Does Your Family Operate Like a Business?

fee-only financial planners, stress-free financial planningA recent Wall Street Journal article, “Family Inc.,” highlighted how many families are coping with a potentially stressful and chaotic American family life. Many have adopted techniques developed by corporations designed to deal with group dynamics.

One technique known as agile development, started with Japanese manufacturers and was adopted by Silicon Valley startups. Workers are grouped into small teams with daily progress sessions and weekly reviews. Families apply these concepts by having family meetings, which “increase communication, improve productivity, lower stress and make everyone happier to be part of the family.” Some families answer three questions each week reviewing 1) what went right this week, 2) what went wrong this week, and 3) what will we work on next week.

Accountability is a huge component. Many families use a large board to monitor progress, with all family members making tick marks as chores and objectives are completed. The kids typically are empowered to determine their own rewards and punishments. It has been shown that children who set their own goals and evaluate them regularly become more internally driven and have more self-control.

Parents aren’t invincible nor are they immune from accountability. Effective business teams have all members contributing. Family teams need the same dynamic. Also, flexibility must be built in. The agile family philosophy recognizes that change is ever-present and builds in a system that is adaptable.

All families have some conflict. Some are now using problem resolution techniques found in businesses. More or all of the family members need to be part of the decision-making process. Use of the system of “vote first, talk later” is often used. Otherwise, those who talk first may have too much influence. 

These new group dynamic techniques may be even more important for families than companies. In a workplace, sometimes conflicts can be deferred or ignored. But, in families, extended conflicts can lead to divorce and estrangements.

Many successful families also work on financial literacy. They talk openly about money with their children. Some parents don’t want to burden their children with the truth, yet they may be giving them a bigger burden by not telling them. Allow the children to make their own mistakes with small amounts of money, like their $5 allowance. And, put them to work. Have them cut grass or have a lemonade stand. Many successful adults were involved in business as children.

Families are very important to us at DWM. As our clients know, we are pleased to meet with and help family members of clients, generally without charge. We have organized and facilitated successful family meetings. We have assisted younger family members in improving their financial literacy. We’re happy to help. Give us a call.

WSJ (2/15/13): “Beware the Great Rotation”

fee-only financial planners, stress-free financial planningStocks have continued upward (6-7%) in 2013 while bond performance has been flat or slightly negative since January 1st. Not surprisingly, many feel a “great rotation” has started and the stock market will “melt up” as investors sour on bonds and move from fixed investments to equities. Not so fast.

Since 1970, according to the Investment Company Institute, approximately 71% of all mutual funds were invested in stocks. At the end of 2012, that percentage was 65.7%. Hence, the current allocations to stock mutual funds are not abnormally low. Furthermore, in a study published last May in the Journal of Financial Economics, it was determined that even though the stock market often rises when investors move from fixed to equities, almost all of that increase is reversed in four months time.

Michael Kahn in the Barron’s issue Saturday cautioned that technical analysis would show that the stock market may be near a top.  Volume has been shrinking and many pundits are calling for a needed “correction.” Furthermore, the market has gone 15 months without a 10% correction and three months since a 5% correction. According to Mr. Kahn, a correction may be near.

Most importantly, we’re all waiting for Washington to govern. Certainly part of our current sluggish growth is the result of the financial crisis of 2008 and deleveraging. But an equally important factor is the uncertain economic and tax environment in our country. On Friday, Fed Chairman Ben Bernanke said that the U.S. economy is “far from operating at full strength.”  And now retailers are feeling the impact of increased payroll taxes as of 1/1/13.  January and early February sales were not good for Wal-Mart and others.

And, on March 1st, unless Washington acts, the sequester cuts will occur. This will cut $85 billion from discretionary spending; reducing defense programs by 8% and domestic programs by 5%. It is estimated these cuts will cost the economy more than one million jobs over the next two years. Certainly, we need to reduce the deficit and, at the same time, look at a potential Grand Bargain to deal with spending, investment and tax reform. We need a long-term fiscal restructuring for social security and Medicare.

Unfortunately, Washington is deeply divided. Thomas Friedman on Sunday put it this way:  “You can feel the economy wants to launch, but Washington is sitting on the national mood button. We the people still feel like children of permanently divorcing parents.”

There are lots of good signs out there. The American economy is recovering. Housing is coming back. The energy revolution is reducing costs. Financial sector and household balance sheets are looking better. What we need now is to break the deadlock in Washington. When that happens, our economy can start moving toward full strength. Only then, are we likely to see the real great rotation take place.

Don’t Neglect the Emerging Markets

From The Charleston Mercury, February 7, 2013:

financial advisors, asset allocation

Yes, 2012 was a great year for U.S. equities. The S&P 500 index rose 13%. However, did you know that the MSCI Emerging Markets Index was up 15%? Emerging market results were uneven. Turkey and Thailand had exceptional performance. China and India did well. Chile and Indonesia did poorly.

Bond returns in the U.S. were lower in 2012; the U.S. Aggregate bond index was up 4%. Not so with emerging market bonds. The JP Morgan Emerging Market Bond Index returned 18% in 2012 (11% per year in the last decade.) Even countries like Mongolia, Zambia and Bolivia are issuing sovereign bonds and receiving favorable terms. The world is changing every day.

You and your financial advisor should consider including emerging markets as a small part of your diversified core portfolio of stocks and bonds. Here’s why:

The demographics are great in the emerging countries. They have an expanding middle class, low debt to GDP and improving credit quality. Growth prospects in emerging countries are much better than developed countries. The IMF forecasts an increase in GDP in emerging markets from 5.3% in 2012 to 5.5% in 2012. Developed countries will likely be around 1%. 

An additional reason for considering an allocation to emerging market stocks includes current valuations. Emerging market stocks are selling for around 12 times earnings for the past 12 months versus roughly 16 times for S&P 500 stocks. 

Emerging market bonds are certainly a more risky investment than the bonds that compose the U.S. Aggregate bond index; which is roughly 2/3 U.S. treasuries and agencies and 1/3 corporates. With a credit quality rating generally comparable to high yield bonds, emerging market bonds would be expected to produce a higher return. However, some of the emerging market countries are stabilizing and, in fact, receiving upgrades in their government bond ratings, while the ratings of some developed countries are being downgraded.

Certainly, there are risks with emerging market securities. First, we are interconnected in the global economy. When growth stagnates in mature countries, this has a direct impact on emerging markets. Second, emerging market stocks and bonds are more volatile. During the last bear market from April, 2011 to October, 2011, the MSCI Emerging Market Index plunged 28%, while the S&P 500 index dropped 19%. In a flight to safety, both emerging market stocks and bonds will likely fare worse than domestic stocks and bonds.

Even so, don’t neglect to allocate a small part of your portfolio to emerging market securities. Over the long-term, you should be well rewarded for your foresight and incurring slightly more risk on a small portion of your portfolio.

Les Detterbeck is one of a small number of investment professionals in the country who has attained CPA, CFP®, and CFA designations. His firm, DWM Financial Group, Inc., a fee-only Registered Investment Adviser, has offices in Charleston/Mt.Pleasant and Chicago. Les may be contacted at (843)-577-2463 or

“Where’s my social security statement?”

fee-only financial planning, going digital

Remember that special green and white report, which includes your retirement benefit estimates at various ages and also a personal earnings history, that would show up in your mailbox every twelve months?

Well, if it seems like it’s been awhile since you last received one, it’s because the Social Security Administration, in cost-cutting mode, suspended mailing hard-copy statements with few exceptions beginning in mid-2011. The info is still available but you’ll need to go to and set up your account. (Be prepared for some deep questions that the agency employs in an effort to thwart identify theft.)  We’re urging all of our clients to do this this month as this information is a critical tool in financial planning. It can also serve as a reminder of the need for adequate personal savings to supplement these benefits. 

By the way, benefit payments are going digital-only too. If you’re currently receiving Social Security checks by mail, you must switch to direct deposit by March. You can set up direct deposits by going to the Social Security link above or by calling 800-772-1213.

Even though this switch from paper to digital will save the government $70MM+ per year, please recall that this program is “under water” and we wouldn’t be surprised to see these “entitlements” have significant changes in the near future. DWM uses sophisticated financial planning software to address these issues. We can literally stress-test your plan to see what happens if your Social Security benefits were cut or totally eliminated. There are also tools like that we use to calculate maximum distribution strategies.

If you don’t already have an online Social Security account set up, take action now thereby keeping your financial planning up-to-date and making sure the government gets your hard earned benefits to you without any issues.