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Bason Asset Management by James Osborne, Cfp® - 2w ago

Markets gave investors a brief scare in May with a mid-period decline of around 7% attributed to ongoing trade war concerns, but recovered quickly. Once again US stocks had a very solid quarter with overall gains of 4.30% for the S&P 500 for the three months ending 6/28/19. Small cap stocks (+2.10%) and developed international markets (+3.68%) also posted solid returns for the quarter. Bonds were steady again with positive returns of 3.08% for the Barclays Aggregate index.

We find ourselves again in a now familiar story: generally calm markets (a 7% decline is newsworthy?!), steadily upward moving stock prices (led primarily by US large cap stocks) and an overall absence of volatility, leaving investors comfortably relaxed. Which is great! Investors should be relaxed. But we should be relaxed all of the time, not just when markets are friendly as they have been recently. If we can be relaxed now, we need to remember the feelings of panic and fear that can easily creep in when stock prices aren’t quite so calm. We will, someday, have a real bear market again. The kind of market that convinces investors they are doing everything wrong, that the world is coming apart at the seams, that economies will come to a permanent state of free fall. When that happens, it’s key to remember that nothing has inherently changed about the world for 99% of the population. People keep going to work, looking for work, taking steps to improve their lives and their children’s lives. Yes, recessions come and yes, they are unpleasant and feel largely unproductive. But recessions also end. Accepting the permanently cyclical nature of economies and markets is a must for the long-term investor. Recognizing where we currently are in that cycle goes a long way to making the other side palatable.

Economic Update

Economic growth was strong in the first quarter, with real GDP coming in at 3.2% annual growth over the previous year. The trend has been positive for the last several quarters and 1Q represented an increase over the previous quarter. Estimates for 2Q GDP growth are around 1.5%.

Many people will continue to cry that the economic expansion is “long in the tooth” (it is) and thus a recession must be imminent (not necessarily). It is worth considering that despite the age of the expansion, the overall level of economic activity from the previous economic peak remains subdued given the low level of overall economic growth during the expansion.

Recently release household finance and consumer spending figures look strong.  Personal consumption expenditures grew 0.4% in May over April and annual growth has been strong.

The labor market remains solid as unemployment sits at 3.6%, well below a long-term average. Wage growth continues to slowly move up, with annual gains of 3.4% (nominal) in April over the previous year.

Initial jobless claims have moved up a nearly indiscernible amount from the recent bottom, but the 4-week moving average of initial claims sits near historic lows.

The housing market also remains robust and generally stable. Rapid increases in national home prices have cooled and year-over-year increases through April were a more typical 3.5%.

Mortgage activity increase as the markets remain active for transactions and refinance activity increased with long term market rates falling close to 4% again this quarter.

Mortgage delinquency rates continue to fall. Freddie Mac reported that in May serious delinquency rates (3 months past due) fell to 0.63%, down from 0.65%. During the crisis peak serious delinquencies made up 4.20% of Freddie Mac reported mortgages.

Tax, Legal & Legislative Updates

Actual policy information and activity from Washington has been quiet, with little new policy of impact to investors and taxpayers since the major changes to the tax code for 2018.

Bloomberg reported last month that the White House is considering legislation that would index the cost basis of an investment to inflation, ultimately reducing capital gains exposure for investors to “real” growth. However, these proposals have been made in the past and rarely see the light of day, so we should likely not put much stock in this idea for now.

One consequence of the 2018 tax reform was limits on taxpayer’s ability to itemize and deduct state and local income taxes, capping a Federal deduction at $10,000. This led to states trying to get creative and find workarounds for the residents to retain the tax benefit. Last month the IRS officially issued guidance to disallow these schemes, including having taxpayers make “donations” to a state “charity” and receive equal tax credits, effectively turning tax payments into a false charitable contribution. This creative money shuffle and others like it are now DOA.

Possible changes are on the horizon for retirement accounts, taxes and regulations for American investors. In May the house passed the SECURE Act of 2019, which would increase the beginning age for Required Minimum Distributions from 70.5 to 72, allow IRA contributions beyond age 70.5 and increase allowances for non-retirement distributions including birth and adoption expenses.

Notably, the House legislation could also eliminate “Stretch” IRAs, or the ability of a recipient of an inherited IRA account to take distributions over his/her lifetime. Instead, retirement account assets would be forced to be distributed over a 10 year horizon, often increasing tax liability as a result. I’m keeping my eye on this one as it has potentially large implications for long-term tax planning for retirees.

Finally, ongoing concerns over global trade shook markets in May as President Trump made threats toward Mexico regarding further increases in import tariffs on Mexican goods. This threat has stalled for the time being, but it is clear that these continuous trade barriers have had a material impact on global trade activity. Growth in global trade ground to nearly a standstill early this year, a dramatic fall from the historical 5% average we had seen prior to tariffs and retaliatory tariffs among global trading partners.

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Bason Asset Management by James Osborne, Cfp® - 3M ago

If the last quarter of 2018 was scary, the first quarter of 2019 has been quietly wonderful, and most people haven’t noticed. Stocks across the board have posted double digit gains, from US large (13.65%) and small caps (14.58%), growth to value, even international stocks (9.98%) and emerging markets (9.56%) gained in the high single digits. US REITs continued their incredible push, up 16.38% so far this year already.

Bond investors are starting to see the benefits of pushing through some headwinds while rates were rising in the last few years. Yields have lifted off of near-zero levels as the Barclay’s Aggregate Index gained 2.94% led by especially strong corporate bond returns (5.14%).

And somehow amidst all of this, crickets. No one is seemingly excited about the S&P gaining 13.65% this year, especially not compared with how nervous people were about a drop of -13.58% in the fourth quarter of 2018. I suppose I should not be surprised – this is everything that behavioral finance research teaches us. We’re loss averse and more easily scared than excited (not that excited is often a good thing in markets!).  The real lesson from the last six months is for us to recognize how perfectly normal the last six months have been. Markets go down, then back up. Repeat. Eventually, they go up more than they go down. Companies grow profit, innovate, productivity grows and investors are rewarded for the risks they bear. This is what works in the long run. In the short run, anything goes, and often does. There’s no reason to get worked up about each decline or overly enthusiastic about each run up. We need perspective, and that comes from paying attention, recognizing just how frequently these patterns repeat.

Economic Update

Broad economic signals remain positive, although some signs of slowed growth are apparent.

First quarter Gross Domestic Product was revised downward to 2.2% last month. This was a slight drop from the 3.4% real GDP growth in the third quarter of 2018. Current consensus estimates for 1Q 2019 GDP are in the 1.0-1.5% range (NY Fed 1.3%, Atlanta Fed 1.2%). This is the biggest indication of expected slowing economic growth.

Housing news has been mixed. National home prices continue to increase, as the Case Shiller National Home Price Index gained 4.3% year over year. Changes in home prices have been positive for every 12 months period since 2013.

New home construction has flatted, with new units coming online but the rate of growth has leveled off. We are still well below the rate of new construction seen in the US before the Great Recession, a possible sign that there remains excess inventory and that the Millennial generation has yet to fully come online as new homebuyers.

Mortgage delinquencies are down, a sign of strong employment, confidence and steady income for US consumers. Freddie Mac’s “Serious Delinquencies” were down in February to 0.69% from 0.70% the previous month. The rate peaked at 4.20% in 2010. The US Federal Reserve data mimics this decline, as below.

After ticking up in 2018, mortgage rates have fallen again, helping new home buyers find more affordability and keeping defaults low. Current national average rates are hovering just over 4%, fairly low by recent measures and historically much closer to all-time lows than average!

In light of some softening economic data, the Federal Open Market Committee most recently decided to hold rates steady in the 2.25% – 2.50% range, and stressed “patience” at the March 20th meeting, indicating no more rate hikes may be on the table for 2019.

In labor markets, we have gone nearly a year with more reported job openings than active job seekers. Thus the continued trend of a very strong labor market remains in place. Most recently, openings have far outpaced hires (as well as quits) which indicates employers may be finding it harder and harder to acquire and retain staff.

Tax, Legal & Legislative Updates

The longest Federal government shutdown ended in January after congress and the President failed to agree on a budget in late December and the government was without funding. On January 25th a stopgap bill was passed without funding $5.7B for a border wall as the President had previously demanded, but only until February 15th. On February 15th the President signed a longer term budget bill, again without the requested amount for the border wall, and at the same time declared a national emergency to circumvent the need for congressional approval for this spending.

It is likely that the shutdown will have a material impact on Q1 economic growth, with estimates from the White House Council of Economic Advisors showing a cost of 0.5% of lost GDP growth.

Despite widespread agreement among politicians and economists on the negative impact of trade barriers and the apparent failure of the President’s tariff policy so far, President Trump is now considering a new tariff of up to 25% on the import of foreign autos into the United States. The US trade deficit with China alone grew to $419 billion in 2018, a new record over the previous level of $375 billion in 2017. Global trade tensions remain high and the WTO projects that the first quarter of 2019 will again show below trend growth in global trade activity. Ultimately reduced worldwide economic activity cannot benefit US global economic growth.

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Bason Asset Management by James Osborne, Cfp® - 5M ago

Inside the industry there are a fair amount of studies done to show what the average Registered Investment Advisory firm looks like. What is average revenue, revenue per client, fees for a $1M portfolio, advisor compensation, staff compensation, software costs, compliance costs, office costs, etc. Some of these get into product/investment selection, average asset allocation, use of alternative investments, use of individual stocks and bonds, etc. Some are technology focused, who is using what software for contact management, financial planning, billing and performance reporting.

It’s always struck me as a little odd and somewhat distracting to be so concerned with what our “peers” are doing with their businesses. Why would knowing how the average firm recommends allocating to alternatives have any influence on my decision to do so? Or how much they recommend clients invest internationally? Are we not capable of arriving at thoughtful conclusions about these considerations on our own? Are we so scared to step out of line?

Of course one of my biggest issues with these studies is the fee structure naval gazing. Many advisors seem fixated on these industry figures. What are you charging on the first $1M? The next $2M? How big of a “break” in fees do you give your biggest clients (this really means how much more are you charging them, but I digress). What I find most frustrating about everyone sharing these figures is that no one is doing it to become more competitive. Instead, looking at industry average fee structures is an exercise in quiet collusion. The answer so many seek is not “How can I price more competitively to attract business?” as it would be in so many other industries. Instead it is “Can I be reasonably sure that I can get away with my fee structure because everyone else is too?”

For a very long time now, this has been wildly effective. Very, very few firms have stepped out of line. A few who have done so have either flown completely under the radar (here’s to you, Steve Evanson and crew) or gone the other direction and built something truly large and recognized (what used to be Portfolio Solutions). But the average local small to mid size firm, and even most large firms, knew all that they had to do was not step out of line and they could continue to collect enormous margins.

I think about these shared-information studies as an exercise akin to having a high school teacher who graded on a curve. If nobody tried too hard, studied too much, everyone else in the class could get a boost from shared laziness. If the class could just convince the teacher that the exam was too hard for anyone to score of 80%, suddenly my C+ could be an A-! Just a little soft collusion among the group is all it took.

I know people get sick of me writing and talking about fees in the industry. But I gotta tell you, I’m trying to wreck the curve. I’m not too concerned about RIAs running 70% profit margins suffering because somebody finally looked at these studies and thought “This is completely bonkers” and decided to rethink what is reasonable compensation for services. It’s time for this industry to decide to become a profession, to stop justifying a fee structure that looks like a “take what they can afford” and more straightforward thinking about how we should earn a living. We aren’t the IRS and we aren’t entitled to some share of clients’ portfolios just because they asked for our help investing their hard earned savings. Great financial professionals do good work, add value to client relationships and become a trusted part of their clients lives. But we can do those things, and do them well, with compensation that doesn’t depend on large relationships subsidizing unprofitable relationships. Compensation that is tied to services provided, not the number of digits left of the decimal in our spreadsheets. Compensation that puts us in line with how individuals and families pay for other valuable services from their accountants, attorneys and more. It’s time to wreck the curve forever.

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Bason Asset Management by James Osborne, Cfp® - 6M ago

I am big on evidence, big on reason. Probably at times bordering on psychopathic in how much I try to rely on reason over emotion. I think it makes me a pretty decent giver of advice. It’s certainly easier to be reasonable about someone else’s situation over your own, at least.

And so I like to rely on the evidence whenever we can. What does the evidence say about a reasonable long-term investment strategy? What does the evidence say about how you should plan to spend from a retirement nest egg? What does the evidence say about your need for life or disability insurance? What does the evidence say about the size of your health care deductible vs. premiums? What does the evidence say about how to save for college, where your child will likely go to college and how much tuition support will be needed? What does the evidence suggest about your future earnings, or your child’s future earnings? What does the evidence suggest about that Roth IRA conversion strategy? What does the evidence tell us about your Social Security claiming strategy?

The trouble with all of this evidence is that it gives us only probabilities. We have to make decisions based on the odds. We can tip the scales in our favor by doing so. Odds are that global stock markets will give us better long-term returns than cash, so we defer our consumption to play those odds. Odds are that deferring taxes now will help us grow our nest egg over time, so we play those odds. Odds are that a low-cost, tax-efficient index fund strategy will outperform most actively managed funds you could otherwise invest in, so we play those odds.

The problem with the big decisions in life is that we only get to throw the dice once. We get one shot at all of this. One shot at saving, one shot at investing for 30 years, one shot at spending money in retirement. One shot at deciding when to retire, one shot at claiming Social Security, one shot at hiring a financial advisor for any past period. One shot at deciding to jump in or out of the markets. No do-overs, no re-deals. Sometimes if you take a bad beat at the table, that’s it. Sorry. If you push all in, you can’t just buy back the next night. We only get this one life.

And that makes people nervous. It makes people risk-averse. It makes people work just one more year, bail out of the market to try to avoid “the big one,” it makes us chase past performance. How many people got into cryptocurrency in late 2017 because they were afraid of missing an alleged once-in-a-lifetime opportunity, only to get wiped out in 2018? Fear of only getting one throw of the dice once contributes to manias, panics and crashes. But that’s where we are, that’s how we see the world. Sure, I can watch hundreds of clients save, invest, retire and spend during my career. But each one of those clients only does that one time.

The best example of the negative consequences of this one-shot mentality is how people claim Social Security. On average, people should wait until their full retirement age. Most married couples should have the higher-earning spouse defer beyond their full retirement age, as joint life expectancy is higher than single life – that’s just math. If you have financial means and access to medical care the odds are even more in your favor that you should defer benefits. In the absence of major personal health issues or a serious lack of family longevity, most people reading this should defer benefits.

But what do most people do? Most people are afraid that “something might happen” to them and instead of playing the odds, they claim early in a misguided attempt to “get what’s mine.” And then the average person lives the average life expectancy and fails to “get theirs” precisely because of this mindset.

I don’t have great answers to this problem. Sure, some risks we can hedge. What if US stocks underperform for a long time? We make sure we’re diversified internationally. What if we experience an unfavorable sequence of returns? Well we’re hedged with bonds and we don’t have to make the portfolio more conservative automatically in bad markets. What if we become disabled, die suddenly, our house burns down or Tommy wrecks the car? We can insure all of those things. If you were inclined you could even insure against your own longevity with a lifetime income annuity (or just defer your Social Security benefits, ahem).

But ultimately we still have to make tough, one time choices. When do you fully retire from your career? How do you pick an investment strategy to stick with through thick and thin? How do you keep spending from an investment portfolio that has fallen 20% in value? At some point, you have to make the tough call, and that requires us to play the odds. Whether we want to or not, we have to make some firm decisions. We can’t hedge everything. So we are forced to either:

  1. Act rationally and decide based on the evidence; or
  2. Let our emotions drive us to (likely) sub-optimal decisions.

I know which path I’ll keep advocating. Can you commit to 1. over 2.?

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Bason Asset Management by James Osborne, Cfp® - 6M ago

Well. Here we are, folks. You just went through one of the most dramatic declines in US stocks in a single quarter in decades. How’d you do? Did your life change materially? Did you spend time on a daily basis staring at a screen, slowly descending into a mild state of panic?

From 10/1/2018 – 12/31/2018 the S&P 500 fell a total of -13.58%. The top-to-bottom decline (based on daily closes) barely escaped the technical definition of a bear market decline of 20%. Yes, it happened quickly. No, you didn’t see it coming. No, you don’t know what happens next week/next month/next quarter. Are we done? I have no idea. No, you don’t know why it happened now or why it happened like this or why we had some days with 3% swings throughout the day. Neither does your brother-in-law, the President of the United States, Rand Paul or Jerome Powell. You can say it is because of the trade war or the Federal government shutdown but the reality is those are stories we made up after the fact.

This quarter should be a gut-check, a long-overdue reminder that this is what markets do. Most of the time (say, from 2009-9/30/2018), they go up. Sometimes, they go down. Sometimes they go down a lot, sometimes they go down quickly. Sometimes those declines last, sometimes they are short lived. Sometimes they precede a recession, sometimes they don’t. Don’t ask me which one we’re in now, and don’t fool yourself that you already know. You don’t know.

What you can do today is take a breath. Use this as a chance to double check yourself as an investor. What does your investment policy say to do in these environments? Maybe rebalance? Take some tax losses? Systematically invest new cash according to a pre-set allocation? I’m guessing your investment policy doesn’t say things like “Speculate wildly on Twitter about today’s close,” or “Sit nervously in cash until your gut feels better about politics” or “Listen to the guys at the gym and do what they are doing too.”

Next, double-check your long term plan. Did a <20% stock decline ruin your long-term prospects? (Spoiler alert: it didn’t.) If you had any reasonable long-term plan, this is part of it. Only a complete fool would build a long-term plan that involved investing in stocks and didn’t bake in a bear market not just this one time, but on a pretty regular basis. Say at least once every 3-5 years on average. While this one came fast, let’s be perfectly clear: a <20% decline in stocks is A PERFECTLY NORMAL, AVERAGE, REGULAR OCCURRENCE IN STOCK MARKETS. Okay? It’s nothing else except something that happens with frequency. Unpredictable, yes. Unexpected, no. So now you know your financial world has, in fact, not crumbled.

Lastly, take your pulse. Are you losing sleep? Pulling out your hair? Convinced the end is nigh? Are you running a constant ledger of the value of your portfolio compared to the highest it was ever valued, and judging your personal self-worth as a human being accordingly? While I sincerely hope none of us have adopted the last practice, this is a good chance to really find out how much downside you can emotionally handle in your portfolio. Everybody is a risk taker when stocks are on a never-ending ascent. Investment risk means something entirely different when you’ve seen the markets eat the last several weeks/months/years of your retirement account savings contributions. If watching the markets fall 20% is ruining your mental health, maybe your investment strategy is a poor fit for your personality and psychology.

Here’s where we really stand through 12/31/2018:

Most global stocks were down for the year, small (-11.01) to large, US (-4.38%) to International (-13.79%). Things that held up reasonably well earlier this year fell more heavily this quarter, led by small and large US stocks. Bonds held their own, with municipals posting modest gains for the year (1.28%) and broad US taxable bonds almost perfectly flat (0.01%).

Economic Updates

Despite our collective madness around stock prices in the last few months, the global economy has yet to fall off a precipitous cliff. While a few areas (including real estate) have shown a little softening, the broad data still looks very solid.

US workers and consumers have a tailwind. Unemployment is low, job openings are abundant, initial unemployment claims remain very low.

Consumer balance sheets are healthy, mortgage delinquencies remain low and household debt service is affordable.

Consumer spending (that is, Real Personal Consumption Expenditures) gained 0.4% in November, just above the growth in real personal income (0.2%). You can see this number has steadily climbed after the downturn in the 2008 recession.

If anything in the US appears to show signs of softening, it is the residential real estate marketplace. After several years of catching up and a few areas with rapidly rising prices, the rate of price changes has slowed. Rising interest rates may also be contributing to weakening demand as mortgage payments increase proportionately. In October 2018 the Case Shiller national home price index gained 5.5% over the previous year, a more moderate figure than the last few years.


New home construction has steadily climbed off the post-recession bottom over several years but has recently started to level out.

Inflation has steadily return in the US, something people have been looking for for years now. We are just around the Fed’s target of 2% CPI, and as such 2018 saw 4 increases in the Fed Funds rate from the FOMC this year. The target rate is now 2.25-2.50%.

In all there is little reason to believe that there are dangerous and perilous times ahead for the economy. Global trade may be slowly modestly (possibly an obvious consequence of a trade war) and US real estate may be less hot than it has been for a few years, but the average worker is well employed, finally seeing long-delayed wage increases and household and corporate balance sheets are healthy. American consumers are spending but not treating their homes as piggy banks this time around. Some sense of prudence and stability appears to have taken hold in our minds, for the time being. Could we see a recession soon? Sure. It’s always possible. Does it mean you should be worried about the health of a solid long-term financial plan? Absolutely not. Investing as if we’d never see another recession or bear market is life in a fantasy world, not the real world. We’re here to do real-world work and succeed in it.

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I am excited and honored to announce my new role as a Financial Consultant with Bason Asset Management. Aside from my love of numbers, I became a advisor to help hardworking people make their money work for them. With a business degree in both finance and economics, I started my career at one of the top independent wealth management firms in the nation, recognized by Barron’s, Forbes and Financial Times – impressive right? I thought so too.  But eventually my inner curiosity wanted to see the other side of the finance world, so I accepted a position with a top mutual fund company. Working with hundreds of financial advisors in this role opened my eyes to the number of quality advisors in our industry, or lack thereof. This led me to my calling – to be a Financial Consultant. The call was obvious when I realized this crucial role in people’s lives aligned perfectly with my passion for helping others and the numbers nerd inside me.

So, I went back to wealth management and obtained my CFP®. I was determined to be one of the few advisors to actually do true financial planning for clients. I had now been with this wealth management firm for the better part of a decade and gained an incredible amount of knowledge and experience. Quite frankly, I learned more in ten years than most advisors learn in their 40 year careers because I was exposed to some very large and complicated cases. I genuinely felt blessed. The people I learned from and worked with brought me to new heights in my professional development (James Osborne being one of the most prominent).  But the more knowledge I gained the more questions I had and there began an internal battle between my head and heart…the struggle between what I was supposed to say and do, and what I felt was the right thing to do. Fees and investments were at the forefront of my continuous questioning and discontent. While I agreed with the general philosophy of investing and planning: own high quality investments, stay well diversified, don’t try to time the market, control taxes and make recommendations with a holistic planning view, I did not agree with the ~1% fee structure and the need to use mutual funds to justify the fee.

I’ll admit, it took me a while to get there because it is industry standard, so it was hard to think outside the box. When James Osborne introduced me to his pricing structure and planning model my path became crystal clear. Bason Asset Management is a flat fee only asset management firm offering comprehensive financial planning and tax efficient, cost-effective portfolio management by use of index investments. His model was the solution I was looking for to help weed out conflicts of interest, focus on the aspects that have the biggest impact on the success of someone’s financial plan, and rid myself and clients of the time and energy spent on trivial elements such as the never ending discussion of why another mutual fund underperformed and what to do about it. I am thrilled to start this new chapter with Bason Asset Management and can’t wait to help my clients live a better life by truly understanding what’s important to them and using their means to live out their dreams.

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Since I launched this firm in 2012 I knew that I wanted to do things differently than the typical advisory firm. On the surface, this was a few obvious things: I should be spending less time, energy, and financial resources chasing investment performance that would always be elusive. An investment philosophy focused instead on what we can control – costs, taxes, and our behavior. I wanted a simple, straightforward, and transparent approach to pricing services built on a fixed annual retainer were the two pillars of Bason Asset Management, as they remain to this day.

I felt at the time that these decisions were common sense.  I wanted investors to have the best possible chance of reaching their financial goals, and that led to a low-cost, low-turnover, long-term investment philosophy. I also wanted it to be clear what my clients would pay for, and how simple it could be for them to decide whether or not an advisor provided value at a fixed price level. While the first of these pillars was uncommon but certainly pre-existing in the advisory space, the fee structure struck many as wild, unheard of, even radical. For me, it just made sense. As it turned out, it made sense for many clients as well, so much so that years ago I was forced to implement a waiting list for new relationships and eventually began to turn away nearly all prospective new clients as I dealt with issues of personal capacity and work/life balance.

For several years now I’ve dealt with the issue of growth. Traditional growth models have not been attractive to me on many levels, and I have walked away from several opportunities to expand.

Today, things are changing. I won’t bury the lede any further – I am very pleased to announce that Bason Asset Management is adding a second advisor. McKenzie Ebbesen is an outstanding financial professional that I have known for over a decade. She brings a wealth of knowledge, experience and talent to this firm. If you know me at all, you know how reluctant I have been to expand the firm, so it should speak volumes about McKenzie that she is the first (and currently only) person to join the firm. She will be operating a second office in Valparaiso, Indiana where she lives with her husband and two young children. Of course, she’ll work with clients across the country as I do now. Everything that I am doing today for existing clients McKenzie will also execute, from investment portfolio design to comprehensive planning, all for the fixed annual retainer fee. For more about her personally, I’d invite you to read her companion piece posted today on the blog.

Despite my longstanding reluctance to adopt a traditional growth model of a financial planning firm, I am very excited about this change for two reasons. First, it means that Bason can expand its services to more clients. This may sounds selfish and profit-seeking, but you’ll have to take my word for it that money is not the prime mover here. I’ve been turning away prospective clients for years and that is harder than it sounds. Many of these people sounded like wonderful people who are looking for quality financial advice and thoughtful portfolio management at a reasonable cost, but I’ve had to say no again and again. I’ve had countless friends and colleagues tell me about the ongoing need for more models like this firm.  I’ve had people offer me investment capital to grow and many advisors want to join. None of these were how I wanted to shape the future of this firm. But now I have a great solution to the problem of capacity, and I’m thrilled that Bason will be able to serve a larger audience.

Secondly, I am happy that Bason can be a home to a phenomenal advisor like McKenzie to build her practice, showcase her abilities, and serve clients in the way she feels is best for them. I have no doubts that she will thrive professionally and I’m happy to have her as a part of this firm. I hope you’ll join me in welcoming McKenzie, and if you’re looking for a quality long-term relationship with a fantastic professional, you should absolutely give her a call or send her a note at McKenzie@basonasset.com.

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Bason Asset Management by James Osborne, Cfp® - 7M ago

Tuesday December 4th is Colorado Gives Day, an annual statewide push to increase charitable giving via online donations.  In recognition of the day, again this year I am going to offer matching gifts made to select charitable organizations. This year’s organizations are:

I will match the first $50 of any gift to these organizations made on Tuesday 12/4/18, up to a total of $1,500. That’s only 30 gifts! I know we can get there. Last year I only ended up matching around $900, so I know this year we’ll do better. Pick an organization, make a small gift and let me double your giving. Tweet or email me a picture of your receipt. So easy!

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It’s a beautiful Sunday morning in Lakewood. Right now it’s 7:33. Shoot, no. It’s 6:33. It’s November 4th and it’s the end (right?) of Daylight Savings Time. Because apparently, if you change your clock it somehow affects the universal laws of planetary physics and we trick the tilt of the earth into providing us with more daylight. Or less daylight now that DST is over? Who knows.

What I do know is that I have never met anyone who thinks that DST is a good idea. I know that generally every study ever done says that DST is bad for our health and our kids. It’s probably bad for the economy. No one woke up today and thought “Oh, goody. My kids have been up since 5am and tomorrow when I get off work it will be pitch black before I’ve even walked out the door!” People will miss appointments and get schedules crossed and it’s all just a big dumb mess.

The real miracle here is the power of the status quo bias. We did Daylight Savings Time last year, so we’re gonna do it next year. Deal with it. The necessary forces to kill off this dumb idea are nowhere to be found. While ending the madness probably actually only requires a few hours of legislating, you and I both know it’s not going to happen. It is, quite simply, too easy to let things stay as they are. Even if every member of the public thought that DST was a terrible idea and wanted to do away with it, it’s pretty unlikely it would happen. It’s how things are done. Inertia is an incredible force and requires a great deal of energy to overcome.

So it is with an investment portfolio. Take a minute to review your holdings, your asset allocation and asset location. Ask yourself a simple question: if I was starting from scratch, would my portfolio look like this? Does my portfolio more represent a jumbled lifetime of collecting investments, rather than a thoughtfully executed plan? Am I sitting with massive exposure (let’s say >5% of your portfolio) to a stock because I’m emotionally involved or afraid of capital gains? Did I buy this stock with an exit strategy? Did I address concentrated positions in my Investment Policy Statement? Or does it just feel too good to see how much money I’ve made in that stock and I enjoy looking at it too much to trim back the position to a reasonable size?

Many of us can’t be bothered to put in the energy (both mental and emotional) to take a strong look at our existing portfolio and consider if this is how it should really look. If you went to an investment professional with cash, and they recommended that you invest how your portfolio exists in its current state, would you put much faith in that person? If they told you to put 10% of your assets into a single stock, wouldn’t you run in the other direction? If they told you to hold on to 20% of your net worth in cash waiting for them to tell you about next dip, would you (appropriately) think them a charlatan?

Too often the Status Quo Bias leads us (at best) to hold suboptimal portfolios when it comes to asset allocation and location, and (at worst) to hold ridiculously risky portfolios that have a much lower probability of helping us meet our retirement goals than they could otherwise.

Go get a blank sheet of paper and draw out your clean, thoughtful portfolio allocation. How diversified is it? Are you putting tax-unfriendly assets into retirement accounts? Are you keeping positions to a reasonable size?

Now, compare that sheet of paper with your existing portfolio. How far off the mark are you? What changes need to be made to clean things up, bring things back to sanity and reduce unnecessary portfolio risk? Find the energy required to avert the status quo bias and get back to a better state. If we can’t stop the ridiculous behavior of changing our clocks twice a year, we can at least do better here.

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This afternoon I found myself thinking about this previous post I wrote:

This Is The Easy Part

In it, I shamelessly used my wonderful kids to exploit your emotions and review just how simple investing felt at the time. Markets were up across the board, volatility was down and everyone seemed happy. Just about 18 months ago, you’d have been hard-pressed to find someone with a valid complaint about their portfolio. US stocks were up, international stocks were up (more, in fact, than US stocks year-to-date and over 12 months ending 6/30/17). Sure, bonds were off a little bit but who cares when stock returns are solidly up double digits? Nobody.

Fast forward to 2018. Even before we got some real market volatility in October, the natives were getting restless. What was going on? Every diversified investor had reason to be disappointed. Suddenly, cracks seemed to appear. Sure, the S&P was still crushing it (up 10%+ year to date through 9/30/18), so why wasn’t MY portfolio doing the same? What broke? Well, I’ll tell you. For starters, the diversified investor doesn’t own the the S&P 500 and only the S&P 500. A thoughtful diversified investor probably has some exposure to international stocks or real estate or bonds or emerging markets. How’d that work out? In a 12-month period when large cap US stocks are up 17%, nothing else can hold a candle. Bonds were slightly negative, and international developed markets, emerging markets and real estate ranged from -3% to +2%. Suddenly, the easy going investor had reason to distress.

Now, there are all kinds of problems here. The biggest is that there are exactly zero defensible reasons for a diversified investor to be using the S&P 500 as a proxy for investment performance. The S&P 500 isn’t “the market” and neither is the Dow Jones Industrial Average.  In fact, it’s pretty hard to define what “the market” is. So when you hear that “the market” was up or down or sideways or crashing or skyrocketing, what you should really hear is “some subset of the investable universe, defined by a random committee or group.”

So that’s our first hurdle when the going started to get tough. The easy inclination as an investor is to pick the best performing asset class and wonder why your portfolio can’t deliver those returns. This is really, really easy when the best performing asset class is the one constantly talked about in the press – large cap US stocks. So as investors, we start to question why we own this portfolio – the same one that we were oh-so-happy with just 18 months ago.

Then October reminded us what markets are really capable of. As I write this, the S&P 500 lost 6.9% in the month. International markets fell as well, down nearly 8% (through 10/31). Bonds were even down, about 1/2 a percent on the month. Yuck.

Where am I going with this?  Investing is still hard. It can be hard when some investors are getting huge returns and you aren’t. It can be hard when you feel your determination wavering, when you feel like an idiot for adopting whatever strategy you’ve adopted. And then it can be hard all over again when your portfolio falls in value. Pretty much any reasonably diversified balanced portfolio probably lost in the neighborhood of 5% this month. While reading that on paper doesn’t sound like much (and you’re right, it isn’t), it sure does feel like a lot in the moment. That 5% likely wiped out any gains from a diversified portfolio for the year. Just like that, your disappointingly modest year-to-date returns from September are now ugly, negative returns. No fun.

Here’s the thing: this isn’t supposed to be fun. And no one promised that it would be easy either. If you’re paying attention, it’s not fun or easy. It’s uncomfortable and unpleasant and does terrible things to our brains that are so poorly evolved for investing in imaginary things called corporation in this imaginary economy that we’ve created out of thin air.  Ultimately investing is an act of faith – in markets, in people’s desire to make their lives better through hard work and reinvention and innovation, in the rule of law and the rules of markets, not to mention faith in your particular investment strategy when it seems like the stupidest one you could have chosen. And this is why we need tools when that faith wavers. Tools like Investment Policy Statements and guidelines for how to act when our faith is weakest. Without those tools, rules and guidelines, we’re left with only sheer willpower, a limited resource at the best of times.

I promised in the earlier-referenced piece that it wouldn’t always be easy, and here we are. It’s hard. It might be hard for a while, I truly have no idea. But admitting that it’s hard, and that we need tools to get through the hard part, is step one.

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