Market Analysis Video – June 2014

Stocks continued higher in June with the S&P 500 Index producing a gain of 2.1%. Foreign stocks, as measured by the MSCI EAFE Index, also rose but by not as much, gaining 1.0%. Europe, which is our sole developed-market focus outside the United States, declined last month, posting a loss of -0.1%.

While Europe has displayed some short-term weakness relative to the U.S., it has been just two consecutive months of underperformance. Our outlook on the region remains unchanged as two months hardly represents a trend. Since we first entered Europe in late 2012, we have witnessed numerous bouts of underperformance from the region relative to the U.S. Despite these periods of short-term underperformance, the longer-term trend in Europe has remained intact, and since our entry point, the performance of U.S. and European stocks are very similar…

Please watch the video below for our complete Market Analysis.

Click here to read our complete Market Analysis.

The Timing of Returns Matters to
Your Retirement

Developing a retirement plan used to involve a simple set of calculations. Any financial calculator could be used as a retirement planning tool: you could input a series of assumptions involving the present value of your assets, the future value needed at retirement, your retirement date, and an assumed annual rate of return. The calculator would then tell you how much you would need to save each year to accomplish that goal.

This retirement planning method—known as the “straight-line method”—is no longer utilized as the sole tool by professional planners. The reason is twofold: 1) no one earns the same rate of return every year from now until eternity, and 2) the timing of your annual gains and losses matters greatly to the ultimate success of your retirement plan.

The first reason for eschewing this method of retirement planning is obvious—financial markets are volatile; therefore the returns they produce are variable year-to-year. The second reason is not as intuitive. To illustrate, let’s look at a hypothetical example based on history (and history in reverse).

Assume an investor retires at the start of 1973 with $1,000,000 and a desire to produce $60,000 in annual inflation-adjusted income for as long as possible. With an all-equity portfolio based on the returns of the S&P 500 Index, that investor would run out of money two months into his 31st year of retirement.

Now let’s throw history in reverse. Using the same set of retirement assumptions, let’s invert the return sequence so that the investor works backwards—retiring in 2007 and having her 31st year of retirement end in 1977. This investor does not come close to running out of money at any point, and at the end of her 31st year in retirement, she has a portfolio worth over $5,000,000.

The only assumption we changed is the sequence of returns. Otherwise everything is the same including the total return, the annualized return, and the volatility of returns.

Screen shot 2014-07-01 at 9.32.58 AM




Clearly the timing of the gains and losses matters. The retiree who starts in 1973 and moves forward in time begins his retirement with a brutal two-year bear market that results in a decline of -37%. His portfolio never exceeds $1,000,000 again and starts out on an irreversible path to depletion.

On the flip side, the retiree who starts in 2007 and works backwards in time begins her retirement plan in a five-year bull market in which the S&P 500 gains 83%. While a serious three-year bear market follows that, the initial gains provide enough of a cushion for the portfolio to persevere. The end result is five times more money than she started with even after the 1973-74 bear market does its damage at the end of her retirement plan.

This is the reason the straight-line method is no longer utilized as the sole tool in retirement planning. Instead the core of retirement planning analysis is a Monte Carlo simulation in which return sequences are randomized to account for the fact that returns are variable and that the timing of those returns matters greatly to the ultimate success of your retirement plan.

Fear Gets in Our Way as Investors

There’s a reason that people worry about when exactly to invest in the market. As the opening keynote speaker for the 2014 Northern California Financial Planning Association Conference, Barry Ritholtz, Founder and Chief Investment Officer of Ritholtz Wealth Management, drove home the point that as human beings, we are survivors, not investors. Our brains are not designed for the capital markets, because our brains love confidence and certainty even when there is no grounding for confidence and certainty.

It would be easy to support an argument that things are getting better when the U.S. stock market continues to reach new highs, that this would be bullish for the stock market. Nevertheless, as reported in State Street’s just-released May 2014 survey, U.S. retail investors have increased their cash allocation to 36% in 2014 from 26% in 2012, despite the market being higher in 2014. Many investors develop the unfounded certainty that it is bad to invest when things are getting better, when the market is going higher. Actually, the market reaching new highs is bullish for stocks. Trying to time the market paralyzes investors and limits their future success.

Barry Ritholtz referenced a study by Dalbar showing a period where the S&P 500 had grown by 9.14% annually but that the average retail investor using that same index had only enjoyed an annual return of 3.83% for the same period. Our futures are significantly limited by our survival instincts that put fear in the driver’s seat (fear of making a mistake) and that create certainty where there is none (the market is too high to invest). Because of fear and certainty driving investment decisions, because of worries over when exactly to invest, time and time again investors miss out on the potential for more return.

The fact that so many investors are being cautious now by holding a lot of cash will help delay investor exuberance that often signals the end of bull markets. This is when markets do what they do best—improve our net worth over long periods of time as long as we do not interfere.


The Women’s Roundtable:
Meet Their Needs for a Lifetime

You’ve probably heard the Chinese proverb, “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.” We can paraphrase and apply this proverb to families and finances: “Give your children money, and you meet their needs for a day; teach them to be financially responsible, and you have given them the tools to meet their needs for a lifetime.”

A nationwide Pew Research Center survey released in 2013 showed that roughly half (48%) of adults ages 40 to 59 have provided some financial support to at least one grown child in the past year, with 27% providing the primary support. These shares are up significantly from 2005.1

Financial support for adult children was most often for living costs, transportation, and even spending money. The reasons for giving were varied from outright concern for their child’s well-being to simply not wanting them to struggle financially like they, the parents, once had. When it comes to parenting, the message we often give or get is, “more is more and less is less.” But could this protective instinct backfire? Perhaps the question should be: “Will this financial support empower or enable my children?”

It is likely that financially supporting adult children is not factored into the parents’ financial plan. Before you come to the financial rescue of your adult children, or set expectations for generosity that cannot be guaranteed, ask yourself: Can I really afford this? This is a very relevant question to ask and essential to good financial planning for the long-term. And if you involve your children in your thought process, this self-assessment will prove more valuable to them than the check you write.

The Women’s Roundtable at Bell Investment Advisors welcomes you to join a diverse and dynamic mixture of friends, family, colleagues, staff, clients, and professional women interested in learning more about how to build a financially-sound future.

Our next gathering, “Saving for Retirement: Never Too Early, Never Too Late” will be on Wednesday, June 25, 6–7:30 pm in our Oakland, CA office. Join us for wine and cheese, networking, and talk on an important topic. Reservations for you and a guest are required. To RSVP or for more information, contact Jaye Roundtree at 510.433.1066, ext. 100 or

1This survey was conducted November 28 – December 5, 2012 among 2,511 adults nationwide.




Market Analysis Video – May 2014

Despite the annual call to “sell in May and go away,” stocks pressed forward last month. The S&P 500 Index gained 2.3% while foreign stocks, as measured by the MSCI EAFE Index, rose 1.8%. Our main focus overseas, Europe, returned 1.1% in May. Even emerging markets, which have been suffering from poor performance since last year, joined the party with an increase of 3.5%. Our only meaningful emerging market exposure is within the Middle East, but it is worth a mention as it illustrates the degree of broad-based strength in stocks around the globe last month.

In last month’s letter, we mentioned a developing divergence in performance between cyclical and defensive sectors. We also have been watching a similar deviation over the last couple of months between large-caps and small-caps and value and growth stocks. We took notice of this pattern because a shift in momentum between risky and conservative stocks could be signaling a shift in investor risk tolerance…

Please watch the video below for our complete Market Analysis.

Click here to read our complete Market Analysis.

Pensions: A Powerful Force in Retirement Planning

Financial planning is a crucial process for determining the relative importance of specific resources and strategies for retirement. The process usually creates some surprises. In general, clients are surprised by how little additional late-in-life savings support retirement planning goals or how much building emergency reserves supports those same goals. Pensions, on the other hand, are such a powerful force during retirement, they warrant special attention.

Those with pensions most often begin the retirement planning process feeling grateful that they have a pension, as they are becoming more and more aware of how hard it will be to let go of the paycheck they are accustomed to receiving each month from employment. The stable cash flow that pensions provide is extremely helpful in creating sustainable retirements and in hedging the risk of running out of money, but they also have a positive effect on how other resources can be treated. For example, pensions tend to allow recipients to feel more comfortable taking appropriate risk in their portfolios as they transition to retirement, often resulting in more favorable financial gains in the future.

Those pensions that contain an inflation provision are especially favorable in supporting retirement goals. As Meredith Whitney points out in her book, The Fate of the States, the real wages of many people in the work force have been falling for decades.  For those with a pension containing an inflation provision, however, this is not necessarily so. With an inflation provision, annual payouts will increase each year along with inflation, while those still in the work force may not enjoy that benefit. Ironically, while working harder is normally the best way to increase one’s income, in the case of pensions with inflation provisions, not working at all turns out to be more profitable.

The decision about when to begin taking pension payments and about how much of those payments to confer on a surviving spouse should be made with a professional. In the case of these important decisions, which can amount to differences of several thousands of dollars, hiring a CERTIFIED FINANCIAL PLANNER to help you remedy the situation to perform a pension analysis to determine the most financially favorable approaches will usually end up paying for itself in additional income in the long run.

You are invited to attend the following upcoming events which may be of interest to you:

Lunch & Learn
Is Your 401(k) Plan Right for You?
Wednesday, June 18, 2014, noon–1:30 pm
Click here for more information.

Online Webinar
Is Your 401(k) Plan Right for You?
Wednesday, June 25, 2014, 2–2:30 pm
Click here for more information.

Wine & Cheese Gathering
The Women’s Roundtable
Saving for Retirement: Never Too Early, Never Too Late
(in the series “Taking Charge of Your Financial Future”)
Wednesday, June 25, 2014, 6–7:30 pm
Click here for more information.


The Women’s Roundtable:
Saving for Retirement

Children are generally afraid of the dark. A line from the old Scottish prayer, “From ghoulies and ghosties, and long-leggedy beasties, and things that go bump in the night…”, evokes that fear of the unknown, which is unsettling. So, the kids’ immediate reaction might be to pull their blankets over their heads and hide.

Believe it or not, that’s pretty much what most of us do when it comes to saving for retirement. We pull the covers over our head and hope that all goes well.

The PNC Financial Group’s semi-annual Perspectives of Retirement survey1 found among a nationwide cross-section of adults ages 35 to 75, almost two-thirds (63 percent) are concerned that Social Security or pensions will not be enough to cover expenses and needs in retirement. It is a fact that less than half of Americans know how much to save for retirement2. Conventional wisdom suggests rules for retirement saving and spending as a percentage of your total assets—but what the question really should be is: How much will I need to save for retirement to have the life I want?

Here are the top 10 Ways to Prepare for Retirement 3:

  1. Start saving for retirement, keep saving, and stick to your goals.
  2. Know your retirement needs.
  3. Contribute to your employer’s retirement savings plan.
  4. Learn about your employer’s pension plan.
  5. Consider basic investment principles.
  6. Don’t touch your retirement savings.
  7. Ask your employer to start a plan.
  8. Put money into an Individual Retirement Account.
  9. Find out about your Social Security benefits.
  10. Ask questions.

We often say that hope is not a strategy. Saving for retirement is never too early or too late. How about turning that concern into action? The Women’s Roundtable will host a gathering on June 25. We would love to hear your thoughts and concerns and see how we can provide support and guidance. Join us.

The Women’s Roundtable Wine and Cheese Gathering – June 25, 2014 at 6 pm
Saving for Retirement: Never Too Early, Never Too Late
(in the series Taking Charge of Your Financial Future)

Marivic Hammond, Senior Investment Advisor
Bonnie Bell, MA, MDiv., Principal, and Director of Career/Life Coaching

Join The Women’s Roundtable for an evening of wine and cheese and conversations with colleagues, friends and professional women dedicated to financial education for women. The women of Bell Investment Advisors will present and moderate discussion on strategies for saving for retirement. This topic of great importance too often does not receive the attention it should, especially from women.

Click here to for more information.

1 The Perspectives of Retirement Survey was commissioned by PNC to identify attitudes and behaviors of adults in America. The study was conducted by telephone within the United States February 5 – March 3 2014. Findings for the retired sample are significant at the 95 percent confidence level with a margin of error of +/- 6 percent.

2 U.S. Department of Labor Employee Benefits Security Administration. Top 10 Ways to Prepare for Retirement.

3 U.S. Department of Labor Employee Benefits Security Administration. Top 10 Ways to Prepare for Retirement. August 2013 revised.

When Are You Considered Self-Insured?

Retirement affords you the freedom to do what you want. For the first time in a long time, you are no longer required to show up at a specified place at a specified time. When you think about it, you were probably three or four years old the last time you had that kind of freedom.

Along with freedom, retirement also offers you the flexibility to rethink your life insurance coverage. If you have enough money to retire and live on for the rest of your life with no additional savings required, you have also potentially transcended the need for life insurance.

Life insurance should be looked at as income replacement first and foremost. So if your income is fully funded by your portfolio and/or other sources like pensions and Social Security, the need for life insurance no longer exists. If something happens to you or your spouse, your portfolio and other income sources remain in place to continue to pay the surviving spouse.

(An exception to this would be if a meaningful pension disappeared after the death of one spouse; in that case, life insurance could be utilized to replace that income source. Another exception is using life insurance to create liquidity for heirs to cover estate taxes, but that strategy is beyond the scope of this article. And with a $5.34 million individual estate tax exemption [$10.68 million for married couples], it is also beyond the scope of most people’s net worth.)

Once your retirement plan is fully-funded and you are considered self-insured, it is time to review your life insurance policies to determine if you should cancel them. First, look at the term policies. If you don’t need them, simply stop paying your premiums to cancel them. This will provide a nice bit of annual cost savings, decreasing your retirement living expenses and making your retirement plan even stronger.

Next, take a look at the whole life policies. This is where things get a bit complicated as whole life policies are complex by design. With a whole life policy, you have built up cash value via the investments within the policy. Typically after a period of time, you are no longer paying premiums into the whole life policy; rather, the insurance company is taking their premiums out of your accumulated cash value. While the policy may not be costing you anything out-of-pocket, that accumulated cash is your money and can be withdrawn. Adding money to your liquid asset pool at retirement could make your plan significantly stronger.

Just because you are self-insured doesn’t mean you should automatically cash in your whole life insurance policy. It is important to make sure that you are out of the penalty period to avoid surrender charges, which can be significant. Additionally, you may be at a stage where the policy is projected to provide you with coverage for the rest of your life, and the death benefit is significantly more than the accumulated cash value, which provides an attractive, low-risk return on investment.

Like any complex financial decision, it is important to discuss canceling your life insurance policies in retirement with a qualified financial advisor. You will want this analysis performed in conjunction with a retirement plan and by an advisor other than the acting agent on your insurance policies to ensure conflict-free advice.

Market Analysis Video – April 2014

As in the first quarter, stocks pulled back in April but managed gains at the end of the period. The S&P 500 gained 0.7% last month while the foreign stocks of the MSCI EAFE index rose 1.5%. Europe, which is the only region within the EAFE that we have interest in, gained 2.6% according to MSCI.

While our geographic focus remains set on the U.S. and Europe, we may be reshuffling our sector focus in the near future. Throughout this recovery we have been overweight economically-sensitive areas of the market like industrials and consumer discretionary, which have performed well over the last five years. However, in recent months including April, we have started to notice a shift in investor attention towards more defensive sectors like utilities and consumer staples. This led to underperformance last month…

Please watch the video below for our complete Market Analysis.

What is Hyperopia?

In an ideal world, people would begin trying to find a financial planner as soon as they had an income. More often, people come to financial planning because of a concern. The most common concern that drives people to financial planning is their fear of running out of money in retirement. So often the question posed at the beginning of the process is, “Will I have enough?” But for some, research demonstrates, “Will I have enough?” is not the most important question. For some, the more important question is, “Will I spend enough?”

In their book, Willpower: Rediscovering the Greatest Human Strength, Roy F. Baumeister and John Tierney briefly examine the findings of some behavioral economists that have found that “neurotic penny-pinching may be even more prevalent than neurotic overspending.” They write:

“The result is a condition that researches call hyperopia (the opposite of myopia) in which you focus too much on the future at the expense of the present. Such penny-pinching can waste time, alienate friends, drive your family crazy, and make you miserable. The studies show that tightwads aren’t any happier than spendthrifts, and that they suffer a case of saver’s remorse when they look back on all the opportunities they passed up. When the time comes for the final monitoring, when you’re adding up not just your assets but your life, you don’t want to rediscover the old proverb about there being no pockets in shrouds…”

Financial planning does not just test scenarios to ensure financial stability in retirement for those concerned about running out of money. It also finds optimal spending rates for those who justifiably have no concerns about overspending, but are not enjoying their resources as much as they could. By proving that spending more does not adversely affect the future, some clients have become more comfortable spending on themselves. This does not usually occur overnight or even in the first year of meetings. However, as clients test the waters of spending a little bit more than they are accustomed to, they can learn to feel comfortable committing more of their resources to the present.