Probabilities Are Just That!

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By Jeffrey Cedarholm, CFP®, ChFC®, CLU®

Chief Investment Officer

Sometimes it’s nice to take the time on a weekend to just sit and read the newspaper, something fewer Americans seem to do these days, either because of lack of time or interest, or both.  But this past weekend, as I perused the paper, I came across two relevant articles on the same page. The first to catch my eye was an article written by Jason Zweig about his recent conversation with Robert Schiller. You might remember Schiller from my last blog; he is the economist who has developed the “cyclically adjusted price/earnings ratio” or the CAPE ratio for short. This ratio is widely used by investors to determine whether the S&P 500 is over or under valued, compared to historical values dating back to 1871. Lately Schiller says the ratio, at almost 26, is above the long-term average of about 16. The thrust of Zweig’s interview was to question Schiller about the recent market volatility and whether it might be time to cut back on equities. At Longview, we feel the recent pullback is a normal part of owning equities, and that five to ten percentage downdrafts are usually a healthy reset. Schiller’s quote was the CAPE ratio “might be high relative to history, but how do we know history hasn’t changed.”  Bottom line – he is sticking with stocks for now.

The other story, written by Liam Pleven, was about a 61 year old widower, Peter Nelson, who was recently diagnosed with a form of blood cancer. With the diagnosis, Mr. Nelson was seriously weighing all of the pros and cons regarding his current situation. He was very open about whether he should quit his job, accelerate retirement and the spending that is attached to it, while all the time worrying that he may live much longer than the typical man suffering from his condition. It appears that Nelson, after much thought and consultation, decided on a “compromised” or moderate approach.  He decided to work at least through 2015, and to make his portfolio slightly more conservative. He was thinking that after 2015 of slightly “living large” with the funds in his portfolio, and also delaying taking Social Security until age 70 to boost his income in later years. With his longer term health concerns, this “spend a little more now, but with a backup plan” seems to be a prudent strategy.

Both of these juxtaposed stories deal with relevant financial planning concerns – decisions about an unknown future and the inherent probability attached to each decision.  The case of Schiller staying with equities in his portfolio is the easiest case to model. Many, if not most people are still fearful of a repeat of the market crash in 2008. But as I said earlier, market corrections of five to ten percent are normal events, and while these short-term swings are caused by global economic concerns, history has shown that usually the longer term trend is positive. The probability study regarding Mr. Nelson is much more difficult. Not only are you dealing with the market, but also how a disease may affect this man, how much money does he have to start with, how is it invested and how will it be spent! In the past 20 years, Financial Planners have come a long way in their ability to model situational probabilities, which generally leads to better financial decisions for clients. 

Jeffrey Cedarholm is the Chief Investment Officer at Longview Financial Advisors, Inc.  He is a CERTIFIED FINANCIAL PLANNER™ practitioner with a passion for investment and wealth management. Jeff can be reached via e-mail at jeff@longviewfa.com.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

What is Your Online Legacy?

Jessica Hovis SmithBy Jessica Smith, CFP®, CLU®, CPWA®
NAPFA-Registered Financial Advisor

Next Thursday, September 25th will mark one year since a dear friend, Marissa, and her unborn son lost their life in a car accident on Interstate 565. I remember the day vividly. I remember the shock and the sheer heartache that I felt when I thought of her husband and their 19-month-old little girl who had just lost the most important person in their lives. I was reminded again just recently when a mutual friend posted on Marissa’s Facebook page. I found myself scrolling through some of her old pictures, adoring the many pictures of her sweet baby girl, and laughing at a picture of her husband in a kilt at their wedding.  

It appears that Marissa’s husband had her Facebook profile memorialized. She brought so much joy to those around her that it only seems fitting to do so. However, not all such reminders are good. It can be painful, and at times, inappropriate as I was reminded when I read an article about Facebook recommending a deceased user as a “friend” to another user. 

What kind of online legacy will you leave? 

It is probably a question you haven’t given much consideration. Yet, if you die as a member of any social media site, it is a question someone will have to address, whether it is you now or your loved ones later. Social media sites struggle with what is the appropriate action and what they can do given privacy considerations. Here’s a list of a few sites and how they address the issue.

Facebook:

Facebook gives the deceased user’s family two options: the profile remains and is memorialized or the account can be closed. Family members cannot gain access to the content on a user’s profile once the user is formally reported as deceased to Facebook.

If family members decided to memorialize the account, the deceased user will not show up as a friend recommendation. To memorialize, Facebook requires a completed request form along with proof of the death (an obituary is sufficient).

Closing an account is a tougher process that requires more paperwork, including a birth certificate, death certificate and proof of authority.

LinkedIn:

You can report any deceased contact to LinkedIn by completing a form. You’ll need the username, company, email and you must have a link to the user’s profile.

Twitter:

Twitter will deactivate an account, but it does require several pieces of information to include: username, death certificate, a copy of the representative’s driver’s license, and a signed letter that includes your full name, address, email, relationship to the deceased and the action requested. A full list of instructions, including mailing directions, is found by clicking here.

Instagram:

Instagram simply requires the completion of a form and a death certificate to remove an account.

Google:

Google, which includes Google+, Gmail, and many other applications, has the most complicated procedure. They require a two-step process.

Step 1: You must provide your full name, address, e-mail address, a copy of your driver’s license, the Gmail address or Google username of the deceased individual, a death certificate, the header from an old email received from the deceased individual, and a letter of intent.

Step 2: Google will review the information (which may take months) and follow up letting you know if they can move forward. If so, they will require a court order. There may even be additional documents required.

Google readily admits that this process does not guarantee they will honor the request. For more details of the process, click here.

  1. Name an online personal representative to address your online accounts at your death.
  2. Talk about your wishes for these accounts. Do you want an account to serve as a memorial?
  3. Make a list of usernames and passwords for the representative. It will likely be much easier to just log into the account to make changes at your death.

I think Marissa’s life is being honored in a way in which she would approve. I, personally, am very thankful for the little reminder of the life she led.

Jessica Smith is the director of financial planning at Longview Financial Advisors, Inc.  She is a CERTIFIED FINANCIAL PLANNER® practitioner with extensive experience and expertise in insurance and retirement planning.  Visit “Our Team” to learn more about her and other team members at Longview. Jessica can be reached via e-mail at jessica@longviewfa.com.

What Do You Want to Hear?

With financial planning being our passion, there is a wide array of topics that we are always willing to talk about. However, we want to write about what you are interested in! Call or e-mail us on any topic in financial planning you want to read about. We may not get to them right away, but we will do our best to incorporate them in future posts.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Longview Welcomes Whitney Rhyne!

We are happy to introduce Whitney Rhyne as the newest member of the Longview team. Prior to choosing the financial services profession, Whitney received her Bachelor’s degree in Human Development and Family Studies in 2013 from the University of Alabama. Whitney graduated in August 2014 with her Master’s degree in Financial Planning from the University of Alabama and will soon begin studying for the CFP Board exam.

A native of Huntsville, Whitney is excited to be back in the community that she loves. She is an active member of Mount Zion Baptist Church. Whitney enjoys traveling with her family, spending time with friends, watching college football, and doing anything active and outdoors.

WhitneyFamilyWhitney (far right), her parents Robert and Shannon, and siblings Jared and Allison. 

 

It’s Sunny Out…Better Grab an Umbrella!

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By Jeff Jones, MS
Associate Financial Planner 

As I’m writing this, the forecast for today is sunny. 80 degrees, a light summer breeze, and not a cloud in the sky! It’s a perfect day for grabbing the Callaways, slipping on your spikes, and getting in a round of golf before lunch. The last thing you are thinking about is grabbing your umbrella on the way out the door. But what if I told you that having your umbrella with you at all times is one of the most important aspect of managing the risks to your hard-earned assets? Of course, I’m not talking about your 62” collegiate football decorated golf umbrella. I’m talking about your personal umbrella policy (PUP).

FORE!

So what is a personal umbrella policy? A PUP is liability insurance which provides excess liability coverage beyond your auto and homeowner policies. I’ll use an example, albeit an unlikely scenario, to demonstrate the umbrella policy’s usefulness. Let’s say today your slice is particularly prominent. You line up your tee shot on hole 9 which has a number of large estate homes along the right side of the fairway. Your tee shot veers hard into one of those yards and strikes a homeowner as he is waxing his prized 1962 Ferrari, knocking him out and denting his car in the process. This isn’t just any bad day of golfing! It may be sunny out, but it may be raining lawsuits soon. While your homeowner’s insurance coverage may pay for some of the expenses related to you errant tee shot, it may not be enough, and that can leave your assets exposed. Here’s where the umbrella policy comes in. It provides the additional protection to ensure your collective liability coverage protects more of your assets. PUPs are usually purchased in increments of $1 million and premiums are much more affordable than you might expect. A policy will probably cost you less than what you paid for the Big Bertha driver in your golf bag.

No Mulligans!

Unfortunately, life doesn’t offer many do-overs, and you’ll want to be aware of your PUP’s limitations and exclusions. A PUP will require that you have a minimum level of liability protection provided by the policies for your autos, home, and boat. PUP exclusions include, but are not limited to, the following:

  • Damages arising from business pursuits
  • Liability associated with recreational vehicles (so make sure your golf cart is included)
  • Liability assumed in a contract
  • Liability associated with ownership of aircraft
  • Liability associated with ownership of watercraft
  • Damages to your own property

So, when you’re headed out the door, whether it is to the golf course, the boating docks, or for a bite to eat, make sure you are truly protected. Because even when the sun is shining, you’ll never know when you’ll need an umbrella.

Jeff Jones is a part of the planning team at Longview Financial Advisors in Huntsville, Alabama. He holds a Masters in Financial Planning from the University of Alabama. Jeff can be reached via e-mail at jjones@longviewfa.com

What Do You Want to Hear?

With financial planning being our passion, there is a wide array of topics that we are always willing to talk about. However, we want to write about what you are interested in! Call or e-mail us on any topic in financial planning you want to read about. We may not get to them right away, but we will do our best to incorporate them in future posts.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

The CAPE Crusader

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By Jeffrey Cedarholm, CFP®, ChFC®, CLU®

Chief Investment Officer

The purpose of investing is not to simply optimize returns and make you rich.  The purpose is not to die poor.                                                                                                                                       – William Bernstein

“Holy Cow Batman!”  Wait a minute, you have the wrong crusader.  In the world of investing, it’s not Bruce Wayne of Gotham, but Robert Shiller of Yale.  And it’s not Caped, but CAPE (Cyclically Adjusted Price Earnings).  Shiller is a recently named Nobel Laureate, professor of economics, the developer of the Case-Shiller Real Estate  index, the author of the well timed book Irrational Exuberance, and oh yes, the originator of CAPE.

The CAPE valuation method uses per-share earnings normalized over a past 10 year period, which tends to smooth earnings (and then also the price / earnings ratio) over a typical business cycle.  The current valuation is 26 times earnings.  Leuthold/Weeden, a prominent financial research firm, uses a slightly different method calculated over a five year period, and their ratio is currently valued at 21 times earnings.  Both of these P/E valuations are above their respective average value, in both cases above the 80th percentile, at least when the exercise is applied to domestic stocks.

The concern from Shiller, James Montier of GMO and other market pundits is not that the domestic market is just expensive.  It is really that based on past history when the market was this expensive on a CAPE basis, five year future market returns have been flat to negative.  Shiller’s graph, included below, shows that his index has only been more expensive than now in three years, 1929, 2000 and 2007.  Uh oh! Obviously, price / earnings ratios are not the only (or even the best) market valuation tool.  The trailing twelve month P/E ratio is only 18.8, and the forward looking ratio (as if we can predict the future) is even lower.  U.S. corporate earnings have remained persistently strong over the last five years and with a near zero interest rate, some premium in the ratio may be justified.  Our markets have done very well since 2009 compared to other markets around the world, and domestic stocks are now more richly valued.  It does make sense to slowly move away from our high valued stocks into less expensive areas of the world, especially Europe and emerging markets, if one has the stomach for uncertainty.  It may also be prudent to begin to accumulate a little more cash, as we see some of our fund partners doing.  Bottom line:  U.S. stocks have done very well, but are no longer inexpensive compared to most of the world.  Time to be careful out there!

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My many thanks to Robert Shiller, James Montier and William Bernstein for their continued research, and frequent articles and books. I have used and abused their thinking many times over the years. If you want more, be sure to check out Shiller’s website by clicking here.

Jeffrey Cedarholm is the Chief Investment Officer at Longview Financial Advisors, Inc.  He is a CERTIFIED FINANCIAL PLANNER™ practitioner with a passion for investment and wealth management. Jeff can be reached via e-mail at jeff@longviewfa.com.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.