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The Cordant Blog

How To Reduce Your Target Number and Retire Earlier

by Isaac Presley, CFA on March 02, 2017

In a recent article, Michael Kitces points out the dual benefits in staying off of the hedonic treadmill as it relates to income increases throughout your career—higher savings today and a lower required replacement income (meaning a lower portfolio balance is needed) when you retire. These two factors make a powerful combination in moving anyone towards their retirement number much quicker than someone who’s lifestyle quickly adjusts to any increases in income. While this concept is absolutely true and should be required reading for anyone with a significant amount time to retirement, my fear is that making radical changes to your level of spending, and therefore lifestyle, near retirement is simply unpalatable for most.

So, might there be another solution? Is there another tactic which allows you to hit your target retirement number quicker but without making drastic changes to your lifestyle?

There is, and it's already gaining traction due to the changing demographics of retirees and the shifting nature of work in modern society. 

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10 Things We Believe Wealth Management Should Be

by Isaac Presley, CFA on February 17, 2017

1. We believe in being intentional

What do you want to accomplish? Why do you want to accomplish it? Gaining this clarity by answering these “big questions” leads to better outcomes and a higher chance of success.

When you get clear on your objectives, only then can the best strategy be put in place to accomplish them. Being intentional about the results you seek will keep you focused on the goal and prevent opportunistic decision-making that can derail you, your investment strategy and your financial plan.

As Stephen Covey says, “Begin with the end in mind.”

2. We believe the best advice is tailored advice to you

All clients have different visions about what financial success looks like for them. No two people have an identical balance sheet, risk constraints, spending profile and investment objectives.

It’s for this reasons that our process is designed to begin with a discovery process so that we truly understand who you are and what you are trying to accomplish with your wealth. It’s only after this deep level of understanding is achieved can tailored advice, which leads to the best results, be delivered.

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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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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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What To Do With Your Company Stock: A 3-Step Plan

by Isaac Presley, CFA on November 04, 2016

Barron’s recently published an article titled ‘Does Your Company Give You Stock? Great. Sell It.’ As our clients will know, this is our default advice when it comes to company stock. Sure, it makes sense to evaluate company stock holdings in light of your unique financial situation—maybe it makes sense to hold from a tax perspective or to fund future charitable giving—but even still, it’s best to put a plan in place now. Don’t let the inertia of past decisions continue to influence your decisions today.

So, why does Barron’s (and many others) recommend selling your company stock? To quote the article, “Your financial future is already reliant on your employer’s fortunes. Don’t double down.”

Let’s review why it’s risky to concentrate wealth in your company stock and then conclude with suggestions on how you can take action today.

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How much can I spend in retirement? Our Take on the 4% Rule

by Scott Gerlach, CFP on September 16, 2016

How much can I spend in retirement? For many, that’s the million-dollar question – literally.

The first step taken of any retirement planning should be developing a baseline financial plan, and understanding the appropriate withdrawal rate is paramount to this process. During the early stages of plan development for our clients, we often get questions about the 4% withdrawal rule and how it applies to their situation. The popular financial “rule of thumb” was the result of research done in 1994 by a financial planner and MIT grad, Bill Bengen, and produced what is now known as the 4% Withdrawal Rule.

Trying to do right by his clients, Mr. Bengen sought out to produce something that wasn’t yet available – a framework for providing guidance that was rooted in research and data. Here’s what he came up with – a “rule of thumb” that posits that retirees who withdraw 4% of their initial portfolio at retirement, and then adjust that amount for inflation, can sustain that spending amount for 30 years and not outlive their money. The research assumed the retirees’ portfolio consisted of an equal mix of stocks and bonds (S&P 500 & Intermediate Government Bonds) and was rebalanced annually. From there, he tested every rolling 30-year period dating back to 1926 to determine the maximum withdrawal rate that would survive all periods. For that time period, the worst-case scenario in U.S. history produced a 4.15% withdrawal rate. Thus, the 4% rule was born.

Words of caution - Oversimplification

When it comes time to make the decision on retirement, and answering the ultimate question of, “Do I have enough?”, using the 4% Rule to help answer that question is a decent starting point. However, for a variety of reasons, we caution against blindly accepting this rule and applying to your situation.

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