Shall We Read?

A not so newsy newsflash comes as no surprise that people like to talk about the books they are currently reading or the ones they just finished. I love to read. In fact, you could put me in the avid reader category, and like many other avid readers, I am always asking for suggestions, making recommendations and discussing books.
Sharing my 2010 Book List – is likely to confirm that my interests stretch beyond business related books. Choosing one particular genre over another is nearly impossible for me as my thirst for knowledge or pure entertainment continually changes.

In Fed We Trust: Ben Bernanke’s War on the Great Panic by David Wessel
13 Bankers: The Wall Street Takeover and the Next Financial Meltdown by Simon  Johnson & James Kwak
The Girl With The Dragon Tattoo by Stieg Larsson and Reg Keeland
The Girl Who Kicked The Hornet’s Nest by Stieg Larsson and Reg Keeland
The Girl Who Played With Fire by Stieg Larsson and Reg Keeland
The Elegance of the Hedgehog by Muriel Barbery
The Shadow of the Wind by Carlos Ruiz Zafon and Lucia Graves

The Big Short: Inside the Doomsday Machine by Michael Lewis
City of Thieves by David Benioff
Gertrude Bell: Queen of the Desert by Georgina Howell

American Wife by Curtis Sittenfeld
Angel’s Game by Carlos Ruiz Zafon
The 4-Hour Workweek by Timothy Ferriss
The Help by Kathryn Stockett
The Spies of Warsaw by Alan Furst
The Snowball: Warren Buffet and the Business of Life by Alice Schroeder
Mrs. Astor Regrets: The Hidden Betrayals of a Family Beyond Reproach by Meryl Gordon
Philanthropy Heirs & Values: How Successful Families are Using Philanthropy To Prepare Their Heirs for Post-Transition Responsibilities by Roy Williams and Vic Preisser
Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen
Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment by David F. Swensen

This Body of Death by Elizabeth George
Finger Licken Fifteen by Janet Evanovich
Sizzling Sixteen by Janet Evanovich
The Lost Symbol by Dan Brown
Presumed Innocent by Scott Turow
The Assassin by Andrew Britton
Jack Reacher Series 1 – 4 by Lee Child

Don’t Bother
Psychology of Executive Retirement from Fear to Passion: Escape the Rat-Race & Save Your Life by Doug Treen
The Woods by Harlan Coben
The Spellmans Strike Again by Lisa Lutz
The 22 Immutable Laws of Marketing: Violate Them at Your Own Risk by Al Ries and Jack Trout
The Experience Economy: Work is Theatre & Every Business a Stage by B. Joseph Pine, II and James H. Gilmore
Nonprofit Investment Policies: Practical Steps for Growing Charitable Funds by Robert P. Fry, Jr.

Distinguished – Recommend to everyone
Excellent – Recommend
Good – Interesting, but not for everyone
Entertainment – Similar to a chic flick or action movie that entertained me
Don’t Bother – Does this need explanation?!


We don’t know where they come from or who starts them, but they seem to stay around for an awfully long time. For example, a myth started over 30 years ago when 401(k)s first came on the scene read something like this. “If you max out your 401(k) savings contribution each year it will be enough for you to retire on at 65”.

Surprisingly, most Americans believed this to be true.  Even more surprising is why no one has clearly stated that “If you only save the maximum 401(k) taxable amount annually it will NOT be enough to retire on.”

Further debunking this myth, the February 9, 2011 edition of the Wall Street Journal featured the article, Retiring Boomers Find 401(k) Plans Fall Short.

Unfortunately, if you are one of the millions who believed this urban myth, the question is what do you do now to recover?

“The Math” – Do the math by creating a current budget of your living expenses.  Add to this gathering up your most recent social security statement, bank statements, credit card and mortgage statements, etc.  The next step is to call someone you trust – your accountant, your lawyer, your rich aunt (after all she must be doing something right) and ask them to help you find your “math teacher” or someone like me. Your teacher is someone who can help you to put your complete financial picture together and assist you in moving confidently toward the future.  Remember your teacher should be a “fee only” planner so they won’t spend your precious time trying to sell you something.

If you start now, you can create a plan that will work in your best interest and successfully guide you on a confident path to your retirement years. The important thing is for you to take control now and bid adieu as another financial myth bites the dust!

Good luck

Follow your passion, and you will go far. This time-honored notion resonates with most of us one way or another. For a shining example of a man who achieved extraordinary heights by following his passion, look no further than John Wooden, the legendary basketball coach who passed away June 4. Considered one of the best coaches in any sport, Wooden won 10 championships at UCLA, while no other men’s college coach has won more than four.

 Some of Wooden’s championship teams were built around star players such as Kareem Abdul-Jabbar and Bill Walton. Others were made up of players with more modest talent but who executed what Wooden was teaching. And make no mistake: He was good at teaching the Xs and Os of basketball. Yet coaching was just the outlet for his true passion: molding teenagers into upstanding individuals.

 Wooden’s famous Pyramid of Success consisted of 15 qualities — such as loyalty, confidence and competitive greatness — that he believed were essential to maximizing potential. Walton, in particular, embraced these lessons, even writing some of his coach’s noted axioms on his kids’ school lunch bags. As Walton noted, “Everything he said turned out to be right. He didn’t teach basketball. He taught life.”

 Top college coaches now make millions of dollars per year, but Wooden never made much money as a coach. His top salary was $35,000. He even turned down a lucrative offer to coach the NBA’s Los Angeles Lakers. For Wooden, it was the fulfillment of his passion that gave his life meaning.

 I am often asked “How are your services different?” We are committed to helping you establish the means to fulfill whatever you choose. Whether it’s something you’re currently doing, something you’ve wanted to try or something you haven’t yet discovered, our goal is to take the worries of your finances off your mind so you can focus on what’s important to you. That’s our passion.

Many investors may be worried about how the difficult times facing many municipalities will affect their fixed income holdings. The following addresses those fears.

As the credit crisis has unfolded, the credit profiles of corporations and governments around the world have deteriorated, and states and municipalities have not been spared. State and local income tax, sales tax and property tax revenues are down, and liabilities (in the form of pension obligations and other post-employment benefits) are up.

Nationally, one study estimated that state and local pension plans were underfunded by about $4 trillion as of December 2008. (That is, the value of pension plan assets was about $4 trillion less than the value of pension plan liabilities.) And this does not include any post-employment benefit plan underfunding.

Several states are also running significant budget deficits. Add on to this that outstanding municipal debt is in the neighborhood of $3 trillion, and there is reason to pay attention to the fiscal status of states and municipalities.

Before getting too carried away with these statistics and recent press on the municipal market, it is worth reiterating a few key aspects of the historical data for municipal bonds:

  •  Of the issuers that Moody’s rated over the period 1970–2009, only 54 have defaulted. The vast majority of these defaults occurred in the health care and housing project finance sectors.
  • Of these defaults, only three have been on general obligation debt.
  • The historical cumulative five-year default rate for investment-grade municipal debt is 0.03 percent, compared with 0.97 percent for corporate issuers.
  •   Recovery rates (that is, what the investor ultimately gets back after a security has defaulted) on municipal bonds have typically been higher than the recovery rates on senior unsecured corporate bonds (roughly 60 percent versus 38 percent).

So as bad as the current state of some states and municipalities may be, municipal bonds have historically been a safe place to invest, especially when compared with corporate bonds.

Also, yields on high-quality taxable municipal bonds are typically lower than the yields on high-quality corporate bonds. This indicates that the market is pricing in lower credit risk for these bonds than for corporate bonds.

It is also worth noting just how difficult it is for a municipality to file for bankruptcy. States are not even eligible to file for bankruptcy. (Many states also don’t allow their municipalities to file bankruptcy, either.) Also, those that do file for bankruptcy may be cut off from the capital markets in the future.


High-quality municipal bonds have experienced lower default rates than high-quality corporate bonds. However, a number of states and municipalities are currently experiencing more fiscal distress than they have historically, indicating that the municipal bond market may be riskier in the future than it has been.

It is also worth noting that Treasury bonds are the only fixed income securities generally considered to be free of default risk. All other types of fixed income securities have some degree of credit risk. To the extent possible, this risk can be mitigated by investing in high-quality sectors of the fixed income market (Treasuries, CDs, agencies and municipal bonds), but credit risk cannot be avoided by any means other than investing exclusively in U.S. Treasuries.

Whenever the latest economic indicators are announced, you’re apt to see the numbers make the evening news. As you ponder the latest on industrial production, retail sales, unemployment and other snapshots of economic activity, you may wonder how the information applies to your investment strategy. While the data can be helpful for your business planning, it’s important to recognize that regular announcements of economic indicators mean very little to your investments:

  • Recent economic activity offers limited predictive value regarding future economic activity.
  • The information already is priced into future market returns by the time you hear of it.
  • Business decisions and investment decisions are two very different things.

You should not attach particular value to monitoring those indexes in relationship to your portfolios. Take for instance, the Chicago PMI (ISM-Chicago). The Institute for Supply Management compiles a survey/index of business conditions in the Chicago area, commonly referred to as the Chicago PMI. Many think that overall economic activity in the Chicago area is representative of the overall economy. Still, the Chicago PMI number encompasses the data for that specific dataset only. The same is true for a number like jobless claims, which quantify new unemployment claims that are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time.

Financial news commentators may choose to analyze the data from economic indicators and attach additional meaning to it. But the data from any indicator is by its nature looking back at a period already passed. The financial markets are leading indicators, meaning that the collective wisdom of the financial markets has already “priced in” much of the economic data before it is even announced.

It is good to know what these indicators are, especially if you are an executive or business owner. But as an investor, your decisions are best made based on factors that are within your control, such as your own long-term financial goals and risk tolerances.

If you’re a business owner or executive, you probably spent 2009 reviewing every part of your business, trying to squeeze costs while delivering as much or more service to your customers.  This activity was enlightening and heart wrenching, but it hopefully left you feeling like your company is now better positioned to move forward on stronger footing.

A big part of your business review may have included taking a closer look at your service providers, assessing which were the ones that were going to help you move forward in 2010. You may have sought second opinions to either verify that your existing relationships were built to last or to provide alternatives if they were not.

So, have you completed the same process for your personal income statement and balance sheet?

Toward the end of 2008, a study posted in The Wall Street Journal stated: “81% of investors with $1 million or more in investable assets plan to take money away from their current advisor. … The irritation is especially high at the ‘brand’ firms — large brokerages and banks.” (Robert Frank, “Wealthy Investors Stage Revolt Against Advisors,” The Wall Street Journal Online, September 30, 2008)

So, particularly if your wealth was managed by one of those brand firms, did you act on these kinds of plans?  If you went through the same process with your personal finances that you did at your business, you would have sought a second opinion on your financial advisor, CPA, estate and philanthropic plans, family wealth dynamics and more. 

Second opinions are not sales calls. They are the process of having someone look at your situation with fresh eyes to see any gaps in your planning. Top advisors only want new clients for whom they can add value, so this is a process they are willing to do for free. It’s in their best interest as well as your own to determine if the fit seems right. 

If you haven’t sought a second opinion on your wealth, what’s stopped you? Maybe it is time. In my experience, it usually takes about one hour upfront and one hour to review the findings. Let’s see. It’s free, it will probably help you feel more confident about future financial decisions, and it shouldn’t take more than two hours of your time. Tell me again what you’re waiting for?

Another hurdle can be selecting a good source for that second opinion. To help you with that, check out Larry Swedroe’s blog on the subject, to ensure that you screen for an advisor with whom you’d really want to work if a change is warranted.

Have you discussed your estate planning with your children lately? Have you ever, for that matter?

There are lots of reasons affluent parents avoid discussing family financial matters — time, discomfort, habit, mistrust, fear — but the results are more universal. If you don’t prepare your children for the privileges and responsibilities that come with wealth, who will? How will they be equipped to make satisfactory, independent decisions about their money?

This year, as the family gathers for the holidays, tear your kids away from their Beatles Rock Bands and Zhu Zhu hamsters. Set aside your own new iPod. Talk to each other for a while about what wealth means to each of you, and how your children can become an integral part of family wealth planning in 2010.

Pre-Teen and Teenagers — There are many affluent families like the Rockefellers, Forbes and Rothschilds, who have raised very productive children. How have they done it? First, they’ve let their children experience their own successes — and their own failures. Confidence and self esteem comes from doing it yourself; be it as a banker, teacher or carpenter. Perhaps this explains why Warren Buffet and Bill Gates are planning to limit their children’s inheritances.

But communication also is important, if daunting. The Financially Intelligent Parent by Eileen Gallo, Ph.D. and Jon Gallo, J.D. provides some great advice on that.[1] The Gallos offer examples of how to combine your values with projects or events that engage your children at various ages. They also emphasize the importance of identifying your financial perspective before you try to share it. Or, as they describe it, “Get your own money stories straight.”

Young Adults — As your children become adults, you may fret about how they are financing those new cars, new homes or grandkids’ upbringing. If you see or perceive that your children may be suffering from debt, it can be tempting to come to the rescue rather than let them fail. It’s a tough lesson to learn but, if we act too quickly to help solve adult children’s financial, educational or emotional problems, we risk extending the failure.

Spanning Generations — Estate planning is another area where communication remains critical. According to the estimates of The Williams Group Organization, “two-thirds of all wealth transfers fail after transition.”[2] It happens even after engaging high-powered estate attorneys and tax planners to set up complex partnerships or trust vehicles. It’s usually not the process that fails, it’s the lack of individual, emotional preparation. Preparing and include your heirs in the planning process — talking to them, that is — doesn’t have to be expensive or complicated, but failing to do so can be.