Topics ranged from women in planning, to bond investing, to managing a registered investment advisor firm and compliance.  My particular presentation was on media and marketing for financial advisors with a spin on creating great content for clients and visitors alike.

Another underlying theme was longevity planning.  Here are some interesting factoids:

• On average we’ve gained 2.5 years of life expectancy for every decade since 1980
• Women on average live to 80+ now
• For couples 60 and older there is a 50/50 chance of one of them living to age 95
• On average people underestimate their life expectancy by 8 years

Just more fuel to the fire of solid retirement planning!  The way I see it – you either plan right now or prepare yourself to ask the kids for money when you run out – a fate no client of REDROCK wants to ever see.  For this reason we place solid retirement planning at the forefront of our practice!

It was truly a great conference, I even got to take in a Cub’s game with another local planner Chris Jones.

It was a great week – more tidbits to come over the next week or so as I go through my notes.

What is Unclaimed Property?

Unclaimed property (sometimes referred to as abandoned) refers to accounts in financial institutions and companies that have had no activity generated or contact with the owner for one year or a longer period. Common forms of unclaimed property include savings or checking accounts, stocks, uncashed dividends or payroll checks, refunds, traveler’s checks, trust distributions, unredeemed money orders or gift certificates (in some states), insurance payments or refunds and life insurance policies, annuities, certificates of deposit, customer overpayments, utility security deposits, mineral royalty payments, and contents of safe deposit boxes.

It’s usually money related to someone moving or losing a relative who had shares of some stock somewhere and forgot about them.  There are a lot of reasons money goes poof!

If you’re interested check it out!  Who knows you may find a bundle!  Of course please drop me a note and let me know, I’d love to hear about it.

No two clients have the same identical financial needs or goals.  Their investments should reflect their uniqueness – so an extent.

For younger more aggressive investors, an asset allocation model with up to 90% in stocks and the rest bonds and cash may be appropriate.  For more conservative retired clients the risk profile and asset allocation becomes more difficult to determine.

Conventional Wisdom Is Wrong

Conventional wisdom says something to the effect of “take 100 minus your age and that’s the amount of stock investment you should have”.  Something so simplistic can’t be the best solution for every investor.

I prefer with our private clients to look at it more as a “phase of life” situation.  For example there are three main phases:

• Accumulation – Asset growth with high volatility is more appropriate
• Preparation for Transition – Preparing to transition your portfolio for retirement
• Decumulation – Using your investment portfolio for income in retirement

This may be over simplistic as well, but for purposes of this article it makes sense.  There are three dominant goals in each of those stages of life.  Growth, transition to income planning, and income planning.

Within each of those three goals there are nuances for every investor.  And there is no “perfect” asset allocation for any investor in those categories because all asset allocation models are based off historical risk and return numbers.  But it is useful as a starting point from which to plan from.

Asset Allocation Is Looking In Reverse

What I mentioned in the last paragraph is so important as an investment advisor I’ll state it again.  Asset allocation models look in reverse.  It’s like driving backwards using the rear view mirror.  It’s hard at best, and slight deviations at the wheels have huge consequences if you’re going to fast!

Asset allocation models are generally created from what we can an “optimizer”.  These optimizers use statistics to balance the right amount of asset classes with each other to give investors the lowest amount of volatility for the greatest amount of return at each risk/return profile level.  But the models are only as good as historical information is accurate.  It is however the best starting point.

Retired Clients Have To Think Forward

Regardless of what phase of retirement you’re in, you still have another 5 year period to plan for.  My 97 year old grandmother still has another 5 years to plan for – doing anything other than that would be imprudent.

The reason this 5 year rule is important is that so many retirees limp into an overly conservative investment portfolio thinking they can’t risk losing money.  In reality, their largest risk is losing purchasing power from inflation pressures.

A stamp in 1980 was .15, today it’s .44.  A gallon of mild today is $4, in 20 years it will be $10.  Retired clients need to focus on standard of living more than short term volatility.  They need to be able to buy that same gallon of milk in 20 years that they do today for $4.

The Best Mutual Funds – The Best Asset Allocation Models

If there were such a thing as a perfect asset allocation model, you’d certainly want to use the best mutual funds to implement it!  As a side note to this article, I recently started a website listing the best mutual funds at BestMutualFund.org.

I plan on using BestMutualFund.org to highlight why NOT buying the best performing mutual funds is the best course of action.   Seldom do they repeat and it’s never with any consistency.  The site is a work in progress, be patient and check back again soon!

So keep in mind your true timeframe and what your true risk is.  I’d venture to guess it’s not market volatility, it’s the guaranteed loss of purchasing power from inflation over your lifetime!

Effective February 28, Dimensional reduced the management fee on two of its real estate portfolios. The DFA Real Estate Securities Portfolio management fee is now 17 bps, with an annual expense ratio of 18 bps. The DFA Global Real Estate Securities Portfolio management fee is now 27 bps, and its annual expense ratio is 32 bps.

DFA Real Estate Securities Portfolio

CUSIP: 233-203-835
Ticker: DFREX
Management Fee: 17 bps (reduced from 30 bps)
Expense Cap: 18 bps (reduced from 33 bps)

DFA Global Real Estate Securities Portfolio

CUSIP: 233-20G-554
Ticker: DFGEX
Management Fee: 27 bps (reduced from 35 bps)
Expense Cap: 32 bps (reduced from 55 bps)

• Investor Circumstances
• Investment Objectives
• Investor Time Horizon
• Tax Preferences and Planning
• Risk Tolerance
• Asset Allocation Plan
• Investment Philosophy
• Liquidity Needs
• Investment Selection Criteria
• Investment Monitoring
• IPS Review Frequency

And much more!

The Investment Policy Statement in our practice serves as a foundation for solid long term investment planning.  There is no substitute to having the IPS in writing and agreed upon by both client and advisor.

The Investment Policy Statement also serves as an agreement between the advisor and the client in one very key area – the asset allocation plan!  The asset allocation plan controls in large part the risk exposure and volatility that the investor will see in their investment plan.  In fact that asset allocation policy will control over 90% of the investors returns (proven time and again through many studies).

A client of mine found this article by John Wasik in the New York Times.  It’s a great opinion piece highlighting some of the benefits of solid investment planning using a written investment policy statement.

The benefits of a blueprint for your investments cannot be overstated, yet most clients and most advisors don’t have one!  Make sure your advisor has a solid investment policy statement in place for your investment plan!

Payments (premiums) are made towards your account value upon which time it begins accruing interest. Monthly deductions and charges are then taken from the account value (insurance protection charges, etc). Essentially, premiums made above the cost of the insurance are credited as cash value towards the policy which can later be withdrawn or taken out as loans.

Some typical uses can include but are not limited to:

• Final expenses
• Income replacement
• Debt coverage
• Estate liquidity and replacement
• Educational needs
• Pension maximization
• and many more

Benefits of having a Universal Life Insurance Policy:

• Flexible – The insurer decides the amount of insurance and premium payments they make and receive (subject to policy minimums)
• Death benefit – proceeds are tax free to the beneficiary
• Tax deferred cash growth – under federal income tax law
• Access to cash value – cash can be accessed at any time

Universal Life Insurance offers greater flexibility over Whole Life Insurance in that the insurer can easily transfer money between the insurance and savings policy components. Also, the cash value of the plan grows at a variable rate which adjusts monthly.

While we don’t generally endorse or promote universal life insurance we do work with companies that can provide further guidance and advice. Life insurance can be a very useful tool to protect your family against the unexpected, please consult us or your Las Vegas financial advisor for more information.

See my original post here for more information. and see here for more information on John in Kenya.

It’s great to see hard working entrepreneurs have success!

Greg

I’ve known for nearly 10 years now that I’ve been using DFA mutual funds that there are a few reasons they don’t fit neatly into Morningstar’s rating systems. This article “Should You Invest In DFA Funds?” calls into question just how relevant Morningstar ratings can sometimes be. Keep in mind, Morningstar Star ratings are a measure of ACHIEVEMENT – NOT APTITUDE!

Ironically the question isn’t really should you invest in DFA funds but rather CAN you invest in DFA Funds? They’re not available at your local Schwab or Morgan Stanley as you might think. DFA Funds are implemented only by financial advisors who have been through their training program and generally are pure fee only financial advisors – primarily registered investment advisors. OR you could be an endowment or large institution – they generally have access to DFA funds due to their size and the consistent process they follow on their investment committee’s.

GREG PHELPS EARNS ACCREDITED INVESTMENT FIDUCIARY DESIGNATION FROM FI360

LAS VEGAS, NEVADA DECEMBER 27TH 2011 — Greg Phelps of REDROCK WEALTH MANAGEMENT, LLC has been awarded the Accredited Investment Fiduciary® (AIF®) designation from Fiduciary360 (fi360), an organization offering training, tools and resources to promote a culture of fiduciary responsibility and improve the decision making processes of fiduciaries. The AIF designation signifies knowledge of fiduciary responsibility and the ability to implement policies and procedures that meet a defined standard of care. The designation is the culmination of a two-day course and examination.

Phelps, a resident of Henderson, NV is President of REDROCK WEALTH MANAGEMENT in Las Vegas. Phelps specializes in retirement wealth preservation and income planning for a select group of financially secure clientele.

Fi360, based near Pittsburgh, Pa., is the first full-time training and research facility for fiduciaries, and conducts training programs at universities throughout the United States and abroad. In addition to the AIF, fi360 also offers the Accredited Investment Fiduciary Analyst™ designation, making those who earn the designation the only recognized professionals trained to perform fiduciary assessments, which measure how well investment professionals are fulfilling the fiduciary duties required of them by the applicable investment legislation, case law, and regulatory opinion letters.

REDROCK WEALTH MANAGEMENT is an independent registered investment advisor firm. The firm specializes in serving the retirement investment and financial planning needs for affluent clientele in Las Vegas, Henderson, and nationally. Now serving as an Accredited Investment Fiduciary®, Phelps plans on launching a national service providing fiduciary portfolio management reviews, audits, analytics and portfolio asset allocation services through REDROCK’s subsidiary firm Investment Portfolio Advisors Portfolio Architect service.

About fi360
Fi360 offers training, tools and resources to promote a culture of fiduciary responsibility and improve the decision making processes of investment fiduciaries – individuals who manage money for others. It licenses the Prudent Practices for Investment Fiduciaries from the Foundation for Fiduciary Studies. Fi360 provides investment education and training programs and awards the Accredited Investment Fiduciary® (AIF®) and Accredited Investment Fiduciary Analyst™ (AIFA®) professional designations through the Center for Fiduciary Studies. It develops sophisticated Web-based tools and reporting, including the innovative Fiduciary Score™ and the Family Fund Fiduciary Rankings™ for trustees and investment professionals through Fiduciary Analytics. For more information on future events, training programs and fiduciary products, visit www.fi360.com.

Bill Miller is one of the most closely watched money managers in the industry, so it was big news when he announced his decision last week to step down as portfolio manager of Legg Mason Capital Management Value Trust (LMVTX) early next year. His departure also adds an intriguing chapter to the long-running debate regarding the value of active stock selection.

Miller’s most frequently cited accomplishment is the fifteen-year period from 1991 through 2005, during which Value Trust outperformed the S&P 500 each calendar year, the only US equity fund manager to have ever done so. His success attracted a wide and enthusiastic following: Morningstar named him Portfolio Manager of the Decade in 1999, Barron’s included him in its All-Century Investment Team that same year, and a Fortune profile in 2006 described him as “one of the greatest investors of our time.” A former US Army intelligence officer and philosophy student, his formidable intellect covered a wide range of interests, and he believed that conventional investment analysis could be enhanced with insights drawn from literature, logic, biology, neurology, physics, and other fields not obviously related to finance. His expressed desire to “think about thinking” suggested an unusual ability to assess information differently from other market participants and arrive at a more profitable conclusion.

Miller’s bold and concentrated investment style would never be confused with a “closet index” approach. Big bets on Fannie Mae, Dell, and America Online, for example, were rewarded with handsome gains (as much as fifty times original cost in the case of Fannie Mae). Unfortunately, similar bets in recent years revealed the dangers of a concentrated strategy as heavy losses in stocks such as Bear Stearns and Eastman Kodak penalized results. For the five-year period ending December 31, 2010, LMVTX finished last among 1,187 US large cap equity funds tracked by Morningstar. Considering the enormous variation in outcomes among these carefully researched ideas, Miller’s overall investment record presents an interesting puzzle: How can we disentangle the contribution of good luck or bad luck, of skill or lack of skill?

Over the May 1982–October 2011 period, annualized return was 11.28% for the S&P 500 Index and 11.76% for the Russell 1000 Value Index. Value Trust slightly outperformed the S&P and underperformed the Russell index by over 0.40% per year. A three-factor regression analysis over the same period shows the fund underperformed its benchmark by 0.08% per month.

Do these results offer conclusive evidence of the failure of active management? Not necessarily. The fund’s expenses are above average at over 1.75% and provide a stiff headwind for any stock picker to overcome. Gross of fees, the fund’s performance over and above its benchmark goes from –0.08% to 0.07% per month. This swing from negative to positive raises an interesting point that Ken French speaks to at every Dimensional conference. There are almost certainly some mistakes in market prices and almost certainly some skillful managers who can exploit them. But who is likely to get the benefit of this knowledge—the investor with his capital or the clever money manager? If stock-picking talent is the scarce resource, economic theory suggests the lion’s share of benefits will accrue to the provider of the scarce resource—just what we see in this instance.

To cloud the discussion even further, both of these results, positive and negative, flunk the test for statistical significance; in neither case can they be attributed to anything more than chance. So even with twenty-nine years of data, we cannot find conclusive evidence of manager skill—or lack thereof. This is the inconvenient truth that every investor must confront: The time required to distinguish luck from skill is usually measured in decades, and often far exceeds the span of an entire investment career.

Miller is well aware of the challenge of distinguishing luck from skill and has conspicuously declined to boast about his results, even when they were unusually fruitful. He has acknowledged that topping the S&P 500 each year for fifteen years was an accident of the calendar and that using other twelve-month periods produced a less headline-worthy result.

Commentators have said that Miller has “lost his touch” or that his investment style is no longer suitable in the current market environment. These arguments strike us as the last refuge for those who find the idea of market equilibrium so unpalatable that they search for any explanation of his change in fortune other than the most plausible one—prices are fair enough that even the smartest students of the market cannot consistently identify mispriced securities.

Where does this leave investors seeking the best strategy to grow their savings?

When asked by a New York Times reporter in 1999 to sum up his legacy, Miller replied, “As William James would say, we can’t really draw any final conclusions about anything.” Twelve years later, this observation seems more useful than ever. And investors would be wise to treat even the most impressive claims of financial success with a healthy degree of skepticism.

________________________________

REFERENCES

Andy Serwer, “Will the Streak Be Unbroken,” Fortune, November 27, 2006.

Edward Wyatt, “To Beat the Market, Hire a Philosopher,” New York Times, January 10, 1999.

Tom Sullivan, “It’s Miller Time,” Barron’s, October 12, 2009.

Diana B. Henriques, “Legg Mason Luminary Shifts Role,” New York Times, November 18, 2011.

S&P data provided by Standard & Poor’s Index Services Group.

Morningstar data provided by Morningstar Inc.

Russell data copyright 2011, Russell Investment Group 1995-2011, all rights reserved.

I’m also rolling out a new website within the next month – Investment Portfolio Advisors – stay tuned!