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For the fourth year in a row Janiczek Wealth Management has been named to Barron’s Top Financial Advisor list*, now for 2017, 2016, 2015 and 2014!

 

Barrons 2017Mr. Janiczek was named one of America’s top financial advisors* in the March 4th, 2017 Barron’s issue.  The prestigious list of top investment advisors was also published in The Wall Street Journal by Dow Jones & Company, a division of News Corp on March 9, 2017.

The rankings are based on data provided by over 4,000 of the nation’s most productive advisors. Barron’s draws from all 50 states, plus the District of Columbia. It includes a cross-section of private-wealth advisors—from independents who own and operate their own practices to advisors from the large Wall Street firms.  Barron’s states, “This special report lists the top advisors in each state, with the number of ranking spots determined by each state’s population and wealth.

The rankings are based on assets under management, revenues generated by advisors for their firms, and the quality of the advisors’ practices. In evaluating advisors, we examine regulatory records, internal company documents, and 100-plus points of data provided by the advisors themselves.” 

The role of tax strategies in trading and managing investment portfolios

Certain tax strategies can add a meaningful boost to portfolio performance because taxes are an explicit cost to any portfolio and, therefore, a detractor from performance. Although tax situations are unique to each individual, any strategy that limits or delays the tax bill and retains more after-tax return for investors will face little argument.

“Avoidance of taxes is not a criminal offense. Any attempt to reduce, avoid, minimize, or alleviate taxes by legitimate means is permissible. The distinction between evasion and avoidance is fine yet definite. One who avoids tax does not conceal or misrepresent. He shapes events to reduce or eliminate tax liability and upon the happening of the events, makes a complete disclosure. Evasion, on the other hand, involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events, or making things seem other than what they are.”— Internal Revenue Manual Code 9.1.3.3.2.1 (05-15-2008) 26 USC §7201 – Avoidance Distinguished from Evasion

Assuming all investors pay taxes either now or later, the chart below illustrates the benefit of delaying taxes. We assume a portfolio of 60% stocks, 40% bonds that is rebalanced every year. The solid line depicts the growth of the 100% taxable portfolio, while the dotted line shows portfolio growth in a 100% tax-deferred portfolio. Of course, the taxman arrives eventually, so we show the hit (a worst-case all-at-once tax consequence) to the tax-deferred line when withdrawing at ordinary income tax rates.

footballThe last 18 months have been a volatile time in the market with fears of a Chinese recession causing a temporary market pullback in August 2015, Eurozone concerns causing a dip in February 2016, and Brexit triggering a quick decline at the end of June this year. Through all of that, the S&P 500 is actually up 3.67% over the last 12 months and 6.17% year-to-date. Because the S&P 500 is up 6%, your portfolio should have returned around 6% this year, right? Not necessarily, and if you’re in a diversified portfolio, likely not.

The problem with comparing a diversified portfolio to “the market” is that the S&P 500 only measures companies that make up a portion of a well-diversified portfolio. Football is top of mind as it is nearly football season again (HALLELUJAH!) so allow me to draw an analogy. Lineman, the largest players in football, make up only a portion of NFL football players. Comparing the S&P 500 to a diversified portfolio is like comparing the average size of an NFL lineman to the average size of an NFL football player. While players of the same sport are being compared, the comparison is apples to oranges because there are a large variety of statures in the NFL. The same goes for investing where there are countless asset classes available.

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%.

What can you learn about systematic investment management from Henry Ford?

Ford Model THenry Ford is recognized as the father of the auto industry, largely on the strength of one innovation: the automotive assembly line. Looking back at the process he pioneered, Ford recalled the inefficiencies it replaced:

A Ford car contains about five thousand parts. … In our first assembling, we simply started to put a car together at a spot on the floor, and workmen brought to it the parts as they were needed in exactly the same way one builds a house. … The rapid press of production made it necessary to devise plans of production that would avoid having workers falling over one another. The undirected worker spends more of his time walking about for materials and tools than he does in working; he gets small pay because pedestrianism is not a highly paid line.† 

Ford knew that in his new system, the assembly line, there were high-value tasks, such as welding the parts of a car together, and there were tasks with little or no value, such as fetching tools and parts. The more workers were occupied by the former tasks and not the latter ones, the more efficient the overall system became.

An exceptional quarter century came to a close

An abstract closeup of two gold cast statuettes depicting a stylized bull and a bear in dramatic contrasting light representing a financial market trends on an isolated dark background

A multi-asset, mega-bull market can create both wealth and bad habits

Most investors today in mid-career or nearing retirement age have prospered in what I would term a secular, multi-asset, mega-bull market – a multi-year period of above average returns in several asset classes primarily at the same time. During this time, investment management did not necessarily require the same discipline as in later years.

It is often useful to review bull and bear market cycles in retrospect, because the full extent of the extremes are revealed. Looking back on the previous bull market cycle, the 25-year period from 1982 to 2007 was arguably the single best quarter century ever enjoyed by U.S. investors. Bonds were in a bull market that extended throughout this whole period. Stocks were in a secular (long-term) bull market from 1982 to 2000. There was one memorable decline in 1987, when the market suffered its largest one-day drop in history (22.6 percent). But that “Black Monday” proved to be a mere hiccup in the Dow’s climb from a value of just over 800 in 1982 to 11,722 in January 2000.

Lessons in Financial Strength

“A financially strong investor is a superior investor.” This observation, distilled from my 25 years in the field of wealth management, is simple and yet so profoundly true, I decided to make it the motto of my company. All too many investors learned this truth the hard way during the recent financial crisis: You do not become financially strong by achieving superior results; you achieve superior results by becoming financially strong.

Early in life, my family drove home the importance of strength. My family didn’t buy the home we lived in, we built it. My brothers and I helped my father pound in the nails that held the frame of the house together, and you can bet we didn’t just walk away from boards or joists that still felt rickety. My father built nuclear power plants and oil refineries, structures that must be built to last and able to weather hurricanes and earthquakes. His duties gave him a “stronger is better” way of looking at life, which rubbed off on me.


*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.

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