Blog - Page 29 of 71 - NorthStar Capital Advisors

Retiring from the NFL

This Sunday’s Super Bowl 50 match-up between our hometown Carolina Panthers and the Denver Broncos is the talk of the town. But what happens after the Super Bowl? Potentially way after the game when a professional football player retires?

It turns out the National Football League has a rather generous pension plan. The NFL is one of the rare 7% of American companies that offers traditional pensions to new hires. That figure is way down from the 62% level seen in 1979.

Only a few years ago the NFL had the worst funded plan of the four major sport leagues, reaching a low 49% of assets on hand to fund future benefits. Their funding ratio has made a dramatic recovery since then to 72% and NFL owners have committed to 100% funding by 2021.

The NFL pension plan has $1.8 billion in assets with 4,200 retirees and 2,100 active players. Players qualify after 3 seasons and are eligible to draw benefits starting at age 55. An 18-year veteran like Peyton Manning would receive an estimated annual pension $107,040 compared to a 3-year, short-timer’s check of $21,360.

Although most corporations have done away with pensions and shifted the risk and responsibility of saving for retirement to their employees, the NFL’s program is strongly in place thanks to the community of active and retired sportsmen. NFL retirees do a great job of communicating the great benefit of the pension to the younger, active players which carries through to the players’ collective bargaining.

Source: WSJ

Index Card of Personal Finance Essentials

Simplicity is a great foundation and powerful foil to unnecessary complexity. University of Chicago professor Harold Pollack champions this approach to personal finance and dashed out this index card to make his point.

We work with our clients to go above and beyond the common sense, but it’s built upon a strong foundation of essentials similar to Dr. Pollack’s.

Happens All The Time

The New Year selloff in stocks has captured a lot of attention because,

We’re not used to this since the market has been unusually quiescent the past few years

The decline is global

The speed of descent is significant

But despite perception, double-digit declines from prior highs are the norm, not an anomaly. It happens two out of every three years.

Here are great points of reference to put this market event into context:

The average intra-year decline is 16.4%. This current decline might feels worse due to the speed at which it’s happening, and because it’s occurring right out of the gate.
Double digit declines are to be expected, 64% of all years experienced them.
It’s not unusual for those double digit declines to be of little importance. 57% of the years with 10% drawdowns finished positive.
Stated differently, 36% of all years saw a double digit decline and still finished positive.
Drawdowns of 20% or more have happened 23 times, or 26% of all years. On five of those 23 occasions, stocks still ended up positive on the year.

The following chart provides a great visual on how intra-year drawdowns are normal.

Source: TII

Stock Market’s Down — SO WHAT?

This great little piece in the New York Times provides 6 points to consider when the stock market is down:

You Are Not the Stock Market
Chances are, your portfolio is a diverse mix of investments. While stocks may be falling, you probably also have some bonds and cash. Perhaps there are some real estate mutual funds, too. Then there’s your home equity if you own a home, not to mention the value of your future earnings. These things probably won’t all fall simultaneously.

You May Have Done Quite Well in Stocks
If you were in stocks from 2009 to 2015, or in the 1990s or consistently since the early 1980s, you are most likely a big winner. It’s generally a bad idea to look at your investment statements too often, but take a quick peek at your long-term performance. That outsize gain you see is one reason you were in stocks in the first place.

Your Goals Probably Have Not Changed
At some time in the past, when you were not scared, you made a decision to construct your portfolio a certain way. You knew that stocks involved risk and that the returns they have traditionally delivered, above and beyond what cash and bonds do, was the reward for your persistence.

Most Investors Have Plenty of Time to Recover
Too many 70-year-olds sold all of their stocks in 2009 and are healthy enough to live to 100. They would be going on a lot more vacations now and be worrying less about long-term care if they had held firm.

Some People Cannot Handle the Stress of Stock Investing
Maybe you are one of them. But try to give this more time, and consider the alternatives. There are few investments that can deliver the kinds of returns that stocks can without their own accompanying anxiety. An alternative is to save a lot more in safer investments like cash or certain bonds. Most people don’t have enough income to do that easily, so settling for lower returns will mean a combination of working longer and living modestly. For some people, that is a fine trade-off.

Dear New Investors: This Is Just What Markets Do
There is absolutely nothing abnormal about what is going on here. Most of us have to save somewhere, and history suggests that stocks are the most accessible route to getting the returns you will need to retire someday. It would take decades of systemic economic erosion to prove otherwise, and a few days of market declines do not suggest that anything like that is upon us.

Bear Market Truths

With the new year off to an anxious start for investors, perhaps it’s a good time to remember some essential facts about down markets. Ben Carlson provide a great run down of 10 bear market truths:

1. They happen. Sometimes stocks go down. That’s why they’re called risk assets. Half of all years since 1950 have seen a double-digit correction in stocks. Get used to it.

2. They’re a natural outcome of a complex system run by emotions and divergent opinions. Humans tend to take things too far, so losses are inevitable.

3. Everyone says they’re healthy until they actually happen. Then they’re scary and investors who were looking for a better entry point begin to panic.

4. The majority of the people who have been scaring investors by predicting a bear market every single month for the past seven years will be the last ones to put their money to work when one actually hits.

5. It’s an arbitrary number. I have no idea why everyone decided that a 20% loss constitutes a bear market. The media will pay a lot of attention to this definition while it doesn’t matter at all to investors. The 1990s saw zero 20% corrections but two 19% drawdowns. Stocks also lost 19% in 2011. Does that extra 1% really matter?

6. Buy and hold feels great during a long bull market. It only works as a strategy if you continue to buy and hold when stocks fall. Both are much easier to do when stocks rise.

7. Your favorite pundit isn’t going to be able to help you make it through the next one. Perspective and context can help, but there’s nothing that can prepare an investor for the gut-punch you feel when seeing a chunk of your portfolio fall in value.

8. History is a broad outline of what can happen in the markets, not what will happen. Every cycle is different.

9. They’re very difficult to predict. All of the valuations, fundamentals, technicals and sentiment data in the world won’t help you predict when or why investors decide it’s time to panic.

10. These are the times that successful investors separate themselves from the pack. Most investors mistakenly assume that you make all of your money during bull markets. The reason so many investors fail is because they make poor decisions when markets fall.

Source: AWCS

Top Investing Ideas for 2016 (or any other year)

It that time of year where the financial media machine is awash with seemingly important predictions for the new year. Despite all the hype, no one can reliably forecast market moving events or trends. Resisting the urge to build investment strategies around faulty forecasts, Bob Seawright provides a quick summary of his top investment ideas for 2016 (or any other year), none of which is dependent upon predicting the future:

Einstein wisely advised that we keep things as simple as possible, but no simpler. Overly complicated systems, from financial derivatives to tax systems, are difficult to comprehend, easy to exploit and possibly dangerous. Simple rules, in contrast, can make us smart and create a safer world.
Out of our general fear, we all too frequently bail on our investments and our plans and fail to invest altogether. But if we’re going to succeed, we need to invest, continue to invest and stay the course. Multiple studies have shown that those who trade the most earn the lowest returns. Remember Pascal’s wisdom: “All man’s miseries derive from not being able to sit in a quiet room alone.”
The Uniform Prudent Investor Act stated: “Because broad diversification is fundamental to the concept of risk management, it is incorporated into the definition of prudent investing.” Fortunately, a well-diversified portfolio captures most of the potential upside available with much lower volatility. On the other hand, a well-diversified portfolio will always include some poor performers, and that’s hard for us to abide. Do it anyway.
The idea that an investor ought to be aware and nimble enough to avoid market downturns or simply to find and move into better investments is remarkably appealing. But nobody does it successfully over time. We’ve all seen and done this: we find a hot new approach or hot new manager and, because what we own hasn’t been doing so well, we switch, only to find that the hotness that caused us to buy has cooled. We need to get off that merry-go-round.
The leading factor in the success or failure of any investment is fees. In fact, the relationship between fees and performance is an inverse one. Every investor needs to count costs.
Multiple studies establish what we should already know: a manager who has a significant ownership stake in his fund is much more likely to do well than one who doesn’t. Make sure to look for “skin in the game” from every money manager you use.
Don’t be afraid to ask for and get help. American virologist David Baltimore, who won the Nobel Prize for Medicine in 1975, once told me that over the years (and especially while he was president of Caltech) he had received many manuscripts claiming to have solved some great scientific problem or overthrown the existing scientific paradigm to provide some grand theory of everything. Many prominent scientists have drawers full of similar submissions, usually from people working alone and outside the scientific community. As Dr. Baltimore emphasized, good science is a collaborative, community effort; crackpots work alone.

Happy New Year and all the best in 2016!

Source: TA

Happy Holidays from NorthStar Capital Advisors

There are so many reasons to be thankful. We would like to take a moment to say thank you and give you our warmest wishes to you and your family.

Season’s Greetings, with a happy, healthy, and prosperous 2016!

Financial Advising Jedi?

With today’s opening of “The Force Awakens”, Ryan Neal has a great piece on “Star Wars” lessons for financial planning. Here are some excerpts and adaptions to help you answer the perennial question, Is my financial advisor a Jedi Master?

The Power of Holistic Planning

As young Skywalker’s advisor, Obi Wan Kenobi teaches him that the Force, an energy field created by all living things that binds the galaxy together, is the source of his power. For financial advisors to truly unlock their potential, they need to have a holistic view of their clients’ financial lives, as well as a mastery of investment strategy. By understanding how various accounts, needs and goals all connect together, an advisor can be a truly powerful guide for their clients.

Sticking to the Plan

While Luke is a neophyte just learning the ways of the Force, Han Solo is a hardened skeptic, disregarding advisors like Obi Wan Kenobi and instead preferring the lifestyle of a risk taker, which has led him to real problems with debt. When Luke gets distracted by Solo’s taunts, Kenobi reminds him to trust in his plan instead of making knee-jerk reactions. While things get rocky along the way, Luke eventually reaches his goal of becoming a Jedi Knight. It’s a good reminder for when the markets get rough: Trust in the plan, mitigate short-term emotional reactions, and focus on long-term goals. Han may call it luck, but advisors know there’s no such thing.

The Quick and Easy Path Leads to the Dark Side

We learn more about the Force in the 1980s’ “Empire Strikes Back,” when Jedi master Yoda teaches Luke about the Dark Side. Like a good advisor, he tells Luke that chasing instant gratification, like investing heavily in a hot stock, can lead to ruin. When Luke ignores the advice, he’s almost defeated by Darth Vader. Yoda reminds us that patience is key with investing, not adventure or excitement.

Know Your Advisor’s True Value

Though his investment strategy might be questionable, Han Solo does understand value. Luke is shocked when Solo initially discloses his fees to pilot them across the galaxy in the Millennium Falcon. Luke says he could buy and pilot his own starship for less, but Obi Wan Kenobi knows expertise can command a fair price and even offers to spend more to ensure results. It turned out that Luke didn’t know flying through hyperspace from dusting crops, and Solo’s experience came in handy.

It’s Not Just About Money

Though Han Solo told Princess Leia that he doesn’t care about her or the rebellion, he becomes a true hero after he realizes that there’s more to life than money. Advisors are worth more than just allocating assets and providing returns; they can be even more valuable to clients by helping them navigate important milestones in life, like buying a home, sending kids to college, and retiring comfortably. Remember what Leia told Han: “If money is all that you love, then that’s what you’ll receive.”

Don’t Judge by Appearances

“Judge me by my size, do you?” Yoda may be small, but his power with the force is great. Similarly, many investors often think bigger is better and don’t realize that small boutique firms can provide superior guidance.

Source: WM

Mapping Student Debt

More than 42 million Americans owe a total of $1.1 trillion in student debt, making it the second-largest liability on the national balance sheet. A generation ago, student debt was a relative rarity, but for today’s students and recent graduates, it’s a central fact of economic life that we don’t know much about. Mapping Student Debt is changing that. The maps below show how borrowing for college affects the nation, your city, and even your neighborhood, giving a new perspective on the way in which student debt relates to economic inequality.

Click for the full, interactive map

Source: Mapping Student Debt

Global Financial Literacy & Gender

The scatter plot above charts the global relationship between Gross Domestic Product (GPD) per person (horizontal axis) versus financial literacy (vertical axis). Each dot represents one of the 93 countries surveyed. The color of the dot encodes the gender gap between the financial literary of men and women in each country (deep blue = men score 20% higher than women; dark pink = case where women score 5% higher than men; white = case where men and women are the same).

Key observations:

Men score higher in financial literacy than women in the vast majority of countries. Notable and rare exceptions include: Britain, UAE, and Mexico.
Generally speaking, the wealthier the country, the higher the citizens’ financial literacy.
The Scandinavian countries are the most financially literate (average score ~70%), while the lowest are Angola and Albania at ~15%.

Source: The Economist

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