Monthly Archives: February 2017

Parallel Worlds?


February 27, 2017

So far this year, the markets have performed pretty well, but you would not think so if your primary source of market information was the news coming out of Washington. I have never before seen such rancor and distrust in the political arena. There seems to be the media equivalent of a war taking place between the White House and most of the nationwide news services. After the bitterly fought Presidential election, there were hopes of a honeymoon between the political parties. Such hopes rested on both the new administration and the media “playing nice”. As we all know, that has not happened. Both sides have stayed on the attack since the election and there is no hint of compromise. How is this extreme political volatility affecting the market?

The standard gauge of market uncertainty is called the VIX index. This index has long been used to provide investors with a quantitative assessment of uncertainty in the market place. Historically the VIX index typically trades between the levels of 10 and 20. When the market moves above a VIX level of 20 it is believed that there is a lot of risk in the market. Conversely, when it is below 11 volatility is historically low and investors are not as concerned about market risk. The market is currently trading to a VIX level of 11.47.

Why is the market trading so well, with relatively low volatility, when the news out of Washington suggests a chaotic political environment? One explanation is that market players are looking past the ill tempered political shouting match to see a positive outlook for our economy. Perhaps investors are focused less on what they hear from DC, and more on what they see in the heartland. People have jobs, consumers are feeling confident in their spending, and investors seem willing to take some risk. The belief that tax cuts for both corporates and individuals are coming is still prevalent in investors’ minds. Moreover, news from around the world shows a willingness on the part of major corporations to attempt multibillion dollar mergers. Corporate executives and CEOs do not propose these risky deals unless they are confident in the outcomes for themselves and their share holders.

It appears that early 2017 has seen the development of two parallel, but seemingly unconnected, worlds of volatility. The first is market risk, as measured by the well known VIX. The second is focused on political volatility, which I will label PVIX. For now, our new PVIX index is very high. The market is currently saying that a high PVIX is not going to get in the way of an optimistic approach to allocating resources, making money, and investing. The market is firm and investors are feeling good about where they are.

Carl Gambrell


Too Many Lifestyle Assets?

lifestyle assets

February 20, 2017

The issue that investors tend to worry about most is whether they have enough money for retirement. People want to be sure they do not run out of money and they can maintain their desired standard of living. People generally do not expect their capital to grow, but they do want a sense of financial well-being and comfort that they can enjoy their retirement.

Several articles this week were centered around these issues. The WSJ’s Wealth Management Section reported on the experiences of seven recent retirees. The most surprising was the statement that they had been misled by the financial planning world into to thinking they would spend less money during retirement. The truth was they were spending more money. Others were shocked at how expensive medical care becomes. The resulting plea to those yet to retire was save more and plan to have to spend more.

An article in the NY Times focused on life expectancy for retirees. Retirement is an uncertain period of time. If you make it to age 65 the odds are really good that either you or your spouse will see 85. Some clients are taken aback in planning discussions that we encourage them to consider living to 95 as a real possibility.

This brings me to a key observation. In retirement, it is critical to look at your assets in two separate “buckets” of assets.  I will call one your “earning” assets and the other your “lifestyle” assets. Earning assets are things like stocks, bonds, and income producing real estate that provide you with the income to augment social security and pension funds. Lifestyle assets are those assets that we acquire over time that produce no income but help us live the lives we desire. These include our primary residence, any beach or lake homes, or the country farm. Others might include multiple country club memberships, and even boats and planes. Not only do lifestyle assets fail to produce income, they also cost money to maintain.

As you plan for retirement, look at both your earning assets and your lifestyle assets, and ask yourself two key questions. First, are my earning assets working hard for me and will they support me for a very long time? Second, can you afford the cost of maintaining your lifestyle assets? Over years of helping clients, I have seen a simple rule that helps in this evaluation. If your lifestyle assets are greater than 40% of your total assets, you are at risk of experiencing some financial stress as your earning assets could struggle to support your lifestyle. This is just a rule of thumb, and everyone is different, but I have seen couples in their 80s where their lifestyle assets are greater than 80%!  If you can keep your lifestyle assets to 25% or less of your total, you are less likely to face the difficult decision of having to liquidate a memory filled lifestyle asset to support your long retirement.

Carl Gambrell