All Things Financial Planning Blog


Headlines vs. Markets – A Case Study

Bad-IdeaThe media’s job is ultimately to make money by selling advertising. How much advertisers are willing to pay depends on how widely their message will be distributed. That is measured by how well a television network, magazine or newspaper does at maintaining eyes on the screen or sales at the newsstand. Unfortunately, that often means the more negative a story or the more fear a topic instills, the more exposure it’s likely to receive. This is a common complaint, yet we keep watching.

Going back to my blog from last month, an investor’s job is to earn a return on the money they invest in line with the risk taken. Despite some volatility based on truly unforeseen headlines, the market is much less sensitive to the media and much more concerned with what is actually going on in the companies that comprise a given marketplace than the average investor.

In other words, to get a true sense at what’s going on at the markets, look at the markets, not the guy on TV keeping you glued until the next commercial break.

One quarter does not an investment lifetime make, but I’d like to use the fourth quarter of 2012 as a brief case study in lending some credence to the above point.

Going into the fourth quarter of 2012, it was hard to find much optimism. Most Americans had grown tired of an intensely divided election, Superstorm Sandy devastated the East coast and the fiscal cliff was looming on the horizon. In fact, I’ve spoken with many people who still believe that 2012 was a bad one for the markets.

Let’s look at some of the crises that many “just knew” would sink the markets to end the year and what wound up occurring in reality . . .

  1. Europe’s unemployment rate hits 11.6% signaling more problems for international investors:
    International developed markets were up 5.93% just in the 4th quarter of 2012 (represented by the MSCI World ex USA Index (net dividends))
  2. Greece’s debt and budget woes would continue to keep drag down developed market returns:
    Greece, for the second quarter in a row, led developed markets with a return of 17.87% for the fourth quarter (represented by MSCI All County World IMI Index)
  3. China’s slowing economy meant that emerging markets were in trouble to end the year:
    Emerging markets stocks were up 5.58% for the 4th quarter of 2012 (represented by the MSCI Emerging Markets Index (net dividends))
  4. An Obama re-election spelled doom for the U.S. market:
    The S&P 500 Index finished 2012 up 16% for the year
  5. Those fearing the doom and gloom should take refuge in commodities, specifically gold:
    Commodities ended the quarter down -6.33% with Gold down -5.65%. Commodities overall wound up down -1.06% for 2012 (All represented by the Dow Jones-UBS Commodity Index Total Return)

I want to stress again that this is just a one quarter snapshot. It’s not to suggest that anyone should have invested or sold any of their investments based on the above information. It simply illustrates how strongly our emotions can be pulled by headlines when what actually occurs in reality is a much, much different story.

So, what is an investor to do with this information? Not as much as you might think. It’s less about action and more about awareness. Have a plan, stick to it, be aware of the world around you, but careful of the motivations of those telling the story. Try to separate your concern for local, national and world events from your long term investing strategy.

Chip Workman, CFP®, MBA
Lead Advisor
The Asset Advisory Group
Cincinnati, OH


How Sharpe is Your Portfolio?

Whenever I meet with prospective clients, I usually hear the following comment “I want my portfolio to outperform the overall market, but I don’t want to take any risk.” It’s understandable; individuals want their investments to do well when the market is up, but they also don’t want to lose any money when the market is down. Unfortunately, risk and return have a positive relationship: the higher the expected return, the greater the risk. The optimal portfolio earns the maximum return with the least amount of risk, but how does someone create that optimal portfolio? One method used by professional money managers is the eponymous Sharpe Ratio. Created by Nobel Laureate William Sharpe, the Sharpe ratio is a measure of risk-adjusted returns or how good is your investment return given the amount of risk taken. The higher the Sharpe ratio for an investment, the better the risk-adjusted return.

What is Risk
The Sharpe Ratio is simple to compute and is comprised of only three variables: expected return, risk-free rate, and standard deviation. Standard deviation is the most widely used measure for risk in portfolios because it shows the variation of returns from the average return. The greater the standard deviation, the greater the risk. The risk-free rate is a theoretical investment with no-risk and typical proxy is a short-term government bond yield. The Sharpe Ratio is calculated using the formula below.

(Expected Return of Portfolio – Risk Free Rate) / Portfolio Standard Deviation of Portfolio

Apples and Oranges
Assume your portfolio had a 15 percent rate of return last year while the overall market earned only 10 percent. Your initial thought would be that your portfolio is better than the overall market because of your added return. However, even though your return was greater than the overall market, if you take into consideration the risk of your portfolio, calculated using the Sharpe Ratio, you may have assumed much more risk than you thought. Hence, your portfolio was not optimal. Let’s assume that your portfolio had a standard deviation of 13 percent versus 6 percent for the overall market, and the risk-free rate was 2 percent.

Sharpe Ratio for your portfolio: (15 – 2) / 13 = 1.00
Sharpe Ratio for the overall market: (10 – 2) / 6 = 1.33

In this example, we see that while your portfolio earned more than the market, your Sharpe Ratio was significantly less. The market portfolio with a higher Sharpe Ratio was a more optimal portfolio even though the return was less. Therefore, you assumed excess risk without additional compensation. Conversely, the overall market, with the higher Sharpe Ratio, had a higher risk-adjusted return.

Not Everyone Is Normal
One of the biggest advantages of the Sharpe Ratio is also its biggest weakness. The Sharpe Ratio relies on the standard deviation as a measure of risk, however, the standard deviation assumes a normal (bell shaped) distribution whereby the mean, mode, and median are all equal. Recent history has shown us that market returns are not normally distributed in the short-term and that they are actually skewed. In a skewed distribution, the standard deviation becomes meaningless because the mean can be either greater than or less than other measures of central tendency. In addition, when short-term volatility spikes as it has in the last 3 years with large swings in both directions, the standard deviation rises and causes the Sharpe Ratio to be lower.

Why Diversification Matters
Constructing a diversified portfolio actually improves expected returns without increasing risk. The standard deviation of an individual asset is based on that asset’s variability from the mean. Standard deviation of a portfolio (multiple assets combined) is calculated using each asset’s standard deviation, the asset’s weight in the portfolio, and the correlation coefficient among the assets. When two assets have low correlations and they are combined to form a portfolio, the portfolio standard deviation is lower than the sum of the two standard deviations. As a result, the Sharpe Ratio tends to be higher because the denominator of the ratio is lower.

Ara OghoorianAra Oghoorian, CFP®, CFA
Founder and President
ACap Asset Management
Los Angeles, CA

1 Comment

Stress Test Your Financial Health

Take this financial checkup, and in ten easy questions, you will know which essential aspects of your financial plan are healthy and what needs attention. Your score will also give you clues about the level of risk in your investment strategy that’s healthy for you.   

Circle the answer that best fits your situation and tally up the total at the end. Ready, set, go! 


  • 10 Points: I know my goals, and their estimated cost and timeline.
  • 5 Points: I have goals, but don’t know the details yet.
  • 1 Point: The future looks really fuzzy and it’s too hard to set goals.


  • 10 Points: My income, from sources like my job,  investments, pension, Social Security etc. is reliable and grows each year, and is more than enough to pay the bills.
  • 5 Points: My income is enough to pay the bills, but I’m worried that my income may not be enough in the future.
  • 1 Point: There’s barely enough to pay the bills.


  • 10 Points: My job is secure, and my skills are in high demand.
  • 5 Points: My job is pretty secure, but it could be difficult to find another job at the same pay. 
  • 1 Point: I need new skills to find a decent job in today’s economy.

Cash Reserves:

  • 10 Points: I have cash savings equal to at least half of my annual income or expenses.
  • 5 Points: I have cash savings equal to less than half of my annual income or expenses.
  • 1 Point: Cash in the bank? I wish. 


  • 10 Points: I’m saving 10% or more of my annual income.
  • 5 Points: I’m saving 1 – 9% of my annual income.
  • 1 Point: Saving? No can do.  


  • 10 Points: I pay all my debts on time and in full. (Or, I have no debt at all.)
  • 5 Points: I can afford the monthly minimum payments on my debts, and sometimes a little more.
  • 1 Point: I don’t know how I’m going to repay my debts.  

FICO Score:

  • 10 Points: My FICO score is good enough to get the credit I need without paying a premium.
  • 5 Points: My FICO score isn’t as good as I want it to be, but I’m working on a plan to improve it.
  • 1 Point: My FICO score makes it difficult for me to buy a home, buy or lease a car, rent an apartment, or get a cell phone.    

Health Insurance

  • 10 Points: I have health insurance and use it.
  • 5 Points: I have health insurance but hesitate to use it because it costs too much to get medical care.
  • 1 Point: I don’t have health insurance right now.

Life Insurance

  • 10 Points: People (like a spouse and children) depend on me financially, and I have life insurance equal to at least four times my income. Or, no one is financially dependent on me, and I have life insurance equal to at least one year’s income.
  • 5 Points: People depend on me financially, and I have life insurance equal to at least 2 times my income. 
  • 1 Point: People are dependent on me financially, and I have insurance equal to less than 2 times my income.

Estate Plan:

  • 10 Points: My will, durable power of attorney, and healthcare power of attorney are up to date.
  • 5 Points: I have an up to date will, but not a durable or healthcare power of attorney.
  • 1 Point: I just haven’t gotten around to updating or completing my estate plan. 

My Total Score:   _____________

 Your Financial Health Assessment:

Score What This Means for My Financial Health & Investment Strategy
85 – 100 Congratulations! Keep up your healthy financial habits and decisions to maintain your financial strength. With a healthy financial base, you have strength and resiliency to cope with the ups and downs of the investment markets. You can consider having some, but not all, of your investments in risky assets, like stocks and stock mutual funds.
50 – 84 Good start! You’ve made some progress towards financial health, but don’t stop here. With expert help or on your own, address one essential area at a time, and work on making it stronger. Until you improve your overall financial health, play it safe with your investments, with little to no risky assets, so that you don’t put the savings you do have at risk of loss.
Under 50 Get help now, and avoid the stock market completely. It’s never too late to improve your financial health. It’s not easy to make changes in your financial situation, habits, or mindset, but it is possible to take one step at a time to create a new financial future. Do it for yourself, and for the people you love.

Plan Well. Live Well.

karinMaloneyStiflerKarin Maloney Stifler, CFP®, AIF®
True Wealth Advisors
Hudson, OH


10 Things to Do in 2012!

It’s time to get the checklist out again as we start a new year. You’re hearing this from a checklist fanatic. I’m always afraid that somewhere down the road I will drop the ball on something which is why I try to follow the logic of the book titled The Checklist Manifesto by Atul Gawande that was written to avoid simple mistakes in medicine. I’m putting together my version of the 2012 checklist for your finances, along with a little health and happiness thrown in because health and wealth habits are very similar. When it comes to New Year’s resolutions or checklists, I figure there are only 4 reasons things don’t get done:

  • They are really not important but they sound good on paper
  • You don’t know that you need to do them
  • You don’t have the time to do them (aka they are not a priority)
  • You don’t know how to do them (it feels too overwhelming)

I really wanted to title this blog The Big Things You Must Do in 2012. I had an epiphany as to how things actually get done. My epiphany was that big and important things often are put on the back burner because they are too overwhelming. Yet easy little things can be resolved when you do 1 piece at a time or even just a few minutes a day, especially by using a checklist. Just recently we’ve revamped the way that we correspond with our clients based on what we call their “to do lists”, which are all the things they know they have to do but they never seem to have the time to do it and often we can’t do it for them without more information. My mantra for 2012 and future years is to do the little things, not the big things! Our process is to be proactive with our clients about six times a year to try to get all those dangling participle items off the checklist. If we give someone five things to do they never get done but if we give them one thing, we have a better shot. It all comes down to the goals versus activities. Yet it is a series of smaller activities that get goals accomplished. So focus on the activities and try to adjust a few little things a day and they will ultimately add up to completed goals and a finished checklist if you don’t make the tasks overwhelming.

Now that you understand the little things are big things and that activities are just as important as goals, then let us move on with my top 10 list you will get done for 2012:

  1. What do you have? This is a way to figure out what you own and what you owe to determine where you are. Basically you just add up the worth of your home, cars, bank accounts, investment accounts, retirement plans and even your tangible assets. Those are things in your house like your furniture, your jewelry, your coin collection, or anything else that you feel has some material value if you decided to sell it. Then add up everything that you owe which includes your mortgage, student loans, credit cards and personal debt from relatives, friends and bookies. The result is you Net Worth.
  2. Do a budget check up. Of course that makes the assumption that you have one, which unfortunately most people don’t. If you want to take the time, watch this Budgeting Webinar. You’re trying to get some sense of how much money is coming in and how much is going out. The difference between the two should be your savings or you’re overspending and not living within your means. Of course you’re going to forget stuff, which is why you can use this budget form as a guide. Just remember that your financial life needs to start with a positive cash flow to be sure you are saving!
  3. An insurance review is a critical part of financial planning. The events that could cause dramatic changes in your financial position are usually if we become disabled, have our homes destroyed, have somebody sue us, have healthcare problems, and of course dying. One of my previous blogs talked about the biggest risks we face in life and about half of them can be resolved by insurance.
  4. When is the last time you did a will? I try to make sure that clients take a look at their estate planning documents every 5 years or more frequently if there are any major changes in their lives like divorce, deaths and healthcare issues. If you don’t have a will at all, then it’s time to get on the stick because they are really important things to have unless you want the court system and people you don’t even know to manage your affairs. If your life is a little more complicated then you might also want to have a durable power of attorney that allows others to take care of your affairs if you are incapacitated or out of the country, a healthcare proxy if you end up under life support and maybe even some trusts if you are single, have children with special needs or have a an estate that’s worth more than $1 million.
  5. Check your credit report. You can often find some crazy little things in there that you might want to clean up, especially if you are planning to get a loan sometime in the future. If you see your credit score under 600, then you probably have some work to do to clean things up. Your report is free at least once a year from all the three major agencies and there is absolutely no need to pay to get a look at your report.
  6. How risky is your money based on where it is right now and how much risk do you think you should be taking? Most of the traditional planners use some type of asset allocation to figure out how much risk you’re taking based on your mix of stocks, bonds, international stocks, real estate, commodities and anything else you may own. If you really don’t know what you’re doing, it’s probably time to ask for a free second opinion about your portfolio from a trusted advisor of someone you know. The benchmark is the volatility of the Standard & Poor’s 500 stock index, which has something called a beta, which is 1. That simply means if your beta is .5 after someone does the analysis, you have about half the volatility or risk of the S&P 500 stock index. If you’re taking more than that, it’s probably time to make some changes. If you absolutely can’t find someone to do this, then try Morningstar or check this link.
  7. Are you paying too much in taxes and what are you going to do about it? Most of us aren’t certified public accountants or have the knowledge and desire to figure out the 72,536 pages of the tax code (which started with 400 pages in 1913). Just like it’s hard to determine your risk, you probably do need a professional here. Again it’s time to sit down with your tax person if you have one. If not, find a friend or co-worker that has one and see if you can get a free consult. Some accountants may even do it as a courtesy to their current clients in hopes you may work with them as a paying client in the future.
  8. Check out refinancing as we have some of the lowest rates in history. I am not just talking about your home; you might want to consider your car, a personal loan or any other loan that sits out there where you’re paying more than 4-5% to borrow the money. When I did a recent analysis of my client’s mortgages I noticed that a very large percent of people have mortgages higher than 5%. Unfortunately real estate prices have dropped about 30% from their highs, so you still need to have equity in your house. Preferably you should have more than 20% equity so that you don’t have to buy private mortgage insurance or have to pay down the mortgage with your savings and investments. That reminds me about credit card debt. It may make sense to take money out of savings and investments if you have a high interest rate and you’re getting very little from your portfolio or savings accounts. The simple explanation is that if you are paying a 15% rate on credit cards, you’re not likely to get better than a 15% rate on your portfolio. So paying off the credit cards is the same as getting a 15% rate of return. When it comes to your mortgage refinancing, ask how long it would take to break even on the new mortgage and figure out if you plan on staying in the house that long. Getting a 1-2% better rate in today’s world can mean saving thousands over the life of a 30 year loan. Be sure to shop around and get competitive rates that include the closing costs and any points as well.
  9. Ask for a raise or think about a career change. One of the best ways to improve your financial life is to make more money! Unfortunately people are uncomfortable negotiating with their boss to get a raise. Even worse is that we’ve had record job losses over the last few years and that can really wipe out years of progress when you have to live on unemployment checks. Since the recession began, we have lost almost 9 million jobs and only 2.2 million new jobs have been created. So you need to be proactive in two ways: First you can go to your boss and give her/him a program that is a win-win where you do better for the company and get a raise for it as well. The second thing is to retrain for another job that gives you better opportunities. This too is uncomfortable and may even require money to take courses. Making a change is never easy, but jobs aren’t guaranteed any more. Your human capital and earning power are probably the best single investments you have in your financial life.
  10. Mend a relationship and get healthier! There is a theme in my blogs over the last few years of the direct link between wealth, and health and happiness in life. People should have balance, so maintaining discipline in these key areas is critical. Here again I urge you to make these small daily changes in life to meet your big goals for a happy, healthy and prosperous life. One of the best ways to be happier is to spend more time with the people that make you feel better and a reconciliation with someone you really care about may be the best resolution you accomplish in 2012.

Okay your top 10 is out, get to it and turn the little things into the new big thing this year.

Dave Caruso, CFP®
Certified Financial Planner™
Coastal Capital Group
Danvers, MA


“Risk Less and Prosper: A Guide to Safer Investing”

A Must Read New Book

Reviewed by Karin Maloney Stifler, CFP®


WARNING:  What you are about to read will challenge your longstanding investment beliefs and practices.


So, how are you feeling about the financial markets these days? Has the white-knuckled ride of the stock market rollercoaster exhausted your patience, if not your resources? Have extreme market declines delayed, downsized, or decimated your dreams for retirement or your children’s education? Do you question whether conventional investment wisdom really works? 

If you answered ‘yes’ to any of these questions, then pause and ask yourself if this is how you want to continue to live and manage your financial well-being. If you’ve had enough of the risky business of conventional investing, then Risk Less and Prosper: A Guide to Safer Investing is arriving just in time to unveil new wisdom to guide your investment decisions.

Co-authors Zvi Bodie, Ph.D. Professor of Finance at Boston University (author of Worry Free Investing) and Rachelle Taqqu, CFA and Principal of New Vista Capital, reveal a smart and safer way to plan for your lifetime goals.

Like Christopher Columbus discovering that the world is not flat, the authors debunk timeworn investment beliefs and practices that expose investors to more risk than ever imagined — and more risk than investors can afford to take. Here’s a sampling from the authors’ view of a brave, new investment world: 

#1 Investment Myth: Financial wellbeing is measured by total wealth. Thus, it is important to take risks in order to grow wealth.

New Investment Truth: Financial wellbeing is measured by the ability to create reliable income to sustain your fundamental standard of living, especially during tough economic times. 

Start the investment decision-making process by defining your goals and the relative importance of each goal. Then craft a safety-first strategy that achieves your basic lifetime needs with as little risk as possible. This strategy matches assets and income with goals, rather than investing assets for the promise of more growth. The benefit of investing safely is to avoid catastrophes and protect your ability to afford your most important goals. The tradeoff is potentially lower investment returns — even negative — inflation-adjusted rate of return, but is as valuable as buying insurance that protects your home in the event of a fire.  

#2 Investment Myth: The longer your time horizon, the more risk you can afford to take. 

New Investment Truth: Your tolerance for risk of losses is determined by many factors, but least of all, your time horizon (meaning how long until you need the money).

The primary drivers of how much to risk includes the relative importance of your goals, the risk and flexibility of your career and income, and your ability to adapt to adverse circumstances. In truth, it’s common for your tolerance for risk to vary for each goal based on how essential and valued they are to you, and to vary based on what’s happening in your life or the world around you. Basically, the more secure your income and career, and the less important the goals, the more able you are to adapt to market risks. Conversely, you may be less able to recover from investment losses if your career and income have stalled and you’re unable or unwilling to reduce the goal — at any age.   

#3 Investment Myth: Stocks aren’t risky in the long run.

New Investment Truth: Stocks are risky over any time horizon — short or long.

“Arguments to the contrary are junk science,” proclaims Professor Bodie. There is a wide range of possible outcomes when investing in stocks over any time period, as we have witnessed from the two stock market collapses in the past seven years. Investors and even the “experts” often underestimate the risk of things going badly. The less able you are to adapt to a worst case outcome (i.e. by working longer and saving more), the less stocks make sense in your strategy, no matter your time horizon.  

Risk Less and Prosper: A Guide to Safer Investing is due on bookshelves by year-end, and is available to pre-order now. Authors Bodie and Taqqu will show you so much more about the brave new investment world in which you can enjoy your life with less financial risk and drama.

karinMaloneyStiflerKarin Maloney Stifler, CFP®, AIF®
True Wealth Advisors
Hudson, OH


The 6 Biggest Financial Planning Problems with Video Clips You Have to Watch!

I feel that a picture’s worth 1000 words and a video clip is worth 1000 pictures. So I’m putting this blog together to show you the 6 things to really watch out for when it comes to financial planning. So I guess you’re getting the equivalent of 1 million words in my short blog here today!

I seem to learn more by my mistakes than my successes in life so I thought I’d give you a little taste here of what I think are the 6 things you really want to try and avoid when you’re trying to become financially secure. On top of that, I wanted to follow-up with a funny video that sometimes tells the story better than those sometimes harsh words of caution that I give is a financial advisor.

  1. How Much Risk is out there? Do you really understand how much risk you’re taking? Some risk is about catastrophic life risks like death, disability, health, losing your job or a broken relationship. There is also risk when it comes to your investment volatility. There is economic risk, interest rate risk and inflation risk that can really set back a financial plan. In my 30 years of being a financial advisor, I’ve never ran into a single client that knows exactly how much risk they want or even have to take. Needless to say, balance is the key in terms of getting the right mix of things that work for you but it tends to take a long time for people to figure out what they feel comfortable with. Sometimes we do the homework and get it right and sometimes we are just lucky when we escape risky situations. Take a look at this clip and see if it’s your lucky day.
  2. Self Discipline & Control Are Critical! It is really important when you’re trying to stay within a budget and force yourself to save to increase your net worth. Unfortunately we may have our self-control determined by the time we are four years old. In a previous blog, I talked about the marshmallow experiment and spoke about Stanford University professor Walter Mischel doing experiments in the 1960s. Mischel took four-year-olds and put a marshmallow in front of them and asked them if they could wait for 20 minutes. If they were able to, he would give them another one, effectively doubling their reward. It’s very much like me telling people that if you use the rule of 72 and divide your rate of return into that number, it tells you how long it takes to double your money. That means if you get a 7.2% rate of return, then you double your money in roughly 10 years. As a result of the research, most of the children were not able to control their urges. The researchers then followed the progress of each child into adolescence and demonstrated that those with the ability to wait were better adjusted and more dependable (determined via surveys of their parents and teachers), and scored significantly higher on the Scholastic Aptitude Test years later. Try this video on for size and see if you have the same look on your face when you wanting to buy something you feel you shouldn’t.
  3. Afraid of Change and Technology. I’m still looking for people who love change, but they seem few and far between. Growing up I went to 10 high schools and 23 total schools by the time I graduated college. Despite dealing with change, I still didn’t like it. With the advent of our massive productivity increases over the years with Technology driving it, it still seems like many people feel they are behind the curve, including myself. Technology and change in the financial markets continues to move swiftly, especially these days with the wild volatility we experience with the advent of computerized trading. This new, more interconnected, financial world is now even affected by smaller nations like Greece, Ireland, Slovakia and Iceland causing havoc on larger exchanges in the United States, Europe and Asia. Unfortunately the genie of technology is out of the bottle and it’s probably not going back in regardless of what the regulators are trying to.  Just think of the things that you can do now on a cell phone compared to what we were doing on a Rotary phone 30 years ago. In fact I’m still a bit of the technology phobic as I have a five-year-old cell phone that I call my rotary cell phone that I have yet to update. Enjoy this clip of Louis CK talking to Conan O’Brien about technology & the technology brats. Here are a few seniors engaging in it though.
  4. Peer pressure And Mob Psychology Matter! As much as we all feel that we are individuals in the world, we are surrounded by a jury of our peers that remind us that were not quite as individual as we think we are. So when the herds move in and out of the markets, they can draw in many unsophisticated investors into buying or selling at the wrong time. Try and fight the pressure to go with the herd and take a little time to understand what is important and when to act on it. Unfortunately on many occasions we make emotional decisions versus intellectual ones. This candid camera video clip that was taken over 50 years ago tells us a little bit about how many of us play follow the leader, even though we are not sure whether we believe it. Have a discipline or an unbiased financial advisor who has your best interest at heart. Enjoy this elevator ride.
  5. Procrastination & the Wake up call! Unfortunately one of the easiest and worst things we can do in life is nothing. We could learn a little from these videos of our house pets, the cat and dog. As our kitty shows, things can quickly sneak up on you and then turn around on a dime. Mans best friend can also show us that after running in place for a long time, you can sometimes have a rude awakening by running into a wall.
  6. Attitude Matters! I will admit that I am a glass is half full guy myself, so I prefer guarded optimism as opposed to a “ this world is going to heck in a handbasket” mentality. It’s amazing how we can read the exact same words, but they can have opposite meanings like the lost generation Palindrome.

Hopefully you’ll remember to include these 6 things in your financial decision making and hopefully the humor of a video clip can paint 1 million times the impact of a single word. Enjoy the laughs and make your financial life better! Also do me a favor, if you know of some clips that can make people laugh when it comes to their planning, please send me the links and I can share them with others trying to match humor with financial planning!

Dave Caruso, CFP®
Certified Financial Planner™
Coastal Capital Group
Danvers, MA

1 Comment

October: A Trick or Treat for Investors

“October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” This is a great quote from Mark Twain. As the message states, not only may October be a dangerous month to speculate in stocks, every month carries risk.

What makes the month of October so worrisome for investors is their knowledge of the great stock market crashes that occurred. The crash in late October 1929 was a catalyst behind the Great Depression and the October 1987 crash still lingers in the minds of most investors.

So does the month of October deserve such a bad reputation? The statistical answer is no. A quick look at the historic monthly average returns of the Dow Jones Industrial Average (DJIA) since 1900 shows October does not deserve its bad rap. The award for the worst performing month goes to September whose average monthly return over that period is down 1.1%. October’s average return over that time frame is up 0.1%. The best month: December which was up 72% on average with a positive monthly return of 1.5%.

So why should investors look for a treat instead of a trick in October? By looking at the historic monthly returns of the stock market, an interesting pattern develops. There appears to be a seasonal tendency for the stock market to perform better over successive months than other months. 

The seasonal tendency is straight forward. Split a year into two distinct investment time frames, 5 months and 7 months. With the first time frame, $10,000 is invested in May 1950 and is sold in September 1950; the cash is held until May 1951 when the proceeds are reinvested in the same manner. The other portfolio invests $10,000 in October 1950 and is sold in April 1951, with cash similarly held until reinvested in October 1951. If the pattern of two distinct investment time frames is repeated year after year for 60-years, a dramatic difference in values surfaces.

The $10,000 invested in the 5 months between May and September would have grown to $12,436. Not a great return for 60-years of work. The $10,000 invested in 7 months between October and April would have grown to $606,806. These numbers do not take into account taxes or investment expenses which would lower the overall totals. But with a 4,700% difference in returns between the two investment time frames, it is a pattern worth noting.

So where’s the catch? Not every time frame has worked. The most recent example is the period from October 2007-April 2008 which whould have resulted in a 9% loss and the October 2008-April 2008 would have resulted in a 25% loss. 

While seasonality may give us a “tip” on how the stock market may have performed in the past, remember that any investment involving stocks may be “peculiarly dangerous” at any time.

Ed GjertsenEdward Gjertsen II, CFP®
Mack Investment Securities, Inc.
Glenview, IL