Author Archives: Kathryn

March Madness – Survival of the Fittest

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Investing is a competitive arena where the fittest not only survive, but thrive.  The NCAA basketball tournament brackets were released Sunday and the playoffs start today – the men’s and women’s teams are ranked 1-16 in 4 regions respectively.  In the stock markets, there is always someone in first place and someone in last place at the end of the trading day.  On April 8&9, those 64 teams will have been reduced down to one winner each.  On any given day, you can rank the daily returns of each stock within a given index.  Investing is not a zero-sum game like most gambling or trading of options or futures contracts.  Wealth can grow within the stock market, but score is still kept on a relative basis.  If you evaluate a group of investors or mutual fund managers, someone always ends up in first place, either making the most money in the up market, or losing the least in the down market.  There is also always someone in last place, and everyone else who falls in between.  In a world of buyers and sellers, there are 2 sides to the trade, and being on the right side at the right time is critical for success.  People invest for one reason: to make more money.

Each investor has a limited number of dollars to put to work, so it is critical to develop a selection strategy that will single out the best performers within a given asset class.  For everyone who makes money, generally there is someone losing (unfortunately it is often the individual investor – look at how many people sold their stocks and funds at the bottom of the market in 2009 locking in losses, sat on the sidelines in cash, and missed the recent 100% returns!).  America was born on capitalism, free-markets and competition.  Stocks, bonds and derivatives are merely tools for the transfer of assets, obligations and currencies.  Aside from our health and physical well-being or spiritual state, our financial condition is often the most significant driver of our quality of life.  Most people do not need gobs of money to effectively care for their families, but after the turmoil of the markets over the past two decades, I have seen families shattered and emotionally devastated by a few wrong moves.  Lack of knowledge can cause us to be on the wrong side of the trade at the wrong time.  An objective strategy, discipline, and a focus on quality investments can put the odds in your favor.  Many NCAA teams focus on fundamentals and stick to basic strategies, and just wait for their opponent to slip up.  That consistency often separates the winners from those who fail to advance.  And always beware the bracket-busters – which is why diversification is critical for even the highest quality portfolio.

© 2012-2013 Pawleys Investment Advisors, LLC.  All rights reserved.

Retirement Income Planning – The 3 Bucket Pawleys Approach

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After years of experience watching people in a variety of financial circumstances glide into retirement, I’ve assembled some best-practices to share with everyone.  The daunting task of saving for retirement takes years of planning and preparation.  Hitting that actual day of retirement feels, to many, like standing atop a high mountain peak.  The hard work is done, and it is time to joyfully celebrate the accomplishment and glide down into the golden years.  Easy, or is it?  Of the alpinists who die while climbing Mount Everest, K-2, and other peaks over 8,000 meters, the majority perish in the descent after having successfully reached the summit.  A few die from falls, accidents or avalanches, but the majority die from altitude-related sickness.  Many articles and books about mountaineering cite that 1/10 who reach the summit of Mount Everest end up perishing on the descent, and most deaths are tightly tied to poor planning.  Retirees face a similar challenge, and given the multitude of uncertainties, it can be difficult to know how to financially plan.  Take heart, the Pawleys 3 Bucket approach can give you some certainty and empower you by alleviating the stress and uncertainty of the descent into retirement.  Check out this strategy of matching income sources to expenses:

Bucket 1 – The must-haves including food, clothing, shelter:  This bucket includes just the bare minimum to survive, and I mean the minimum.  Think “Survivor.”  Your house should be fully paid for before you retire, so your expenses will include real estate taxes, your heat and light bill, water and sewer bill, food, and basic clothing.  Basic healthcare costs should come from this bucket as well, and any income tax.  Income Source: Social Security. *reminder, -you may need to save a little each month so you have enough money budgeted to pay annual bills such as your property tax*

Bucket 2 – Reasonable living expenses that increase comfort and convenience but are not extravagant: Niceties include non-essentials such as cable TV and computers, cell phones, pets, automobiles, health club memberships, newspaper subscriptions, dining out from time to time, gifts for family and friends, tithing, insurance, purchasing of basic personal and household items, and property association dues.  Income Sources: Pension, basic IRA and 401(k) retirement distributions (including annuity income streams), real estate rental income after expenses, business royalties.

Bucket 3 – Discretionary expenses and larger-sum gifts:  Travel, hobbies, gourmet dining and special activities/events, acquisition of collectables such as art and antiques, charitable giving and family gifting.  Income Sources:  Excess investment income, capital gains and inheritance.

As you match your income sources to expenses, try to identify which items will remain fixed versus those that will increase.   Be sure to consider your health history and plan for unexpected illness.  Many sources of income remain fixed while expenses rise, so a little planning goes a long way to make sure you not only survive but enjoy the descent!

© 2014 Pawleys Investment Advisors, LLC. All rights reserved.

Pawleys New Years’ Resolution Advice

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Happy 2014! I used to take the New Year very seriously, and have successfully upheld several promises or resolutions. December is a time when I put my nose to the grindstone and work on business objectives and strategy for the year, and also put thought into what I can do to improve my mind, body and spirit in the coming 12 months. This year, in a spate of weakness, I have committed to “temporarily” give up sweets, deserts and deep-fried food. An admitted sugar and french-fry junkie, this temporary ban on sweets and fried food will help kick-start a good year. I have reserved the right to lift the ban when I chose, and will do so sometime in early 2014. This is a text-book study of how NOT to set a resolution or plan to improve health! 🙂

As 2013 came to a close, I watched Facebook, Twitter, and the news feeds as all the large financial firms put forth their checklists of financial to-do’s for the New Year. Nestled within all of this information you can also find several predictions for what the stock market will do in 2014, and forecasts for the economy. Last week during a client meeting, the topic of Congress arose, and in a quick moment of frustration I blurted out “I do not care what happens in DC” (of course I care!). I have said over and over that I work to build portfolios that will perform well in a myriad of economic and market environments. By building a sound portfolio of quality investments, you will more likely reach your financial goals. I do not make predictions, because it is an incredibly risky strategy and virtually impossible to do accurately on a consistent basis. The economic cycle grows and then contracts, and repeats itself over and over again. The cycle takes years to process, and while it is important to understand where we are historically, I think it is more important to build an investment process that selects high-quality stocks, bonds and mutual funds. We have no control over what will happen in DC, outside casting our votes during election time and making our voices heard. It does not change the fact that everyone still needs to invest, and have a long-term strategy to work towards financial goals. But it certainly makes for good conversation, as does trying to dissect the stock market and economy. Financial and news organizations are more than happy to provide us with enough information to choke a Budweiser Clydesdale horse.

Herein lies the problem…we are news junkies. Now, instead of just reading the morning paper and gluing ourselves to the television for just an hour to watch the nightly news, we are bombarded 24×7 with information that hits our computers, tablets and phones. It is fun to gather knowledge, but when it comes to your investments, it can become a huge distraction. I have referred to these times overs the years as “cupcake moments.” It is akin to being on a diet and having that chocolate cupcake tempt you (my personal favorite, with white frosting). Reading negative news stories about your favorite stock can make you stomach sink, but often has little to do with how the stock will preform for the year. Likewise, it is fun to watch a stock price pop, driven by a singular news event, but this can lull us into euphoria, and cloud objectivity.

Resist temptation, and resolve to give up getting rattled by the bombardment of both good and bad news that can distract you from your long-term plans.

© 2014 Pawleys Investment Advisors, LLC. All rights reserved.