Month: October 2016

Veterans Day

Last month, in a small town called Taylor, Pennsylvania, George Fricovsky received his high school diploma.

You probably didn’t hear about it.  Very few did, unless they lived locally.  After all, what’s so remarkable about receiving a diploma?

For starters, George is 90 years old.

Now that’s a bit more unusual.  Why is a 90-year old receiving a diploma?  And why did it take him so long?

For that, you have to go back to 1944, when World War II was raging.

“Youth is the first victim of war.”  – Baudoin of Belgium

George was only 18 years old at the time, and he had not yet graduated from high school.  Nevertheless, when his country called, he answered.

Before he could receive his diploma, George was whisked away to the Army and basic training.  By December, he was in Marseille, France, with the 276^th US Infantry.  The war in Europe would end only six months later, but George saw more, experienced more, and achieved more in those six months than most men do in a lifetime.  By the time he returned home, he had earned a Bronze Star, an American Theater Service Medal, a European-African-Middle Eastern Service Medal, and a Good Conduct Medal.

He also received a Purple Heart after surviving an explosion that severely damaged his leg.

Upon returning home, George enjoyed a productive and happy life, working in the Army Depot and raising a family.  But he never got that high school diploma.

Now fast forward 72 years to October 11, 2016.  George had been invited to visit Riverside High School to lead a local board meeting in the Pledge of Allegiance.  Or so he thought.  Instead, he was surprised when the Vice Principal presented him with a reward unlike any other:

His high school diploma.

Perhaps most gratifying to George was that the Vice Principal was none other than his own grandson.  “He always talked about the one thing he wishes he was able to do was to graduate high school,” his grandson said.

So why are we telling you all this?

First of all, it’s a sweet story.  But that’s not all.  As you know, Veterans Day is coming up.  And when we came across the tale of George Fricovsky, it made us stop for a moment to think about what Veterans Day means to us.

It’s nothing new to say that veterans sacrifice so much in service to our country.  Their time, their talents … and sometimes their lives.

But as George Fricovsky proves, they also sacrifice more than that.  They sacrifice many of the life experiences we take for granted.  High school graduations and first dates and Saturday nights spent with friends.  Opportunities to be best men or bride’s maids.  Watching their favorite sports team win the championship or taking that trip to the Grand Canyon.  Birthday parties and funerals.  Their child’s birth.  Their child’s first steps.

Many of these may seem like small, trivial events … but they are also fulfilling, enriching experiences.  They are the very flavors of life.  And our veterans forego them, all because their country called.  So it was with George Fricovsky.  So it is with the veterans in our towns and neighborhoods.

That’s why it’s so heartwarming for us to see a veteran like George rewarded … not with a medal, or a statue, or a commendation, important as those things are.  But with the gift of an experience—an experience he had given up so that others wouldn’t have to.

So this Veterans Day, let’s all strive to remember the veterans in our communities.  Let’s all strive to make their futures as rich as the future they have given us.

From everyone here at Minich MacGregor Wealth Management, we wish you and the veterans in your life a happy Veterans Day!

Mental Money Mistake #3: Being Too Afraid of Risk

This is the third article in a series titled “Mental Money Mistakes.”  What are mental money mistakes?  They’re subtle errors in judgement; basic oversights and miscalculations.  As a rule, they tend to be subtle and easy to miss.  We don’t mean big mistakes like taking on a bunch of debt, spending more than you can afford, or being too risky with your investments.  No, these are the kinds of mistakes just about anyone can make, even if you’re intelligent and hard-working.

Most investors know how important it is to avoid taking on more risk than they can afford.  That’s why advisors like us spend a lot of time going over concepts like “risk tolerance” with our clients.  After all, no one wants to get burned by a bad investment and end up losing a hefty chunk of their nest egg.

But did you know that it’s possible to be overly risk-averse?  Some investors are so afraid of losses that they end up missing out on opportunity after opportunity, and in the end, simply don’t have the funds they need to accomplish their financial goals.  When that happens, they’re really no better off than the investor who risked too much, are they?

Take this example.

Imagine two relatively young investors, both in their mid-thirties.  Let’s call one Jim and the other Alice.  Both Jim and Alice know they need to save for retirement, and decide to invest $5,000 per year for the next 30 years.  Unfortunately, Jim is extremely cautious (to the point of timidity).  He’s so anxious to avoid risk that he decides to put most of his money into Certificates of Deposit, or CDs.  CDs are traditionally seen as fairly safe, so Jim feels good.

Alice, meanwhile, is also cautious but decides to invest more heavily in stocks.  Over the next thirty years, she sweats the ups and downs of the markets like most of us do.

Now fast forward thirty years.  Both Jim and Alice are in their mid-sixties and getting ready to retire.  For simplicity’s sake, let’s say that Jim earned about 2% interest a year on his retirement savings.  When you factor in compound returns, Jim ends up with about $211,000.

Alice, on the other hand, ended up earning about a 7% annual return.  Some years were higher, some were lower, but the average is 7%.  (This is a fairly conservative average, but it makes things easy to calculate.)  She ends up with almost $510,000.  That’s over twice as much as Jim.  That means she has a lot more money saved up for retirement … and lot more to apply to her financial goals.

All because she was willing to take on a little more risk.

This same principle applies to retirees, too.  Of course, retirees should invest more conservatively than younger investors.  But again, that doesn’t mean they should sacrifice all potential for growth.  You see, many retirees often discover that the money they saved can dry up pretty quickly, especially on things like medical care.  Retirees need income, and allocating at least a portion of your portfolio for growth is a good way to generate that income.  That means accepting at least some risk, even when you’re retired.

The fact of the matter is that all investing involves some risk.  While it’s crucial that you avoid taking on too much, it’s also important to not take on too little.  So as you save and invest for the future, take time to determine not only how much risk you can afford … but also how little.

Keep an eye out for next month’s article, where we’ll discuss Mental Money Mistake #4: Following the Crowd.

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Why You Shouldn’t Worry about the Election

On November 8, we will vote to decide the future leader of our country.  We will choose our commander in chief.  Our head of government.  Our most visible icon.

We will vote for the next President of the United States.

One thing we won’t be doing, however, is deciding what the markets do. We won’t be voting whether the markets go up or down. We won’t be voting on your investment portfolio. The markets, thankfully, are far too sophisticated to be determined by one person or one event.

Recently we’ve seen a lot of hand-wringing from investors worried about the upcoming election.  Many people have told us, “I’m afraid to make any financial decisions until after November.”  The thinking goes that once we know the name of our next president, we’ll be able to predict what the markets will do.  Only then should we make any decisions.

However, this reasoning is flawed.  Here’s why:

No one actually knows what will happen to the markets after the election.

Whether the winner is Hillary Clinton or Donald Trump, we can try to predict what the effect will be, but no one actually knows.  That’s because …

We Don’t Know What Each Candidate Will Do in Office

Guesswork is a risky business.  While we can guess what Trump or Clinton will do, no one knows for sure.  Frankly, most politicians have become infamous for being vague about their plans.

Then too, presidents have a habit of saying one thing on the campaign trail, then doing something different while in office.  That’s because ideology often gives way to practicality once politicians actually have to get things done.  Compromises have to be made and unforeseen circumstances responded to.

In other words, campaign promises often take a backseat to political necessity.

The Markets Respond to More than Just Who Occupies the White House

Let’s pretend for a moment that we do know exactly what each candidate will do.  Sounds great, right?  We can make all the right decisions based on that knowledge.

But here’s the truth: the markets move for no man or woman.  No one principle governs them; no single event determines their destiny.  The markets are complex, because so many things can affect them.  The President is just one person.  Similarly, the election is just one event.  An important one, true, but the markets react to thousands of events throughout the year.  One event does not control them … just as we shouldn’t let that one event control us.

There’s another reason why some people refuse to act until after the election.  It’s called …

Emotion

Making financial decisions based on emotion is never a good thing.  Too often, we let emotions get in the way.  Emotions can prevent clear thinking and make us react impulsively.

Therefore, when people say, “I’ll wait till after the election,” or “I want to do X because I’m afraid President Y will be elected,” they are making an emotional decision instead of a rational one.  We think the main emotion is fear.  Fear that their preferred candidate will lose and the other will win.  Fear that everything is going to be doom and gloom.

Don’t believe us?  Let’s take a little quiz.  Below are the last seven presidents of the United States, with their political party next to their name.  Look at each name and guess whether you think the S&P 500 went up or down during the first year of their presidency.  Write your guess in the space provided, if you like.

Now, maybe you will score 100% on this quiz.  But we are willing to bet at least a few of the answers will surprise you.  Speaking of which, here they are (each number is rounded):¹

Is there anything you didn’t expect?  Maybe Reagan’s first year was worse than you thought, or George H.W. Bush’s first year was much better.

Frankly, if even one of those numbers comes as a surprise, it should be food for thought.  After all, if we can’t guess how the markets did in hindsight, how can we accurately predict what’s going to happen in the future?  Every president on the list above had their strengths and weaknesses, but the numbers next to their names were the result of far more: they were the result of all the events, big and little, that they could not foresee and could not control.

You might be saying, “This is hardly a traditional election”.  That is true—from a likeability standpoint, both candidates are historically flawed.  However, the fact remains, the markets are driven by far more than one person and one event.  We often say that the president is the leader of the free world … but they still do not determine which way the markets will go. 

That is why you shouldn’t get too worked up about the election—at least not with regards to your finances.  As always, we should make financial decisions based on planning instead of predictions.  That is the way to control your financial future.  No one else controls it for you … not even the President of the United States.

If you are still worrying about the upcoming election, please give us a call.  We can discuss your portfolio.  We can talk about any opportunities that might exist right now.  We are constantly monitoring both the markets and Washington, so if anything happens that you need to know about, rest assured that we will be dialing your number.  Our job is to give you the best financial advice possible.  Right now, that advice is: do not let one person or one event control what you do or how you feel.  When it comes to your finances, there is only one person that matters:

You

As always, please let us know if you ever have any questions or concerns about your portfolio.  In the meantime, have a happy autumn … and do not sweat the election!

¹ “Annual Returns on Stock, T.Bonds and T.Bills: 1928 – Current,” Stern School of Business, NYU, accessed October 3, 2016.  http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html