The Cordant Blog

The Biggest Mistake Older Investors are Making Right Now

by Isaac Presley, CFA on January 19, 2017

Next month, Cordant is releasing a short eBook titled “Three Mistakes Intel Employees Make as They Approach Retirement.” (Shameless plug: sign up here to join our mailing list and make sure to get notified when it’s released.) One of the mistakes we identify in the eBook is a willingness for late-career employees to take on too much risk with their investments as they approach retirement.

It's a mistake we frequently see among Intel employees, many of which are striving to hit their “number” (a desired net worth) or simply maximize their last few years or decade of accumulating assets. What’s more, this penchant to increasing risk late in one’s career is heightened during bull markets—like we’ve had since 2009—according to a recent article in the Wall Street Journal.

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Should You Split Your Investments Between Two Competing Advisors?

by Isaac Presley, CFA on January 13, 2017

 

 

 

This year on the Cordant blog, we’ll be answering questions that we frequently see, or that relate to a relevant topic for many readers. We'll kick if off with the following question about structuring a competition between two investment managers.

Question: I will retire in one year. My 401(k) will be sizeable enough that I'm thinking of splitting it in half and giving a portion to two different investment companies. I will give them the same expectations I have in terms of risk and goals. I then plan on waiting a year or two and give my total business to the company that provides the largest gain in their respective portfolios. Is this a good strategy? Why or why not?

Congratulations on your upcoming retirement, but please, please, please don’t risk it with this strategy. Here are three reasons why this is not only a bad idea but quite risky as well.

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What If….

by Isaac Presley, CFA on January 06, 2017

What if you had the choice between two investments: both earning $100 per year, but one taxed at 30%, and the other at 20%?  For which would you be willing to pay more?

What if investment A was otherwise identical to investment B, but had an upfront fee and significantly higher transaction costs than option B:  Which would you rather own?

Would you be willing to pay more for the ease of having something delivered to your home versus dragging yourself out to a store and then hauling it back home? That is, does convenience justify a premium?

What if alternatives solutions to a problem were lacking: would you be willing to pay more to solve your need than you otherwise would?

Elevated valuations on the US stock market relative to its long-term history are often cited as reason for alarm—like picking up nickels in front of a steam roller according to a recent Yahoo Finance article. And it’s true that current valuations, using the cyclically adjust price-to-earnings ratio made famous by Nobel Laureate Robert Shiller, are above average—27.9 currently vs. the 1881 – 2016 average of 16.7. However, since 1990 we’ve spent 95% of the time above this 135-year average. Valuations do have some predictive power over long-term returns—it’s one reason we think it’s important to have a meaningful allocation to cheaper foreign developed and emerging markets stocks right now—but high valuations don’t necessarily mean we are due for a market crash.

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Lessons from 2016

by Isaac Presley, CFA on December 29, 2016

2016—What a year.

If I had told you on New Year’s Eve 2015 that over the year upcoming we would see the U.S. market’s worst start to any calendar year ever; a surprise Brexit vote that shocked the financial markets; and a President-Elect Trump, how would you have invested your money over the next twelve months? I'm guessing, a common answer might have been “sell everything and move to cash.” And yet, by doing so, you would have missed out on an 8% return[1] from your equity allocation in 2016.

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The Hidden Variable of Performance

by Isaac Presley, CFA on December 22, 2016

What’s your motivation for investing?

Simply answering this question and keeping it top of mind will make you a better investor. So says a recent study by the CFA Institute and the State Street Center for Applied Research.

Whether you’re a D.I.Y. investor, an individual working with an advisor, or a financial professional, understanding the motivation and purpose of individuals when investing should be an easy way to improve outcomes.

Investing with purpose should be easy. It’s not difficult to remind yourself why you are investing in the first place. To set up your strategy and tactics to this aim. To review your results in the context of what you are investing for.

But, all too often, it’s easier said than done. It’s natural to get caught up in short-term thinking and performance chasing. To compare results with a colleague or neighbor even though your goals, risk tolerance, and strategy make it an apple to orange comparison.

Cordant was founded on the principles of purpose. "Intention" is a word we use a lot around here and even the first line in my bio states “begin with the end in mind” implying starting with objectives first. But, it takes constant reflection to keep this in mind.

A recent study by the CFA Institute and the State Street Center for Applied Research shows just how important it is to remember what we are trying to accomplish—to invest with purpose.

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Taking Actions With Tax Planning: Part 2

by Scott Gerlach, CFP on December 15, 2016

Last time in our two-part series Taking Action With Tax Planning we looked at setting up a tax-efficient portfolio and actions to reduce your tax bill while working. In part two, let’s explore actionable steps to reduce taxes during the retirement transition and in retirement.

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Taking Action With Tax Planning

by Scott Gerlach, CFP on December 08, 2016

As humans, it’s in our DNA to crave action in moments of uncertainty. It’s the fight or flight instinct. Because of this, successful investing will always be counterintuitive to many and difficult for most. When it comes to long-term investing, the data and research continue to support an approach that rewards patience and discipline, not action or reaction. Fortunately, not all aspects of managing your wealth require you to resist against our ancient wiring. In fact, when it comes to tax planning, opportunities abound, in all phases of life, to grab the bull by the horns and to act.

Below we’ve provided actionable items for all three phases of your financial life – working, at retirement and in retirement. But, before we get into the three phases, there are a few things you can and should be doing regardless of what phase of financial life you’re in.

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The Key to Great Investing

by Isaac Presley, CFA on December 02, 2016

*This article was origionally published on the CFA Institute's Enterprising Investor blog.

 

All great investors have one thing in common: the “ability to clearly communicate their [investment] philosophy,” Michael Batnick, CFA, observed.

I agree. Whether hedge fund managers, value investors, or index aficionados, the best investment professionals are great communicators.

But great investors, no matter their investing styles, share one other quality: the discipline to adhere to their investment approach through various market cycles.

Great investing is not simply a matter of identifying The Best™ investment strategy. In the 1990s, James O’Shaughnessy documented a variety of effective strategies in What Works on Wall Street. A number of approaches work, however, the key is not so much to find them, but to apply them with consistency.

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Cheaper Doesn’t Mean Do More

by Isaac Presley, CFA on November 21, 2016

 

If more information were the answer, we'd all be billionaires with perfect abs." Derek Sivers

 

We live in a world with more information at our fingertips than previously thought possible. According to Google’s Eric Schmidt, “Every two days now we create as much information as we did from the dawn of civilization up until 2003.” And as a result, many things today are cheaper than ever before. However, in the end, this access to more and more at ever lower prices, ends up costing us more in terms of the outcomes we seek. Let me explain.

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2017 SERPLUS Enrollment [A Framework and Resources]

by Isaac Presley, CFA on November 17, 2016

For those eligible to participate in the Intel Sheltered Employee Retirement Plan Plus, more frequently referred to as SERPLUS, the annual enrollment window is now open. You must enroll in each year to participant in the plan, which for 2017 contributions must be done between Nov. 14th and Dec. 2, 2016.

Each year we get questions about how the plan works, how much to contribute and how the contributions should be invested.  We coordinate the enrollment and advise our clients each year on how to make these decisions and how to best optimize the contributions given their personal situation. But, for those eligible for SERPLUS, but not yet working with Cordant, we still can provide some assistance during the enrollment period.

Previously, we’ve written a blog post on how the plan works and the benefits and risk of participating, but here we want to outline a framework for making the decision and then conclude with a resource that may prove helpful when trying to figure out how to invest the contributions.

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