Budgets and Technology

I just read someone else’s blog about saving and living on a budget etc. etc. It was the usual stuff about saving until it hurts, so that someday in the future you can spend freely. The article gets to the heart of the issue eventually………..it is crazy to save too much and end up leaving all your cash behind………..and it is equally crazy to over-spend and have to live off food-stamps during your retirement. What to do?

What the article missed, was all the new technology that can help solve the issue.

In the past, monitoring was difficult. I mean the actual tracking of spending was hard to do. (Not just the gut wrenching emotional meeting you know you will have with yourself at the end of the data capture – that is another issue entirely!).

I once carried around a steno-pad and entered every last dime I was spending. Down to buying gum. That let me know my burn rate, and I used it to size my monthly savings. When the paycheck hit – I would transfer away what I thought was an appropriate amount and force myself to live off the rest. Good but not great.

What I was missing, was whether this was appropriate or not.  I was missing a goal for all this saving.

Today, technology solves most of these issues. Firstly, tracking is easy – link up your bank accounts – make sure thinks are being coded correctly – and the steno-pad has been replaced. I mean this is really easy, and it is really important data to have.

Now, just link your spending and savings data to financial planning software, and Voila! You can see the long-term implications. Again, super easy from a technology standpoint, but there still is the emotional part that can/will scare many away.

So the point is…….technology has simplified an important and historically difficult task; tracking your spending. No need to over or under save. No need to “save until it hurts” – (unless that is what is required). However, technology has not solved the emotional piece.  For that you need to consult a human.

iPhones and Modern Life. Simpler is still Better.

As many of you know, yours truly dropped his cellphone into the Atlantic ocean recently.  All gone for the foreseeable future.  My initial thoughts & feelings.

  •  The cost of a new iPhone is not declining.  They are not 60 inch TVs!  My new model seems to cost more than an a inflation adjustment added to my last phone.  Good news for owners of Apple stock.
  • Covering your financial risk is easy.  I’ve started to carry a few cards with the phone and leave the wallet at home.  Within 10 minutes of the accident, the credit card and debit card attached to the phone were disabled.  This seems to be the least disruptive piece of the puzzle.  24 hours later and the debit card is replaced – back to normal.
  • The hassle of re-establishing all the connections is a pain.  I have 3 primary email accounts that feed the phone.  3 different ways to get re-attached.  Big commercial services like Gmail and Yahoo are easy.  It is the work email that is much trickier. (As it should be given what we pay our service providers for security.)  In addition, I have been surprised by how little came back automatically.
  • New iPhones work better (faster) than old iPhones.  Going from a 6 to an 8 (cheapest model) does not change the look of things, but the new unit purrs along quite well.
  • The thing that still irks me is my multiple Apple accounts.  I have an account at the App store, an account for iCloud storage, I have an account at iTunes and iTunes Match.  Enough already.  These are all accounts at the same company.  Come on guys, lighten-up with the confusion-is-better approach to your business.

Overall the experience is not as painful as you imagine.  I will continue with the simpler is better wallet approach – that was easy.  Trying to carry the simpler is better mantra is more difficult with Apple.  I am more aware of all the Apple accounts but still hate the confusion.  Let’s Kon Mari Apple services!

Life lessons: Working after turning 50.

As a retirement planner, I hear lots of people rationalize over-spending with the following logic……..’oh, I’ll just work until I am 70“……..”I hate the idea of retiring, I plan to work as long as possible“……..”if this doesn’t work out, I’ll just get a “regular” job again“……

Wow.  You’d think these people are teenagers.  These people are actually 50+.  My advice to folks in these situations is to be cautious.  Employment at 50+ is much trickier than at 40+.  It has two angles – let me explain:

Angle #1 – Desire to continue to work:

You may not want to work 40 hours er week until you are 67 or higher.  True, some people love their jobs – this clearly does not apply to them.  However, there are a lot of Type-A personalities who can easily fill their retirement days without going into an office.  You may not want to work at the same pace after turning 50.  You may want to pursue a “Hobby Job” with minimal pay.  None of these scenarios jibe with the rationalizations I mentioned earlier.

If you are counting on working to 70 – to fill a retirement savings gap –it is full on employment.   Complete with stress, office politics, and all the other BS that goes with a high paying job.  You need to be realistic…….as we age, our energy replenishment takes longer.  The job that is bearable at one point, can become unbearable as we age.  This is simply the product of biology and physics.

Angle #2 – Can we find the right job?

Finding employment at 50+ is much more difficult than you think.  This is experience talking.  It will not be as easy as when you were 20, 30 or even 40.  It is a whole new ballgame when you are above the average age of the general workforce.  Do not underestimate the impact this has on your hire-ability.

Yes, it is still possible.  But it will almost certainly take more time, might involve an undesirable move, might mean a meaningful demotion…….and this assumes you can find something.  It does eventually end.  You will reach a point at which no-one will want to hire you.  It’s the third rail after death and taxes.  It may come sooner for some than others, but it will come for everyone eventually.  Do not delude yourself.

So the moral of this story is that counting on employment past 50 to fix the over-spending of your youth is a tricky strategy to say the least.  It might be you that calls the time-out, or it might be the employment market that signals game over.  Either way, employment  at 50+ is much more difficult than most imagine.  Be cautious.


The Computer and the Meritocracy.

Be careful what you wish for.

As we passed by the 4th, I have been pondering the sad state of discourse in our union.  I must say I view it as a passing phase – something we’ll grow out of – but I also wonder where it is coming from.  I blame part of the problem on the Computer and the concept of a Meritocracy.  We like to talk the meritocratic talk, but we are having trouble walking the meritocratic walk.

The computer keyboard knows nothing about the finger pushing down on it to make the appropriate electronic contact.  In fact, it need not be a human finger at all.

The computer does not care about your gender, age, race, religion, location, vocation, education level, sexuality, or the color of your skin.  It is the ultimate tool – focused solely on the quality of your input.  What a great equalizer for some.  What a great threat to others.

Progress?  – the ability to rise to the level of your work ethic and talent?  On balance this is a great development for mankind.  Who can argue?

So have a little compassion for those that thrived in a non-meritocratic world.  They are your fellow citizens going through a hard time.  The computer is here to stay, and some are finding it hard to find their place in the new world order.  They will eventually adjust.

Like I said above, be careful what you wish for.




Alternative Investments: Part 1 – performance is seductive but over-hyped.

Some of you know I spent 10+ years marketing Hedge Funds to institutions in addition to traditional investments.  Let me lift the curtain on what is going on at the institutional level.

The biggest difference from how a retail investor approaches Hedge Funds vs an institutional investor is the fascination with performance.   To retail investors, Hedge Funds are great because they hold out hope for large returns.  For an institutional investor, it is the low correlation to traditional assets classes that acts as the catnip.

When marketing to institutions, the marketer simply states they are targeting high single digits – low double digit returns – while trying to avoid negative returns.  This is all the performance any investor really needs.  At 7.2% per year, your money will double in a decade.  So, the focus in the institutional world is the correlation to other asset classes, not super-star performance.

However, the average retail investor falls in love with high rates of return that appear in the Wall Street Journal.  “Man, if I could just buy into a fund that produced 16% per year – I could retire so much earlier and sail around in my much bigger yacht…….”

Of course 16% is better than 7.2%, but the chances of you missing the boat completely – and getting a dog that returns like  -9% – is also much higher when chasing after the hot manager.

So the question boils down to what you should do with your 30 years as an investor?  Sadly, we only have a limited amount of time to play the investment game.  My advice is to spend our limited resources on our highest conviction bets.  You know, stay focused on what seems to have worked over reasonable periods of time to the investor.  10 year returns?  Equities have done very well when measured over larger time frames.  In fact, everyone should google “Buffet 1mm bet”.

Sure, large long-term hedge fund track records do happen, but can you identify the winners in advance?  Joe and Jane average?  Not a chance.  Even worse than pure bad luck.  If you googled the Buffet bet – that was a super-savvy, hyper-informed hedge fund guru.  How’d he do?  You think you can do better?……..really?

So, learn from the institutional crowd.  Focus on the big picture – find techniques that will get you to and through retirement.  That will mean ignoring the performance of many funds featured in the press.  Or another idea……….find someone willing to take another Buffet – like bet, that would probably be a winner for you……..

Fiduciary Rule – please come back!

Apologies for being away for so long.  Life is short and I have been caught up in a multitude of other tasks that have taken me away from the blog.

What has me writing today, is something I heard on Dave Ramsey’s radio program.  It hammers home why you want to be with an advisor who sticks to the Fiduciary Standard of care. (vs the Suitability Standard you will encounter at a broker/dealor.)

Dave Ramsey told a caller to put the minimum into a government sponsored Passive S&P500 fund (just to get the government match), then take whatever was left and try to beat the S&P500.  What?  This investor was not a market pro – a real beginner calling into a show to get good advice. Crazy as that is, it gets worse…..he tells the caller to visit his smartvestor listing of pre-approved brokers who will help you choose a fund to beat the S&P500!

Wow.  Just wow.  I think 90% of what he says is good advice, but when it comes down to recommending a poor solution for the investor – he is just like all the others.  Making $$ sure can compromise your ethics.  He knows beating the S&P500 is a daunting task and that tons of research has been done on the topic.  He chooses to ignore the evidence and recommends a solution that puts $$ in his pocket.  To heck with the outcome the caller will get – as long as it is “suitable” what he has done is legal.  He is aware a better solution exists, but will not recommend it.  Legal responsibility upheld, ethical responsibility………..

Unfortunately things will not get better for “Joe Average” anytime soon.  We have a roaring bull market, and a government bent on dismantling anything done over the past decade.  Bringing the Fiduciary Standard to greater swathes of the general population seems dead in the water.  Lets hope we do not lose what we have.  Come back Fiduciary, come back…….


Evolution of Retail Investment Management: Automatic for the people.

Time for some reflection. Here is my broad-stroke analysis of the retail investing landscape’s history.

1970s – Individual stock picks @ 4% commission per side from your broker. Ouch.

1980s – Individual mutual fund recommendations from your broker for a 5% load.

1990s – DIY fund/security selection from online trade stations. No more 5% to 8% hits.

2000s – Realizing you need asset allocation advice from an RIA @ 1%.

2010s – Fintech automates asset allocation advice, passive takes hold.

2020s – What is still missing? Lots. The important stuff.

So for the past 45 years, there has been a dramatic reduction in fees associated with many of the “clerical/administrative” pieces of your financial puzzle. Computerization has really provided a big boost to the average investor in doing simple repetitive tasks.

In fact, with Fintech (Internet based financial tools) we are starting to see some progress on strategic issues as opposed to just administrative issues.

So where do we go from here?

The issues that have large impacts on your financial well-being have not really been tackled yet. I’ve listed some of the most important pieces of your financial plan below. Unfortunately, the solutions demanded involve interactions with other humans. You will have to pay for quality coaching. The internet is not going to cut it. Luckily for me, people still have a place in investment management.

  • Comprehensive Wealth Management Services. (savings strategies, tax planning, estate planning, evidence-based investing. Spending Strategies.)
  • Coaching – Implementation Slippage Minimization (ISM – my term) – ensures you execute the plan you have put to paper.
  • Decumulation Strategies – Accumulation is easy. Just do it. Save until it hurts! Not so for spending. There is greater variability in retirement spending preferences than there is in retirement accumulation strategies. You will need a personalized plan.