Market Commentary: 2Q 2016

U.S. markets were initially range-bound for most of the quarter until June, when the relative calm in global stock markets came to an abrupt end. Upending most forecasts and taking world financial markets by surprise, the United Kingdom voted to leave the European Union on June 23. In the wake of the vote, British pound sterling fell 11% overnight against the U.S. dollar, its lowest level since 1985. The euro fell 2.4% to 1.10 versus the dollar. Global equities plummeted.

 Then in the week following Britain’s historic vote, global equities rallied despite significant uncertainty regarding the economic, political, and financial market implications of Brexit.When the dust had settled, developed international and European stocks remained in the red, while U.S. stocks edged into positive territory. The big winners in the quarter were emerging-markets stocks, which gained 2.6% and are now up 6.6% year to date.

As the second quarter ended, investors could be forgiven for feeling both bruised and battered. In the aftermath of the Brexit vote, global financial markets initially hit the panic button. Following the vote, stocks fell, bond yields dove, and both the British pound and the euro swooned. The markets demonstrated the typical flight to safety, with U.S. Treasurys, the U.S. dollar, Japanese yen, Swiss franc, and gold all rising sharply.

Here are the broad index returns through the Second Quarter of 2016:

U.S. Large Cap Stocks 3.7% Emerging Market Stocks 6.6%
U.S. Small Cap Stocks -2.2% Commodities 13.3%
U.S. Real Estate 13.3% U.S. Aggregate Bonds 5.3%
Overseas Stocks -4.0% International Bonds 10.7%

There are a number of positives in the U.S. economy. Historically low oil prices and high domestic production have lowered the cost of doing business and the cost of living in the United States. Both are a boon to the economy, which is on track to grow at a 2.0% rate this year. Although hardly dramatic, this growth rate is sustainable and not likely to overheat the different sectors of the economy which could lead to a recession. Manufacturing activity is expected to grow 2.6% for the year based on the numbers so far, and the unemployment rate has fallen to 4.7%, below the Federal Reserve target. The unemployment statistics are almost certainly somewhat misleading in the sense that many people are underemployed, and a sizable number of working-age men are no longer participating in the labor force. But for many Americans, the employment picture is much better now than a few years ago. By a number of measures, the U.S. economy seems to be comfortably plodding along.

Uncertainty remains in the Eurozone. A recent report by Thomas Friedman of Geopolitical Futures suggests that the EU, at the very least, is going to have to reform itself and the vote in Britain could be the wake-up call it needs to make structural changes.  The Eurozone has been struggling economically since the common currency was adopted.  It is still dealing with the Greek sovereign debt crisis, a potential banking crisis in Italy, economic troubles in Finland, political issues in Poland and a wealth disparity between its northern and southern members. Nevertheless, Friedman thinks the UK will be just fine, because Europe needs it to be a strong trading partner.  Britain is Germany’s third-largest export market and France’s fifth largest.  Would it be wise for those countries to stop selling to Britain or impose tariffs on British exports?  Cooler heads are likely to prevail.

The quarter’s market upheaval was yet another reminder that successful investing requires patience. Investing is part of a process, not a one-off decision, toward achieving your long-term financial goals. On the first day of July, the Dow, S&P 500 and Nasdaq indices were all higher than they were before the Brexit vote took investors by surprise. This suggests, yet again, that the people who let panic make their decisions lost money while those who kept their heads sailed through.  There will be plenty of other opportunities for panic in a future where terrorism, a continuing mess in the Middle East, a refugee crisis in Europe and premature announcements of the demise of the European Union will deflect attention away from what is actually a decent economic story in the U.S. There will be inevitable and unpredictable shorter-term market ups and downs along the way, and through these periods, it is our job to remain focused on the long-term objectives of our clients, maintaining a consistent investment discipline to guide our decisions over time.

Market Commentary: 1Q 2016

It was a tale of two halves in the first quarter of the year for global financial markets. Stock markets plunged early on, but then sharply reversed, staging a furious rally into the quarter-end. Emerging-markets stocks led the charge, gaining 5.8% for the quarter. Larger-cap U.S. stocks also finished in the black, up 1.3%, though domestic small-cap stocks trailed, down 1.5%. The 10-year Treasury yield fell .49% year to date and core bonds gained 3.0%.

As is often the case, there was no single obvious catalyst for the turnaround that began on February 12. There was speculation in the news that major oil producers might be ready to cooperate to cut oil output. At the same time, the head of the Federal Reserve Bank of New York dismissed the likelihood the Fed would need to adopt a “negative interest rate policy,” lowering the interest rates to below zero in order to encourage lending and investments, given the U.S. economy’s strength and momentum. Then, over the following weekend, the head of the Chinese central bank stated it saw no basis for further yuan depreciation. Amidst other positive data points, these would ultimately lead to additional investor optimism.

Governmental policies helped to continue to fuel the rebound. The rally continued in March on the back of better economic news in the United States, dovish European Central Bank (ECB) and Fed actions during the month and monetary and fiscal stimulus in China. On March 10, the ECB went deeper into negative rates, cutting its policy rate to negative 0.4%—its third rate cut since adopting their negative interest rate policy in June 2014. The ECB also expanded quantitative easing bond purchases by €20 billion per month (to €80 billion) and will also now include investment-grade, non-bank corporates in the program, boosting prices for such bonds. Their actions are intended to add liquidity to the economy and boost growth.

Here are the broad index returns through the First Quarter of 2016:

U.S. Large Cap Stocks -1.3% Emerging Market Stocks 5.8%
U.S. Small Cap Stocks -1.5% Commodities 0.4%
U.S. Real Estate 5.8% U.S. Aggregate Bonds 3.0%
Overseas Stocks -2.9% International Bonds 7.7%

Economic Outlook
In the United States, the Federal Open Market Committee held its mid-March meeting and did not raise the federal funds rate, stating that “global economic and financial developments continue to pose risks.” But it also highlighted solid U.S. economic fundamentals, lowered its projection of the number of rate hikes for the rest of the year (from four to two) and communicated both a slower pace and a lower trajectory of rate hikes than what it had projected in December. Financial markets responded positively to the Fed announcement, with stocks and oil/commodities continuing to rally and the dollar falling. After peaking in late January, the dollar (whose prior rise was likely driven in part by anticipated higher U.S. rates) ended the quarter down more than 4% for the year.

More generally, global monetary policy is moving deeper into uncharted, historically unprecedented territory, bringing with it unknown and unintended consequences. This continues to be a key uncertainty and risk as we construct and manage investment portfolios for a range of potential outcomes. How and when will the current extreme monetary policies be “normalized” and how will they impact the global economy and financial markets? No one knows.

The investment outlook—both in terms of potential return drivers and risks—has not materially changed over the past quarter. But in the context of the market’s recent gyrations, there are reasons for optimism that the relative performance trends (e.g., recent outperformance of foreign stocks versus U.S. stocks) may be sustained for a while. For example, last year marks the 6th of the last 8 years that the U.S. market has outperformed foreign stocks. This is the longest run of U.S. stock outperformance since the inception of the index in 1970. Unfortunately, much of the most recent appreciation in the U.S. stock market has been concentrated in growth stocks which have become expensive relative to historical benchmarks. In fact, lower cost “value” stocks have underperformed higher cost “growth” stocks for nearly the last 10 years. This has been the longest run of underperformance for value stocks on record going back to 1930. In contrast, developed international and emerging markets are almost a mirror image of the U.S market, with below-normal earnings and the potential for faster earnings growth from current levels. And valuation multiples have room to expand somewhat from current levels as earnings improve, thus increasing stock prices and enhancing portfolio returns.

Market Commentary: 4Q 2015

As we look back on the financial markets in 2015, returns were poor across the globe and across asset classes (stocks, bonds, commodities, etc.). Among the major global stock markets, the United States was the best performer. Unfortunately, the S&P 500’s whopping 1.4% return was driven by a handful of large tech/Internet companies (e.g., Facebook, Amazon.com, Netflix, and Google) which generated huge gains and helped propel the index into positive territory. The equal-weighted S&P 500 index actually fell 2.2% for the year.

The difference in the U.S. economy and monetary policy versus other major global economies was one striking feature of last year’s investment environment. In December, the U.S. Federal Reserve was so comfortable with the outlook for economic growth and the potential for inflation to eventually normalize that it made its first increase in interest rates in nearly a decade. Outside the United States, regaining more normal economic growth and inflation has remained more challenging due to sharply lower commodity prices (most notably oil), Middle East tensions, and China’s slower economic growth. Year-end foreign stock prices ended lower, reflecting this bifurcation. As in 2014, the strength of the dollar exacerbated foreign markets’ underperformance for dollar-based investors, detracting 9% from emerging-markets stocks and 6% from developed international stocks Ccompared to their local-currency returns. Commodity indexes were down on the order of 25% as oil prices hit an 11-year low in December and fell 30% for the year.

Fixed-income offered little respite. The core bond index gained just 0.6%, high-yield bonds were down close to 5% and floating-rate loans lost 0.7%.

Here are the broad index returns through the Fourth Quarter of 2015:

U.S. Large Cap Stocks 1.4% Emerging Market Stocks -14.6%
U.S. Small Cap Stocks -4.4% Commodities -24.7%
U.S. Real Estate 3.2% U.S. Aggregate Bonds 0.6%
Overseas Stocks -0.4% International Bonds -5.3%

Economic Outlook

The investment thesis for European and emerging-markets stocks has not changed materially over the last few months. Analysis suggests both markets are undervalued relative to their normalized earnings potential looking out five or so years. Those investments should benefit from stronger-than-expected earnings growth and the current allocations to European and emerging-markets stocks should yield outsized returns over a reasonable time frame.

Conversely, when it comes to U.S. stocks, the tactical outlook over the coming five years is much less positive compared to emerging-markets stocks and European stocks. Analysis suggests that U.S. valuations are still high and with U.S. corporate profit margins also well above normal, there is the potential for disappointing earnings growth and slow growth in stock prices over the next few years.

Effective portfolio allocation is based on a long-term view of the market. Financial market history is a history of cycles, like the swings of a pendulum, moving from one extreme to another. Market history teaches that undervalued assets can fall further and overvalued markets can overshoot on the upside. The tech bubble of the late 1990’s is one recent example of this. This type of volatility is simply the reality that comes with being a long-term equity investor.

Nevertheless, sound investment philosophy is based on the belief that fundamentals ultimately drive investment returns. The value of an investment is generally determined by the cash flows the investment generates over time. This type of valuation is a very poor short-term market indicator. But over the longer term and over full market cycles (five to 10-plus years), history has shown that valuation is a powerful driver of returns. Simply enough, studies show that if you buy an investment when it is relatively expensive, your returns will likely be lower over time. Alternatively, if you buy an investment when it is relatively inexpensive, your returns will likely be higher. Buying undervalued assets pays off, but it may take a little while for the markets to turn in their favor. To be successful, one must be disciplined and patient.

Financial Planning (Not Investment Returns) Insures Retirement Success

After mediocre (or negative) returns like the markets have produced over the last couple of years, investors often begin to question the underlying assumptions and the expected returns for their portfolios. Retirees often begin to fret over the viability of their long-term goals, fearing that they will eventually run out of money.

It is the helplessness created by the seemingly random series of returns that creates worries. However, there is a solution: At the intersection of “What Matters” and “What You Can Control” is the area where you should spend your energy. We all know what matters: living comfortably through retirement, giving to those in need, having peace of mind, etc., but what can we control? We know that we cannot control when the market goes up or down or what our return will be in the next few years. However, there are a number of things you can control to insure you are able to achieve what matters:

1) minimizing income taxes

2) consistently rebalancing to insure you are buying when stocks are cheaper

3) maintaining a long-term perspective

4) controlling spending and the timing of expenses relative to the portfolio value

5) lowering portfolio costs

6) diversifying the portfolio to mitigate risk, etc.

Take the worry out of the portfolio volatility by allowing BFA to assist you in developing your financial plan and staying focused on the things you can control. This is how you can insure that you are successful in the long run.

Market Commentary: 3Q 2015

The Third Quarter proved to be quite an eventful one this year. 

Increasing concern about China’s economy, accompanied by a surprise devaluation of the yuan currency, helped trigger a sharp drop in global equity markets.  In late August, the S&P 500 fell 12% from its high reached just a month earlier. It then bounced briefly from its August 25 low but dropped an additional 2.5% in September, ending the quarter down 6.5%. This marks the first negative quarterly return for the index since 2012. Developed international stocks, as measured by the Vanguard FTSE Developed Markets ETF, also dropped 12% intra-quarter, from high to low. For the quarter as a whole, they were down 9.7%. Emerging-markets stocks fared the worst, dropping 21% from their intra-quarter high in early July to their low on August 24. For the quarter, the emerging-markets stock index was down 18%. That return includes several percentage points of losses to dollar-based investors from the continued depreciation of emerging-markets currencies against the U.S. dollar.

In fixed-income markets, the core bond index gained about 1% during the U.S. stock market’s 12% intra-quarter drop. While this was strong relative outperformance versus most other (riskier) asset classes, with yields on core bonds so low (around 2.3%), their potential to generate strong absolute/positive returns over any meaningful time frame is very limited.

Here are the broad index returns through the Third Quarter of 2015:

US Large Cap Stocks -5.2% Emerging Market Stocks -15.2%
US Small Cap Stocks -7.7% Commodities -15.8%
US Real Estate -3.8% US Aggregate Bonds 1.1%
Overseas Stocks -4.9% International Bonds -4.2%                       

Economic Outlook

The recent correction was not a surprise. Given the market’s historical pattern of corrections, there was no surprise in the volatility the market exhibited in the third quarter. That is not to say that we were predicting a correction would happen or what the triggers or catalyst might be. Short-term market predictions are a fool’s errand, and history doesn’t exactly repeat. Nevertheless, knowledge of the market’s history and its cycles are useful for putting the present moment into context and thinking through different potential scenarios, risks, and investment opportunities. Otherwise, fundamentally, the economic outlook has not significantly changed from earlier this year.

The big question looming for the markets over the quarter was whether the Federal Reserve was going to raise interest rates for the first time in more than six years. Ultimately, the Fed decided to hold off on a rate hike, citing that “recent global economic and financial developments may restrain economic activity somewhat…” Fed Chair Janet Yellen pointed specifically to the recent developments in China and emerging markets as factors that gave them pause. Nevertheless, thirteen out of the 17 Fed policymakers indicated they expect to raise rates at least once this year, with six of the 13 expressing a preference for two rate hikes. The next FOMC meeting is scheduled for October 28th.

Declines create tax-loss opportunities. The reality of owning stocks is that, inevitably, the portfolio will experience bear market losses. In fact, just since 2010 the U.S. market has experienced 5%+ declines a total of 23 times!1 Owning bonds and other “safe” assets help mitigate the declines, but this interim volatility also creates opportunities to capture tax losses. By selling off some of the positions that have declined and reinvesting in similar positions, a portfolio can capture losses to reduce overall tax liability while still participating in any market recovery. Essentially, it’s making lemonade out of the markets’ lemons.

What Fly Fishing Taught Me About Investing

If you’ve ever met me, you know that I love to fly fish. It’s one of my biggest passions. Recently, I was with a friend fly fishing from the beach in Ft. Morgan. I had made this trip many times over the summer without much luck. The weather wasn’t great, but we both had a couple of hours free so we decided to go anyway.

Upon arriving at the beach, it didn’t feel like our trip was going to be worth the effort. However, we were already there, so we decided to give our best shot. We both came prepared with a multitude of flies since we weren’t sure what the fish would be biting that day. The first hour of the day was spent walking towards the end of Ft. Morgan and casting in places that looked promising along the way. We managed to reach the point without a single bite.

I fished the point for a short while, trying different flies in hopes that something would be enticed. This trip started to feel like the many trips I had made before. With no luck, we decided to make our way back down the beach.

As I walked back, I continued casting in places I thought the fish might be holing up. (Many were the same places I had already tried.) About half-way back, I stopped to make a few casts in a spot where the water looked deeper. After a few casts and no bites, I decided to make one more cast and if nothing took the bait, we would head home. As I stripped the fly in, THUMP! I had a bite! Little did I know that I had finally found the perfect spot and in the next two hours, we caught over 60 speckled trout. It was an incredible experience. I had not had a day like that in years!

Investing in the market this year has been rough for many. This year’s performance has amounted to about as much as my many trips this summer before I finally caught fish. It has been tough for the investor who faithfully contributes to his portfolio only to see very little impact to the bottom line.

Markets like we have experienced this summer seem like the perfect time to pack up and go home. Much like my fly fishing trip, the conditions do not look promising. However, like that trip, there are great opportunities that may be in store. Some of the top-performing days often occur during these times of uncertainty, which reinforces the need to stay fully invested despite the volatility. BlackRock recently published the chart below which shows the negative impact of missing the top-performing days over the last 20 years.

Don't Miss Days in the Market

From the chart, you can see that missing just 5 of the top-performing days could have cost you $196,137. When the portfolio misses the best 10 days over the 20 year period, the return is reduced by 50%! Since no one can accurately predict when the market will rise or fall, it is critical to stay invested throughout the volatility. I had no way of knowing which day I would catch fish, but I continued to go fishing knowing that over time the likelihood of me catching fish improves. It is impossible to know which day the market might soar, that’s why it is so important to maintain a long-term perspective. The longer you are in the market, the greater your chances of realizing positive returns.

So what do you do in times like these when you’re feeling the pressure to pack up and head home? You continue to work a strategy that has proven successful. On all of my fishing trips, I bring multiple flies because on some days one fly works well and others do not. I cast my line in places that I know are conducive to catching fish, and I am persistent in making the trips—even when the conditions don’t look so great. The same is true for your portfolio. You should continue to invest, even though the conditions look poor; you should keep your portfolio diversified because it is hard to know what is going to perform well next; and you should remain disciplined and dedicated to your goals.

It’s like my grandfather always said, “There’s a reason they call it ‘fishing’ and not ‘catching’… you don’t always win.” On any given day, the same is true about investing. But with time and discipline, you are almost sure to find your perfect spot.

1http://www.blackrock.com/investing/financial-professionals/advisor-center/conversation-starters/strategies-for-volatile-markets

 

Retirement Planning: More Than Just Numbers

If you are like many people that are finishing up their last few weeks, months, or year of work; chances are you have a lot on your mind as the first day of retirement approaches. How do you feel? Are you excited? Anxious? Worried? What thoughts are swirling around in your mind? Are you thinking about freedom and relaxation, or are you unsure what you will do with yourself when the day comes and you no longer have to wake up at 5 AM to get ready for work? Regardless of how you feel or what you’re thinking about, you are not alone.

We hear stories from retirees each day about what their step into retirement looked like. For some, retirement fits like a glove. It’s as if retirement is a long lost friend with whom they have just reunited.

For others, they had big plans for all of the things they were going to do to keep them busy. They were going to golf every day, lounge by the pool, or spend time in the garden. Once they realized they couldn’t or didn’t want to do these activities every day, it was difficult finding new things to fill up their free time.

Still, there are others who never thought about retirement until they walked out the door on their last day of work. Many of them managed to figure out how to fill their time, but some couldn’t quite come to terms with being retired and decided to rejoin the workforce.

From what we have gathered, each of these three experiences correlates with how much planning the individual had completed prior to retirement. Those that truly thought through what they wanted to achieve during retirement had the least amount of difficulty transitioning. Those that never considered what retirement would be like had the most stress and anxiety as they made their way.

So, what can you do to prepare and ensure you have a smooth transition into retirement? There are many things to consider, but here are some ideas to get you started.

  1. Ask yourself what you will do with this newly found “free time.” After you come up with some ideas, ask yourself what you will do if and when those things aren’t enough to keep you busy. From what we hear, it happens quite often.
  2. Think about the people you normally spend time with during the day. For most of us, it’s our co-workers. Now that you are not seeing them each day, think about who you want to spend your days with. This will also help you determine where you want to live. Some prefer to be closer to town and social events while others prefer being further away. Maybe you want to move closer to children or grandchildren.
  3. Begin experimenting with things that will help you feel a sense of purpose or self-worth outside of your work. What skills do you have that you can contribute to others? Do you want to volunteer, be a mentor, or help take care of family? Don’t wait until you are retired to get started. Getting involved in these things now will also help you form relationships you can carry into retirement. This may just be the most important aspect of transitioning into retirement
  4. Map out your goals and future endeavors. As you get closer to that day, it will give you peace of mind knowing that you have a plan in place. No more worrying about what you’ll do. It’s already laid out.

Don’t let that first day sneak up on you. Start trying on your retirement shoes today. Each step today will help you feel more comfortable when you finally take that first step into retirement.

If you would like to know how we can help you think through these things and uncover your life’s goals, give us a call or click here.

Financial Pornography – What is to fear?

While certainly the title is an “attention-getter,” the problem, dare I say addiction, with Financial Pornography is more prevalent now than ever before. The 24 hour television news cycle, the ability to capture rousing financial information with the touch of a smart phone and the propensity of social media to disseminate enormous amounts of un-scrutinized information to the unsuspecting have created a minefield for investors.

So what is Financial Pornography? The term has been around for many years and Investopedia says Financial Porn is “A slang term used to describe sensationalist reports of financial news and products causing irrational buying that can be detrimental to investors’ financial health.” In 1964, Supreme Court Justice, Potter Stewart, gave a characterization of pornography that epitomizes something quite difficult to quantify by saying, “I know it when I see it…” While that may describe pornography in its most traditional sense, Financial Pornography is far more difficult to identify, especially for the lay person. Highly educated economists, world renowned writers, famous television personalities and even Ivy League educators contribute to the melee by publishing, loudly and with immense conviction, the next move of the market. Often, their predictions outline in intimate detail the rationale for buying the next stock, sector, industry, market, etc. or, even equally as damaging, selling the next stock, sector, industry, market, etc. So convincing are their arguments that many are compelled to take immediate action to take advantage of their foresight.

So what are the risks? Unfortunately, all too often it doesn’t work out as the experts had predicted. There are many logical explanations for the misinformation: 1) The markets are complex, global and constantly changing. By the time an expert releases an opinion, there is a good chance the data set has changed. 2) The expert may have little to lose, because by guessing often enough (educated guessing is still guessing) surely they will get it right the next time. Here is the rub; corrections and/or market declines are “easy” to “predict.” Think about it, the market declines every few years, always has. What has a media hungry analyst to fear from predicting a crash? Nothing, of course, since if the market doesn’t decline, everyone is happy and the analyst is “early.” If the market does decline, the analyst is a genius. He has nothing to lose. 3) Market timing, trying to find the right time to be in or out of the market, doesn’t work. Investors want to do all they can to avoid losses and/or maximize gains. But by trying to time the market, the average investor ultimately loses and many times is unable to recover.

Consider the following statistics from Morningstar1: “In 2009, money flew out of stock funds, but that proved to be the bottom of the market and a great spot to get in. Some investors were also leaning the wrong way in 2012 and 2013. The 10-year gap (in returns) between the average investor and the average fund ballooned to 2.49% by the end of 2013 from 0.95% at the end of 2012. In sum, the typical investor gained 4.8% annualized over the 10 years ended December 2013 versus 7.3% for the typical fund.” Now, 2.5% per year in annualized return doesn’t sound like much, but it is a 34% reduction in the annualized portfolio performance. In this 10-year period a $100,000 investment would have grown to either $159,813 (average investor) or $202,300 (average fund) a $42,487 difference…you choose. The guys from Morningstar get it right when they say, “The data tell a tale of poor timing, and it seems to be getting worse. I suspect the 24-hour news cycle inundates us with news and opinions leading to investing based on anxiety rather than logic. Don’t spend too much time watching TV news or checking your accounts. It only leads to bad behavior. Who cares if a talking head predicts gold will surge and stocks will tank? Focus on your needs and goals. As the data show, timing markets is too difficult, so have faith in your plan and carry on regardless…”

In short, avoid the porn.

1http://news.morningstar.com/articlenet/article.aspx?id=637022

Brown Financial Advisory is a Financial Life Planning firm dedicated to strategies that are designed to help people meet their personal financial planning goals and gain peace of mind. If you would like to learn more, please send us a message through the “Contact Us” button on the home page. We look forward to talking with you.

Depression just after Retirement

So, are you REALLY ready for retirement? Psychology may undermine your health and happiness.

It has been 30 or so years since you first started your career and after such a long time, it seems that now may be a good time to consider retiring. You have put your time in, there are a number of things that you would like to do while you are still young and your savings should provide all you need for the next 20-30 years. After all, you have been wanting to travel more, to spend more time with your children (and who’s kidding whom, it’s really your grandchildren that you want to see) and to have more time to pursue some of the things you have put off all these years. Yes, this certainly must be the right time.

But wait a minute: are you really ready for retirement? There is an interesting and often unexpected phenomenon that occurs as many people transition into retirement. What is it? Post-retirement depression.

Your response (if you haven’t already decided to stop reading because it couldn’t possibly apply to you) is likely similar to many of my clients’ responses: “I don’t think I will experience anything like that because I have been so tired of working for so many years. I’m really ready for retirement.” “That won’t happen to me because I have all of these projects lined up that will keep me very busy after retirement.” or the most common, “I’m sure that it won’t happen to me. After all, you know how much I like to (play golf, sail, travel, garden, etc.) and now I will finally have enough time to do it as much as I would like.” Uh huh, it all sounds perfectly logical and, to some extent, even ideal. But watch out, there could be a freight train coming.

In 2013 a study was released by the Institute of Economic Affairs and Age Endeavour Fellowship that suggested that retired people are “40% less likely to describe themselves as in very good or excellent health than working people of the same age. Mark Littlewood stated that many working people look forward to retirement, however, retirement is often connected with a downturn in health.” [Source]

I witnessed a great example a few years ago. One of my clients retired from a successful career in finance. He had enough accumulated to retire comfortably and was very active in his life, his community and his church. He had many friends and was one of the most upbeat people I have known. Then he retired. After three months he had fallen into such a deep depression that he sought counseling to help himself out. He had lost his purpose and it took months before he fully recovered and returned to “normal.” He wasn’t prepared for the dramatic changes that occur at retirement and the loss of purpose, drive, inter-personal connections and sense of achievement all caused him to suffer an uncomfortable transition.

So what is one to do? In preparation for retirement there are a number of ideas for making the transition successfully. First, create a plan for your finances that allows you to take your focus off of the day-to-day financial concerns and place it back on the things that give you the most joy. You want to know that you can live the life you hope to. So how do you achieve your goals? Start with a plan.

Second, consider easing into retirement instead of quitting “cold turkey.” Most people jump into retirement when they would be much better off working part-time during the early retirement years and gradually transitioning out of the workforce. Part-time work keeps your mind and body engaged and helps offset some of your expenses early on. Think of it as a way to pay for all the fun you will have while you are not working!

Next, consider one of life’s most basic needs, to belong, as part of your plan. What interests do you have and how might you fit into a community of people with similar interests? Maintaining a community around you is a critical part of a happy life and it couldn’t be more important that just after retirement.

Finally, stay fit both mentally and physically. Make a plan to keep moving and to keep your mind and body active. By exercising regularly and continuing to learn, you will keep focused on positive developments and not the void of the things that may feel like they are missing from your work life.

Once you settle in, retirement will be great. With a little advanced planning, you can make the transition work well, too. If you feel you need help, please feel free to give us a call.

Three Questions To Ask When Searching For A Financial Planner

When it comes to filtering through financial planners to find the right one for you, there are some critical questions to ask the firm and yourself throughout the process.

What kind of clients does the firm specialize in?

It is a good idea to search for a planner that serves a demographic that is largely similar to you. Although you should avoid firms that feel like experts instead of teachers, your firm should be familiar with the concerns and scenarios common to your demographic while custom tailoring his advice to suit your life.

What services do they provide?

In asking this question, you are able to find out what the firm will not do for you. Some firms seek to simply be investment advisors, while others offer a far more comprehensive approach (retirement, insurance, estate, tax planning, etc.). The investment advice you receive may be good, but if other factors of your finances are ignored it may not be best for your unique situation.

How personal is my experience with the representative?

This measurement can often tell you if you are interacting with a salesman, expert, or teacher. It is important for the experience to feel like a conversation, not a lecture or a sales pitch. If you find yourself listening 90% of the time, you are not being counseled, advised, and informed, you are being told.

What makes this firm unique?

Be sure to schedule an interview with the prospective planner to find out what the true aim of their firm is for your money. Some firms will be better at maximizing your investments, while others will focus on protecting your hard-earned money in a wise way. If something doesn’t feel right, keep looking.

Learn more about Brown Financial Advisory

A Fee-Only registered investment advisor, Brown Financial Advisory, was founded in 1986 and is located in Fairhope, Alabama. Learn more about our distinctives, and services, or get started on your journey to live with more purpose.

A Welcome Message from Scott McLeod

For most people, identifying the right financial advisor is an intimidating and sometimes daunting task. After all, who can you trust? Should you consider a large firm or are there benefits of working with a smaller firm? How much should I expect to pay and what if I get the wrong person? The choices can be overwhelming.

D. Scott McLeod
D. Scott McLeod

Brown Financial Advisory was founded in 1986 and in our nearly 30 year history we have helped hundreds of families achieve financial peace of mind. But our firm is not for everyone so I thought it might help to know what three things make us different from “the other guys.”

First, Brown Financial Advisory is a “Fee-Only” firm. This simply means that we do not charge commissions or other fees and all of our compensation comes directly from our clients. This helps eliminate conflicts of interest and insures that your best interest is always placed above ours.

Second, Brown Financial Advisory is a Financial Planning centered firm. A holistic financial plan is the roadmap to your financial success. It is not simply determining if you have enough for retirement, but it also helps you save on income taxes, helps you plan for illness, protects you when the unexpected arises and gives direction and purpose for your investments, among other things. Our three Certified Financial Planner® practitioners provide planning as a part of all of our client engagements in order to help insure your financial success.

Finally, Brown Financial Advisory is a financial Life Planning firm. Life Planning is the commitment to understanding each person’s most essential goals in life before constructing a financial plan. Traditionally, financial planners focus on the numbers – budgets, taxes, returns, insurance, etc. – without ever considering life’s most important questions like, “How would you describe your most fulfilling life?” or “About what are you truly passionate?” After all, in the end, life is more than just accumulating assets.

Thank you for taking time to learn more about our firm.
Sincerely,
D. Scott McLeod, CFP®, ChFC®