 per S&P) have already dropped double-digits since the beginning of the year with an implied above-average multiple of 18X.

Take Back the Wheel or Hire An Experienced Driver

Global central banks, regulators, and governments are constantly manipulating the course and the rules of the road. Whether you are a fiduciary agent or an individual investor, please seek a powerful combination of smart decision-support tools and human wisdom to help navigate the potential bumpy environment ahead.

Radar Charts are a great method to easily visualize portfolio attributes. Below is a generic illustration I created in two minutes with Excel to view credit risk and interest rate sensitivity scores for different fixed-income groups. You could do the same for “Comfort-Score,” Forward Price-Earnings Ratios, Expected Yield, and other easily obtainable data items.

1) Rear-view mirror: Modern Portfolio Theory, historical standard deviations and 5-Year Betas are only useful starting points. Like a family budget or business proforma, portfolio stress testing and awareness should use a majority view through the windshield. You do not have to outguess the stock market or own a crystal ball on interest-rates, inflation, or economic growth to know what investments you own, why you own them, and the most likely sensitivities under different scenarios. Taken a step further, you can assign a probability structure like 50% confident interest rates stay the same and 25% each to interest-rates jump or interest rates retreat again.

2) Differentiation: Plan Scores and Probabilities of Success produced by finance software serve as great baseline assessments and help to facilitate deeper conversations. However, be wary of any tool, product, or advisor that claims an ability to properly and holistically gauge your comfort “speed” in just a few standardized questions. Your age, planned retirement date, and view that you “wish to make as much money as possible without experiencing a historical market drop” is rarely a view complete enough to evaluate your portfolio needs.

3) Risk Management: An experienced driver has proven techniques and disciplines to manage varied roads, traffic, and driving conditions. Here are five categories important for my family of passengers.

Seek Five Truths To Protect Your Hard Earned Money 

  1. Stewardship: A business culture based on a higher order of care that originates from a passion to serve and protect the long-term well-being of others. Even the trend of marketing “legal fiduciary” has gotten jaded when disclosures and conflicts are buried in the paperwork and the advice model still favors business-centric decisions. This is probably the most important and sometimes the most difficult to ascertain by those outside the financial services industry. Do your homework and start here!
  2. Integrated, Goals-Based Wealth Management: Builds collaborative long-term and shorter-term trading road maps on the foundations of a client’s unique and multifaceted goals, constraints, preferences, sensitivities, legacy holdings, financial wherewithal and emotional elements. How many other investors have the exact same portfolio as my family? 
  3. Proactive Asset Management: Defines “Style” as agile and flexible with an approach to evaluate rewards and risks. Will use passive & active strategies, strategic & tactical allocations, and quantitative & qualitative assessments where and when most suitable. Are my investments always an up-sized or downsized version of my previous holdings even when analysis reveals opportunities to target specific buys and sells that could improve my portfolio, tax situation, or risk profile?
  4. Humility: While considered an expert, the experienced driver is willing and able to admit mistakes or seek input from other seasoned professionals. Able to pivot unemotionally with the client’s financial interests taking precedence over the pride of the professional and the firm.
  5. Uses Technology to Implement Strategies–Not Sell Products: Faster, smarter, and prettier tools are available to empower clients and advisors throughout the four primary phases of wealth management (Discovery, Planning, Implementation, and Monitoring). Unfortunately, technology also enables product-steering, standardization, and mass distribution of advice. Slick reports, colorful pie charts, and mesmerizing statistics can also provide cover for lack of expertise and the effort put forth on your family’s behalf. Honestly, excluding the 24 hours before this review meeting, when was the last time you looked at my portfolio? Why does this tool always recommend your firm’s proprietary funds?

I welcome your thoughts in the comments section below. 

ABOUT THE AUTHOR:

Michael loves to empower investors with his expertise in securities and economic analysis, goals-based wealth management solutions, and FinTech smart decision-support tools. While directly managing over $5 billion in growth and retirement assets; his proactive advice and software innovations have influenced thousands of fiduciary advisors to better their practices and service to clients. He enjoys spending time with his wife and three boys, competing in USTA tennis, and mentoring others to succeed.

Email | Michael@empoweredportfolios.com
Twitter | @MichaelHakerem

Investing is Easy, Right?

emotional_cycle_of_investing

Just actively buy low and sell high, or passively buy cheaper index funds. Oh, or just hire a computer to unemotionally model a portfolio on your behalf. The real world is routinely a little more complicated and no easy glide-path exists in life or investing. Still, I offer a simple asset allocation framework at the end.

Keep a full toolkit and diversify your resources,
methods, and judgments.

Decision-making has become a lot more confusing for pros and novices due to unprecedented global Central Bank manipulations, the euro zone experiment, and the overwhelming amount of information, opinions, and recommended investing strategies. Whether a fiduciary advisor or self-directed individual investor, active or passively inclined, please focus on risk management. Also, it helps to seek trusted mentors who will challenge your portfolio strategies and convictions.

End of Days?

It has been over 2,300 days since the S&P 500 bottomed in March 2009: The average bull runs lasts about 1,240 days. The last stock market correction in the U.S. began in August 2011, when the U.S. Congress fought over the U.S. debt ceiling and federal budget, causing Standard & Poor’s to downgrade the sovereign debt of the United States. However, remember the 1987-2000 bull run lasted nearly 4,500 days.

Days Don’t Mean Much. How About Valuation?

Trailing S&P Price-to-Earnings is about 20X; however, the popularly used Cyclically Adjusted PE Ratio (CAPE Ratio or Shiller Ratio) is 26.5X. Courtesy of the superb resources of Karl Case and Robert Shiller.

Data on Investor Skills

The excellent Dalbar organization tracks actual returns earned by investors by analyzing mutual fund purchases and redemptions. Per the statistics, the average stock fund investor underperformed the S&P 500 by a gap of 8.19% in 2014 and an average annual deficit of 4.66% over the previous 20 years. The average bond fund investor underperformed the Barclays Aggregate Bond Index by 4.81% in 2014 and an average annual deficit of 5.40% over the previous 20 years.

In 30 years of monthly investor returns, Dalbar found that equity investors underperformed the S&P 500 to the greatest extent in October, 2008. In this month, equity investors lost 24.21% compared to an S&P loss of 16.80% for a net underperformance of 7.41 percentage points. The next greatest underperformance occurred in March, 2000, when the S&P surged 9.78% but investors took home only 3.72% for an underperformance of 6.06%.

It’s really hard to invest throughout the emotional cycle shown in the opening chart. Bad investor decisions come at the most critical points; whether in the face of severe market declines or when the equity market surges.

 Simple Asset Allocation Framework

Ark: This core and stable vessel is built to last, to withstand storms, to leave mostly untweaked in times of stress–emotional or market related. This majority of my portfolio should be untethered to a reliance on any one central bank, one asset class, one direction of interest-rates, or my ability to outguess new bulls or bear markets. This is not to say that significant shifts in underlying investments simply stay put forever or that damage will not occur. More importantly, this reliable piece of my asset allocation remains steadfast in its character traits. Perhaps this is a good place for your passive investments.

Speedboat: This satellite and more aggressive watercraft is built for quick maneuvers, possibly fun and entertaining, and an opportunity to impress myself (or teach humility). This smaller allocation should demonstrate my most active portfolio management, style, and security selection skills. Rockin’ and Rollin’, these investments better take advantage of great ideas, dislocated markets, and short-term behavioral mistakes made by my fellow investors. These vehicles provide an opportunity to earn much greater returns than those generated by the more passive portion of the portfolio.

Tight Bathing Suit: I wholeheartedly pay attention to risk management. Famous investor, Warren Buffett is credited with the following quote, “You never know who’s swimming naked until the tide goes out.” A rising tide of asset prices like we have lived through since 2009 can make a lot of people and investments appear intelligent. Over my twenty-year career, many of my most important lessons occurred when I realized just how dumb I could be. You worked hard to actively build wealth so avoid getting caught showing your assets at the wrong time! Perhaps this is a good place to use unemotional computer-drive risk analysis to monitor and evaluate your strategies, risks, and security selection.

I welcome your thoughts in the comments section below. 

ABOUT THE AUTHOR:

Michael loves to empower investors with his expertise in securities and economic analysis, goals-based wealth management solutions, and FinTech smart decision-support tools. He has directly managed over $5 billion in growth and retirement assets, and his proactive advice has influenced thousands of fiduciary advisors to better their practices and service to clients. He enjoys spending time with his wife and three boys, competing in USTA tennis, and mentoring others to succeed.

Email l Michael@empoweredportfolios.com
Twitter | @MichaelHakerem

9 Bond Fund Risks To Evaluate

10-Year Yields last year

Now that’s price volatility! Government Agencies, Exchanges, Major Bond Investors, and Main Street Investors are again preparing for the long awaited upward shift in interest-rates and a potential collapse in bond market prices and liquidity. Deja Vu, right? Know your risk exposures and understand the location of your hard earned dollars!

The thought of bond market liquidity evaporating or double-digit drops in bond investments is unnerving enough; however, I am especially concerned where investors are exposed to two trends often seen in 401(k) plans, 529 College Savings Plans, Target Date Funds (TDF), and certain other ‘glidepath’ robotic advice formulas: 1) massive use of bond funds and exchange-traded funds (ETFs) in lieu of direct bond ownership and, 2) traditional advice of raising allocations to bonds as investors age or move closer to goal dates. As an illustration of size, Vanguard expects TDF adoption to hit 50 percent in 2015 and reach 63 percent of the 3.9 million participants enrolled in Vanguard-administered plans by 2018.

Fun Fact: Outstanding U.S. bond market debt
has grown from $31.7 trillion in 2007 to
$39.2 trillion in 1Q 2015. Source: SIFMA

No wise Advisor can assign certainty to the proximity nor consequences of this highly anticipated change in U.S. monetary policy. There are plenty of reasons to believe a Federal Reserve driven rate increase may be postponed beyond 2015due to deflationary forces such as weak global growth and employment, instability in Europe, Middle East, and Asia, shifting demographics, and the exponential price destabilizing impact of technology. However, Fed Chair Yellen seems determined to continue a stated gradual path to “normalcy,” and any move away from the 0-0.25% range in the Fed Funds target will be highly symbolic.

Suitable bond mutual funds and ETFs used in isolation or in combination with individual bond strategies can be very effective. Still, financial market participants may collectively induce higher interest-rate risks, so take heed of nine not-so-obvious risks to evaluate in your bond exposures.

  1. The “Bond” label is not always synonymous with conservatism or lower risk. For illustrative purposes, the opening graphic plots daily percent yields for the “risk-free” U.S. 10-Year Bond from 6/19/2014 to 6/19/2015. Price movement in this key benchmark rate is likely to experience historic volatility in the future. Other segments (high yield, municipal, emerging, mortgages) of the massive bond market are smaller and less liquid than Treasuries.
  2. Principal, maturity, and credit features are not guaranteed or insured–Many investors do not realize, understand or appreciate that bond funds can fall in price. Bond funds are not insured or guaranteed by FDIC, the U.S. Securities Investor Protection Corporation (SIPC), or by any other government agency, regardless of underlying holdings, or how a bond fund is purchased or sold—whether through a brokerage firm, bank, insurance agency, financial planning firm, registered investment advisor or directly.
  3. A net asset value (NAV) of fund shares is no guarantee. An ability to sell fund shares on any business day does not translate into the characteristics of “liquidity” in the sense of price and bid protection for underlying holdings. Funds make assumptions in their daily pricing matrices and actual future sales (especially forced) of holdings can receive prices much lower than modeled assumptions. Note: Closed-end bond funds trade at premium and discounts to underlying NAVs.
  4. Embedded leverage–The proverbial double-edged sword. Funds use yield enhancement strategies to try and boost returns and market their portfolios to attract or maintain investor dollars. This activity can translate into less obvious risks and the use of reverse repos, commitment agreements, and exposure to floating-rate credit lines with banks or bank syndicates should be noted too.
  5. Is the Fund 100% committed to owning actual bonds? Whether due to Fund size or purposeful strategy, additional counter-party and contract liquidity risks are introduced with the use of synthetic positions. Derivative contracts may also involve implied or economic leverage.
  6. Date & Data Matching on Fund Report Cards. Always check the “As of” date on top holdings, risk metrics, returns, credit weightings, and asset breakdowns. Look closely, and you may see inconsistency with the published report issue date–Are you sure you know what you own?
  7. Speaking of Holdings. Among other reasons, unprecedented low rates and high prices have forced some fund managers to reach for yield outside stated comfort zones or core competencies. For example, “conservative” funds with heavy exposures to potentially high risk Puerto Rico and Tobacco bonds.
  8. Metric Effectiveness. Listed durations are very popular and convenient numeric gauges of interest-rate sensitivity. Unfortunately, these generic stand-alone descriptions of price sensitivity can mislead investors due to straight-forward assumptions and limitations. Realized prices and actual market bid adjustments always trump mathematically derived estimates. Any assumed downside needs to consider the size of yield changes, yield volatility, and the new shape of the yield-curve. Most bond funds consist of hundreds or even thousands of bonds across a spectrum of maturities, sectors, credits, and bond features–so accurately portraying a full portfolio’s risk is more complex.
  9. Historical “average” returns, dispersion of said returns, and the degree of like movement with other assets should not be extrapolated. The chart below shows a clear example of unprecedented U.S. Central Bank activity beginning in 2008; whereby, the Federal Reserve increased the size of its balance sheet five‐fold from $900 billion to $4.5 trillion. Translation: Objects as seen in the seven year rear-view mirror are very distorted.

Key Rate Factor: Federal Reserve Activity

On June 17th, the FOMC reiterated that “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”  In March 2015, 15 of 17 FOMC participants judged that the first increase in the target federal funds rate (now 0-0.25%) would occur in 2015 even though the same contributors expect inflation to be well below the 2% target with a central tendency at 0.6% to 0.8% in 2015.

Key Rate Factor: Inflation Expectations

Below is a representative graph of the Fed’s preferred inflation gauge, PCE Inflation—as measured by the percent change in the personal consumption expenditures (PCE) price index is headed downward. Graph retrieved from FRED, the excellent resource at the Federal Reserve Bank of St. Louis: https://research.stlouisfed.org/

It has been more than a decade since the Federal Reserve raised interest rates and nearly seven years since the fed funds rate was set near zero. Still not a forgone conclusion that a new rate regime starts in 2015, government agencies, exchanges, major bond investors, and private investors are again preparing for significant changes. So join them in preparing your mind and portfolios.

A choice not to lose can be a winning strategy, and prudent portfolio management always considers potential reward units versus potential risk units. Each investor and their trusted advisors should follow a continuous wealth management process of Discovery & Diagnostics, Planning, Implementation, and Supervision. As you work through the review steps, note that the “bond” label is not always synonymous with conservatism, low risk, or stability. Please evaluate your obvious and not-so-obvious risk exposures to bond funds and exchange-traded funds.

I welcome your thoughts in the comments section below. 

ABOUT THE AUTHOR:

Michael loves to empower investors with his expertise in securities and economic analysis, goals-based wealth management solutions, and FinTech smart decision-support tools. He has directly managed over $5 billion in growth and retirement assets, and his proactive advice has influenced thousands of fiduciary advisors to better their practices and service to clients. He enjoys spending time with his wife and three boys, competing in USTA tennis, and mentoring others to succeed.

Email l mdhakerem@gmail.com
Twitter | @MichaelHakerem

How’s Your Form: When Only A Few Will Know?

All Rights Reserved

One demonstration of character is how YOU go about YOUR business with just a few audience members. Perhaps the sole observer is the person you see reflected in the mirror.

The Xfinity Center, the indoor arena that serves as the home of the University of Maryland Terrapins, holds capacity crowds at nearly 18,000. Imagine the vibration as thousands of fans pile in to cheer, boo, and watch soon-to-be professional basketball players. Boom! Feel the chills and goosebumps on a made three-pointer or “And 1” play. Instant results, instant performance review, all recorded in history for the world to see…

You could hear a pin drop on a recent Sunday morning in College Park. A young player with hopes and dreams stepped up to the line for a technical foul shot. Just #3 and the referee. An opportunity to give less? An opportunity to make excuses? As parents, coaches, and business leaders, we are proud when a child, player, or corporate teammate strives for the perfect form. It is especially gratifying to witness hard work and effort with an awareness that the results and performance may go mostly unnoticed and fade away in time.

Some professionals will play to full arenas and receive national recognition while most of us have our best high-five moments to no cheers or big awards. Some professionals choose the easier way or take advantage of situations where the boss or clients “will never know the difference.” You know these folks, their timing for the right spotlight is impeccable. Meanwhile, most of us will often realize our best professional form on a Saturday morning in an empty office. Is it worth it?

ZZZZZZZZzzziiiiiiiiiipppPPP.

The sweet sound of a swish of the net remains unmistakable–even if it is just YOU. “Yes,” that satisfied smile is worth it–that look in the mirror is worth it.

With Gratitude, Michael

Don’t Roll the Dice with Your Retirement

The costs of not implementing personalized advice will escalate so watch out for products and overly standardized solutions.

FGN1_edited-1

The S&P 500 has sustained an unusually high 15%+ annual pace of returns over the last three years. Still, U.S. retirement savings and pension plans fall short by multiples of trillions. Our lifestyle, investment returns, and retirement success are partly in the hands of competent and caring central bankers; unfortunately, they are in experimental territory! Despite hope for a “this time will be different” outcome, last night my wife and I experienced another demonstration of well-intended microeconomics gone awry–Family Monopoly Night. Will the global macro-economy have more success in its quest to provide stability for its growing and ageing citizenry? Let’s not assume a complacent path toward GO!

European emergency deals with Greece, signs of disinflation, and a litany of other mixed data points prove constant reminders of burdens resting on the shoulders of the world’s most powerful central banks. The March 18th U.S. Federal Open Market Committee (FOMC) meeting and the associated Summary of Economic Projections and press conference by Chair Yellen come with great anticipation for insights on paths for interest rates, inflation, and global growth.

How can any players evaluate
what is what, or who is on first?

Whether fiscally shaky countries, unstable companies loaded with high yield debt, or individuals afflicted with an addiction to self-dealing blowups, at some point global powers must allow fundamentally sound principals of reward and risk. So-called emergency measures of quantitative easing (QE), market manipulations, and data-spin have created illusions of great prosperity. Can market players truly evaluate the past and future quality of their investment portfolios? How do you prudently plan for future retirement cash flows? Will liquidity exist when massive amounts of investors make the same allocation decisions–see Energy sector? As certain as death and taxes, the FOMC will inevitably trigger a soundness test of our wealth management processes. It will test its own resolve, too.

get-out-of-jail-free-card

Don’t try this at home or on
the global stage!

The primary focus of family game nights is to share equally in the seemingly easy task of promoting fun. To this end, all players are bribed with pleasantries and tasty snacks. Though often too soon, the more formidable Monopoly traders emerge and our micro-economy changes its character. We can now wheel and deal our way to a fortune even faster loading millions onto debit cards instead of cash! Unfortunate bubbles and bankruptcies loom, and we are unsure how this game will unfold. I survey the bubbling emotions of the table and decide to step-in as central banker and quickly implement a few minor tweaks to the rules as relied upon since 1935. Surely, a few rent-free passes around the board, lower mortgage rates and a special one-time QE program are acceptable as a fair trade-off for a prolonged cycle of family fun (and snacks).

monopoly credit cardsUnfortunately, emergency tweaks force a new set of incentive behaviors, and control quickly becomes a rear-view mirror phenomena. The artificial nature of our “new normal” game introduces an evolution of hypersensitivities. Prudent savers shed tears as interest payments and cash flows are severely strained. Formerly on economic life-support, a certain type of grin emerges on the face of wildly aggressive players as fair consequences remain suspended. Never extrapolate current circumstances!

No press conference, but…As the most powerful central banker in the house, I cannot reveal any lack of confidence in how this game may end.

Further details from my reign over family game night shall remain sealed in order to digest the facts as I plan to recall them and to avoid critique. Meanwhile, real life global central bankers, finance ministers, academics, and financial market participants are clearly articulating their own visions for currencies, growth, jobs, and policy options. In fact, seventeen central banks have clearly spoken in 2015 with monetary easing. Sweden slashed its main policy rate into negative territory! Economic battles may ensue as countries try to protect self-interests.

The S&P 500 stands at 2,100 and the
U.S. Ten Year Bond yields 2.14%.

Many managers of wealth agree that broad stock market valuations are elevated and economic cycles cannot be completely eradicated. Nearly seven years since the last U.S. recession, risks of negative asset returns and even lower interest rates are real. At the same time, life expectancy and years in retirement are extending. The EBRI estimates that “at-risk” early baby boomer shortfalls range from $71,299 for married couples to $104,821 for single women.

The costs of not implementing personalized advice will escalate so watch out for products and overly standardized solutions.

Market players put too much faith in the ability of humans (or machines for that matter) to legitimately map desired outcomes with high certainty. The well-intended programs and tools unleashed by global central bankers may produce more future risks than current rewards. Aided an abetted by political dysfunction, demographic trends, geopolitics and a multitude of unforeseen variables, it is impossible for anyone to predict an exact transition from policy-induced tweaks to a self-reliant global economy. Even Dr. Janet Yellen could not have predicted the outcome of our family game night, and this is precisely why it is such an instructive econometric tool!

Like it or not, we were all invited to this global Family Game Night, and an important test looms sometime in the future. No matter the status of your preparation or distance from retirement, take control of your security and freedom with a foundation of financial knowledge, trusted advisory relationships, and methods to review and verify your family’s unique circumstances.

  • Cover the bases of the continuous cycle of wealth management with discovery and understanding, financial and estate planning, strategy implementation, supervision and review.
  • Re-check your human and online advice platforms: Many investors are clearly paying too much and receiving too little OR paying too little and not receiving enough mission critical advice.
  • The National Association of Personal Financial Advisors (NAPFA) is a leading professional association of Fee-Only financial advisors: http://www.napfa.org/
  • The CFA Institute strives to lead the investment profession globally by promoting the highest standards of ethics, education, and professional excellence: http://cfa.is/1AlqmhE
  • The Employee Benefit Research Institute produces non-partisan data on health, savings, and retirement issues: http://www.ebri.org/

I welcome your comments.

Email l mdhakerem@gmail.com

Twitter | @MichaelHakerem

Michael embodies client-stewardship in all his work and happens to be a passionate expert in securities analysis, asset allocation, economic analysis,
and wealth management solutions.

More than 275 million Monopoly games have been sold worldwide and are available in 111 countries and 43 languages. Your family and the U.S. Federal Reserve should invest in this classic econometric tool for a cost of less than $20.