DWM Fall 2015 Seminar Recap

emoji 2Money and emotions. Inseparable. We’re hard-wired that way. Since caveman times, we’ve always had an aversion to loss. And, that’s one of the reasons many people aren’t feeling so great about their money in 2015. All asset classes – equities, fixed income and alternatives – are all just about break-even for the first ten months of 2015. And, because our minds place more emphasis on recent events than longer term, many are wondering what lies ahead for their money and their net worth. Those were the subjects of our two annual seminars; yesterday at the Liberty Tap Room in Mt. Pleasant and last week at Emmett’s Brewery in Palatine. Both locations served as great places to not only deliver an important financial presentation, but also as a great place to just hang out and visit with one another.

In case you missed our 2015 seminar entitled “How Are You Feeling About Your Money Lately?” here are some of the highlights:

  • Looking at the last five centuries for clues to what’s coming next: Citing many facts from Northwestern University’s Dr. Robert Gordon’s report on U.S. economic growth, there have been waves of change. There was not much real economic growth before 1750. Then, in 1750, the first Industrial Revolution, which included steam and railroads, pushed economic growth for almost 8 decades. Industrial Revolution #2 was centered in the U.S. with the invention of cars, planes, electricity, communication and refrigeration. From 1870-1970, Americans moved from the farm to factories, working in the cities and manufacturing new products and buying them. It was a huge push on economic growth. Currently, we are in Industrial Revolution #3 covering the period 1960 until now and is characterized by computers, e-commerce and the internet. Dr. Gordon’s premise is that many of the positive characteristics in the 20th century that pushed economic growth, such as demographics, women entering the workplace, education advances, a rising middle class and low debt (federal, state and local) have diminished. Therefore, at this time it will be difficult for the U.S. to obtain an increase in its real growth rate of roughly 2% per year unless and until there is a major innovation breakthrough.
  • Last 100 years of bull markets and bear markets: Though bear markets seem “unbearable” when occurring, the fact is that they are much shorter in duration and much less in impact than bull markets. However, based on expected lower growth and inflation, the average annual stock market returns will likely be less in the coming decades than the 80’s and 90’s for example. Indeed, there will be bear markets at some point in the future. But that said, it is not wise to try to time the market; instead control the things you can control and stay invested in an appropriate diversified asset allocation and stick to your long-term investment plan.
  • Emotional biases: The markets are not rational because of human beings and their emotions and the fact that they sometimes trade on those emotions. As such, the markets tend to continually overshoot one way and then the other. Recency bias, loss aversion bias, anchoring bias, and other biases can have major (and typically bad) impacts on our decision making. For example, recency bias was the principal reason many investors felt compelled to get out of stocks in late September based on the last two months’ most dismal performance – had they traded on that emotion, they would have missed out the huge October rally upward. Emotional biases in investing can significantly disrupt sound investment plans but there are fortunately ways to cope including: understanding the problem exists, creating a culture of discipline which can be done by creating a sound investment plan (e.g. Investment Policy Statement), and working with a financial coach like DWM that keeps you and your emotions from hurting yourselves.
  • Other Key Metrics: Protecting and growing your net worth is much more than simply focusing on investment returns. One needs to regularly review and monitor other key measurements that matter. These include assets, additions to assets, planned date of financial independence, retirement income, inflation, investment returns, effective tax rates, goals (needs, wants and wishes), expected longevity, estate planning and stress testing, including risk management. There are many “financial advisors” out there willing to work with your investments, but not as many that are qualified and willing to go through a comprehensive financial planning process using the metrics above and providing other value-added services to completely help manage your financial life. DWM’s Total Wealth Management Process includes both Investment Management and Value-Added Services. The process has two parts: first, a series of initial meetings to review all aspects of a client’s financial life and provide review, recommendation and implementation. And, second, an ongoing process to monitor and adjust the plan through life’s twists and turns. It is focused on the client’s numbers and emotions and designed to help protect and grow their legacy and provide peace of mind.

For more information about the discussion above, don’t hesitate to contact us.