Blog Archive

Home
  ›  
Financial Organization
You are here:

While the S&P 500 remained near its all-time high, the recent massive selloff in the technology sector went mostly unnoticed. But for investors who follow the so-called “FANG” stocks (Facebook, Amazon, Netflix, Google) the hit was painful: About $60 billion in value was wiped out in just one afternoon, representing the largest selloff in nearly 2 years.

The wipeout was a function of just how big these companies have become and the position they are in with new tax reform looming. Tech companies are expected to receive little benefit given its already-low average tax rate of 18.5% (below the 20% proposed rate).

This has caused investors to rotate out of the tech stocks and into the financial services sector, which stands to benefit more from a corporate tax rate that would drop from the current 35% to 20%.

Interestingly, the S&P 500 was relatively unaffected while this rotation into financials and out of tech ensued.  The index’s volatility actually remained low, as did correlations among the S&P 500’s member stocks.

In other words, the diversity offered by the S&P 500 Index allowed for the index too remain relatively unscathed by the trading within the tech and financial sectors, a key reminder to investors that having proper exposure across the markets continues to be important with the S&P 500 near its all-time high.

 

Does intelligence equate with investment management success?

Intelligence does not necessarily lead to expertise in every area- especially when it comes to investing.

What might it take to succeed in investing? Intelligence alone? You have to be intelligent to get into Mensa. They only accept applicants with IQs that place them in the top 2 percent of the population. One might expect that if Mensa members formed an investment club, their returns would exceed market averages, or at least match them. In actuality, between 1986 and 2001, while the S&P 500 was returning a robust 15.3% annually, the Mensa Investment Club had average returns of 2.5% per year.

How did these geniuses and near geniuses manage such poor results in such a strong market? Their basic problem was a lack of discipline. Instead of using their intellects to determine a sound investment approach and sticking with it, they got sidetracked into exploring trendy new tools and theories of how to predict market trends. When one strategy didn’t work they tried another. They made frequent trades, thus increasing their transaction costs. In short, they provided a perfect example of Warren Buffett’s comment: “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.” Common sense and discipline will beat erratic genius every time.

In my previous four posts I introduced my guiding principles of wealth management, along with the first four principles (links to one, twothree and four). Today I will discuss the fifth and last guiding principle:

Be specific and proactive by identifying and implementing the actions that will result in the best permanent changes

PrintOver the years, I have had the privilege of observing how clients meet challenges and tackle opportunities. Some have a knack for succeeding in any task they take on, while others seem to struggle more than they need to. Eventually, I saw a key distinction between these two groups: Successful people are usually very specific and proactive, while those who struggle tend to be vague and reactive. They set goals, but they do not follow through with a plan of specific actions aimed at meeting those goals. Consequently, instead of controlling events, they wind up responding to events. Getting stuck in reactive mode is another example of the 85% Trap.

By contrast, when successful people see a need or set a goal for themselves, they develop a specific plan of action. In keeping with the concept of the Essential 15%, they strive to find a permanent solution to every challenge, as opposed to a solution that requires ongoing effort.

In a previous post I introduced my set of five guiding principles for managing finances, the first of which was “Make Your Balance Sheet Your Friend.” Today I will discuss the second principle:

Compare your finances to standards of excellence and use them to make enhancements

Apple Orange

When people with wealth describe to me how they view their current position, they use a wide variety of yardsticks to measure themselves. Some are troubled because they are comparing their finances to friends, family, or associates who appear to be much better off. Others are troubled because they have lost a large portion of their net worth through market declines, bad investments, or business setbacks.

It is more common, though, to meet people who feel quite confident and secure because they’re doing much better than they imagined they would when they were younger. Their confidence may be fueled by the good opinion of others around them, since wealthy, successful people are often accorded tremendous respect and kid-glove treatment.

There is nothing wrong with these benefits of success, but you can’t allow them to lull you into false assumptions about your financial position. If you want to know where you really stand in terms of financial strength, you need to employ objective standards of excellence.

In this article, I will discuss what I call the first guiding principle for managing wealth:

Make your balance sheet, cash flow, and portfolio your friend

Accounting

There is a critical distinction between possessing a high net worth and having a strong balance sheet, cash flow, and portfolio. Problems in these three areas can give rise to huge frustrations and mistakes. The predicament of a gentleman I’ll call “Harry” illustrates this point.

In terms of net worth, Harry was in an excellent position, with total assets valued at somewhere north of $60 million. I would have thought it safe to assume that his balance sheet, cash flow, and portfolio were spectacular, but that was not the case. A very high percentage of his assets was locked up in a private company he owned, or in his homes and other personal property. In fact, when I first met him, his liquid and semi-liquid assets were not sufficient to sustain his rate of spending for much longer. Though he had a $3 million portfolio, he was beginning to tap it at an unsustainable rate. Harry was wealthy and he felt wealthy, but he was heading toward an inevitable cash crunch.

Part of Harry’s problem was that he needed to be more cost conscious. A lot of his cash flow problems came down to over-paying for various goods and services. His mortgage payments were much higher than they needed to be. He was bleeding cash in the form of high brokerage fees. He was paying far too much for financial advice and services that were focusing on the 85% Trap and missing the Essential 15%.

Wealthy families or their advisors rarely appreciate hearing the term “generation-skipping transfer tax” (GSTT) The nuances of this specific tax law can be quite complicated, but there’s a reason Brady Blog 04.07.16for it: families and individuals often enjoy giving from one generation to the next, and the GSTT offers a fixed rate that ensures such gifts are taxed appropriately.

There is a recent study from Boston College’s Center on Wealth and Philanthropy, an estimated $59 trillion will be transferred from 2007 to 2061. While not all of that is subject to the GSTT, it does illustrate how important such a tax is today – and will become for the future (simplistically thinking about our federal deficit and the upward trending expectations for servicing our debt through higher taxes—the government will get their cut!).

It’s been an annual tradition of mine to put something special together to share with clients and friends for the new year. This year, the theme is “The Big Breakthrough” and it includes three powerful tools for mastering time, focus and wealth. Watch the video presentation and download the companion worksheets below:



Big Breakthtrough Download now

File Cabinet - JaniczekI’m excited. I just upgraded my personal finance organization system and, by far, it’s the most complete, accessible, secure system supporting my efforts to be a great steward of our financial resources.

I want everyone reading this blog post to know that I have personally utilized and reviewed many, many methods of organization over the years. My observation is that most people either lack an organized system or have something too complicated, costly and/or time consuming to serve them. I hope my sharing this inspires ideas for upgrading what you have supporting you.

My system is super-simple, super-accessible, super-secure and takes hardly any time or money to maintain. Sound interesting? Read on.

Here’s a summary of the system, organized into a handful of rules:  


*Ranked/Named among Top, Best and Most Exclusive Advisors sources: Barron's March 2016, 2015, 2014; Advisory HQ March 2016; Financial Times June 2015; Five Star Professional November 2015, 2013, 2012,2011, 2010, 2009; Mutual Funds Magazine January 2001; NABCAP September 2010, 2011, 2013; Worth Magazine July 2002, January 2004, October 2004, October 2008; Wealth & Finance International, October 2014. Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Janiczek Wealth Management is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of Janiczek Wealth Management by any of its clients. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Janiczek Wealth Management), or any non-investment related content, made reference to directly or indirectly on this website will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this website serves as the receipt of, or as a substitute for, personalized investment advice from Janiczek Wealth Management To the extent that a viewer has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Janiczek Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the website content should be construed as legal or accounting advice. If you are a Janiczek Wealth Management client, please remember to contact Janiczek Wealth Management, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Janiczek Wealth Management current written disclosure statement discussing our advisory services and fees is available upon request.

TM & Copyright 2017, Janiczek Wealth Management. All rights reserved.