Looking at Your Account Values Too Often?

Michael D. Lam, Senior Editor for Horsesmouth, wrote an interesting article entitled, “A Painful Example of Short-Term Thinking.”  In it, he reviews and summarizes a new book, Fooled by Randomness – The Hidden Role of Chance in the Markets and in Life by Nassim Nicholas Taleb.

Lam believes that investors who pore over their portfolios every instant are only hurting themselves. Too much scrutiny causes investors to mistake volatility for returns – or, to use the language of communications theory – to confuse noise with information.

As a hypothetical example of how and why this happens, imagine a retired investor who spends his time tending his nest egg. Assume two things about the performance of his portfolio:

  1. He can expect a rate of return of 10% in excess of Treasury Bills.
  2. Annually, returns will vary by 8% from this average.

So by definition, over the long-term, the return should average 10%, but there will be years when the return actually dips to 2%. In fact, under extreme conditions (see returns for 2000 and 2001) the return could dip another 8% to -6%. So, even though the long-term return is 10%, the swings from year to year can be considerable.

The problem is, for short-term thinkers, randomness has some unexpected and somewhat shocking results. According to Lam’s article, if the investor looks at his investments every day, he’ll see a loss slightly less than half the time. If he reads only his monthly statements, however, he’ll be pleasantly surprised two-thirds of the time. And, if he calculates his net worth only once a year, he’ll be pleasantly surprised 19 out of 20 times.

If you consider that the pain of loss is more deeply felt than the thrill of equivalent gains (by 2 to 2.5 times), psychologists note our investor’s high frequency review of his accounts would prove painful.

The moral of the story is to stay disciplined.  Resist the lure of short-term thinking, which results in an over-investment of time, attention, and analysis in what is at best, strictly meaningless, or at worst, very detrimental to your portfolios.

Sending Your Children the Right Money Message?

In difficult times, what message are you sending to your children?

Even though some parents can still afford luxuries, no one wants to send the wrong signals to their children and friends in a struggling economy.  Many people are not making ostentatious purchases, such as a high priced luxury vehicle.  Instead they are driving their car another year, and not taking the expensive vacation.

What information do you give your children about your finances?

Being a parent is all about walking the fine lines, and there is no finer line than the one between informing and scaring your children.

In these troubling times, sparing your kids the “money talk” is no longer an option.

We do, however, have to watch what we say and how we act.  “It is important that you be calm and reassuring,” says Jon Gallo, co-author of The Financially Intelligent Parent.

“Whether you lost your job or half of their college fund, younger kids take what their parents say quite literally.  If you say, ‘We don’t have any money,’ or ‘We are going to be broke next week,’ unless it happens to be true, the kids are going to think it is true,” Gallo adds.

Also, listen to your kids.  Ask them what they think and what is concerning them. Then, accept their feelings and empathize with them.

Next, ask them to help out.  Gallo recommends enlisting your kids as part of the solution.  Ask them for ideas on how you might be able to save money.  Consider having a regular “family money night.”  Instead of feeling deprived, getting the kids involved gives them the feeling they are helping with the solution and that they are participants.

Lastly, try to keep the situation in perspective. “If you are making less money, you are not necessarily losing your home. If you are losing your home, you don’t have cancer. The world is not ending,” says Gallo.  “No matter how bad it gets, there are other people in worse shape than you are… try to help them. There are always people out there who need help, and the greatest way to make yourself feel good is to help other people,” he adds.

Gallo strongly recommends the website VolunteerMatch.org, which posts opportunities for hands-on involvement. You can input your zip code and sort opportunities by categories such as children, teens, seniors, or community.

It is a great way to build family unity and help other people.

And, that is a great message to send to your children.

Schwartz Financial Weekly Commentary 6/5/17

The Markets

The bull market in U.S. stocks is getting really old!

In fact, this bull has been charging, standing, or sitting for more than eight years. In April, it became the second longest bull market in American history, according to CNN Money.

There are some good reasons the stock market in the United States has continued to trend higher. For one, companies have become more profitable. During the first quarter of 2017, companies in the Standard & Poor’s 500 Index reported earnings increased by 14 percent, year-over-year. That was the highest earnings growth rate since 2011, according to FactSet.

In addition, the economy in the United States has been chugging along at a steady pace. CIO Charles Lieberman wrote in Bloomberg View:

“…U.S. economic growth is continuing at a moderate pace, an economic recovery is finally underway in Europe, inflation is under control, corporate profits are rising, and there is some prospect for tax reform and deregulation, even if whatever gets implemented is less than what is really needed. These conditions imply continued growth in corporate profits.”

Last week’s employment report boosted both stock and bond markets. Financial Times opined the report was weak enough to ease pressure on bond rates and strong enough to boost share prices higher.

No one can say with certainty how long a bull market will last. Typically, bull markets are interrupted by corrections – declines in value of 10 percent or more. Historically, bulls have turned into bears, eventually. That’s why it’s important to employ investment strategies that manage risk and preserve capital even when markets are moving higher.

Data as of 6/2/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.0% 8.9% 15.9% 8.2% 13.8% 4.7%
Dow Jones Global ex-U.S. 1.2 13.9 17.3 -0.2 7.0 -1.1
10-year Treasury Note (Yield Only) 2.2 NA 1.8 2.6 1.5 4.9
Gold (per ounce) 0.8 10.0 5.2 0.7 -4.9 6.6
Bloomberg Commodity Index -2.0 -5.9 -5.1 -14.8 -8.4 -7.3
DJ Equity All REIT Total Return Index 1.1 4.5 6.1 9.1 11.8 5.1
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

fresh from the annals of improbable research. Anyone who enjoys the Ig Nobel Prizes – which spur people’s interest in science, medicine, and technology by making them laugh and then making them think – may like The Annals of Improbable Research (AIR). An enthusiastically nerdy science humor magazine, the publication offers readers the opportunity to read about new and improbable things every other month.

During its 21-year history, AIR has covered a variety of topics, including:

  • The Taxonomy of Barney. “In February 1994, we observed on television an animal which was there identified as a dinosaur, Barney. Its behavioral characteristics suggested that it was dissimilar to the diverse dinosaurian faunas that are so well documented…To test the hypothesis that Barney is a reptile descended from the true dinosaurs, we went into the field in order to capture and study a living specimen. This we accomplished with remarkable ease, as Barney was advertised to be appearing at a local shopping mall.”


  • Horse Calculus. “The idea is that a heart is like a little battery, pushing weak electric currents in a three-dimensional pattern round the body…During each heartbeat, the vector (tip of the arrow) draws a loop – the heart loop – whose shape is a powerful diagnostic of health. Therefore it is useful to measure this loop…His specific question was: does the theory apply to a real horse or only to an ideal cylindrical horse…The moral of this is that applications of mathematical knowledge can be unexpected; you may find yourself taking a surface integral over a horse.”


  • Which Feels Heavier – A Pound of Lead or a Pound of Feathers? “Which weighs more – a pound of lead or a pound of feathers?” The seemingly naive answer to the familiar riddle is the pound of lead. The correct answer, of course, is that they weigh the same amount. We investigated whether the naive answer to the riddle might have a basis in perception. When blindfolded participants hefted a pound of lead and a pound of feathers each contained in boxes of identical size, shape, and mass, they reported that the box containing the pound of lead felt heavier at a level above chance.”

Lurking beneath the unusual is some potentially useful scientific research.

Weekly Focus – Think About It

“Being a scientist is like being an explorer. You have this immense curiosity, this stubbornness, this resolute will that you will go forward no matter what other people say.”

–Sara Seager, Professor of Planetary Science and Physics
at Massachusetts Institute of Technology (MIT)

Value vs. Growth Investing (6/2/17)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 1.09 9.65 2.19 2.86 18.47 10.21 16.16
US Core 1.51 10.96 2.79 3.61 21.42 11.23 17.41
US Growth 1.38 16.73 3.59 7.91 19.21 11.41 16.23
US Large Cap 1.04 10.47 2.46 3.25 18.86 10.60 16.10
US Large Core 1.61 12.39 3.41 4.44 23.56 12.01 17.91
US Large Growth 1.33 18.05 3.72 8.65 19.84 12.22 16.63
US Large Val 0.15 1.78 0.23 -3.00 13.47 7.56 13.83
US Mid Cap 1.15 8.66 1.80 2.34 17.21 9.42 16.65
US Mid Core 1.19 9.11 1.77 2.09 15.60 9.55 16.40
US Mid Growth 1.40 13.83 3.06 6.05 16.90 9.06 15.06
US Mid Val 0.83 3.23 0.59 -0.97 19.23 9.59 18.54
US Small Cap 1.49 4.46 0.52 0.47 18.08 8.41 15.28
US Small Core 1.45 3.48 -0.11 0.39 18.81 8.64 15.56
US Small Growth 1.84 11.50 3.69 5.44 19.21 9.43 15.20
US Small Val 1.09 -1.33 -2.05 -4.31 15.89 7.12 15.03
US Value 0.35 1.85 0.14 -2.70 14.81 7.95 14.87
 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 Office Happenings:

A Recent Conversation

I was having a conversation last week with a senior partner at one of the cities larger law firms.  He had been receiving my “commentary” for some part of the 13 years my office has been forwarding every Monday.  Any way he was confused as to the ways my firm was able help him.  So, in order to avoid any further confusion as to how my firm is able to help our clients I put together this chart:

MLS Do You Need


Michael L. Schwartz, RFC®, CWS®, CFS

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

 * The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

 * The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

 * The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 * Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 * The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 * The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

 * Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

 * Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 * Past performance does not guarantee future results.

 * You cannot invest directly in an index.

 * Consult your financial professional before making any investment decision.

 * To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.

“Financial Parenting” Should Begin Early

So you’ve crafted a meticulous estate-planning strategy. You’ve notarized your will. You’ve figured out how best to transfer your assets to your kids.

Have you dedicated any time to ensure that your kids are fiscally competent to receive your wealth?

Are you sure that you won’t undermine their personal development and independence by giving them a large sum of money in the future?

Lee Hausner, author of Children of Paradise: Successful Parenting for Prosperous Families, stresses that one of the more important parental responsibilities is to plan for the child’s fiscal competency.  Parents need to take a “proactive stance … or the next generation will have no conception of how to manage money,” says Hausner.

“Money is a finite object,” she notes.  This should be reinforced at a young age. “Parents should prepare for financial competency by the time the child is eight years old.”

The biggest problem Hausner sees in families with more than enough cash to feed and clothe their children is “entitlitis.” The best response, she says, is the word “No.”

Parents need to manage their children’s expectations. Kids shouldn’t rely on inheriting your estate or business. They need to learn self-reliance and independence, which ultimately will make them better prepared if they actually do inherit the family business.

Parents also must reinforce to children that funds are not limitless. A variety of tools are available to help teach children the concept of limits.

  • Allowance

Financial parenting should start with an allowance. Hausner recommends parceling it out in thirds. The first part can be spent immediately on both necessities and things the child desires. The second is for “delayed gratification,” meaning a big-ticket item the child wants and needs to save up money to buy. The last portion should be set aside for charity.

  • Budget

High school-age children “should prepare a budget over which the parent has a line item veto,” says Hausner.  If the child needs more money, he or she can get a job. Earning money reinforces the idea that “money translates into an expenditure of time.”

  • Credit cards

Maintaining credit is part of the budgeting process and teaches responsibility. Supervised credit card purchases should be incorporated into the child’s budget. Learning this discipline during the high school years is certainly preferable to the carte blanche spending sprees that plague so many fiscally naive students later in their college years.

  • Investments

Teenagers should be introduced to investing. Stocks can be particularly educational gifts. Purchase company stocks that pique your child’s interest, such as Disney, Gap or Nike.

Even if you succeed in instilling a sense of financial responsibility into your child, you may still undercut their growth toward financial independence by giving them too much money at one time.

Hausner cautions against transferring significant amounts of money in a lump sum, particularly during career-building years. She believes large amounts of money that enhance lifestyle may blunt some of the vigor and energy necessary to forge a career. “I am concerned about ‘stay in bed’ money during those formative years,” she says.

Hausner recommends dividing any large inheritance into at least three allotments. There are exceptions, however, to limiting the amount of money given to a child, she adds. Funds need not be limited if they are used for:

  • Education or health needs
  • Reasonable housing
  • Entrepreneurship – funds can be given to a child for wealth creation and career building is long as he or she has an approved business plan
  • Following a passion – if children choose professions they love, where the ability to earn is low, you can match their income with a stipend in order to enhance lifestyle

You’ve dedicated a lot of energy to protecting your assets. You understand that you don’t “eat the goose that lays the golden eggs.” It’s never too late to take a proactive approach and pass your values and work ethic onto the next generation.