Fourth of July-Be Happy and Safe!

4th of JulyEveryone at DWM hopes you and yours have a happy and safe Fourth of July.  In honor of our national holiday and courtesy of National Geographic, we’d like to share six memorable myths that turn out to be more fiction that fact.

1) Did Paul Revere ride solo? No, he didn’t. Yes, patriot Paul Revere really did ride the night of April 18, 1775 to warn the countryside that the British troops were on the move. He and two other riders, William Dawes and Samuel Prescott were, in fact, part of a highly effective, early warning system. Longfellow’s 1860 poem “Paul Revere’s Ride” fails to acknowledge the other two riders or that all three were, in fact, captured that night by the British.

2) Did a raucous Independence Day Party in Philly crack the Liberty Bell? No, the State House bell cracked soon after its arrival in 1752. The bell was recast and recracked several times but was intact during the Revolutionary War.

3) Did patriots flock to fight for freedom? Not really. There was a surge of initial enlistees. However, as it became clear that the struggle for independence would be long and difficult, the enthusiasm began to wane. Many colonies resorted to cash incentives as early as 1776 and states were drafting men by 1778.

4) Did John Adams die thinking of Thomas Jefferson? Incredibly both Adams and Jefferson died on the same day, July 4, 1826, exactly fifty years after the founding of America. However, Jefferson actually died a few hours before Adams and there is no evidence that supports the myth that Adams whispered these final words: “Thomas Jefferson survives.”

5) Did Betsy Ross Make the First American Flag? There is no proof that Betsy Ross played any part in designing or sewing the American flag that made its debut in 1777. Her participation was only revealed nearly a century after the fact by her grandson. There is no evidence, on the other hand, to prove she was not the seamstress.

6) Does the Declaration of Independence hold secret messages? The movie National Treasure was based upon a “coded map” on the back of the Declaration of Independence which would lead to the lost “national treasure” of precious metals, artwork and other artifacts accumulated over many millennia. Of course, that is not true. The National Archives acknowledges that there is something written on the back of the document. It is merely a label stating: “Original Declaration of Independence dated 4th July 1776.” 

Vacation Do-Overs in Europe

European VacationOn June 28th, Americans anxiously awaited as the Supreme Court ruled on Obama Care. In Europe, a week earlier, all eyes were on the European Court of Justice. Their case did not concern health care; rather it concerned vacation time, a topic near and dear to Europeans.

The European Court of Justice ruled last week that workers are entitled to additional paid vacation time if they don’t feel well during their original vacation. Amazing.

The question had originated in Spain, where trade unions sued for the vacation do-over allowance some years ago. The European court upheld the right throughout the EU, stating that “the entitlement to paid annual leave must be regarded as a particularly important principle of EU social law; a principle enshrined in the EU Charter of Fundamental Rights, and thus cannot be interpreted restrictively.”

Vacation do-overs add to the EU minimum of 20 paid days of vacation per year and this doesn’t include national holidays, EU mandated weekends, breaks and other additional time off. It’s even better in countries like France, where the minimum is 25 paid days per year and you get an extra 10 paid days if you work a 39 hour week instead of a 35 hour week. In addition, Europeans accrue vacation time while they are on sick leave. Hence, they could end a long recuperation period by going on paid vacation.

The EU Court decision comes at a time when the rate of unemployment in Spain is 25% and Europe is in the midst of an economic crisis. Perhaps the leaders of Europe need to take a look at the EU Charter of Fundamental Rights. Seems some changes might be needed there if Europe ever hopes to return to strong economic growth in the future.

The Big Mac Index: Tracking Worldwide Standards of Living

Big Mac indexA Big Mac has 540 calories and 29 grams of fat. It also contains important economic information that The Economist and others use to compare international prices and wages.

In January, a Big Mac cost $6.81 in Switzerland, $4.20 in the U.S., $2.44 in China, and $1.96 in India. The hourly wage at a McDonald’s (“McWages”) in each of those countries was $15.00, $9.24, $1.46 and 78 cents, respectively. Economists divide the cost of the Big Mac by the McWage to get “Big Macs per Hour” or BMPH in comparing countries. In the U.S., Canada and Western Europe, our BMPH is 2.2 (hourly earnings at a McDonald’s are 2.2 times the cost of Big Mac). In China the BMPH is .6 and in India only .4. So, in India, McDonald workers would have to work 2 ½ hours just to be able to buy a Maharaja Mac (made of chicken, not beef.) These numbers change over time and that’s what the economists are tracking.

The Big Mac Index was started in 1986 to attempt to track “purchasing power parity (“PPP”)” used to evaluate market exchange rates, currency valuations and cost of living changes across the globe. Mc Wages and Big Macs were selected because they are uniform and ubiquitous. Sandwiches are produced worldwide according to a rigidly uniform process detailed in a 600 page manual. Identical burgers are produced in every city. This produces an ideal environment for global productivity comparisons. BMPH represents a PPP-like calculation of the real wage, taking account the local cost of goods.

The Big Mac Index demonstrates the vast gulfs in worldwide productivity and standards of living. The gaps are in fact shrinking. In the U.S., our BMPH was 2.4 in 2007. Now, the McWage is up 26% in four years, but the cost of the Big Mac is up 38%, partially due to increases in food prices. The net 9% drop in our BMPH is one sign of a reduced overall standard of living. In Russia, the BMPH increased an astounding 152% from 2000 to 2007 and has increased another 42% from 2007 to 2011. China has had increases of 60% from 2000 to 2007 and another 22% from 2007 to 2011. India saw a large increase of 53% from 2000 to 2007 but their BMPH declined by 10% from 2007 to 2011. It’s no surprise that more progress in standards of living was made by the BRICs and other developing countries from 2000 to 2007 than from 2007 to 2011.

Yes, our BMPH has gone down slightly here in the U.S. over the last decade. Even so, we’re still the envy of the entire world, by far. Time to celebrate- with a Big Mac and fries.


Barron’s: “Investors Moving To Alternative Mutual Funds”

Alternative mutual fundsInvestors like hedge-fund strategies to manage portfolio risk. What they don’t like are the fees, lack of transparency, illiquidity, high minimums and lockup periods of hedge funds. Enter liquid alternative (“LA”) mutual funds. Assets in LA funds have grown three-fold in the last four years, while hedge fund assets have declined by 40%.

The Morningstar and Barron’s Alternative Investment Survey of U.S. Institutions and Financial Advisors identifies trends in alternative investing. Responses this year, as reported by Barron’s on May 26, 2012, show that “advisers are increasingly using mutual funds to get at alternative strategies and asset classes.” The report continued, “Investors are increasingly interested in anything not correlated with the stock and bond markets.These (LA) vehicles are viewed as a way to deliver additional, or even outsize, returns over conventional investment strategies.”

Barron’s report is no surprise to us. DWM was one of the early adopters of LA fund strategies. Back in early 2008, we encouraged clients to consider reducing their exposure to equities and substituting non-correlated, liquid alternatives. Many of these LAs held their ground in 2008 while equity funds suffered losses of 30% or more. We felt then as we do now- a traditional portfolio of stocks and bonds is not the answer alone. If your first goal is to protect your assets and the second to grow them, we suggest incorporating an appropriate mix of non-correlated LA investments to your portfolio.

The picture above represents a possible allocation for the DWM LA basket. It was established for the investor seeking less volatility and more absolute-type returns than the equity market. Holdings may include arbitrage funds, global tactical allocation funds, and market-neutral funds, among others. The model follows a “low beta” approach.  Low beta means returns that have little correlation to market risk and results. That being said, when there is a bull market, the performance of the model will most likely not be as great as a 100% stock portfolio. However, in a bear market, the model is geared to protect the downside.

The funds within the DWM LA portfolio are chosen to complement one another and together create a very powerful portfolio that can potentially excel in any market environment. We constantly monitor this dynamic LA area for offerings that may represent new opportunities for the DWM LA model and its investors.

Welcome aboard, Barron’s. It’s great to see a major, traditional investment publication recognizing the growth, value and importance of liquid alternatives.

Smartphones Are Changing Retailing

Smartphones: in store vs online shoppingAmazon began the current retailing revolution 17 years ago as an online bookseller. Today, hand-held devices are on the verge of disrupting what’s left of the in-store experience.

The Pew Research Center’s Internet & American Life Project is tracking how our habits are changing thanks to the powerful computers in our hands. During the last holiday season, Pew reported that 38% of cellphone users called a friend about a purchasing decision, 24% used their phone to review products and 25% used their phone to compare prices, all while they were shopping in a store. Ultimately, 37% of these shoppers decided not to buy, 19% bought online and 8% went elsewhere.

Cellphone users’ behavior goes beyond bargain hunting. Mara Devitt of retail consulting firm McMillan Doolittle says, “Consumers with cellphones don’t look up. They’ll be texting a friend (who may be next to them) or obtaining information and not looking around at traditional displays and signage.”

Amazon launched its new Price Check app in December with the tagline, “Ever wonder if the ‘deals’ you see while shopping in retail stores are really deals?”  In fact, Amazon offered customers $5 off their next Amazon purchase if they simply scan in the item of their choice at the store and get an immediate price comparison. This type of “e-tailing” caused Best Buy to close 50 of its largest stores in March.

Target, JCPenney and others are fighting back. They have created mobile apps that allow shoppers to download coupons right at checkout. In addition, they’ve put the squeeze on suppliers and are considering more membership-based pricing models to better compete.

Overseas, bricks and mortar shopping may be disappearing altogether. Tesco, a retailing giant in South Korea, is using subway ads that feature photos of dozen of products along with their bar codes. While waiting for their trains, shoppers can scan the barcode, make a purchase and have the item on its way to their house.

Even so, stores are not dead, says McMillan Doolittle’s Devitt. “People need to touch some merchandise, to get out of the house, and get something now. Stores with smart people can overcome apps.”  The Apple Store is a good example.  Shoppers go there to interact with the help. And grocery chain Trader Joe’s has some great checkout people, adding value to the shopper’s experience at the store. You don’t get that on a smartphone. At least, not yet.

Financial Planning for Family Members with Special Needs

From The Charleston Mercury May 30:

You may recall that back in March I invited y’all to my 100th birthday party. I received a number of nice responses, including suggestions for the menu at the party to include “soft items” not requiring much chewing for toothless attendees. I also received a few serious responses, one from my friend and fellow fee-only financial advisor Don Bailey. Click here to read the full article.

Rent or Buy?

Rent or Buy?Last week the Wall Street Journal ran an article where readers weighed in on the question: Is Now the Time to Buy Your First House? Actually, the question of renting or buying a house is a good question for all ages to consider.

Historically, for most people, the answer has been pretty simple. “Don’t waste money on renting- buy a house as soon as you can scrape together the down payment.” A house was more than a home. It was typically one’s largest investment and the leveraged appreciation over time was fantastic. 

Everything has changed in the last five to six years. The decision today is not so easy. 

Here are some of the reasons to buy a house:

  • Own your permanent dream home for years to come
  • Get a tax break for the interest and real estate taxes paid
  • Build equity with your principal payments
  • Hopefully obtain long-term appreciation

 Here are some of the reasons to rent:

  • Payments are fixed with the monthly cost often lower than buying
  • No repairs, grass cutting or painting to do and/or pay for
  • Opportunity to invest funds elsewhere; spreading your investment risk
  • More flexibility to move quickly for business or personal reasons
  • No closing costs during buying or selling

There are free, online rent-or-buy calculators available. One is However, please be aware that there are major estimates that are required, including annual maintenance and appreciation. Even so, the site can help people focus on some key factors. As a generalization, I think it is fair to say in today’s market that renting may be better than buying for those people who might need or want to move within 3-5 years. Those who plan to stay in one spot for a longer time will likely do better to buy.

Of course, housing decisions are one of the major pieces of a complete financial plan. Every situation is different. What makes it even tougher is that the decision to buy or rent a house is typically three decisions all rolled into one; a lifestyle decision, an investment decision, and a risk management decision. Fun stuff. We love working through these decisions with our clients, of all ages.

What Would You Do With A Windfall of Money?

Money windfallDid you know that 90% of lottery winners are bankrupt within 5 years? Or that 70% of all wealth transitions fail? The reason is that most people are resistant to change and only a minority can handle it.

The questions that normally surface when coming into large sums of money can be both technical like:

  • “What should I do next?”
  • “Who can help me?”
  • “Who can I trust?”

and emotional like:

  • “How did I get this money?”
  • “How has this changed my life?”
  • “Why are people treating me differently now?”

Frankly, new wealth presents challenges that can be disorienting and possibly dangerous. It can bring on a feeling of identity dissolution – the end of your old self. In particular, if there is suddenly no economic need to work, you may need to redefine yourself. This can affect your career, relationships, and lifestyle (like home, community, and location).

There are many possible sources of wealth. You can be born to it, like a trust fund. You can inherit it as a result of someone’s death. You can win it. You can create it from the sale of a business, idea, or as an entertainer. You can earn it through stock options. You can sue for it. You can marry into it.

The ability to keep this windfall depends a lot on from where the money came. If it came via inheritance from an unexpected death, it may be seen as “blood” money and the heir will tend to lose it quickly. Money “earned” from a business sale, for example, tends to stick better.

Besides the source of the money, people’s reactions are shaped by a number of influences:

  • The windfall amount relative to your current income/net worth.
  • Your age and stage in life.
  • Your career satisfaction.
  • Your class background.
  • Your current community and social network.
  • Your family dynamics.
  • Your money style. For example, if you’re already frugal, you may have a better chance of keeping the money and vice-versa if you’re loose with money.

People who receive a windfall have a tendency to make irrational, impulsive decisions in the first few months after coming into this new-found money. Some examples of this include:

  • The desire to get rid of money via gifting.
  • Going on a spending spree.
  • Giving up control of funds.
  • The urge to move.
  • The urge to change work.
  • Feeling stuck or frozen.
  • Hanging on to inherited stock for sympathetic reasons even though you know you’d be better off diversified.
  • Doing nothing.

This emotional period can basically mirror the stages of grief. Our job as advisors is to anchor our client during this “wave” of emotions and listen to them. We help them understand their decision-making approach, focusing in on the decisions they would have made before getting this money. We can help the client realize the true value of the money. We help build the client’s support team which includes their estate planning attorney, CPA, etc. We help set goals to enable the client to “live a life that is about fulfilling their greatest potential.” And most importantly, we can urge the client to take ample time to make solid, not hasty, decisions.

Coming into a great deal of money sounds fantastic at first, but empirical studies show that without proper planning it can lead to many painful experiences and put people in worse shape emotionally, financially, and/or physically, than they were to begin with. By working with an advisor that cares, you may be part of the small minority who don’t lose their windfall and actually prospers!

Europeans Reject Austerity

Europeans reject austerityFrance, Greece and parts of Germany voted on Sunday. Their message was loud and clear: many Europeans are not prepared to go along with threats to their cherished way of life.

Francois Hollande ousted Nicolas Sarkozy, becoming the first Socialist elected president since Francois Mitterand. Mr. Hollande declared after this victory that “Austerity need not be Europe’s fate.” The new president stressed a “growth” agenda instead. The problem is that he equates growth with more government spending. French government already controls 56% of French GDP, the largest percentage in Europe. Mr. Hollande expects to balance his budget on the backs of millionaires whom he proposes should be paying a 75% income tax. Even though the French government hasn’t balanced their budget in 35 years, he is not suggesting fiscal reform; rather he has campaigned on a promise to renegotiate the German-French euro collaboration known as “Merkozy.”

Greek voters sent an even louder message against austerity in elections Sunday. They rejected the country’s two incumbent parties; supporting smaller left-and right-wing parties that campaigned against the austerity program Greece must implement in exchange for continued European financing. Apparently, Greeks want an end to the sacrifices directed by Brussels and Berlin. Now, with seven parties expected to enter Parliament, Greece has a completely fragmented government. The front-runners have until May 9th to form a coalition. Political instability may ultimately challenge the country’s future in the euro zone.

Closer to home for Angela Merkel, her Christian Democrat Union took 31% of the vote in Schleswig-Holstein to place first, but it was its lowest share of the vote since 1950. Ms. Merkel has continued to focus on policies to cut debt. Two weeks ago in Berlin, she put it this way: “You can’t spend more than you take in. You can’t live your whole life this way. Everybody knows this.” The elections Sunday show that many Europeans don’t agree.

Mr. Hollande campaigned on modifying the euro zone’s “fiscal compact” so that it not only constrains government deficits and public debt, but also promotes growth. However, according to the Economist on April 28th, his program is not suggesting slower fiscal adjustment to smooth the path of reform; he is proposing not to reform at all. With the Dutch government brought down over deep budget cuts and the election results from Sunday, the “balance” in Europe may be changing. More Europeans are rejecting austerity. If Europe is not collectively willing to pursue painful reforms, can the euro survive?