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The Cordant Blog

Financial Rules of Thumb: Debunking Common Misconceptions about Retirement Planning

by Isaac Presley, CFA on February 02, 2017

Recently, legendary investor Charlie Ellis[1] was interviewed by Barry Ritholtz on his Bloomberg Masters in Business podcast. The whole interview is worth your time, but here I wanted to focus on just one of the topics they covered: The danger in using rules of thumb.

Here is the exchange:

Ritholtz: As an investor, how do you aim in the right direction?

Ellis: Well, I can’t give you a straight answer except in generalities because each of us is unique. But start with: how much money do you have? Are you saving money or spending money? How many years do you have before you need to cover your retirement or cover you kids going to college, or whatever is your objective? How much wealth do you have? How much income are you creating? Take all those things you can work out an investment strategy that makes good sense.

Let me give you an example; I'm 79. Most people would say, ‘At that age, you must have a lot of bonds.' I have no bonds. …First, I'm still working, and I have enough to cover my operating costs. And second, who am I investing for? I'm investing for my grandkids with an average age of ten.

To sum up his point on investing being all about aiming in the direction of your unique goals and avoiding rules of thumb when they don't match your aim, Ellis uses the following metaphor. Imagine a road trip to Chicago with the rule of thumb being the higher your average speed, the quicker you’ll reach your destination. Ellis instead says:

I don’t care how fast you drive to Chicago, just be sure you aren’t heading to Miami.

Investopedia lists several of these financial rules of thumb to be aware of and suggests taking them with a grain of salt as well:

While rules of thumbs are useful to people as general guidelines, they may be too oversimplified in many situations, leading to underestimating or overestimating an individual’s needs. Rules of thumb do not account for specific circumstances or factors occurring at a particular time or that could change over time, which should be considered for making sound financial decisions. 

So, what can you do to account for your specific circumstances when it comes to managing your finances? Well, we have some ideas.

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Checking in on the Portland Real Estate Market: Will Prices Continue to Rise?

by Isaac Presley, CFA on January 27, 2017

Real estate is all about “location, location, location” as the saying goes and lately, Portland is the place to be. One of the strongest markets nationally, prices have risen 10.3% over the last year compared to 5.1% nationally, as measured by the Case-Shiller Home Price 20-city composite index. In fact, among the metro areas measured by the 20-city index over the last 12 months, Portland was only topped by our neighbors to the north in Seattle which saw prices rise by 10.7%. Portland had led the way nationally for the previous eleven months.

Whether you’re actively in the market to buy or sell or simply watching the listings in your neighborhood, most people have noticed how hot the Portland market is right now. Seemingly everyone has heard a story from their sister/neighbor/colleague of multiple offers, above listing price, in the first weekend their house hits the market. I've heard of realtors lining up weekend showings on four of five houses only to have a couple of them go pending before they can reach the property with their clients.

Consequently, clients often ask for our take on the real estate market. How much longer can prices continue to climb at this rate? Are things about to crash? So, let’s take a look and check in on the Portland real estate market. (And for those outside of Portland, stick around. There are some national trends reviewed as well.)

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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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