There are many reasons to engage the services of a financial advisor.

Some investors don’t understand the complexities and the array of choices, and they would prefer to have an expert deal with it for them. That’s understandable.

Others enjoy the DIY approach. They love to explore the various strategies of money management. Grasping and understanding new ideas and concepts creates that “Aha!” moment. But time has become a major impediment.

We have many clients who came to us working hard, making good incomes with little to show for it (their words, not mine). Busy schedules place demands on our time and energy, and it’s easy to lose focus, and many times control over our financial lives.

Then there are those who were comfortable managing their own finances, and, having amassed a fair degree of wealth, can claim success. But climbing to new financial heights can sometimes create a fear of heights. At this juncture in their life, they are more comfortable having a financial professional keeping an eye on their choices.

Retaining an advisor is akin to having a personal trainer coaching you as you go through your daily exercise regimen. The trainer keeps you on track, encourages you, and can suggest beneficial adjustments.

If you find yourself in one of these categories, you now know that you aren’t alone.

Once again, though, let me emphasize that each individual situation is unique, each client is unique, and we adapt our advice so that it matches your circumstances and financial goals. And we are always here to answer your questions or address any concerns.

But, while each person’s plan has its unique qualities, there are fundamental principles that must be woven into every financial blueprint. These fundamentals are the building blocks for wealth accumulation over the long-term, and it’s important to keep them in mind, always.

Let’s take a look at the fundamentals:

5 steps to accumulating wealth

1. Pay yourself first.

You no doubt have heard this before. Put yourself first in line and think about the following questions: Do you have a budget? If you don’t have a budget, why? Why are you saving? What motivates you to contribute to your savings on a consistent basis?

Many people find a negative association with the word budget. We prefer to borrow a line from Dave Ramsey: Having a budget actually gives you permission to spend. You won’t be depriving yourself—you’ll be telling yourself it’s okay to spend the money (that is, as long as it’s in the budget for the month).

Have a goal. Dream big and keep the goal in front of you!

2. Avoid get-rich-quick schemes. 

I’ve been around the block many times. If it seems too good to be true, it probably is. After reading that common sense advice, many of you are probably thinking, “I know that. Why did you lead off with something this simple?” Well, I’ve seen too many smart folks fall for get-rich-quick schemes that leave them poorer. Sometimes much poorer. And it’s heartbreaking to hear the tales.

Maybe it’s simply greediness we’re afraid of losing out on perceived riches. Maybe it’s fear—fear we’ll miss out on a once-in-a-lifetime opportunity. Maybe we’re too trusting. The best con-artist’s pitch is steeped in sincerity. Maybe our judgment gets clouded, as we’re dazzled by the flashing presentation or personal flattery.

If you ever come across something you believe might lead to quick riches, please let me review it with you. I promise I will provide you with an objective viewpoint.

3. Avoid trying to time the market. 

It sounds so simple. Buy low, sell high.

Or, here’s another take: “Buy when there’s blood in the streets.” It’s still bounced around in financial circles.  Forbes credited the saying to Baron Rothschild, an 18th Century British nobleman and member of the Rothschild banking family. Coincidently, or not, Forbes published the article two weeks prior to the market bottoming in 2009.

However, in both cases, these are platitudes that are best ignored, in my view. You see, we’re not wired to dive off a cliff and buy when everyone is selling. Instead, the temptation is to circle the wagons and play defense.

In reality, it’s much easier to buy when markets are heading higher. Euphoria can breed euphoria, which leads to a feeling of invincibility. It’s the “follow the crowd” mentality.

We eschew trying to pick a few winners, avoid trying to predict the future, (i.e., market timing) and preach diversification and a disciplined approach that strips the emotional component from the investment plan.

Longer term, stocks have historically been an excellent vehicle to accumulate wealth. Let me explain.

Crestmont Research produces a chart each year that reviews the annual 10-year total returns for the S&P 500 Index going back to 1909. These are rolling, 10-year periods; i.e., we are reviewing over one hundred 10-year periods.

Since 1909, there have been only four 10-year timeframes that have generated negative returns. Want to hazard a guess as to when they may have occurred?

That’s right–the late 1930s and the end of the last decade. That shouldn’t come as too much of a surprise given extreme valuations that occurred in the late 1920s and late 1990s and early 2000s.

Oh, and the average annual return? It can vary by a considerable amount, but it averages 10%.

4. You must start somewhere, but start.

Let me share my story. Years ago, I began working for a company that offered a 401k plan with a generous match. In my mind, a 401k was a euphemism for, “I get nothing today so I’ll have something tomorrow.” It epitomizes the concept of delayed gratification.

Don’t try to climb Mt. Everest overnight. I started withholding 2% of my paycheck, and increased it quarterly to 4%, then 7%, and finally 10%. As I bumped it up in small increments, I found I really didn’t miss the extra withholding.

Guess what? I enjoyed watching my small nest egg begin to grow! One more thing, you can’t start too young. Compounding and time is your friend.

I’m thrilled when I have the opportunity to work with people in their 20s and 30s who are embarking on their careers. They truly have a once-in-a-lifetime chance to get a head start on wealth accumulation.

When’s the best time to start? How about NOW?

5. Diversify.

Both Mark Twain and Andrew Carnegie allegedly said, “Put all your eggs in one basket, and watch that basket closely.” Twain and Carnegie didn’t live in an age where the dissemination of information is almost instantaneous. Bad news comes in like a WWE smack down on a stock. It’s the defensive end leveling the quarterback, and it can happen in seconds.

Our team carefully screens investments in mutual funds and exchange-traded funds. We also pay close attention to the underlying cost of those investments. You’d be amazed on how much difference the cost can make over time. Our goal is to select the right balance that leaves you exposed to the longer-term appreciation potential in all major sectors of the economy. You can read more about that in “Balanced Investing Is Part of a Balanced Life.”

And we don’t stop at the U.S. border, as we recognized the potential the global economy offers.

A fixed income component is critical for most folks. Being 100% diversified in a portfolio of stocks can leave you exposed to a market decline. It’s for someone with a very long-term time horizon. If you are nearing retirement, you may not have the time to recover in the event of a steep market decline.

Bonds, cash, and fixed income securities are not earning spectacular returns right now. However, they help anchor the portfolio. As the percentage of stocks decline in relation to cash/fixed income, the portfolio is likely to experience less volatility. You won’t see the peaks in a roaring bull market, but you’ll sleep better at night knowing that a sudden dip in the market is far less likely to take a big bite out of your investments.

Switching gears: New highs and the fundamentals

The S&P 500 Index finished the quarter at a record high. Notably, the closely followed gauge of 500 large U.S. stocks ran up its quarterly winning streak to eight consecutive quarters (WSJ, MarketWatch data).

It’s done so in the face of three devastating hurricanes—Harvey, Irma and Maria, dysfunction in Washington, unsettling news from North Korea, and gridlock in Washington.

But in many respects, it shouldn’t be all that surprising.

As I’ve wandered through the literary tulips with you, one common theme is a focus on the economic fundamentals.

Stocks take their longer-term marching orders from corporate profit growth. And profits are driven primarily by economic growth at home and abroad.

Currently, we’re in the midst of a synchronized global expansion, which has created a strong tailwind for earnings.

Moreover, interest rates remain near historic lows, and the Federal Reserve hasn’t been shy about signaling that any rate hikes are expected to come at a gradual pace.

If I had to concoct a recipe for bull market, I’d go heavy on profits, economic growth, and low interest rates—Oh, wait a minute—that’s today’s environment!

Now, I understand the hurricanes have changed lives and wrecked property in Texas, Florida, and Puerto Rico. If you are so inclined, please consider donating to relief efforts. Short term, the economic data is taking a hit from the storms. Longer term, it’s unlikely to have much impact on the economic trajectory.

While North Korea’s quest for an ICBM that can strike the U.S. is very unsettling, short-term investors seem to be pricing in the unpredictability of the rogue regime. More importantly—speaking strictly from an investment perspective—investors aren’t anticipating a disruption in the economic cycle.

So, while you should be prepared for more troubling news, it simply isn’t affecting U.S. economic activity.

Table 1: Key Index Returns

MTD % YTD % 3-year* %
Dow Jones Industrial Average +2.1 +13.4 +9.5
NASDAQ Composite +1.1 +20.7 +13.0
S&P 500 Index +1.9 +12.5 +8.4
Russell 2000 Index +7.4 +9.9 +10.1
MSCI World ex-USA** +2.3 +16.5 +1.8
MSCI Emerging Markets** -0.6 +25.5 +2.5
Bloomberg Barclays US Aggregate Bond TR -0.5 +3.1 +2.7
Source: Wall Street Journal, MSCI.com, MarketWatch, Morningstar
MTD returns: August, 2017-September 29, 2017
YTD returns: December 30, 2016-September 29, 2017
**In U.S. dollars

Tax reform

“Don’t tax you, don’t tax me, tax that man behind the tree,” was attributed to the late Louisiana Senator Russell Long, who chaired the powerful Senate Finance Committee from 1966 to 1981 (NYT).

He assisted with tax reform in 1986, and Congress is now considering the first major rewrite of the tax code since then.

The initiative that’s been proposed by the President and the Congressional Republican leadership is simply a blueprint. It must clear a number of hurdles before becoming law.

The framework is silent on how dividends and capital gains will be treated, and no mention has been made of the 3.8% surtax on investment income for high-income Americans.

The outline calls for special treatment for retirement accounts, but no other details were provided.

Therefore, anticipating and positioning for changes becomes very difficult given the uncertainty surrounding the bill.

Meanwhile, a 20% top corporate rate has been proposed, down from 35%. It’s roughly in-line with most developed nations, and is expected to be supportive of stocks.

But it’s early in the game and any discussion of the final points is purely speculative.

Nonetheless, please reach out to me if you have any questions about tax reform or tax planning. Or, if you would like to discuss any other matters, I’d be happy to talk with you.

We’re simply an email or phone call away, and can be reached at croberts@financialfreedomplanners.com or (804) 277-9734. Schedule a free 15 minute phone consultation or 45 minute “Getting to Know You” meeting today.

Hourly & Project-Based Personal Financial Planning

Financial Freedom Planners with tagline


About Charles Roberts, CFP®

Founder & CEO, Financial Freedom Planners™
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