Category Archives: Retirement Planning

Science??? When is it Science and when Not?

An article in the Wall Street Journal the other day about mistakes doctors make reminded me that I was supposed to write this blog about what is science.

My definition of science is that it is a discipline that always produces the same results when carried out in the same way.

Two hydrogen atoms and one oxygen atom always equals water. If you substitute nitrogen for hydrogen you always get “laughing gas.”

Drop a weighted object from the roof and it will hit the ground in exactly the same amount of time each and every time.

Take a number of jelly beans and add a like number and you always have twice as many jelly beans.

Medicine isn’t that way. We are all slightly different and what works to stop the coughing in one person may not stop it in another. Yes, there are areas of medicine that are replicable, surgery for example, but, on the whole that’s not true.

Economy is not a science. If it were, three different economists with conflicting theories would not have all received Noble prizes for their work.

Which takes us to the investing area. There are those who, to convince clients that the plan they have devised for the client is going to work 95% of the time use some formula or other – very often the “Monte Carlo Simulation.” The problem is that the input is based on extrapolated historical results. Now, since we have no crystal ball to look ahead it behooves us to study historical information to give us information to use in moving forward. We do that when we drive somewhere. Route one has taken us 30 minutes, route two 35 and route three 50 minutes. So we take route one. Sometimes an accident creates a situation where route one takes an hour. That’s life. Well, in investing the same is true. We use historical data and recognize it will work sometimes. However, we don’t want to gamble on that information as if it were a holy grail. We want to use historical input and do not want to drive “looking through the rear view mirror”.

As advisors we want to do the best for you and we also want to make you feel comfortable. Just don’t get too comfortable.

I’ve just received a brochure from my Credit Union talking about Cashier’s Checks

The availability of scanners and high quality printers as made it much easier for scam artists to create genuine-looking counterfeit documents.
Those people who are bright enough to use HFH Planning Inc. (an HOURLY ONLY financial advisor) are smart enough to know if it sounds too good to be true it likely is too good, except for the scammer.
You, however, might have family or acquaintances who need to be cautioned.
The brochure lists a number of ways these fake checks might be used. I’m not going to list them because the solution is easy. Look up the bank (make certain it’s not a phony number) and call to assure the check is not bogus. Even better, deposit the check on a “collection” basis. Only turn over the “extra” proceeds or the goods when the bank informs you the funds are good. That may take up to two weeks.
Yes, I know the person isn’t willing to wait that long. The price he is willing to pay for the goods is 15% above what you could get from someone else. Sales are sluggish, at best. And, put away your sales hat and put on your credit hat and figure how much you can lose if the check is bogus.
Even worse, if the check is for more than the bill and she wants the difference in cash.
If the incidents are enough for a financial institution to send out a brochure it is not happening only a few times a year.
PS I just learned that a number of car dealers were scammed in this way. Person came in, negotiated on a car, came in the next day, as he had stated, with a cashier’s check. One week later, check bounced – car and individual not to be found.
So it aint just dummies that are gullible.

Fallacy in Generic Thinking

There’s an adage that says you can never be too rich or too skinny. The fact is that it depends on how you try to get there. We’re pretty much all in agreement that bulimia and anorexia (an eating disorder characterized by refusal to maintain a healthy body weight and an obsessive fear of gaining weight) are notable exceptions to the latter.
Those in the Hedge fund business, on the other hand work hard at making themselves more wealthy. These people use their expertise to bring in returns that are in excess of what the general individual can find. I’m not about to suggest that being bad. Of course, even they have losses. But not losses that forces the individual into bankruptcy.
However, along comes the story of the professional football player who chooses to use his wealth by investing in areas that he knows little or nothing about to create wealth that he REALLY doesn’t need. Maybe like the anorexic. If the quarterback had invested in a diversified portfolio, similar to what we encourage people to do, he would be able to live out his entire life ( to whatever age that turns out to be) spending at the same level he did during his career, without concern about running out of funds and be able to leave money to heirs.
So where was the financial advisor? Thinking about assets under management or getting great commissions?

Not to Worry, or better yet, Worry Not

I was reminded again this weekend why asset allocation is such an important aspect of financial planning.
I don’t necessarily mean the allocation between the categories HFH Planning uses to diversify, I mean the allocation between equities, fixed income and cash.
If one is 35 or 40 years old with YEARS to go before you need to withdraw from you accounts, time is on your side. Take advantage of it. No need for money market or fixed income. Your chances of having more loaves of bread in your accounts when you start withdrawing is huge. Yes. I said loaves of bread. Dollars, Pounds, Euros, Yen don’t count. What you want when you start to take money out of the account is buying power. More loaves of bread than when you put the dollar equivalent of a loaf of bread into the account.
What about if you want to buy a “big ticket” item in the not too distant future? Well that money should be in a liquid instrument – Money market, CD, short term mutual fund, etc. You don’t want to come across the “right” apartment or house just when the market dumps and you need X dollars and the investment is now X minus.
As you come closer to retirement the investment in fixed income should grow while the equity portion is lowered. Further, we suggest that if you are retired you take out the percentage you and the planner have agreed upon at the beginning of the year. If you divide the sum into 12 pieces it will be just as if you were receiving your monthly pay check. You’ll budget accordingly. Money that you don’t spend in month one goes to a savings account (just like you used to do) and is available for the vacation, extra purchase, etc.