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My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Spring 2024

I touched on this previously, but I want to address it again. There is widespread belief in what is sometimes called “time diversification.” The question is really: is there mean reversion in the equity risk premium (ERP) over time? If so, if you have a bad ERP experience early it reverses later so that if …

I rant talk a lot about the importance of maxing out contributions to tax-advantaged accounts (IRAs, 401(k) plans, Roths, etc.). Since you can’t “catch-up” later, anytime you don’t contribute the maximum (or if you withdraw more than required) you are reducing the benefits of these accounts. (It’s one of my four rules for guaranteed financial …

The topic of “Investment Rules” came up in an email exchange a while back, and I wrote a quick list of mine. These are just my simple, and perhaps arbitrary, rules. I’m mostly trying, as Charlie Munger said, to not be stupid: “It is remarkable how much long-term advantage people like us have gotten by …

The short paper here is about what “loopholes” should be closed to raise revenue. Consequently, it is also a great guide to those perfectly legal strategies. Many of these may be closed eventually, but until then it’s a good guide. Here’s the list of strategies: Zeroed-out GRATS IDGTs Minority interest discounts Gifts over bequests (tax …

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Winter 2023

The recent higher inflation has dampened enthusiasm for this somewhat, but I hope with a short explanation to drive a stake through its heart. (If you have no idea what this is, see this and this – or just go and enjoy your life!) This is a very simple explanation that glosses over a little …

Imagine I have 1,000 shares of stock with a price of $20/share; a basis of $4/share; and a marginal tax rate (now and forever) of 25% (just for simplicity). I can think of that as a combination of: A stock position worth 1,000 * $20 = $20,000 A liability of ($20 – $4) * 1,000 …

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Fall 2022

When asked, we refer to ourselves as “wealth managers” and this month I thought I would explain that term and a few related things. Wikipedia defines Wealth Management as: [S]ervices to a wide array of clients ranging from affluent to high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals and families. It is a discipline which incorporates structuring …

There seems to be view (particularly on the left) that some wealth distributions are grossly unfair (and government should do something about it), but they have not thought through the implications of their beliefs. Take whatever distribution you think is the outer limit of fair, for example suppose you think no one should have more …

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Summer 2022

Below are some strategies for coping with market downturns. Before getting to that though, it is fundamental to have an appropriate portfolio before the downturn occurs. That means not only properly diversified, but also one with a risk level that you will be comfortable with when the inevitable downturns come. One very popular strategy is …

How should an asset allocation change over time? Most folks (financial professionals included) believe that the longer your time horizon the more risk you can take. That, as stated, is clearly wrong. Let me explain by way of an example. Assume an individual is 35 years old and inherits $1,000,000. He or she will not …

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Spring 2022

There is no way to value Bitcoin or other cryptocurrencies (since there are no cash flows from it) so we are in the realm of uncertainty, not risk. Gambling has known odds (more or less, depending on what you are betting on) and a negative expected return (house gets a cut). Investing has estimable odds …

I did a post on decision-making years ago (here) but I wanted to share some more on it.  As financial advisors, our “product” is really wisdom (as I’ve said before), and it turns out we are wiser about other people’s situations than we are our own. This has two implications, 1) our clients (even our …

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Winter 2022