My Cousin Irving’s End of the World Investment Strategy

I got a call recently from my cousin Irving (not his real name, of course), and he was quite perturbed. I asked him what was wrong, and he wanted to know if the insurance company that managed his 401(k) is safe. I said, “What the heck are you talking about, Irv?  It’s a huge company, and as far as I know, it’s solid.”  Irv then asked, “If I put all my money into the guaranteed account, is it safe?”  I told him that his money is as safe as the company is, and since the company’s always advertising on TV with celebrities singing catchy jingles, I think it’s in good shape.  “But,” I said, “if you’re that concerned, do your research and check out the company’s finances.”

I asked him why he was so anxious, and he started ranting.  He believed that the United States was going to be in a nuclear war with North Korea.  He went on to say that it’s actually Russia that is backing North Korea, and they will enter the war, too.  I told Irv that he was being a little reactionary, but he persisted and wanted to know where his money would be safe. “Well,” I suggested, “U.S. bonds may be a safe–but not guaranteed–place to be during an economic or political crisis.”  Irv immediately shot back, “Bonds suck, and they aren’t getting any return, so I sold all my bonds several months ago.  Now I’m invested 100% in stocks.”

I tried to explain to Irv that combining stocks and bonds is a good thing because each will have its day in the sun, and historically, when stocks go down, bonds usually go up. But Irv wasn’t buying any of it. He told me that he also sold his Euro-Pacific fund (which, by the way, has been doing quite well in the last year) because of a nuclear war risk.  I said, “Irv, if there’s a nuclear Armageddon, your money won’t be worth much anyway.”

Nonetheless, Irv persisted with his Magical Thinking argument that he could time the market, pick the best funds and get a great return with no risk. I told Irv his reasoning goes against the research of many economists who have won Nobel prizes for their studies of market behavior.

Our disagreement was rapidly devolving, but I tried one more tactic.  I reminded Irv that he was going to retire soon, and he should be more concerned with income rather than trying to get the best return. Irv yelled back, “Dude, all you do is stick to your orthodoxy–your discipline of not trying to pick the winners and not trying to outguess the markets. What kind of advisor are you, anyway? I retorted, “Irv, I think you just answered your own question.”

Like I always say, investing should be boring.  If you want excitement, try hang gliding.  If you want to gamble with your money, go to Vegas.

Did You Miss the “Trump Bump?”

Okay, admit it. Whether you’re an ardent supporter or never-Trumper, weren’t you a little nervous Donald Trump’s victory would cause the markets to crash? My clients on both sides of the spectrum were anxious. I even have a friend, who’s an avid Trump supporter, call me and ask if it was too risky to get back into the market.

As we all know, markets hate uncertainty, and on election night, futures dropped like a rock. It was scary, very scary. I happened to be at a mutual fund seminar on election night, and the speaker, who’s a fund manager, didn’t sleep a wink the night before. Even professionals were afraid! But the next morning, something short of amazing happened: The market rebounded and continued to do so through the end of the year. The Dow Jones Industrial Average shot up 1,500 points. Since then, however, the excitement has dissipated, and the markets have been flat.

The question going forward is, “What will happen to the markets and the economy now that Donald Trump has been inaugurated as our 45th president?” No one really knows, keeping in mind a caveat that presidents have a limited impact on the economy. One main reason is our Constitution grants the power of fiscal responsibility to Congress, not the president. The Federal Reserve System, a quasi-government entity, may have more power over the economy than either Congress or the president. The Fed is responsible for many key aspects of the economy such as monetary policy, economic stability and supervising and regulating banks. And then there is the economy itself. The U.S. Gross Domestic Product (GDP) is around $18 trillion which covers a multitude of financial sectors and is often driven by consumer confidence; that is, people’s optimism in buying things. (Seventy percent of our economy’s activity is consumer spending). As you can see, managing the economy through government entities is disparate and complex, and a successful economy isn’t exclusively dependent on one branch of our government.

The stock market, a leading economic indicator, reflects and digests all this information and adjusts accordingly. For instance, an up market usually means good times are ahead, and a down market often precedes a recession. It is a separate entity from the political landscape, and the general trend is upwards with, of course, some down and flat periods, too. The chart below tracks the growth of a dollar invested in the S&P 500 from January 1926 through June 2016.
You can see that the general trend has been up no matter who was president at the time.

Like a baseball manager who often gets the blame or credit for his team’s wins and losses, a president gets the blame or credit for the economy and stock market. But betting your hard-earned savings on how the market will react to Trump occupying the White House is fool’s gold. Back in 2009, many people got out of the stock market because they thought President Obama was going to ruin the economy, and the stock market would never recover. What more do I need to say?

Trump and Your Investment Portfolio

If you were watching the results on election night, you saw the financial markets react. In the wee small hours of November 9, Dow futures plunged just over 4% while gold and US Treasuries soared. (Markets are funny and tend to be unpredictable in the short term). Since the election, however, the Dow Jones Industrial Average has reached an all-time high.

Sure, Donald Trump is an unconventional politician and has said that he likes to be unpredictable. At this time, we’re not sure what to think or how he’ll govern. Once his cabinet is in place, we’ll have a better idea. Still, you may be thinking that a Trump presidency is “different,” but market volatility is certainly not something that we haven’t seen before. In the past 18 months, we’ve had several instances of investors feeling that “this time it’s different.”

Back in July 2015, the Greek financial crisis dominated the headlines. Investors feared Greece’s problems would spread to the rest of Europe. Then the following month, it was “Black Monday.” When the Chinese government devalued the Yuen, markets went tumbling down. At the beginning of 2016, the Dow Jones Industrial Average got off to its worst start ever dropping 5.5%. And most recently, we had Brexit. Shortly after Britain announced it was exiting from the European Union, the market lost 6% but days later gained back 8%. The bottom line is: Markets, like people, do not like change. But through all this hubbub, U.S. markets continue to hover around historical highs.

Back to your investments. What should you do to protect yourself during a Trump presidency? Nothing. If you’re diversified, you don’t need to sweat the headlines. We can’t predict the future, and we sure as heck can’t predict the markets. That’s why it may be wise to follow the investment ways of some of the world’s wealthiest families and most sophisticated investors. They manage risk through diversification.* This means not weighting one’s investments in with any sector of the economy such as energy or banking, or falling in love with an individual stock such as Apple.

Besides, your investment portfolio isn’t designed for a four-year presidential term. You’re in it for the long run. Investors who stay the course have historically been rewarded. Here’s one thing we can anticipate during the next four years. The markets will go up, and the markets will go down. And parts of your portfolio will do better than other parts. My advice is to stay disciplined, diversified* and focused on the future. If you’re not sure whether you have enough diversification*, a fee-based financial advisor can help you.

*Diversification does not guarantee a profit or protect against a loss.

The Dow Jones Industrial Average is a widely watched index of 30 American stocks thought to represent the pulse of the American economy and markets.

How Will Election 2016 Affect the Stock Market?

With Election Day almost (finally!) here, the most common worry I hear from many of my clients is, “How will the presidential election affect the markets?”

Market volatility before and after the election is a legitimate concern. For sure, this hasn’t been a typical election, and a victory for either party could affect the markets. Markets tend to react to good news and bad news. In the short-term, the stock market can be emotional and illogical. That’s because people drive markets and people– especially when investing their money–can be emotional and illogical.

Dimensional Fund Advisors (DFA) recently published a new study, “Presidential Elections and the Stock Market,” and included the following exhibit of the growth of a dollar invested in the S&P 500* over nine decades (since 1926) and 15 presidencies (from Coolidge to Obama). The study examined the growth of one dollar from 1926 through the end of June 2016. The outcome shows that through Democratic and Republican administrations, the stock market consistently grew, regardless of which party was in power. At times, though, the market was down or flat, too.


The other part of the study delved into shorter periods of returns previous and subsequent to presidential elections. Again the data showed there to be little or no differences compared to market returns of non-presidential election years. The takeaway: Trying to make an investment decision based on the outcome of an election was unlikely to generate any excess return for an investor. Any positive outcome based on using such a strategy is likely to be the result of random luck. At worst, it can lead to costly mistakes. We can’t predict the economy, and we for sure can’t outguess the markets.

You may be thinking, however, that this time is different. No doubt, with a 24/7 news cycle and nonstop election coverage, it’s easy to get on the roller coaster with the Wall Street hype and media pundits. Turn off your television sets and don’t panic. If history is any guide (and in my opinion, it’s the only guide we have), the outcome of this election should have little impact on the markets in the long-term.

*The S&P 500 Index is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market. Investors cannot invest directly in an index.

Disclosure: This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell this security. This blog contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Information was based on sources we deem to be reliable, but we make no representations as to its accuracy. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

Why You Should Have Bonds in Your Portfolio

You scarcely read or hear much about bonds these days. The stock market, especially in recent weeks, grabs the headlines all the time. Bonds just aren’t glamorous. Sure, Michael Milken, “the junk bond king,” brought some glamour and headlines to bonds back in the late ’80s, but they haven’t received that kind of coverage since.

Yet that’s no reason for investors to forget about this important asset class. Bonds are one of the three major asset categories — along with stocks and cash — you should have in a balanced portfolio. Investing in a mix of these assets is a good strategy for achieving your financial goals.

Having bonds in your portfolio can help reduce risk, which is a welcome proposition given the market volatility we’ve seen since the beginning of the year. Stocks tend to be more volatile than bonds — they go up and down further and faster — and that makes them a riskier proposition for the short-term investor. Think of stocks as cleanup hitters. They’re going to hit a lot of home runs, but they’re going to strike out a lot too. Bonds are more like leadoff hitters, the guys who can consistently hit singles and get on base. They can be a stabilizing force amid volatility.

Inverse movement
The stock market, like most things, tends to cycle. Right now, the decline seems to be a reaction to the dramatic drop in oil prices and the slowing of China’s economy. Bonds cycle, too, but they’re not as volatile as stocks. Instead, bonds often have acted as insurance by reducing portfolio volatility.

This is because bonds often move inversely to stocks, and this tends to be mostly true when stocks are falling. However, bonds are in an unusual place right now because of historically low interest rates. When rates rise, the value of bonds will go down. But this should not deter you from holding bonds in your portfolio because they are still less volatile than stocks, and if the stock market takes a big hit, bonds usually rise. This means bonds and stocks work in concert with one another in your portfolio.

In designing a portfolio, you want to have a mix of assets that can move inversely under different market conditions. Diversifying in this way reduces your risk and thus your chances of getting hurt.

Asset allocation
Asset allocation — holding the right proportion of stocks, bonds and cash for your situation — is important because it can impact your financial and personal goals. However, designing the best asset-allocation model or portfolio can be complex. You need to look at your time horizon and your tolerance for risk.

Your mix of stocks and bonds also should be determined in part by the amount of money you need and when you will need to withdraw it from your accounts. If you don’t include enough risk (think stocks), your investments may not earn an adequate return to meet your goal. However, with too much risk (think not holding enough bonds), the money may not be there when you need it.

For instance, an older person should have fewer stocks and more bonds in his portfolio. A 25-year-old, though, can have a higher ratio of stocks. She’s in it for the long run and can take more risk than someone who’s nearing retirement.

Stay diversified
We’d all like to know what will happen to our money in 2016. While we can count on the media to offer plenty of headlines and opinions about the economy and markets, the danger comes when we base our investment strategy on these headlines.

We can’t know what will happen to stocks or bonds, and we can’t outguess the markets. If I could, I’d probably have a cult following. But we do know this: The markets will go up, and the markets will go down. And some parts of your portfolio will do better than other parts.

Having the right mix of stocks and bonds will reduce your portfolio risk and your potential losses. So instead of trying to pick a bunch of hot stocks, investors should stay diversified and goal-oriented — and not forget about bonds.

(This article was originally published on (

Market Volatility: Don’t Panic. This is Only a Test.

Do you remember this public service announcement? “This is a test. This station is conducting a test of the Emergency Broadcast System. This is only a test.”

The Emergency Broadcast System was created in 1963 during the Kennedy administration and used until 1997. If you were watching a show during that time, you knew not to change the channel or adjust the dials on your TV set. (And in the early days, the three or four other channels you could get were all usually conducting the same test anyway.)

Now let’s add a few words and phrases to that PSA in terms of your investments over the past year: “This is a test. This is only a test of your will and patience.”

This past year, most of your investments were flat (at best) and some even lost money. But if you have a well-diversified portfolio, you should not change your investments — and you should certainly not attempt to guess which investments will be the best performers in the coming year. Investing is inherently unpredictable. But as a long-term investor, you must not be swayed by volatility, even when the grass looks greener elsewhere.

Market cycles

In 2015, many investors may have asked, “Am I in the wrong investments?” Well, if your portfolio is well-diversified, probably not. In fact, it’s likely that it was the markets that performed poorly, not your investments. The reasons for that vary, from economic uncertainty in China to the dramatic drop in energy prices and concerns over potentially rising interest rates.

But none of this is unusual. Markets, like many things in life, tend to cycle. They go up and they go down, and we don’t know when they will do so. The markets have had a pretty good run since 2009, so it seems to me that we were due for a flat or negative year (of course we couldn’t know exactly when that might occur).

What to do?

One of my clients recently asked, “Did anything do well?” As a matter of fact, international small companies did pretty well. (For instance, Dimensional’s International Small Cap Growth fund (DISMX) yielded around 10.5% last year.) He then asked me if he owned shares of any of those kinds of companies. I told him that his broadly diversified portfolio has a small portion of international small companies in it.

Then he wanted to know if he should move most of his money into international small companies. I responded with a resounding “No!” Besides being a riskier investment category, international small companies show absolutely no evidence that they will do well again this year.

No memory

I asked my client to imagine that he was flipping a coin and trying to guess which flip would result in heads and which flip would result in tails. Of course, after numerous tosses, we agreed that he’d have an even distribution of heads and tails. But, more importantly, we agreed that a coin is an inanimate object with no memory. Just because five flips have landed on heads doesn’t mean that the next flip will land on tails.

I explained that stocks are the same way. They have no memory. There is no guarantee that international small companies will continue to do well next year. Sticking to the discipline of having a broadly diversified portfolio helps us avoid falling prey to the false notion that last year’s best performers will be the winning performers the next year.

Keep it boring

A well-diversified portfolio doesn’t speculate or gamble on what is going to happen next. “Investing should be boring,” I told him. “If you want excitement, try hang gliding. If you want to gamble with your money, go to Vegas.”

So in 2016, resolve to stick with your well-diversified portfolio. If you’re not sure whether you’re diversified enough, have a trusted advisor take a look. But remember, this past year was simply a test of your patience and your will to stay appropriately invested, even when the going gets rough.

(This article was originally published on

Act Like an Investor, Not Indiana Jones…or a Caveman

Imagine you’re in a theater watching an Indiana Jones movie. Indy is in a cave searching for lost treasure with a male sidekick and a female love interest. Suddenly, the ground gives way and the sidekick falls into a bottomless pit, screaming to his death.

Trying to save herself, the woman grabs a vine dangling over the abyss, but her weight pulls the roots out of the ground. Beads of sweat form on her brow, her eyes wide with fear. You’re on the edge of your seat as her fear becomes your fear. Indy throws her a lifeline and pulls her to safety.

As the film continues, several more brushes with death stoke fear and panic, while other escapades elicit emotions like greed and lust. But in the end, it’s worth the emotional roller-coaster ride because the hero and his lady find the treasure they were seeking. And we feel the same sense of relief and security they do.

In a way, investing can feel kind of like putting on Indy’s hat, coiling his whip and heading out into the unknown — it can stir up the same primal feelings of fear, panic, greed and more. The difference, of course, is that stocks and bonds pose no real threat to our physical safety. And yet we often react to investment activity as if our life was on the line. We’re prone to letting the fight-or-flight response take over at the first sign of danger. It’s like we’re Indiana Jones — or, worse, cavemen driven solely by instinct.

For instance, if you’re a caveman and a saber-toothed tiger is about to attack, you might try to fight it off with your spear. If you don’t have a spear, then you’ll hightail it out of there and live to fight another day.

Stocks and bonds will never attack us with teeth and claws, but our inner caveman begs to disagree.  Have you ever felt as if you were investing in a sure thing? Have you ever felt, even though you were diversified, that during a market downturn your money was worth zero dollars? Did you get out of the market when the Dow swung nearly 1,000 points a few weeks ago?

These are all caveman reactions. Essentially, money is a replacement for the caveman’s shelter, firewood, meat and animal hides. If these essential elements are taken from him, the caveman is going to die.

To be a successful investor, modern men and women must not let Neanderthal feelings and reactions control them.

Emotions can sabotage the average investor’s hopes, dreams and aspirations. Just as fear of danger could have kept Indiana Jones from acquiring his treasures, fear can keep modern investors away from theirs.

The 21st-century is here. It’s time to turn our backs on caveman feelings and start to grow our 21st-century wealth.

(This article was originally published on

Why You Shouldn’t Panic During a Down Market

The past few days have been turbulent on Wall Street, and it’s been years since we’ve seen this kind of fear among investors. But don’t panic. The best way that I know to combat the fear of a down market is to look back in history and realize that the stock market is an upward reaching entity which occasionally takes a break and hovers at lower elevations for awhile.

Let’s look at the stock market’s history which is the only guide we have. The graph below illustrates every up and down market from 1949 through the end of 2014. Viewing this graph, it becomes evident that up markets far exceed down markets when measured by the percentage of rise and the number of years the markets rise.

For instance, there was a total of 780 months during that 65-year period and 606 of those months were up months for the market; conversely, there were 174 down months. The bottom line is that during this 65-year time period, the S&P 500 index returned 11.5%.

If you’re still anxious, my advice is always the same: stay disciplined, goal-oriented, and diversified. That’s the best way to navigate these market storms.

Up Markets Greatly Exceed the Down Markets/Change in the S&P500 (1949-2014)


An index is a portfolio of specific securities (common examples are the S&P, DJlA, NASDAQ). The performance of which is often used as a bench mark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios, and investors cannot invest directly in an index. Past performance does not guarantee future results. Advisory services offered through Jeffrey A. Bogart, Registered Investment Advisor

“Man Smart (Woman Smarter)”*

Besides the obvious, there may be no greater distinction between men and women than when it comes to investing. Recent studies show:

• 70% of women say they are more comfortable saving than investing;
• Conversely, 70% of men surveyed were willing to take risks for higher returns;
• Over 40% of the men surveyed said they enjoyed the “sport” of investing (I have yet to hear that nonsense expressed by a woman);
• Both professional and amateur female investors take less risk and have more diversified portfolios compared to their male counterparts. This may translate to better investment returns!

Even women who have a basic understanding about investing do not feel they can parlay that information into better investment returns. (Women’s intuition wins again because it’s impossible for anyone to outguess the markets). Of course, men feel the opposite.

Well, gentlemen, I’ve got some bad news for you. It turns out that women, both professional and amateur investors, get better returns than their male counterparts. Why women do better, however, isn’t rocket science. First, women take less risk than men and, unlike men, are more apt to ask for advice. Women, as we all know, are more apt to ask for driving directions, too. (Do you see a pattern here, guys)? Also, women aren’t overconfident (like men) which means they are less likely to be deluded into thinking they know more than they really do. Ultimately, women realize they are not in control. This means that women are more likely than men to attribute success to factors outside themselves, like luck or fate.

Understanding that we have very little control over the markets allows women the rationale they need to avoid panic. What’s more, it allows them to admit when they have made a mistake. When it comes to investing, we can all benefit from both male and female attributes.

Men, your household’s investment portfolio will be less risky and more diversified if your wife helps manage it. Down the road, she’ll share what comes out of that portfolio. Shouldn’t she share what goes into it? Chances are, her ideas and emotions will complement yours, and you’ll both end up wealthier. And at least one of you will end up wiser.

If you have a problem with this, guys, just remember the title of the old Harry Belafonte song “Man Smart (Woman Smarter).”

*Together, we know more than we do alone. Watch this three minute video about “The Power of the Markets.” Just click the link and scroll down to the video.

How I Saved a Client $100,000

I just saved a client over $100,000 in taxes! Now before I tell you how I saved this client six figures, I’d first like you to consider two words: investing and advice.

For some, “investing” is kind of sexy and has all sorts of exciting undertones such as “money,” “stocks,” and “bonds.” These words often invoke some type of action (real or imagined) and even stronger emotions such as security, fear, and greed. On the other hand, “advice” sounds like something your grandmother might give you, a kind of practical (boring?) wisdom. But in my business, it is often advice that trumps investing.

So you’re probably wondering what this all has to do with my helping a client save over $100,000 in taxes. Without getting into the nitty-gritty details, my client’s father recently died. When it came time to divvy up his estate, however, unbeknownst to my client, someone had changed the beneficiary designations from all children equally to the estate of the deceased. I explained to my client that if he and his siblings were to cash in the IRA portion (a significant amount) of their inheritance, all of it would be taxed at the highest tax brackets, and they would lose well over $100,000 to unnecessary taxes!

I suggested to my client that he and his siblings hire an attorney to find out if they could change the beneficiary designations back to the original intent of their deceased parent. Well, I’m here to tell you that it all worked out, and each of the children got to inherit a substantially higher amount of money.

Now getting back to advice. Sure, giving advice may not be as exciting as acquiring a large sum of money to manage, but giving good advice can be even more satisfying. As a financial advisor, my job is not just to grow my clients’ wealth, but to protect it.