Facts and Insights
The answer - CSIC focuses on the variables we can control, and protects against the ones we cannot. The world of markets, economies, and even politics is in great flux today. In many ways, it seems like a new world out there. We have tailored our approach accordingly. Instead of hiding from these new realities, we concentrate our efforts on what has long proven to be the most significant force influencing personal real-life financial outcomes: the behavior and decisions made by the client.
While it is widely held that good financial decisions result in good financial outcomes, we try to take that a step further. We protect our clients from the all-too-frequent danger of having done “all the right things” only to see markets take it all away. In most cases, and where suitable, assets invested according to our financial plans have many defenses and even guarantees against adverse market effects.
It is important to note that we are not in the financial punditry business. We are not interested in debating the causes of the latest crisis du jour, or making predictions on specific economies, markets, industries or securities. Many experienced advisors realize that this leads to confusion, doubt, and paralysis – enemies of good financial decision making.
That being said, we are always curious about markets, economies, money, and the world around us. The following documents are taken from our very frequent travels around the internet, and I thought some of them would be of interest to fellow curious travelers…
HOW TO APPROACH LIFE, MISTAKES AND OPPORTUNITIES BY AN ABSOLUTE MASTER
Ray Dalio is a self made billionaire, and runs one of the most successful (for the clients) hedge fund companies in the world. He has been extremely generous with his personal insights and processes in this document called "Principles".
THE WORLD WOULD BE A BETTER PLACE IF THIS WERE REQUIRED READING IN HIGH SCHOOL
TONY ROBBINS (WTF?) EXPLAINING THE SIZE OF THE US DEFICIT (the difference between government spending and revenues) IN 2012:
Laugh all you want, this guy is great at communicating a message clearly and meaningfully. He may mix up the words debt and deficit a couple of times but the numbers reconcile with my extensive reading on this subject.
HOW MIDDLE AMERICA IS BEING EDUCTED ABOUT THEIR PLATE
HAS THE BUSINESS PRESS FAILED THE PUBLIC TRUST?
Was the business press unsuccessful in sufficiently exposing the risk and malfeasance within the financial sector in the wake of a financial crisis?
BUSINESS PRESS NEGLECTED A FUNDAMENTAL OBLIGATION TO SERVE THE PUBLIC INTEREST
A PICTURE IS WORTH A TRILLION WORDS...
Ever wondered where ALL the money is in the world and what it's doing for the econmy and you? The link below will give you a pretty good idea.
MONEY: A CHART OF (almost) ALL OF IT, where it is and what it can do
DO YOU KNOW WHAT "SEQUENCE OF RETURN" RISK IS?
Two brothers, John and Joe, were approaching retirement. As it turned out they both had $800,000 in funds at retirement to last the rest of their lives. John was 3 year older than Joe and retired in 2000. Joe retired in 2003. They both were very concerned with having their money last and found the research that told them they could safely take out 4% of their original nest egg per year and have a better than 90% chance of not running out of money if they lived to 90. Interestingly, there were some planners that said they could go as high as 8% and not have that problem if they stayed in the stock market. But they were conservative and stayed with the 4% withdrawal rate.
Let’s assume both retirees get the return of the S & P 500.
John retires on Jan 1. pulls out $32,000; (4% of $800,000). At the end of 2000 he has $759,552 in his account. He pulls out his $32,000 again and has $641,046 left in his account at the end of the year. For 2002, he pulls out $33,000 (increasing his draw accounting for the inflation) and by the end of the year he has $473,667. For 2003 he pulls out $33,000 again and has $567,051 (market started back up here. In four years his account has gone down 29%).
Now let's look at his brother Joe. Joe is three years younger so he starts his retirement on Jan. 1, 2003 with his $800,000. He pulls out his $32,000 and at the end of the year has $987,494. Again he pulls out his $32,000 and at the end of year 2 of his retirement has $1,059,453. Now he pulls out $33,000 to account for inflation and at the end of year 3 he has $1,076,850. After year 4 he has an account with $1,208,675!
Two brothers, same account size, same strategy, one has over twice as much as the other 4 years into retirement!
That is what sequence of returns is all about. The first few years of retirement are critical and if you pull money out and have significant drawdowns it cripples your future. If you get lucky and have significant upward movements, it allows you to float through troubled times much easier.
Let's finish this example and take them through the beginning of 2009.
John: Brother Joe:
2005: Account value $592,155 Jan 1 2008: Account value $1,275,031
2006: Account value $ 586,610 Jan 1 2009: $753,291
2007: Account value [increase withdrawal to $34,000] $639,867
2008: Account value $639,129
2009: Account value $367,011
Nine years and a loss of over half the account.
Now who do you bet on having his money last his lifetime?
Courtesy: David Shafer, Ph.D. shaferfinancial.com