Financial Advisors: Here’s How Market Volatility Impacts Investor Psychology

Humans either think that they’re in charge of what happens in their life, or they believe that life happens to them. Those who believe they’re in control of their life and its outcomes have an internal locus of control.

Having an internal locus of control tend to be associated with higher wealth, and because these people are more likely to take responsibility for the outcomes in their life. Additionally, the top one-percenters are also more likely to believe in their own abilities to solve problems and achieve goals, make better investment decisions and react more calmly when volatility strikes.

Having an external locus, however, is associated with self-destructive financial behaviors.

Financial advisors can help clients move to a more centered approach by asking thoughtful questions about past financial decisions, and can assist in determining where a client’s locus of control lies.

— Read on finance.yahoo.com/news/how-to-advise-your-clients-when-volatility-strikes-163641016.html

Thanksgiving Cruising

Spent a fun five days / four nights during 2019 Thanksgiving week cruising on the Royal Caribbean Cruise Line (RCCL) vessel Mariner of the Seas.

The first impression of the the vessel was that it was bigger (or displaced more water) than an U.S. Navy aircraft carrier, but lacked the raw horsepower and fighting punch of a nuclear powered floating Navy air base…but, I’ve digressed.

On the day we embarked, we and our fellow cruisers arrived at the cruise terminal in Port Canaveral, FL, and assumed our position in the boarding queue on a warm and sunny late Monday morning.

Surprisingly, the process to check-in and board the vessel was relatively painless compared to prior cruises. Instead of the typical excessively long, slow moving lines to embark cruise ships, the queues on this particular day moved quickly and the actual check-in process proved efficient.

The RCCL Mariner of the Seas is a large cruise ship that displaces more than 130-thousand tons and offered a plethora of activities and amenities for several thousand guests of all ages. The activities included water slides for kids, basket court for teenagers and young adults, and the requisite playground for adults, a casino.

The ships itinerary included brief stops in the port of Nassau and alongside the pier of RCCL private island of Coco Cay.

In Nassau, most of the passengers either hit the many bars, restaurants and shops that catered to money laden tourists, or journeyed over to the top attraction on the island, the Atlantis Resort.

The second stop of RCCL private island of Coco Cay proved better than expected. From the first views of the island, it was apparent that the cruise line had invested significant capital into designing and building the islands infrastructure and amenities.

Expecting small boats or “water taxis” to be used to transport passengers from ship to shore, we were pleasantly surprised to find a relatively new pier in place which the ship moored and disembarked its passengers to the island.

Furthermore, the island had substantial quantities of amenities and improvements including a large resort style swimming pool, multiple beaches and bars, and several zip lines.

Essentially, RCCL designed an island with entertainment and activities for cruisers of any age. And, the island had the capacity to handle the passengers from two of RCCL’s largest cruise ships. You could only walk away impressed with the final product.

The final full day was spent at sea. It proved a lazy and restful day on the ship highlighted by our group getting kicked out of areas that were closing due to the end of a meal hour. We essentially stayed too long relaxing and socializing while the ship’s routine moved on around our group.

The final day, we disembarked the cruise ship early Friday morning following Thanksgiving, Black Friday.

Overall, it was a fun and rewarding four night / five day cruise on the Mariner of the Seas. It is challenging to find a complaint about the days and nights in port and at sea on the cruise ship.

The only complaint that comes to mind was the quality of the food on the Mariner of the Seas. Breakfast and lunch food service and quality, whether buffet or a la carte, was evaluated as fair at best for the entire cruise.

Dinner, especially on the first two nights, left us wondering if the overall quality of the food would rank far below that served on peer cruise lines. However, by the third and final nights of the cruise, the food quality improved dramatically. The braised short ribs and the osso buco were two entrees that received significant praise.

From the appearance and taste of the food, it appeared that the food items were prepared hours or maybe days in advance; then reheated and either plated or placed on the buffet serving line. RCCL must improve its process of cooking and serving quality food to a large number of passengers…think institutional or cafeteria food.

William Ackman: Everything You Need to Know About Finance and Investing in Under an Hour

WILLIAM ACKMAN, Activist Investor and Hedge-Fund Manager

We all want to be financially stable and enjoy a well-funded retirement, and we don’t want to throw out our hard earned money on poor investments. But most of us don’t know the first thing about finance and investing. Acclaimed value investor William Ackman teaches you what it takes to finance and grow a successful business and how to make sound investments that will get you to a cash-comfy retirement.

Democrats In Love With Big Tax Hikes Might Do Well To Remember Walter Mondale | Tax Policy Center

Mondale insisted his tax hikes would target the wealthy and Reagan’s wouldn’t. It didn’t matter. In the election, Reagan got 525 electoral votes. Mondale got 13. He lost the popular vote by 18 million.

— Read on www.taxpolicycenter.org/taxvox/democrats-love-big-tax-hikes-might-do-well-remember-walter-mondale

The Importance of Cash Flow in Your Personal Financial Planning – Penn Mutual

Cash flow is our financial life-blood. We tend to think of cash flow as something that only businesses or governments contend with, but it is integral to our personal financial lives as well. Cash flow enables us to do what we want, and to help achieve our goals or objectives — whether that is to get a mortgage, save for a college education, take a vacation, and of course, save and invest for retirement.

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3 reasons investors might not be benefiting from rock-bottom fund fees – MarketWatch

There’s more to successful investing than just watching costs

The index fund fee-cutting battle reached its seemingly inevitable conclusion more than a year ago, when Fidelity Investments launched four zero-cost index funds. You can’t get any lower than zero, right? Apparently, you can. One small fund company is now effectively paying investors to own one of its index funds.

Still, the price war among financial companies has clearly moved on, with some firms eliminating brokerage commissions in 2019 or touting the high interest rate paid by their brokerage cash account. Cutting index-fund expenses is, it seems, so last year.
— Read on www.marketwatch.com/story/3-reasons-investors-arent-benefiting-from-rock-bottom-fund-fees-2019-12-18

Trusts: An estate planning tool | Fidelity

Trusts can help you control your assets and build a legacy.
FIDELITY VIEWPOINTS

Key takeaways
Trusts can help pass and preserve wealth efficiently and privately.
Trusts can help reduce estate taxes for married couples.
Gain control over distribution of your assets by using trusts.
With a trust, you can ensure that your retirement assets are distributed as you’ve planned.

If you haven’t stopped to consider how a trust may help you pass your wishes and wealth on, you could be making a critical estate planning mistake. Especially for individuals with substantial assets, protecting wealth for future generations should be top of mind.

“People often fail to appreciate the power a trust can have as part of a well-crafted estate plan, but that can be a costly mistake,” says Rodney Weaver, VP, Advanced Planning at Fidelity. “Trusts are flexible and powerful tools that can be used to gain greater control over how they pass their wealth to future generations.”

A trust is a legal structure that contains a set of instructions on exactly how and when to pass assets to trust beneficiaries. There are many types of trusts to consider, each designed to help achieve a specific goal. An estate planning professional can help you determine which type (or types) of trusts are most appropriate for you. However, an understanding of the estate planning goals that a trust may help you achieve is a good starting point.

— Read on www.fidelity.com/viewpoints/personal-finance/reasons-to-consider-a-trust

Simple Index Fund Investment

On page 20 of a 2013 letter to shareholders, Berkshire Hathaway’s Chairman and CEO Warren Buffett, an individual who knows quite a bit about successful investing, wrote:

“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”

In other words, the “Oracle of Omaha” advises that a broadly diversified market-cap-weighted index fund is a valuable starting point for all retail investors.

Index funds are typically lower cost mutual funds or Exchange-Traded Funds (ETFs) that passively track the performance of the benchmark index. For example, an S&P 500 Index mutual fund or ETF would hold the same stocks that are in the widely followed S&P 500 stock market index.

airport bank board business

Photo by Pixabay on Pexels.com

The S&P 500 Fund is a stock market index that tracks the stocks of 500 large-cap U.S. companies. Over the last 10 years, the S&P 500 has returned 9.49 percent per year. In 2017, it returned 21.83 percent. S&P stands for Standard and Poor, the names of the two founding financial companies.

These 500 Index Funds are typically a low-cost way to gain diversified exposure to the U.S. equity market. These funds offer exposure to 500 of the largest U.S. companies, which span many different industries and account for about three-fourths of the U.S. stock market’s value.

The S&P 500 only measures large-cap U.S. stocks and is often used as a leading economic indicator of how well the U.S. economy is currently doing or may due in the coming six to twelve months. If investors are confident in the economy, they will buy stocks.  Some experts believe the stock market can predict what the savviest investors think the economy will do in about six months.

The key take-away regarding index fund investing comes again from the investment wisdom of  Warren Buffett.   In Berkshire Hathaway’s 2013 letter to shareholders, he wrote on page 20 that “…The typical investor doesn’t need this skill [the ability to predict their future earning power of specific businesses five years out]. In aggregate, American business has done wonderfully over time and will continue to do so (though, most assuredly, in unpredictable fits and starts). In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st Century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.”


Sources:

  1. https://www.thebalance.com/what-is-the-sandp-500-3305888
  2. Warren Buffett, Letter to Shareholders, 2013 Annual Report, Berkshire Hathaway, Inc., pg. 20

 

Don’t just drift in retirement—here are 3 ways to find meaning, purpose and have an impact – MarketWatch

“You can’t always choose the path you walk in life, but you can always choose the manner in which you walk it.”  John O’ Leary,

The author of ‘Replace Retirement’ explains how your second half of life can be invigorated and energized.
— Read on www.marketwatch.com/story/dont-just-drift-in-retirementhere-are-3-ways-to-find-meaning-purpose-and-have-an-impact-2019-12-13

Paying Yourself First

“Don’t save what is left after spending; spend what is left after saving.”

Warren Buffett

Automated saving and paying yourself first are probably the top two things Americans can do to create wealth and financial security.

Too many people try to save in a way that’s exactly backward. They spend first and then attempt to save up toward the end of the year.

The far more powerful way to save and invest is to set aside a percentage of your income every pay period — recommended 15%, 20% or more — and to save and invest it automatically.

Inevitably rich

Most of the folks who have accumulated wealth got there by systematically socking away a reasonable percentage of their pay into a broad array of stocks and keep doing it for decades.

The key take-aways are to make your savings an automatic deposit so you don’t get a chance to change your mind and spend it. And, spend what’s left and you’re certain to be on the right path to build wealth for tomorrow. Additionally, don’t forget to invest it!

By saving first, you eliminate the problem of not having enough money to save at the end of the month. Setting up automatic deposit into savings or brokerage accounts, you can secure your financial future and build wealth.


Source: https://www.marketwatch.com/story/the-huge-financial-force-even-albert-einstein-missed-2019-12-10