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We feel very fortunate Mary Davis has joined us to assume Kyries role. With East Tennessee roots, her 1986 entry into financial services was with brokerage firm operation departments, leading to a Charles Schwab & Company retail client service position in Birmingham, Alabama. Yes, for some reason she is an Alabama fan. Those brokerage firm positions required significant testing for several securities licenses. More recently, Mary was Chief Compliance Officer at Sovereign Wealth Management in Memphis. This means she was their liaison with the Securities and Exchange Commission for regulatory matters. To prepare for these responsibilities, Mary earned the IACCPsm designation, awarded by National Regulatory Services.
Now, Mary’s position is Client Services/Administrative Assistant with us at Resource Advisory Services. Much of her work at Sovereign was astonishingly similar to Kyrie’s at Resource Advisory Services. In a nutshell it involves three complex software and electronic communication systems, plus extensive direct communications with other financial institutions. These functions make our personally written Quarterly Reports feasible. When you are in contact with Mary, take a few minutes to get acquainted. Her father was an Air Force dentist, which had Mary living in Alaska for many years. She has also lived in a number of other interesting places.
Read more via Mary K. Davis Has Joined Resource Advisory Services.
January 13th, 2012
by J. David Lewis
The time around each New Year has become very special for me. Of course, the news media fills its commentary with events of the last twelve months. We take a longer view; to consider events in each client relationship since we began our journeys together. I must say the letters we write with this season’s Quarterly Reports are among the most personally rewarding for me. Several of our clients have been with us more than twenty years. Even the much shorter relationships have personal stories. They all provide many memories I savor. There is more to money than money®. Life as an adventure is exciting. A new year is starting, with more in store for all of these relationships.
We use graphs, with annual columns to represent each client’s history of Total Assets – not just investment accounts. While increasing investments is important for future security, we also think it is important to have appropriate increases in those things that make life better now. Adjacent columns represent Total Liabilities. The distances between the tops of these columns graphically display net worth progress, which is the most comprehensive measure of financial strength. At a glance this measure of success – or lack thereof – is clear. These reports are not about how well we managed investments. They are about how well our clients managed their financial strength with our help.
The text of these reports compares each client’s financial strength now to several recognized events. These histories are important tools. If you cannot compare your current total assets and debts to your past, I encourage you to document them now, so you can make this comparison at the end of 2012 and at least once a year thereafter. I am finished with mine for 2011. The “Once a Year Task” doesn’t take that long and the information is amazingly useful.
Even if progress is less than you intuitively believe, you can actually feel more secure. Facts, even disappointing facts, help guide confidence in managing resources. In our experience, the exercise of measuring results regularly reveals that most people are in better shape than they imagined. Whether you are doing better than you believe or worse, knowing facts is better than not knowing.
Let’s say your change in net worth is positive. Was that because you have more assets than a year ago or did you reduced debts? We like to see net worth increased by both these components.
What assets increased or decreased? Do you have more investments, a nicer home or a new car? We have seen several situations where people displayed great distress over publicized market events, when their net worth was relatively stable. Investments were just not that big a factor relative to other issues for them.
The significance of maintaining these annual Net Worth Statements takes on more meaning with just three years of history. At the end of 2008, markets had been particularly brutal for several months. At the time, knowing how much that bear market effected net worth could make the events of the time more bearable. Not all the components of net worth are affected by the ups and downs of stocks.
Since December 31, 2008, investment returns for those who “weathered that storm” should be a contributor to net worth growth. The S&P 500 Index return from December 31, 2008 to 2011 was 14.11% per year. For many people, personal debts have also been reduced significantly in these years. With records of your historical net worth, you could expect to see encouraging improvement. Your view can be more comprehensive than just the last twelve months.
Five years ago, markets were approaching their highest level ever. The peak was reached in the third calendar quarter of 2007. Except for rare circumstances, investment performance has probably not contributed a great deal of personal net worth growth, with a five-year S&P 500 Index return of -0.25%. However, for those who continued systematic contributions to 401(k)s and other investments, alongside debt reductions, net worth growth should be respectable.
Ten years ago, December 31, 2001, it was about 3 ½ months after 9/11 and about 15 months before markets reached that low point in the spring of 2003. In 2001, we did not know when the bottom would come. It was painful, after two years of decline from the robust 1990’s. Now, the ten-year S&P 500 Index return is 2.92%, which has increased through 2011. This ten-year return is very low relative to the vast majority of ten-year S&P returns. Yet, we know that many people have managed to increase net worth through these years. Consider how knowing your progress might help you face the future now.
There is more to money than money®. Investment performance is only one of many factors that influence growing financial strength. Investment contributions, withdrawal management and debt management are the keys to building and maintaining resources, whether the markets are performing well or poorly. Returns cannot come close to these factors – particularly since the year 2000. Knowing the reasons for your unique results is important. So, now is the time to start building your documented history. The knowledge will make a difference in your enjoyment of life. Start this New Year with at least 2011 data in hand. This is a core service we provide clients and will be glad to help you.
Contact J. David Lewis directly with david.lewis@resourceadv.com or share your thoughts on this topic below. He founded Resource Advisory Services in 1985. National Association of Personal Financial Advisors (NAPFA) was formed only a few years before. Lewis became a NAPFA-Registered Financial Advisor in 1986. He is a passionate advocate for fiduciary, fee-only financial planning and has been associated with financial services since childhood in a banking family. 56975
January 4th, 2012
By J. David Lewis
There is little doubt virtually everyone who gets this email is well aware of recent turbulent markets. At the end of June 2011 the S&P 500 Index returns were 30.69% for twelve months, 2.94% for five years and 2.72% for ten years. Stock market values dropped sharply around the beginning of August and have been volatile since. When I started drafting this text, markets had been sharply down for several days. As I draft and edit, they have rallied. The bulls and bears are still in their struggle. These alternating good and bad days have been the nature of things for about sixty days. For September 30, S&P returns were 1.14% for twelve months, -1.18% for five years and 2.82% for ten years. It is not surprising a lot of people feel something must be done on the worst days of the down periods. There is more to money than money®. And, there is more to this situation than just making a few trades.
During the recent quarter I had a conversation with another investment advisor, in which my friend asked about our portfolio adjustments in light of the markets. This is not an unusual question. I see several broadcasted emails a week from reporters wanting the same kind of commentary. When I told my friend we believe in building portfolios we are satisfied to hold through tough times, he concurred that our philosophy is correct in terms of investment management. The disturbing part of the conversation was his explanation for their recent portfolio changes.
My friend was concerned about calls from distressed clients. He felt compelled to show them account activity to maintain their relationships. In effect he said, “I don’t know whether what I am doing will improve investment returns or not – probably not.” I felt he was noticeably uneasy that he was making changes solely to soothe clients. When I described the conversation in our office, we all felt gratitude for our client relationships. We do not feel the pressures that seem to prompt many advisors’ departure from their belief that well diversified portfolios should not be disturbed based on recent market events. Unfortunately, I think many advisors do a lot of things to appease clients’ moods instead of well informed investment reasoning.
We think it is important to help clients consider their securities portfolio in the context of all their resources. It is not unusual to see someone very concerned about stock market events when all the stocks they own are a relatively small portion of their total assets. For some fortunate people, pension and social security income cover a large percentage of their day-to-day cash needs. Therefore, the cost of their lifestyle does not require much from their portfolio, and probably never will. Yet, they feel considerable emotional stress from market volatility, without considering whether the portfolio is already prudent for their situation. Possibly you can feel at least some relief by just putting your exposure to stocks into perspective relative to the rest of your resources. Try to understand the true significance of market volatility to your personal situation.
With this line of thinking as our context, we consider ways to create portfolios we are comfortable holding during tough market conditions. Periods of volatile markets are virtually a certainty in the future. They are also generally some of the worst times to change investment allocations. Facing the fact that there will be tough markets helps develop better portfolios.
Regularly, we merge all a client’s accounts into one portfolio listing, where mutual fund names and categories are together in a logical order. This yields a rough impression of the client’s exposure to stocks in general and various types of mutual funds. At this level of review, we consider diversification and portfolio behavior characteristics we can reasonably expect. Other times we create more sophisticated reports to understand allocations from different perspectives. Because mutual funds that appear to hold U.S. stocks almost always have bonds and non-U.S. stocks, it is important to see allocations to specific types of instruments without regard to the mutual funds that hold them. Often this deeper research reveals different allocations among instruments than the mutual fund names imply.
With this array of tools, we can analyze how a portfolio would have behaved through the ups and downs of the past ten years, which has an unusually rich assortment of ups and downs. This sense of portfolio resilience can go a long way toward revealing how damaging market events might really be. We know there will be tough markets that will affect our clients’ securities portfolios. The issue is to develop a sense for how much they will be affected. We believe strongly that the perspective and judgment these rigors bring is far more significant than the latest news stories. In our view, changing portfolios to imply we are reacting to recent events and news seems deceptive.
I hope this summary of our philosophy helps you understand how significant this, or any, turbulent market is for your total resources – not just your 401(k) and other investments. It is likely you are personally less vulnerable than you may feel. Of course, we will welcome the opportunity to give our professional opinion of your specific financial strength.
Contact J. David Lewis directly with dlewis@resourceadv.com or share your thoughts on this topic below. He founded Resource Advisory Services in 1985. National Association of Personal Financial Advisors (NAPFA) was formed only a few years before. Lewis became a NAPFA-Registered Financial Advisor in 1986. He is a passionate advocate for fiduciary, fee-only financial planning and has been associated with financial services since childhood in a banking family. 55585
October 6th, 2011
Markets with Bulls and Bears Pondering an S&P Downgrade
by J. David Lewis
It is time again to write about my thoughts on current events. When I started these newsletters, I promised myself I would not write them unless I felt I had something significant to say. For a few months I have not felt my comments warranted space in mailboxes. There was too much noise for a coherent opinion.
The line was, if a debt ceiling deal was not reached, our credit rating would fall, interest rates would rise and markets would react badly. On July 28, a journalist asked for my thoughts with two primary questions (“Knoxville Advisers Tell Investors to Hold Fast” by Josh Flory). What am I telling clients to help understand what it all means? And, what should they do about it? Frankly, despite all the noise in the media, we have not had that many clients asking these questions. When the article appeared, the two other advisors it quoted seemed to have many such calls. Our office discussed the contrast.
The article did a good job conveying advice to maintain portfolios developed in more rational times. I had told Flory we know there will be market crises. I have seen many in very personal ways. We do all we can to build portfolios we are willing to live with through whatever happens and commit to helping clients maintain strength. We publish this in Our Investment Philosophy and Disclosure – Form ADV Page 8 on our website with these words:
“Resource Advisory Services has an extraordinary commitment to holding portfolios through whatever market conditions prevail at any given time. There have been at least six market crises since the formation of Resource Advisory Services. It has been steadfast through all of those. It has weathered days when people were convinced stocks had to be sold, and then watched as markets recovered in ways that were far more dramatic than could be imagined on the worst days. When Resource Advisory Services felt pressures to “move into tech stocks,” in the late 1990s, it resisted very strongly. Resource Advisory Services does not restructure portfolios quickly under pressure.”
We avoid saying “if there is a market downturn” by using “when.” We do not want any false hope anyone might avoid frightening times. Appropriate asset allocation can affect portfolio volatility. Low risk allocation does not seem to help clients feel comfortable when there is disturbing noise. The owner of our most conservative portfolio was once very concerned about a relatively minor market event. We need to help anyone we can understand that shocking times are a part of life.
Near the end of my interview, to illustrate the effect of noise, I said a lot of people are talking about a debt downgrade increasing interest rates. For several years I have believed interest rates are almost certain to rise from current levels, without regard to the debt ceiling deal. They are far below my perception of normal. I remember economic volatility when studying finance during the 1960s. In 1980 I was a student again with the turbulent economic events of the 1970s and my banking experience as my background. Interest rates were much higher then. More reasonable interest rates are higher than now. Current rates are too low to sustain. This idea made it into Flory’s article.
The debt deal was reached. The next morning I read an S&P report about July’s exceptional corporate earnings, followed by news that General Motors profits increased 92%. Then the stock market collapsed. Interest rates went lower for now. The week ended with unbelievably good employment information. I remembered telling Flory that a bad deal on the debt is probably worse than no deal. The markets expressed their immediate reaction to the deal and seemed to ignore the good news.
Now, S&P has downgraded our country’s debt. On Sunday morning (August 7) I heard two political parties say the other had made the debt deal bad and S&P was not giving us justice. It is like fighting siblings when parents try to stop them.
S&P is only one of many organizations making judgments about our debt. China’s expressed their doubts clearly. I doubt China considered the S&P view. China did independent research, much as quality portfolio managers do independent research.
There are many bulls and bears in the markets for our bonds. S&P may influence some. The most important buyers and sellers want proof we can unwind our emergency and social excesses. It will not help to blame political parties or the bulls and bears. We have to actually do something. The markets, like good parents, are not much interested in excuses, whining or other noise.
Last September (2010), at Mount Rushmore, I heard a park ranger talk about the immense problems those presidents faced. He quoted Jefferson on a government that gives its people the ability to change the government as situations change, even to the point of replacing the form of government if needed. It is probably not time to talk about replacing this government. It is time to do all we can to insure that the leaders we pick will actually work on the issues that make our country stronger.
We are the people. We have the votes. We elected the politicians we have and should accept our personal responsibility in this. Prove to the bulls and bears of the world that we will now vote for those who can solve problems. Given the problems those presidents faced and solved, the current problems can be solved if the people have a coherent vision and really want the fundamental problems solved. In the meantime, I expect Resource Advisory Services to stand by the portfolios we have.
Click here for the original “Markets with Bulls and Bears.”
Contact J. David Lewis directly with david.lewis@resourceadv.com or share your thoughts on this topic below. He founded Resource Advisory Services in 1985. National Association of Personal Financial Advisors (NAPFA) was formed only a few years before. Lewis became a NAPFA-Registered Financial Advisor in 1986. He is a passionate advocate for fiduciary, fee-only financial planning and has been associated with financial services since childhood in a banking family. 54564
August 7th, 2011
I have more or less given our readers a rest since January. When I began these newsletters several years ago, I resolved to avoid offering them unless I felt I had something meaningful to say. In 2008 and 2009, they were sometimes more often than monthly. Readers seemed to appreciate my words during a very confusing time. In 2010, with the economy improving, I wrote less and shared more from published articles I read.
As 2011 began, “More than Money Resource” expressed our philosophy on building and enjoying wealth as opposed to just managing a portfolio. Until very recently, I have not seen a great deal that warranted adding another email to your day. Near the beginning of February, I considered describing a list of the mutual funds we used in the mid-1990 versus those we use now. I aborted that writing when I realized I could cover the subject with a short paragraph:
It is remarkable that these two lists are so similar. We have dropped a few choices. Remembering the reasons is educational for Resource Advisory Services. Several have been added, which is testimony to Bryan Hankla’s capacity for studying the corporate personalities of mutual funds and their managers. Although I enjoyed that work for years, I am glad someone with his excitement is doing the “grunt work.” The collaboration we share is much more rewarding.
Near the beginning of March, I considered “The Second Anniversary of The Bear Market’s Bottom.” I think most people are weary of thinking about those six months of incredible stress. While I understand it is important to know there will be future market crisis, as well as other very disturbing events, anyone who reads “my stuff” knows my philosophy. I will encourage sticking it out through the next shocking bear market. We tell our clients this is what they can expect from us. The most troubling feelings from the past three years are those times we could not help more people stay invested to experience the last two years of recovery.
All-in-all, the first calendar quarter of 2011 has been pretty uneventful with respect to the kinds of things I might write for “More than Money Resource.” The S&P 500 Index return was 5.92% for three months. For twelve months, from April 1, 2010 to March 31, 2011, it was 15.65%. In history, these are rather humdrum results. As always, there are storm clouds all around. When there are not issues that cast doubt on the economic future, and the most discussed fear is missing opportunities everyone else seems to be enjoying, those are precisely the times we should be very concerned. So, the lack of a significant writing project for three months is probably a good thing. The January issue of our newsletter, Smart Advice for 2011, may have been about as good as we could have shared. Let’s hope the rest of 2011 is as relaxed as it has been so far.
Contact J. David Lewis directly with david.lewis@resourceadv.com or share your thoughts on this topic below. He founded Resource Advisory Services in 1985. National Association of Personal Financial Advisors (NAPFA) was formed only a few years before. Lewis became a NAPFA-Registered Financial Advisor in 1986. He is a passionate advocate for fiduciary, fee-only financial planning and has been associated with financial services since childhood in a banking family. 52450
April 5th, 2011
Smart Advice for 2011 – More than Money Resource
By J. David Lewis
The beginning of a New Year means we have all started another trip around the sun together – nearly 7 billion of us. The end of one year and the beginning of another really does bring changes in people. At least I believe relationships feel different at this time of year. Starting in late November, writers were asking financial advisors for “smart money moves” to include in 2011 New Year stories. They mentioned things like which stocks to buy or tax tricks to use in the coming twelve months. I didn’t respond to any of those. Frankly, my responses probably would not be as exciting as they wanted. We do believe thinking about a few things at this time of year can help your chances of building and enjoying wealth:
- Try to improve your enjoyment and proficiency in your career. From our experience, it is clear that people who really enjoy their work get better at it and have the best chances to build wealth. For some fortunate souls, work is not work. Sometimes it becomes intense. They need a break, but they virtually never regret the things they do to earn their living. If you don’t feel you have this, 2011 will be a good year to find ways you can move closer to it in your profession. If you realize it is not available there, begin looking for ways to get where you need to be. It is never too late. I was in my 30’s when I discovered financial planning and adopted my philosophy of the way I wanted to do it. That was an extreme step that has meant everything to me.
- If you do number 1 well, assuming our society recognized value in whatever that career is, you should be able to earn an appropriate reward for your contributions to the world. And, the lifestyle that income provides will probably feel very good when you consider how much you will have to give up in working where there is less joy and more money. No matter what “smart money moves” you read in publications or hear at parties, earning appropriate income for work you enjoy is the first and largest step in building wealth you can enjoy. Can you improve this in 2011?
- Next, there is a balancing act – to allocate that income among three things. They are things you absolutely need in 2011, amenities to make life more enjoyable and growing net worth. It is not all about accumulation. It is about balance. I don’t remember seeing people who were both happy and totally fixated on building net worth. We are fortunate in helping people see their wealth grow at reasonable rates. They all seem to take great satisfaction in clearly seeing the progress and the activities that affect progress. What can you do to develop a measurement system for seeing how well you balance these elements by December 31, 2011?
- This puts building net worth, or wealth, fourth in our list of “Smart Advice for 2011.” In our society, people really do need to accumulate resources so they can maintain those amenities of life when they no longer enjoy the activities that generate income. In the last while, we have worked for someone who was born and educated in a Communist country. I have an interesting feeling when I think of him telling me he had education, prestige, a better apartment than most and anything else he really needed. He just didn’t have money or choices. I think it is important to keep perspective in an understanding that we accumulate to have choices in our lifetime. In this country, we are not likely to starve. It is the choices accumulated wealth can give us that make increasing net worth important. Income that is not spent on necessities or amenities should increase net worth. It can either reduce debt or contribute to investments. Debts are future income that is spent for necessities and amenities before it is earned. Payments on debt reduce choices in the future. Investments are resources put aside for future spending. Think about your best ways to measure success on both of these fronts in 2011 – while prudently enjoying amenities of life. Balance is important.
- The smartest investment moves you can make in 2011 are essentially the same as they have been every year. First understand that it is impossible to predict exactly what investments will be best in any one year. Pick a variety of very good ones with a personal resolution to hold them until the time you, or your heirs, will spend the money they represent. Understand that this could be a wonderful year for many kinds of investments. It could be very bad for any of them as well. Good investments are not dependent on the year or as solitary instruments. They are elements of a portfolio, where the portfolio results are the measure that is important. It takes five to ten years to know whether an overall portfolio is producing a prudent return.
In 2011, resolve to make the overall portfolio the primary measure of investment results and net worth the primary measure of financial results after you have figured out how to make the source of your income the most enjoyable it can be for you.
Contact J. David Lewis directly with david.lewis@resourceadv.com or share your thoughts on this topic below. He founded Resource Advisory Services in 1985. National Association of Personal Financial Advisors (NAPFA) was formed only a few years before. Lewis became a NAPFA-Registered Financial Advisor in 1986. He is a passionate advocate for fiduciary, fee-only financial planning and has been associated with financial services since childhood in a banking family. 51077
January 6th, 2011
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