By Brad Thomason, CPA
 
 
The Dow Jones Industrial Average is a price-weighted index, whereas the Standard & Poor’s 500 is a market-cap weighted index.
 
If, at this minute, you are thinking to yourself, “Bradley, why on Earth would I ever care about that?,” I’m about to tell you.
 
Not all indexes (or indices, if you prefer…) are calculated the same way.  I’m not going to brutalize you with the whys and hows of the various methods.  But just know that in a market-cap weighted index, the biggest, most valuable stocks exert the most power on the value of the index.
 
Which companies are now the big ones exerting extra pressure on the S&P 500?  The big tech stocks.
 
Historically, are tech stocks more volatile or less volatile?
 
Tech stocks, for the last few decades have almost always been high-multiple stocks which are valued based on their growth potential, rather than the old-school book value/multiple-of-earnings type of process traditionally applied to companies working in the more tangible fields.  That’s a valuation basis that inherently focuses more on what a company may become, as opposed to what it already is. 
 
Which also inherently must leave the door open for the possibility that it will fail to fully attain that theoretical potential. 
 
An abiding characteristic of high-multiple stocks is that in times of malaise and panic, their prices usually get hammered worse than your average ticker.  Investors who are willing to push their shares higher in times of prosperity, seem to know that they are skating on thin ice, and usually head for the exits much more vigorously at the first little sounds of cracking.
 
A mini version of this happened just the other day, around Thanksgiving, when news about the Omicron variant started coming out.  Nothing really changed in the economy.  But the prospect of a new wave was a scary enough piece of speculation to trigger a low-grade sell-off.  High multiples and bad news do not play well together.  In that particular example the prices snapped back fairly quickly once the news was not so new.  But in actual crashes, the timescale is much longer, even when the underlying mechanics are the same.
 
So what if you had a situation where, over time, a country’s highest multiple growth stocks sustained enough success that they eventually came to be that country’s largest market cap stocks, too?  And the predominant stock market index for that country used a market-cap weighting…
 
It has been the case now for the past two or three years that the S&P 500 index has been dragged around disproportionately by the biggest components at the top of the list.  Like the top fifty; and at times the top fifteen or twenty.  The other 450 - 485 have had net behavior which was at times much different, but you wouldn’t know it just by looking at the index quote on the news.  If you weren’t watching the individual pieces, you wouldn’t necessarily notice it.
 
Since the movement over that period has been up, up, up, you probably weren’t watching the pieces.  The news from the market seemed to be unequivocally good, so why bother, right?
 
What, if anything, does all of that tell us about what the next stock market crash might look like? 
 
Well, if the market gets spooked by some sort of sustained bad news, the first and most severe casualties are likely to be the ones with the highest speculative multiples in the first place.  Since, at this moment in history, those stocks also happen to be many of the mega-caps, then they are going to have an out-sized impact on the resulting index measurements.  They have to, based on the formula they use to get the index number.

 
In other words, our responsible (but somewhat inattentive) retirement saver may have put a bunch of money into index funds or ETFs, thinking that doing so was a boringly-conservative thing to do, only to find out that doing so at the present time instead had the effect of causing them to be over-weighted to the tech sector – currently at record high valuation levels. 
 
Thought they were playing it safe and boring, but in actuality volunteered for concentrated exposure to the most highly-valued, volatile stocks in the land.  Oops.
 
And maybe Ouch, too.
 
All because of some nerd math that you didn’t even know was something you had to worry about.
 
But now you do.  So that’s at least a step in the right direction.
 
In a real crash, you really don’t want to be in stocks in the first place.  Historically, about eight out of every ten stocks typically follow the major market moves, especially the downward ones.  This next time it could go differently, though.  Because of the excess “air” that’s in the really big stuff, the mid caps and small caps could have a different time of it, and maybe even fair pretty well. 
 
But if all you have is index-denominated holdings, you may never feel that difference.  The rapidly- deflating giants will be enough to sink the whole index, and your account balance, too.

By Brad Thomason, CPA
 
 
If you want to be wealthier in one year than you are today, mechanically, two basic requirements need to be met.  First, earn a return.  Second, don’t withdraw anything.
 
That’s it.  If both of those conditions are met then in a year you will be wealthier than you are today (at least with respect to your investment portfolio, proper.  I’m ignoring changes to debt levels, home value, business holdings, etc, for purposes of keeping this discussion simple). 
 
Perhaps it seems like it should be more complicated than that.  For some reason we tend to want things which are important to be the result of grand means and requirements.  But in this case, it’s just those two things.
 
There’s nothing much to add.  But it probably is worth an extra minute to dig a little bit deeper into what is there, such as it is.  That’s often a good route to better understanding.
 
First, just take note of the fact that wealthier necessarily means more wealthy.  So to set that up there had to be some wealth to begin with.  Without some basic amount of wealth at the beginning, there’s no means for earning that return.
 
On the matter of withdrawals, to say don’t do any at all is admittedly sort of blunt-instrument-esque.  If you earn ten and withdraw two you are still eight ahead, for instance.  So we don’t actually, mathematically, have to have an absolute moratorium on withdrawals.
 
But if the goal is to get as much wealth growth as we can (for the level of risk incurred), then we don’t want to spend any of the return.  I like to use the term ‘give your money a life of its own.’  This is what I mean by that. 
 
If your investments earn returns, let them fuel future investments and future returns, and higher levels of growth.  Don’t spend them on a fancy vacation or a new car you don’t need.  That sort of thing. 
 
Eventually, when you get to retirement, you will need to use that accumulated wealth to pay the bills.  But inventing voluntary bills along the way works at cross purposes to that larger mission.  Ultimately, I’m not saying don’t go on the vacation or buy the car, by the way, as much as I’m saying if you do spend those dollars, let them come from this year’s paychecks.  Don’t raid your brokerage account to get them.  Not if creating the best possible chance of a successful retirement is your goal.
 
So that’s it.  Two things.  Use your old money to make new money, and then send the new money out to earn some more new money of its own instead of spending it.  Repeat year after year.  Get ever-wealthier.  Retire secure.

By Brad Thomason, CPA
 
 
Oh inflation, you are some tricky stuff. 
 
In principle, so simple that a school child can understand.  In practice, so complex as to befuddle the collective brain power of economists, banking regulators and financial advisors, the world over.
 
Inflation is a topic in the news these days, for the first time in a long time.  I think I saw a headline the other day that inflation is now at a 31 year high, or something like that.  The type of inflation we are seeing right now is, at the moment, generally considered to be a temporary effect of the pandemic.  First there were breaks in production at the beginning of the pandemic, followed by what is essentially a glorified traffic jam right now in global shipping.  Net result, goods can’t get to market, supply goes down, prices go up.  Econ 101 stuff.
 
I think it is fair to say that most prognosticators expect prices to go back to “normal” once the supply issues are resolved.  I guess if I had to take a position (which I don’t, since I’m not an economist), I would say that seems the most likely of the possibilities.
 
But it certainly isn’t the only possibility.  There are a couple of pretty significant data points that don’t fit so cleanly up under that thesis.
 
One is the fact that the price of oil has gone up quite a bit.  And how much of that is attributable to delivery logistics is open for debate.  For several years now oil has been trading in the lower end of its range.  This recent move higher – still well short of the top end of the historical price range – is a somewhat naturally-occurring feature of the oil market.  Yes, I’m sure there’s plenty of banter out there about this group wanting more production, or that country making some other decision.  But if you turned off the news and looked just at the price chart, it wouldn’t jump out at you that anything overly extraordinary was going on.  Commodities fluctuate up and down, over time, just because they do.
 
Oil not only impacts transportation costs, it is also a key input in a lot of products that you wouldn’t immediately think of as petroleum-based (fibers in clothing; corn, by way of fertilizer and tractor fuel, etc).
 
So if oil stays high, even after the supply chain is flowing smoothly again, those costs might still drive, or at least support, higher price levels.
 
Another possible factor is that wages have actually risen over the last few years, and one of the classic definitions of inflation is “more dollars chasing the same quantity of goods.”  So that too argues for some persistence, maybe even permanence.  Who knows?
 
In recent years, the year-to-year rate of inflation has not been particularly high, and I have had some conversations in which people asked me if that was really still something that they needed to worry about.  I’ve always said yes.  That’s gotten me some skeptical looks.  But to think otherwise would be to think that a historical trend that is centuries old had, for some reason, stopped.
 
But I understand where the question comes from.  What we are seeing on the inflation front, at the moment, certainly stands in contrast to what has been going on for the past few years.  Which is the aspect of the topic I want to highlight in this post.
 
Inflation does not follow a smooth line of progression.  Instead, it follows a pattern of surges and pauses.
 
When we model for it we usually use a flat rate each year.  We do this because it is infinitely easier, mechanically; not because it necessary reflects what we expect to happen.  Also, significantly, even though we don’t expect it to be perfectly smooth, we have zero insight into when the surges will come.  So it’s not like we have a better version of the future that we could put into the projections, but just don’t want to mess with it.  Which gets us back to the flat-rate assumption, which we know is unlikely to be right, but is nonetheless the strongest of the imperfect candidates available.
 
The fact that inflation changes from year to year has substantial implications for managing the years of retirement.  Indeed, it is this variable nature of inflation that is a prime reason why we say you need to monitor what happens, replacing projected data with actual results each year, as those results occur, and then reassessing the overall situation. 
 
Notably, the fact that investment result can be variable is actually less of a driver than inflation (and medical spending).  That’s because in retirement, if you have down-shifted your risk level, you won’t have as much variance – if any at all - in your returns.  That is in fact a big part of what ‘lower risk’ means in this context:  higher likelihood of getting exactly the return you think you will get, as is the case with most interest-bearing instruments which are held to maturity.
 
So if we take all of that together, and we put in a meaningful assumption for inflation, then it is not as big a deal when we have a surge like the one we are seeing right now, whether the surge remains permanent or not.  If you made projections five years ago, you would probably view current inflation as something of a catch-up to the inflation that was predicted for the four previous years, but never fully manifested.
 
Bottomline, inflation is still real and still something we have to account for.  Moreover, even though we might put it into the calculations as a consistent force, we should keep in mind that it is not in reality.  Doing so helps to keep things in perspective, and acts as an inoculant against sharing in the hysteria when the media starts writing headlines of impending doom and gloom.  Like rainfall, inflation is just part of the natural landscape.  You can spend a lot of time and effort trying to figure it out and predict it… and likely failing as often as you succeed.  Or, you can just accept that it is, get an umbrella, and shrug your shoulders when it comes along. That’s my preference.  Both for rain, and inflation.

By Brad Thomason, CPA
 
​
Today we’re going to talk about annuities and the people who buy them.
 
Quick point of clarification: I’ll be discussing fixed annuities, not variable annuities.  Variable annuities are a hybrid insurance product and registered security, all wrapped into one.  They are often hopelessly complicated, and frequently maligned because they tend to have high fee structures.  By contrast, fixed annuities are not exactly the simplest things in the world; but they are nonetheless pure insurance contracts that don’t seem like they are trying to be the Swiss Army knives of the financial product world.
 
A fixed annuity is an agreement with an insurance company to receive income in exchange for a lump sum (or in some cases, a series of payments).  Because these are multi-year commitments, there is always some sort of interest being paid, in one form or another.  Frequently there are multiple payout options for a particular contract, at least at first glance.  Substantively however, there are really only two options:  income for life, or income for some shorter period of time (of which there may be more than one shorter period offered).
 
Understanding what is going on here is fairly simple if you recall that the reason insurance exists in the first place is to transfer risk away from the person paying for the insurance. 
 
People who select to receive income for some period less than life (e.g. once a quarter for ten years, monthly for five years, etc) are essentially taking out the contract in order to collect interest.  The rate on annuities is frequently higher than for CDs and Treasury Bonds, so the risk being shifted is the risk of being able to find something that pays a higher rate.  Insurance companies have money managers, bond traders, and so forth already on staff.  By taking out the contract, the annuity purchaser is essentially getting access to the work these people do, rather than having to do it (or find someone to do it) themselves.
 
However, people who choose the income-for-life option are addressing a very different risk:  the risk of living too long and running out of money.
 
Let’s say that a 65 year-old person expects to have enough money to live on for the next 20 years.  On the one hand, that’s a good thing.  Twenty years of apparent security is a lot more than most people have.  Then again, people can and do live past 85.  What happens then?
 
Well, if the person owns an annuity for which the life income option has been selected, the annuity payments will continue past 85.  The insurance company will be legally obligated to keep paying out as long as that person is alive, just as they are legally obligated to replace a car if it gets stolen, or a roof if a tree falls through it.  In the more extreme case, where the person lives another fifteen or twenty years past 85, he/she will continue to receive income far in excess of what the original savings amount could have (safely) produced had the annuity contract not been entered into.
 
Again, the thing that is being insured, in this case, is the risk associated with living too long.  Which may be a very expensive proposition, depending on how long it lasts.
 
What happens if the person doesn’t live past 85?  Same thing that happens if no one steals your car or all of your trees behave themselves.  The insurance company keeps the premiums, and you had years of peace of mind of knowing that they were on the hook if the bad thing happened.
 
So those are the two basic uses of annuity contracts (with numerous variations on the themes, accepted).
 
When you articulate a pair of options people inevitably ask you which is better.  In this case, there isn’t an answer to that question; at least not in the spirit that the question is posed.  Think of annuities, instead, as a tool capable of doing a couple of different jobs.  If you are in the market to complete either one of those jobs (i.e. interest earnings, or income you can’t out-live) then an annuity contract is a tool you want to take a look at.  It might be the best tool for the particular job that you are interested in, and even if not, it might be a sensible one to use alongside some of the other financial instruments/products out there.

By Brad Thomason, CPA
​
 
Do you remember the Six Million Dollar Man?  Even though I was a kid at the time, it was not lost on me that such a sum was supposed to be essentially incomprehensible by a normal human.  Later, when I was in high school, I have a vague recollection of someone associated with the military (a recruiter, I guess) pointing out, in the afterglow of Topgun, that six million is about what the US government had to invest to get a fighter pilot all the way trained.  I think he told us that because he was trying to impress us.  I don’t specifically recall; but I bet it worked.
 
Well, times change, and amounts which once seemed titanic have a way of becoming more mundane.  Six million dollars is still many, many more dollars than I would want to fork over for a barbeque sandwich.  Even with the sides.  But it is no longer a number so big that one simply can’t wrap the old head around it.  You may not have six million dollars.  But the mere idea of it doesn’t utterly boggle the mind the way it did when Lee Majors was jumping around with that springing sound in the background.
  
I was thinking about all of that because the other day I was doing some modeling for a client, and it turned out that over the period of time we were looking at, the investment portfolio was going to need to generate about six million for the plan to work.
 
Now, before you start thinking that this guy must be super-rich and has a massive annual budget to go with it, I’ll go ahead and tell you, he isn’t and he doesn’t.  I can’t give you any personal details, of course.  But his request was more in the form of “what would it take?” rather than “what should I do with my actual savings?”
 
So since it was a hypothetical in the first place, I can give you the broad strokes.
 
There were two basic questions.  The first, if a 55 year old needed an income of $120K a year (today’s dollars), what would that look like by age 70 if inflation were three percent every year?  Second, assuming some Social Security, and investment performance of 7% pre-retirement and 4% post-retirement, how much starting capital (i.e. at 55) would it take to fund that scenario all the way to age one hundred?
 
So we grossed up the income, entered the other assumptions, and regressed the matter back to the conclusion that the balance at age 55 would need to be about $1.5 million. 
 
That’s sort of a simplistic way to look at the matter, and if we had been trying to do more than satisfy a curiosity, we would have used additional methods, looked for corroboration and generally sought to fine tune where we could.  But for this assignment, the basic route was enough to provide the necessary approximation.
 
While looking at the year-by-year results, we also took a look at the total investment earnings over the period.  Over six million dollars, as I mentioned earlier.
 
Let me state that a different way: the whole exercise was going to cost just shy of $9.5 million.  Being alive for decades ain’t cheap, even if you aren’t being extravagant.  Of that total, the initial capital amount plus all of the Social Security was going to take out about $3 million of the total.  So the investments were going to have to earn the rest.
 
The reason I’m pointing this out is because it is very easy to think of investment returns as just some percentage number you drop into a spreadsheet that serves to make the totals end up where you want them.
 
But investment returns represent actual dollars that have to be made, one way or the other.
 
Are you thinking of retirement in terms of “what do I need to be doing to earn six million dollars?”
 
In some respects the whole reason you want investments is because you don’t have to do anything for them to make money.  But that, too, is just a touch simplistic for the real world.  You might not have to toil in the field to make the dividend or interest payment spring into being.  But you do have to be diligent about keeping the capital deployed, and thoughtful about where you put it, so that the risks inherent to the particular investment don’t lead to more exposure than your situation can reasonably abide.  Investment capital represents productive capacity, but it is up to you to steer it to the places where the production can occur.
 
So yea, what’s your plan to make six million dollars (or whatever your number is)?  I think that is a pretty good thing to think about, man.

By Brad Thomason, CPA

I think that in the modern world, among thoughtful persons, the notions ‘money isn’t everything’ and ‘you can’t buy happiness’ are accepted as truisms.
 
At the same time I think it is brutally true that if a person is having money troubles the odds are very high that it will spill over into other areas of life and make it much harder to realize much sustained/uninterrupted joy.
 
So that’s sort of a paradox.
 
Here’s another.  Most people think nothing at all of spending forty or fifty hours a week for forty years to be able to pay the bills that come rolling in every month.  Yet they balk at the idea of having to spend extra time setting the stage to be able to do nothing once they retire.  It’s as if the simple passage of years is supposed to magically take care of all of their needs for two or three decades (or more) after they decide to hang up their spurs.  Or perhaps, they put in their forty at the office, so it isn’t right that they should be asked to put in any more time/effort/thought as payment for some far-distant future benefit.
 
That has always seemed like a mismatch to me, too.
 
Well, we live in a world of paradoxes, and being upset by their mere presence or investing great efforts to attempt to resolve the unresolvable isn’t going to be anyone’s first, best use of time.
 
But I will tell you this.  I’ve noticed that most of the people who end up doing well financially in retirement get there via one of three paths:
 
1.    Those who accepted a lower salary during their working years in exchange for old-style retirement benefits.  Folks like school teachers, government workers, etc.
2.      Those who engaged in some sort of active money making, and did well with it.  This would include business owners, professionals who have their own practice, and what you might think of as active investors like traders, real estate developers, and so forth.  Notably, these people make a lot more money than the average person; and in the really successful cases, manage to keep their living expenses from growing at the same rate as their revenue.
3.       Those who are extremely diligent at being financially responsible, across the broad spectrum of variables, their entire adult life, and who pile up a win one grain of sand at a time over a period of decades.
 
There are other paths to the goal than just these three.  But in my experience, these three are the most common.
 
What I think is significant about all of these is that they inherently require aspects of extra effort, or sacrifice or both.  These people did not get into the win column by accident, nor did they get there without paying a price.  They might not have gone so far as to make their entire existence about amassing wealth and nothing else.  But neither did they ignore it or act on any feelings of being slighted at having to make some sort of investment.
 
Whether they meant to or not, these folks found a way to take up a middle position within the paradox.  They did not let money become everything.  But neither did they lose sight of the fact that money troubles can foster far-reaching pain, and as such, are worth making an effort to prevent.
 
On all fronts, those are good examples to follow.

By Brad Thomason, CPA

​A lot of people are wondering right now what to make of the stock market, and what to do about it.
 
There have been a number of points throughout the history of the last hundred years or so in which one could pile up all the theory and logic in the world on one side of the scale, and what actually happened in the market on the other, and the comparison would not even be close.  Sometimes for good, sometimes for ill, what actually happens in the market can at times be the utter opposite of what should have happened, based on any sensible notion of how the market supposedly works and what it is supposed to represent.
 
Since 2000, you can find entire ten-year periods in which the market gained less ground than it did within the last year.  I’m not sure either one of those facts make sense.  But I am sure that they happened, and that investors were affected by that market activity far more than they were by the mountains of academic papers stating that the market works a different way.
 
One of the features of market activity the past couple of years has been a tendency for a few tickers to drive most of the net growth, while most of the others sort of milled around, netting out each other’s moves within the index measurements.  This past period will be held up for many years to come as an example of why you just want to own the index and not try to pick individual stocks.  If you were picking blindly over the past few years, odds are you would not have picked the relatively few that did the moving.  But just because we have undeniably seen this sort of behavior recently, one cannot assume that it will continue to be that way in any sort of stable form going out into the future.  It might.  But, also, it might not.
 
Moments like these lead to a lot of head scratching.  The question of what to do gets muddled with the question of why did this happen, and the result for a lot of people is a kind of paralysis.  No one knows what to do, so they don’t do anything.
 
When I have conversations with people about this topic I usually suggest that they stop trying to figure out why the conditions are as they are.  You don’t have to be a properly-calibrated theorist to make money in the market.  Or lose it for that matter.  Pondering why is not such a productive act, especially if it isn’t your job to be able to (try to) explain it to others.
 
Instead, focus on the action step.  Because, it turns out, that may be a good bit more straight-forward.
 
If you haven’t retired yet, the standard response to a run up in one of your asset classes is to rebalance.  You still face the question of whether to stick with the allocations you had before the period of increase, or whether to go hunting for some new opportunities.  For instance, a lot of equities in other parts of the world have really taken a pounding during the last 18 months.  So if you do not have an international allocation, now would be a good time to ponder adding one.  Or, you can just use some of the gains from your US stocks to further build other domestic allocations in bonds, real estate, whatever.  But either way, taking some action is probably better than doing nothing.  A market run up provides you with a lot of new data, and new data is generally a good reason to reassess old decisions and plot new actions.
 
If you have retired, I would regard the matter much differently.  If you’ve read any of the other materials on this site you probably know that I generally take the position that the risk of the stock market is not an appropriate one for those who have already retired.  That goes double in cases where the person has reached a level of assets where it looks like they will be able to successfully fund their entire retirement need.  If you’ve won, get off the field.  That sort of thing.
 
Well, if you are already retired, and you had enough to endow your retirement, and you have still been in the market through this run up, congratulations.  You gambled and won.  So what’s your action step?  Guess that depends on whether you want to keep gambling or not.
 
I find that a lot of retirees push back on the idea of exiting the market because they think doing so somehow violates some theory or directive that they think they are supposed to be following.  They’ve read some book or listened to some talking head who has said that one is supposed to remain invested.
 
But if you press these authorities-on-the-matter for substantive reasons as to why that should be the case, most of the answers come down to being able to leave more money to someone else when you die.
 
Now, don’t get me wrong:  I think leaving money to your kids or your church or a favorite charity are all fine goals.  I just question why they would be on par with making sure you have all of your own financial needs covered.  I don’t think they should be thought of as equals; one is much more important, to my way of thinking.
 
So, if you are retired and wondering what to do about the stock market, am I telling you to take the money and run? 
 
I’m telling you that you certainly ought to give it some thought.

By Brad Thomason, CPA
 
When you are working as an analyst – professionally, or in your daily life, even doing something mundane and inconsequential like sorting through Yelp reviews while looking for a place to eat lunch in a town you just happen to be passing through at lunch time – the fact that you are looking at data makes it easy to lose sight of another fact: every one of those data points within the set came from somewhere.  Every one of those data points is the result of something actually experienced by a firm or an individual.

COVID case numbers come from real people, sitting at home with an absurd fever, thinking that this stuff really is as torturous as they say.

Unemployment data represents people trying to find work to feed their families, and not being able to do so.

Even those Yelp reviews (presumably) represent actual food put on actual plates and enjoyed, or not, by actual people; one meal at a time.

Point being that while data in its accumulated form is a practical way to get general impressions, it necessarily strips out much of the information associated with the origin story of each data point.  It sort of has to, if you think about it: otherwise, the analyst would be overwhelmed with information and not able to do anything in the way of drawing conclusions and contemplating decisions.

But in the face of all that, it is nonetheless important that, while the data might differentiate simply between employed and not employed, there is a whole lot more to the story.  Every story. Every single one of them.  Perhaps millions or even billions of them.

So with that as preface, at the level of data, what can we say about the impact of the last 17 months?
We can say that it has been a period where the productivity of the human race was reduced.  On that score, I don’t really think there could be any legitimate argument.  I also think any reasonable person would have to admit that is a monumental event/development/occurrence, one which is likely to have truly far-reaching impacts which in some way or another touch many lives.

But which touch points? And how many of them? Well, that is the question, isn’t it.

Our particular interest in this space is the impact on investors, both retired and preparing.

Some investors will experience changes in income dynamics of interest payments or dividends.

Some investors will see changes in valuation, and these may not be completely sensible, nor single point events. Some will see asset prices drop to levels that seem ridiculous based on the fundamentals, while others will see the opposite.

But those seeing the opposite shouldn’t rejoice too soon, because a frequent trick that the market likes to pull is the run-up-and-stall. It seems like huge growth in one year, but it’s followed by a period of essentially nothing (in other words, some wobbling – quivering? - but no net movement).

Or worse, it comes back down later.

Project-oriented investors might have to delay their development timeline. Business owners may have to re-capitalize, switch product mix, or adjust employee complement up or down.

And so on. What this means is that we should a) expect pretty much everyone to be impacted and b) expect that the particular impact to differ literally from one person to the next.

​I also think the financial ramifications of this period have not fully played out. So even if you haven’t yet felt any negative impacts, you shouldn’t be surprised if some show up later. Hope for the best but be aware it could still go the other way.

It is at these times that the value of a well-formed plan is most obvious. When unexpected events occur – good or bad – having an unchanging portion of the picture is extremely useful in figuring out how to react. Having already worked out what you want to do ahead of time, you can simultaneously wear your analyst hat, trying to discern what happened to everyone, as well as your data point hat (because after all, your particular story is one of the ones that makes up the data set), tracking which decisions are most important to consider and which actions are most important to stay, or get, back on track.
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​Alternately, if you don’t have such a plan, now is a good time to form one. After a disturbance is actually a more calm place to operate in than you might imagine. Moreover, it sets you up to be in a better position the next time the dealer tosses out a wild card; an event history tells us we should assume is coming again at some point, in some form. 

By Brad Thomason, CPA
 
When I was a kid, my dad was a devout and utterly consistent watcher of the daily news. National and World news at 5:30 (NBC, with John Chancellor; and later Tom Brokaw) and local at 6:00 and 10:00.

On slow news days, when they would have stories involving some celebrity, he would often remark, “Are we supposed to know who that is?” It would drive my mother crazy, and she would make some aggression-less criticism about him being out of touch. He would usually reply with OK or Whatever. It had the rote feel of the sort of call and response exchanges that are often part of religious services.

The Lord be with you…

Well, I don’t think it’s strictly genetic, but I have become aware in recent years that I frequently see headlines about folks who, by context, obviously must be celebrities. But I have no idea who they are. I see articles in business publications about how people over 30 feel like they are losing touch with culture and, by proxy, reality. How they feel insinuations of obsolescence even as they are only reaching the age that for decades (at least) signified the point where most were just starting to hit their stride. It is accepted and unchallenged dogma that we are living in a fast-paced world where little remains as it was and that the present gives way at break-neck velocity to a future so dynamic that nothing which came before could possibly hint at what’s to come next.

​But is that what’s really going on?

In the midst of new technological innovations and rapidly changing popularity of this idea or that person, it’s easy to get lulled into thinking that there are no sands but the shifting sands.

But haven’t younger musicians, actors, athletes been replacing older ones for as long as you’ve been alive?

Isn’t the idea of ‘this year’s fashions’ an ancient one?

Doesn’t gravity, electricity, photosynthesis, lunar orbit and the desirability of honest – to - God backyard tomatoes still work the same as always?

And as for innovation, does the umpteenth new social media platform really count? I mean, how many different ways to stay in touch does the human race really need? And whatever that number is, haven’t we already surpassed it?

The hallmarks of good financial management that existed on the day you were born remain the standards today: work for what you need and want; live within your means; prepare for the day when you won’t be working anymore so that you can still live comfortably without burdening anyone else.

Now it’s certainly true that the chaos of popular culture finds its way into the financial markets from time to time. New investors enter the market and presume that all of the existing players are morons; speculative frenzies – GameStop, Bitcoin, Tesla – catch fire, only to be set down later for the next hot issue; politicians say and do things to pander to voters looking for ‘new ideas’ and not-stale leadership. So, we can’t ignore these things altogether.

Still, we can’t let them trick us into thinking stability and inertia no longer exist. Many of these elements of change are just the latest versions of what the world has seen many rounds of before, no different than the changing crowd of performers that gets invited to the Grammy’s every year.

The risk here is to assume that if you don’t keep up, if you don’t have the latest financial app, if you aren’t fluent in crypto-currencies, if you aren’t monitoring what’s coming down the pipe, then you are per force falling behind, with ever-dwindling hopes of being able to cope with the world. That the prospects of success are dimming before your eyes, and that basic survival itself could be next.

My advice: don’t fall for that. It isn’t true. The game is still about what it was always about: having enough money to pay for what you have deemed to be your version of a comfortable life. The delivery of financial and economic information may have changed, and the current data may be influenced by current fads, but the core machinery is as it always was; making it just another aspect of the world that is much more prominent than we sometimes realize.

When I cook a steak over a charcoal fire it works the same way it did when I was 20. When I fish a stretch of shoreline, I find that hooks and tree branches still have the same affinity for each other that they ever did. Dogs manage to hold on to the image of being obedient, despite a compliance rate far less than 50%. Have things changed? Sure. But not everything; and maybe a lot less than we sometimes think. Especially when it comes to the stuff that has the biggest impacts on our lives.

​I’ll stop there. Going to go out and throw the frisbee with the kids for a bit. Have a nice day, and perhaps a warm beverage, too. Come to think of it coffee and tea have lost none of their power, best I can tell. Something to think about.

By Brad Thomason, CPA

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Did you ever take one of those Myers-Briggs personality tests?  Did you know that the type of personality that you have may make it easier (or harder) for you to find the mental energy to engage in retirement planning?
 
As you probably know, the MB test gives you a four-letter code which is associated with one of sixteen particular personality profiles.  Each of the places in the code is associated with a pair of possibilities.  The second letter will always be either an S or an N.  S stands for “sensing,” and it basically speaks to the idea that you are primarily a concrete, objective sort of person who needs to see it/touch it/hear it etc to feel like it’s an aspect of reality worth paying attention to.  N, on the other hand, stands for “intuiting,”(The letter I was already taken by introverted, in the first-position pair) which is something like a willingness to be more open to abstractions, conceptualizations and other things that don’t have a basis in one of the five senses.
 
Now to be sure, every person has some degree of openness to both means of interacting with the world.  It’s just that we tend to have differing degrees, and as such one generally ends up being favored over the other.  Even if we aren’t consciously aware of the preference.
 
So what in the world does this have to do with retirement planning?  A lot more than you may think.
 
It turns out that our preferences about dealing directly with what is there or is not there impacts how we tend to experience time.  Think about it: if you are focused on sensation then you can deal pretty directly with whatever is going on right now, as well as things which have already happened.  But what about the future?  How do you interpret the future in terms of sensory inputs when those events haven’t occurred yet and those sensation haven’t been created?  The simple answer is, you don’t.  And therein lies the crux of the matter.
 
A common misunderstanding about personality types (whether as defined by Myers-Briggs, or any of the other scales, such as the Big 5) is the idea that it reduces the person to being nothing more than a product of fixed wiring, in which the person really has no choice other than to following their programming.  This is not the case.  All persons are completely free at any time to engage in behaviors which are counter to their personality type.  The personality type simply identifies preferences, not absolutes which must be followed.
 
But even though there is nearly unlimited freedom to go against preference, most folks can’t do so without paying a price.  That price, in most instances, is that you find the against-the-grain behavior to be more tiring.  Which if you think about it, sort of wraps back around to the idea of preference:  if A makes you tired and B doesn’t, which one would you prefer?
 
Admittedly it’s all about circular, and perhaps even a bit vague.  But the bottom line is that people who have S as the second letter of their code often have a harder time thinking about the future.  Not that they can’t do it; just that they have to work at it more.  Intuitive persons, who typically are more comfortable with abstract concepts and idealizations about how good things could be, frequently find themselves thinking long and hard about the future as part of their daily routine, without even meaning to.
 
In terms of distribution, in most western populations, there about two S-people for every one N-person.  So more folks than not are going to be susceptible to feeling the elevated brain-drain when they think about the future.  You are intelligent enough that you do not need me to tell you that just because it might be harder, it is still necessary.  That’s pretty self-evident.
 
But I brought all of this up just so you would know that if you find it grueling to spend any significant time focused on the task of retirement planning, it’s not all in your head.  Well, I mean actually it is all in your head.  But it isn’t imagined.  It’s real, and potentially rooted to something that you can’t do anything about.  So like every other significant accomplishment in your life to this point, the simple (if not easy…) solution is to engage it proactively, put in the work, and win anyway.
 
As a final item, if you have ever wondered how folks like me could make a career out of dealing with something that most folks find exhausting, it may be nothing more complicated than being on the opposite of the ledger from where you are:  I’m one of those N people.  So it seems a lot more natural – not to mention far less tedious – to me to think about what could be, rather than to focus on what has already happened or needs to happen today.  Those things wear me out as much it does for you to engage in planning.  
 
In the final analysis, I don’t think it’s a case that one is better than the other, in terms of the big picture.  But at the level of individual tasks, it certainly does seem to impact fitness and ease of performance from one task to the next.  Doesn’t change what we have to do.  But there is subconscious machinery at play here, and if you find the prospect of working on your retirement plans daunting and/or grueling, it may not be a lack of motivation or willpower on your part, just a simple matter of how you were wired at the factory.