Category Archives: Planning & Investing

The Death of Equities

August 13th marked the 40th anniversary of BusinessWeek’s famous cover and cover story, “The Death of Equities: How Inflation is Destroying the Stock Market”.

At the time of that writing, the S&P 500 closed at 107.42.

Today, as I write, the S&P 500 is north of 2,900.

The fuel of financial journalism is negativity. The same tired crap is being written today. Really, don’t read or listen to it. It can only cause you to underperform. Read something happy … and factual.

The Power of HSAs

Health Savings Accounts (HSAs) are powerful savings vehicles.  

HSAs are triple tax free:

  1. Contributions are tax-deductible
  2. The account grows tax free
  3. Withdrawals are tax free if used for medical expenses

One of the best uses of an HSA is to save up for the enormous medical expenses we will experience in retirement.

To be eligible, you have to have a high-deductible health insurance plan, which many, if not most, of us have.

This is a powerful addition to your retirement savings. If your health plan is HSA eligible, open one. I use Further at Low fees, more than enough investment choices.


Heard a great quote from one of the speakers at The Investment Center’s Educational Conference in New Orleans that Maria and I attended.

“Gambling odds are less than 50%. The longer you’re in, the greater your chances of failure. The market goes up 75% of the time. The longer you’re in, the greater your chances of success.”

Accept Uncertainty

In the world of investing, the future is unknowable. ‘Uncertain’ is simply the way it is. How much uncertainty you can handle will determine your ultimate rate of return.

‘Certainty’ and rate of return are inversely related. If you want ‘certainty’, like a money market or a Treasury bond, your returns will be scant. Factor in inflation, and your ‘certain’ return is actually negative.

If you can accept ‘uncertainty’, now you’re in the game. Embrace uncertainly and buckle up for a wild and rewarding ride!

Successful Behavior

  1. Investors do not get investment returns they get investor returns, which tend to be substantially less. Investors do not merely underperform the market; they underperform their own investments.
    • Average annual return, with dividends reinvested, of the average U.S. equity mutual fund, 1996-2015 – 8.19%
    • Average annual return, with dividends reinvested, of the average U.S. equity mutual fund investor, 1996-2015 – 4.67%
    • Cost of inappropriate behavior – 3.52%
  2. The gap between investment returns and investor returns is fully and completely explained in 2 words: inappropriate behavior.
  3. As an investor, you cannot control investment performance, but you can control investor behavior.
  4. Avoid the 8 Great Mistakes:
    • Overdiversification – 5 categories, close to 5 funds will do it.
    • Underdiversification – Chasing the hot trend.
    • Euphoria/Overconfidence/Greed – The loss of an adult sense of risk. The perception of risk as ‘someone else getting a higher return’. Getting caught up in the success stories.
    • Panic/Get me out at any price now – Inappropriate temperament.
    • Leverage/Margin – Intellectually okay, behaviorally will not work.
    • Speculating instead of investing – Not seeing that you’ve crossed the line.
    • Investing for yield instead of for total return – Timing the market. Sure road to failure
    • Letting cost basis/tax considerations dictate investment decisions – “But I’ll have to pay taxes”. Be thankful.
  5. If you are successful in your investment behavior, our fund recommendations still may not, at any given time, outperform your neighbors’ funds, but, in the long run, you will surely outperform your neighbors.
  6. Most importantly FOLLOW THE LOVE. Who do you love and what do you want to do about it?

Possible Retirement Outcomes

Retirement has 2, and only 2, possible outcomes:

  1. Your money outlives you, creating a dignified and independent life.
  2. You outlive your money, creating a miserable and dependent life.

It’s the choice between equities vs bonds along the way, and how you behave towards that investment decision, that decides the above.

Volatility VS Risk

Often mistaken for twins, volatility and risk couldn’t be more different.

Risk can be defined as putting 100% of your money in pork bellies and hoping for the best.

Volatility, correctly defined, simply refers to the regular, sometimes large, sometimes small, unpredictable movements of the equity market both above and below its permanent uptrend line.

Note the phrase ‘permanent uptrend line’.

Risk = Placing a firecracker in your nose and lighting it.

Volatility = Tolerating the ups and downs of the market.

Our current market is volatile, not risky. Let it run its course.

Buffet Quote on Investing

It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment ‘risk’ by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.

-Buffett, annual shareholder letter, page 13, emphasis in the original

The Cost of Certainty

‘Certainty’ and ‘Rate of Return’ are inversely related.

You have to give up one for the other, the clearest example being our own US Treasury bonds, the safest, most widely held security in the world.

Taking into account inflation and taxes, the rate of return of a Treasury Bill is at, near or below ZERO, yet the world is willing to accept that non-return for the emotional state of ‘certainty’.

The Equity market, with its wild gyrations, historically has had, depending on who you ask, a near average annual double digit rate of return.

Which would you prefer to fund your Financial Plan – the uncertainty of near double digit returns, or the certainty of zero?

The Cost of Certainty could be the life you truly want, and deserve, to lead. Stop the madness.