Fact or Fiction

Like many financial advisors, I get asked about my investment philosophy when engaged in business or social settings. I explain that my core investment philosophy is a strategic, evidence based strategy that is steeped in rigorous academic research.  At this point, people just look at me, so I usually go on to explain what I mean and how I implement it.  

Most of the time I think they are expecting me to tell them about XYZ investment with the star manager that will make them the envy of their friends at the country club and guarantee financial success.  Unfortunately, there is nothing like this, but that doesn’t stop marketers from trying!  

I find that things have really changed in my almost twenty years as a financial advisor. There is so much information readily available to the investing public that is always disseminated as fact, and never fiction. All someone needs to do for financial success is invest in a particular investment, attend a seminar, buy a book or sign up for coaching. It is becoming more of a challenge to tune out the noise for everyone involved. 

I think it is more important than ever to separate fact from fiction when discussing investment management.  I was recently reading an article from Morningstar columnist John Rekenthaler that I believe does an excellent job of harnessing the emotions of investors today while addressing a very important investment topic.    

Big Moves, Big Reactions
The worst investment thinking comes at market extremes. The nuttiest period in my 30-year investment memory was the peak of the New Era, in 1999-2000. "Dow Jones 36,000" was a best-seller. Morningstar technology analysts received death threats for downgrading stock ratings. The 80-year old mother of a senior Morningstar executive loaded up on CMGI, an Internet bubble company that lost 99% of its value over the next two years. 

The next silliest is today: The Great National Funk. This, too, came courtesy of a stock market extreme: the 2008 market crash, which gave the S&P 500 its biggest calendar-year loss in 77 years. Once again, the sheer size of the market's movement, like a power surge to an appliance, or a tidal wave to a retaining wall, overwhelmed the senses. It shorted circuits, overflowed barriers, battered rationality. The New Era inspired giddiness and greed; The National Funk brought anxiety and fear. 

This led to the widespread idea that strategic, buy-and-hold investing was an outdated concept. The notion spread throughout the investment community after 2008, promulgated by Wall Street investment strategists, money managers, and personal-finance writers. This time, we were told, things were different: The buy-and-hold strategy that worked in the past would not work in the future.

Failed Explanations
This was a claim based on emotion. It was hatched from The Great National Funk and was sold into The Great National Funk. In reality, the investment conditions of 2009 were no different from those of years before. It's true the economic news was much less pleasant. Stock prices were much lower, the country was in a recession, and there was even the fear of another depression. These things shall pass. Economic cycles occur, and stocks sometimes get hammered.

It's also true that 2009 looked very different in the rearview mirror. For the first time in decades, the trailing 10-year return for stocks lagged that of cash and bonds. But again, these things come and go. There is no ironclad rule that risky assets will outperform safer assets over every rolling decade. Sometimes they don't. No matter. How the numbers land should not affect investment policy. It makes no more sense to doubt the wisdom of buying and holding stocks when at an unfavorable endpoint for stock returns than it does to decide to own more stocks at a favorable endpoint. 

Finally, there was the New Normal argument, as advanced by PIMCO and Bill Gross. The main prediction of the New Normal was economic: The U.S. economy would not roar out of the 2008-09 recession, as is expected during recoveries, but would instead trudge along at only a modest pace. That analysis was spot-on and has earned PIMCO much-deserved credit. 

The secondary prediction of the New Normal concerned investments: that stocks would have a lower rate of return in the future, and that stock investors would not automatically succeed by buying on dips. That analysis has been wrong--very wrong. Stocks have had a spectacularly high return since Gross wrote those words, and buying on the few dips has been profitable indeed. In short, 1) the New Normal thesis never directly said that buy-and-hold is dead, and 2) even if it did, nobody should overhaul an investment approach based on the stock market predictions of a bond economist. 

Gold, Not Lead
There never was any logic behind the "buy-and-hold is dead" argument. Might it have lucked into being useful? Not a chance. Coming off the 2008 downturn, the U.S. stock market has roared to perhaps its best four and a half years in history. It has shone in absolute terms, posting a cumulative gain of 125% since spring 2009. It has been fabulous in real terms, with inflation being almost nonexistent during that time period. It's been terrific in relative terms, crushing bonds, cash, alternatives, and commodities, and by a more modest amount, beating most international-stock markets as well. This is The Golden Age. We have lived The Golden Age, all the while thinking it was lead.

To put the matter another way, those who left stocks for bonds, cash, alternatives, or commodities following 2008 have lost roughly the amount of their original investment in opportunity cost. That is, a $10,000 investment in U.S. stocks in January 2009 would be worth $22,000 today, as opposed to $13,500 for the typical intermediate-bond fund, and between $10,500 and $13,000 for cash, alternative, and commodities funds. 

The True Normal
Critics will respond that mine is a bull-market argument. That's backward. "Buy-and-hold is dead" is the strategy that owes its existence to market results. It only appears after huge bear markets, and it only looks good after such markets. It is the oddity, while buy-and-hold is the norm.

The reason that buy-and-hold is the norm is that it's deucedly difficult to implement anything else. As outlined in an earlier column, three professors recently concluded that even a fully rational investor who follows an optimal trading strategy, making errors neither of emotion nor math, can't outgain buy-and-hold stock investors when using real-time data (as opposed to studies that show above-market results because of hindsight bias). For real-world investors who are probably imperfect, the news gets even worse. 

"Buy-and-hold-is-dead" doesn't have the force of logic. It doesn't have results. It is opposed by Jack Bogle, Warren Buffett, and nearly everybody in the academic community. It is a bad investment idea that deserves to expire. 



Don't Wait to Ask Aging Parents These Important Questions

It's human nature to put off complicated or emotionally heavy tasks. Talking with aging parents about their finances, health, and overall well-being might fall in this category. Many adult children would rather avoid this task, as it can create feelings of fear and loss on both sides. But this conversation — what could be the first of many — is too important to put off for long. The best time to start is when your parents are relatively healthy. Otherwise, you may find yourself making critical decisions on their behalf in the midst of a crisis without a roadmap.

Here are some questions to ask them that might help you get started.


  • What institutions hold your financial assets? Ask your parents to create a list of their bank, brokerage, and retirement accounts, including account numbers, name(s) on accounts, and online user names and passwords, if any. You should also know where to find their insurance policies (life, home, auto, disability, long-term care), Social Security cards, titles to their house and vehicles, outstanding loan documents, and past tax returns. If your parents have a safe-deposit box or home safe, make sure you can access the key or combination.

  • Do you need help paying monthly bills or reviewing items like credit card statements, medical receipts, or property tax bills? Do you use online bill pay for any accounts?

  • Do you currently work with any financial, legal, or tax professionals? If so, ask your parents if they want to share contact information and whether they would find it helpful if you attended meetings with them.

  • Do you have a durable power of attorney? A durable power of attorney is a legal document that allows a named individual (such as an adult child) to manage all aspects of a parent's financial life if the parent becomes disabled or incompetent.

  • Do you have a will? If so, find out where it is and who is named as executor. If the will is more than five years old, your parents may want to review it to make sure their current wishes are represented. Ask if they have any specific personal property disposition requests that they want to discuss now.

  • Are your beneficiary designations up-to-date? Beneficiary designations on your parents' insurance policies, pensions, IRAs, and investment accounts will trump any instructions in their will.

  • Do you have an overall estate plan? A trust? A living trust can be used to help manage an estate while your parents are still living. If you'd like to learn more, consult an estate planning attorney.


  • What doctors do you currently see? Are you happy with the care you're getting? If your parents begin to need multiple medical specialists and/or home health services, you might consider hiring a geriatric care manager, especially if you don't live close by.

  • What medications are you currently taking? Are you able to manage various dosage instructions? Do you have any notable side effects? At what pharmacy do you get your prescriptions filled?

  • What health insurance do you have? In addition to Medicare, which starts at age 65, find out if your parents have or should consider Medigap insurance — a private policy that covers many costs not covered by Medicare. You may also want to discuss the need for long-term care insurance, which helps pay for extended custodial or nursing home care.

  • Do you have an advance medical directive? This document expresses your parents' wishes regarding life-support measures, if needed, and designates someone who will communicate with health-care professionals on their behalf. If your parents do not want heroic life-saving measures to be undertaken for them, this document is a must.

Living situation

  • Do you plan to stay in your current home for the foreseeable future, or are you considering downsizing?

  • Is there anything I can do now to make your home more comfortable and safe? This might include smaller projects such as installing hand rails and night lights in the bathroom, to larger projects such as moving the washing machine out of the basement, installing a stair lift, or moving a bedroom to the first floor.

  • Could you benefit from a weekly or monthly cleaning service?

  • Do you employ certain people or companies for home maintenance projects (e.g., heating contractor, plumber, electrician, fall cleanup)?

Memorial wishes

  • Do you want to be buried or cremated? Do you have a burial plot picked out?

  • Do you have any specific requests or wishes for your memorial service?


The best time to start a conversation with your parents about their future needs and wishes is when they are still relatively healthy. Otherwise, you may find yourself making critical decisions on their behalf without a roadmap.

Note: There are costs and ongoing expenses associated with the creation of trusts.

Note: A complete statement of long-term care insurance coverage, including exclusions, exceptions, and limitations, is found only in the long-term care insurance policy. It should be noted that carriers have the discretion to raise their rates and remove their products from the marketplace.

Understanding Risk

Understanding Risk

By investing for retirement through your employer-sponsored plan, you are helping to manage a critically important financial risk: the chance that you will outlive your money. But choosing to participate is just one step in your financial risk management strategy. You also need to manage risk within your account to help it stay on track. Following are steps to consider...

How can I safely shop online this holiday season?

Shopping online is especially popular during the holiday season, when many people prefer to avoid the crowds and purchase gifts with a few clicks of a mouse. However, with this convenience comes the danger of having your personal and financial information stolen by computer hackers.

Before you click, you might consider the following tips for a safer online shopping experience.

Pay by credit instead of debit. Credit card payments can be withheld if there is a dispute, but debit cards are typically debited quickly. In addition, credit cards generally have better protection than debit cards against fraudulent charges.

Maintain strong passwords. When you order through an online account, you should create a strong password. A strong password should be at least eight characters long, using a combination of lower-case letters, upper-case letters, numbers, and symbols or a random phrase. Avoid dictionary words and personal information such as your name and address. Also create a separate and unique password for each account or website you use, and try to change passwords frequently. To keep track of all your password information, consider using password management software, which generates strong, unique passwords that you control through a single master password.

Beware of scam websites. Typing one word into a search engine to reach a particular retailer's website may be easy, but it sometimes won't bring you to the site you are actually looking for. Scam websites may contain URLs that look like misspelled brand or store names to trick online shoppers. To help you determine whether an online retailer is reputable, research sites before you shop and read reviews from previous customers. Look for https://in the URL and not just http://, since the "s" indicates a secure connection.

Watch out for fake phishing and delivery emails. Beware of emails that contain links or ask for personal information. Legitimate shopping websites will never email you and randomly ask for your personal information. In addition, be aware of fake emails disguised as package delivery emails. Make sure that all delivery emails are from reputable delivery companies you recognize.

When Should I Submit College Financial Aid Forms

For the 2019-2020 school year, the federal government's financial aid form, the FAFSA, can be filed as early as October 1, 2018. It relies on current asset information and two-year-old income information from your 2017 tax return, which means you'll have the income data you need when you sit down to complete the form. This is a relatively new process. A few years ago, parents had to wait until after January 1 to file the FAFSA and use tax data for the year that had just ended, which forced them to scramble to complete their tax return in order to complete the FAFSA.

If you have a new or returning college student, it's a good idea to file the FAFSA as early as possible in the fall because some aid programs operate on a first-come, first-served basis. The deadline for filing the FAFSA is typically March or April and will vary by college. But don't wait until then. It's a good idea to submit any college aid forms as early as possible, too.

The FAFSA is a prerequisite for federal student loans, grants, and work-study. In addition, colleges typically require the FAFSA before distributing their own need-based aid and, in some cases, merit-based aid. Even in cases when you don't expect your child to qualify for need-based aid, there may be another reason to submit the FAFSA. All students attending college at least half-time are eligible for federal unsubsidized Direct Loans regardless of financial need. ("Unsubsidized" means the borrower, rather than the government, pays the interest that accrues during school, the grace period after graduation, and any deferment periods.) So if you want your child to have some "skin in the game" with a small loan, you'll need to file the FAFSA. (Loan amounts are capped each year: $5,500 freshman year, $6,500 sophomore year, and $7,500 junior and senior years.) What if you file the FAFSA but then change your mind about taking out a loan? Don't worry, you aren't locked in. Your child can always decline the loan after it's offered.

The FAFSA is available online at fafsa.ed.gov. In order to file it, you'll need to create an FSA ID if you haven't done so already (follow the online instructions). You'll need to resubmit the FAFSA each year, but fortunately you can use the built-in IRS Data Retrieval Tool to have your tax data electronically imported, which saves time and minimizes errors.