Lessons of the Amateur Mountain Climber

I don’t know about you, but I (Jeff) am often taught life lessons in unexpected ways. Some lessons are predictable and in a clear context. Other times, the lessons (the ‘a-ha’ moments) are learned out of their expected or predictable context. I had something like this happen to me this summer.

My wife works part time with a group called Desire Street Ministries (www.desirestreet.org). The mission of the ministry is to transform impoverished urban neighborhoods into flourishing, healthy communities. These people do incredible and exhausting work. To give them some much needed rest and relaxation, earlier this summer Desire Street hosted a retreat in the mountains of Estes Park, Colorado.

And that’s where I had a unique ‘a-ha’ moment. I must admit that this wasn’t as much a lesson as a reminder, but it now became tangible to me.

Estes Park is a beautiful place literally surrounded by great hiking and mountain climbing opportunities. I often think about work and how our team might be able to do our jobs better when I’m given the rare opportunity to get away, especially out into nature. Being away provides perspective that can’t be had at the office.

One particular climb brought the potentially dangerous realities of work and nature together quite clearly. What happened reminded me of the story I’ve heard so often that the majority of injuries on mountain treks happen on the descent, not the ascent. The part that often appears to be the simpler part just doesn’t bear out in reality.

The corollary to work is the distinctly different conditions investors face throughout their savings (accumulation) years and their spending (distribution) years. Sure, the climbing is tough. This can be likened to the fears we endure as investors during corrections and bear markets as we build up our portfolios. But the descending is typically more hazardous. Age old stories throughout the industry combined with our group’s decades of experience serve as proof that more dangers face investors as they begin the retirement income stream years of their portfolio than the years in which they accumulated their nest egg.

Sure enough, my two humble little injuries both occurred on the way down the mountain. Whether it was a false sense of security, tired mind and legs, or any number of things, I slipped a couple times along the way. My natural inclination was, of course, to grab onto whatever I could to stop from hurling down the mountain. This meant jagged trees and rocks to the hands only after a fair bit of uncomfortable skidding for the rest of me. Not fun. A little blood and a little bruising, but thankfully nothing broken. The biggest imprints are the scars on my left hand and shin. They’re so small that nobody would ever notice them. But they are big enough to serve as constant reminders to me of the dangers of the descent; and the analogous perils of the distribution phase of a portfolio.

The financial descent includes issues like understanding the impact of the sequence of returns on the lifespan of retirement income, which is a topic we’ll write more about in the future. It’s also the time to carefully clarify beneficiary designations and estate plans to avoid everything from creating ill will among family members to years’ worth of savings needlessly being forked over to Uncle Sam. It also means addressing things like long term care costs or business succession issues. In other words, there are portfolio related issues as well as planning related issues to resolve throughout the journey down the mountain.

It is important to us to do our jobs well for our clients. We don’t think our work is done until we know that every client has a plan for not just their climb up to their financial goals but also for a safe journey throughout the distribution phase of life, as well as leaving the legacy they’ve earned. They don’t necessarily have to implement all parts of the plans with us, but we need to be sure these topics are addressed to be of genuine lasting value.

Please don’t hesitate to give us a call if you have any questions either about your need to put a plan in place or to review the one you might currently have.

Author Lev Grossman wrote: “If there’s a single lesson that life teaches us, it’s that wishing doesn’t make it so.” In other words, hope is not a strategy. This fact is amplified when it comes to assuring you don’t outlive your assets. Please let us know if there’s any way we can help.

Sideways Serves a Purpose

Did you hear about the new record that the stock market just busted through? It might not be what you think.

Turns out, the S&P 500 is officially in the biggest sideways consolidation period in the last 65 years. That’s quite a feat.

According to Price Action Lab, the 4.75% range that has hugged the S&P since late February is the largest consolidation period in the market since the 1950s. Nuveen’s Bob Doll recently reported that this has been the narrowest range year-to-date for the S&P 500 in 90 years.

So while 2015 hasn’t been a glowing advertisement for the stock market, it might be, in fact, one of the more productive years.

How can that be?

The answer is found by looking back at 2011, when something we’d venture to guess we’ll never see happen again took place. Looking at data provided by Bloomberg, the S&P 500 was at 1,257 on December 31, 2010 and again at that very same figure on December 31, 2011. It’s weird enough when that happens on any given day; but it is truly strange to be the case for an entire year!

The reason this isn’t just fun trivia but is also very important is that 2011 was indeed a productive year for investors. For those concerned about time periods beyond just one year, 2011 served a critical purpose of creating value.

If you recall, when we entered that year the world was awash in fear that we’d created another bubble after having such a strong bounce off the bottom and seeing rising markets in 2009 and 2010. Fears were almost off the charts about how bad things would get – immediately – as we came off the heels of the European sovereign debt crisis in 2010 and faced our own “fiscal cliff” and lost our coveted AAA credit rating that year. It was the era of the PIIGS in Europe and all hell was supposed to break loose. It was a “sure thing”. The fear was palpable and gold was still upwards of $1,750 an ounce to reflect it.

But against that horrible backdrop, stocks wobbled to and fro only to end up where they began the year. So how was value created? Simply because from an investment perspective, sometimes sideways serves a great purpose. Whether or not we were in a bubble is pure speculation. But the fact is that we didn’t have a negative impact. So if we were in a bubble at all, it resolved itself through time instead of price. After all, there are really only two ways to end a bubble. Either things fall to whatever extent is needed to reach fair value, or things move along sideways long enough for underlying fundamentals to catch up. The result of either method is a healthier market when that phase ends. I’d strongly suspect most people would prefer the ‘time’ correction to the ‘price’ correction as a means to better value.

History never repeats itself perfectly, but it often comes close. Through the early part of August, 2015 has a familiar ring to 2011. We find ourselves yet again on the edge of the end of the world by many media outlet accounts. We’ve written many times how fear is a better ‘seller’ than greed, so people with a vested interest to sell anything dubbed as financial news have a field day popping off about disasters ahead….again, immediately! After all, you can’t move a lot of product if you don’t create that sense of urgency.

But against this current backdrop of fears about Greece, or of interest rates finally coming up from zero, or of whatever else is the fear-related flavor of the month, stock are essentially unchanged on the year. As it was in 2011, talk was that we are in a bubble as we came into 2015. With stocks going nowhere while the broader economy and corporate earnings continue to lumber forward, we are replaying 2011 year to date. Since 2011 set the table for continued expansion in 2012-2014, we wouldn’t find it right to complain if this version of history repeats itself to a large degree.

Please don’t think we are naïve about the severity of certain risks that we believe truly do exist. We have long term structural flaws in our system that needs to be addressed. There are legitimate concerns about our levels of government debt and the inability to find people with the political will to do much about it. Risks do indeed exist and we take them very seriously. Just as happiness is not the absence of problems but the ability to deal with them, so it is with allocating assets for long term growth and sustainability. In other words, investments need to be framed within an overall plan and be balanced by the honest quantification and transference of risk wherever possible.

Takeaways:

Please keep in mind that coming down the mountain is tricky and might have permanent adverse impacts if it isn’t done right. Bumps and scrapes are inevitable, but when it comes to knowing you won’t outlive your assets, there’s very little margin for error. Let us know how we can help reduce any concerns you might have.

As it pertains to the current state of the financial markets, we think this is an environment that’s ultimately going to reward patience. Traditionally the summer months have periods of volatility and we would have to expect that again this year. We don’t view that as unhealthy and it doesn’t warrant substantial changes to asset allocations.

Disclosure

All e-mail sent to or from this address will be received or otherwise recorded by the International Assets Advisory, LLC corporate e-mail system and is subject to archival, monitoring or review by, and/or disclosure to, someone other than the recipient. This information is obtained from sources believed to be reliable; however, its accuracy or completeness is not guaranteed. Investing in securities underlying in currencies other than the U.S. dollar involves certain considerations comprising both risk and opportunity not typically associated with investing in U.S. securities. The security may be affected either favorably or unfavorably by fluctuation in the relative rates of exchange between currencies, by exchange control regulations, or by indigenous economic and political developments. As with any investment, there is no guarantee against potential loss. Past performance is not an indication of future performance. International Assets Advisory, LLC and its affiliates, employees and/or directors may have positions in these securities, and may as principal or agent, buy from or sell to customers. All securities are subject to price and yield change and subject to availability. Mutual funds, Unit Investment Trusts and Variable Annuities are sold by prospectus only. Please read the prospectus carefully for important information about fees and risk considerations.

Member FINRA/SIPC. The information provided is based on carefully selected sources, believed to be reliable, but whose accuracy or completeness cannot be guaranteed. Any opinion herein reflects our judgment at this date and is subject to change without notice. This should not be construed as an offer or solicitation to buy or sell securities. Investors should consider the investment objective, risks, and charges and expenses before investing in an investment company product. Stocks, options, and mutual funds are subject to market volatility and the chance that they may lose value. Bonds are subject to changes in interest rates, risks of defaults by issuer, and the loss of purchasing power due to inflation, or the risk that an issuer will be unable to make interest or principal payments. Additionally, bonds and short-term investments entail greater inflation risk than stocks. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be either suitable or profitable for a client or prospective client’s wealth management investment portfolio.

This information is not intended to be legal or tax advice. Please consult a tax, legal, or financial professional with questions.

Investing in securities underlying in currencies other than the U.S. dollar involves certain considerations comprising both risk and opportunity not typically associated with investing in U.S. securities. The security may be affected either favorably or unfavorably by fluctuation in the relative rates of exchange between currencies, by exchange control regulations, or by indigenous economic and political developments. As with any investment, there is no guarantee against potential loss. Investments in securities and insurance products are:

Lessons of the Amateur Mountain Climber