What Planners Talk About

Ever wonder what financial planners talk about when they go to an industry conference? I know you spend lots of time wondering, so this week I’m going to give you a sense of the conference I attended last week in Austin, TX.

I’m a member of the National Association of Personal Financial Advisors, the organization that puts on this twice-annual continuing education extravaganza. NAPFA’s conferences are unlike many I’ve attended because they’re filled with high-quality educational content, not product pitches from the latest mutual fund or insurance product.

There were some interesting themes this year, with maybe half of the content being investment-related and the rest addressing topics such as health, wellness and aging. Here are three examples.

Keeping Our Brain Young

This talk was given by a wellness guru about brain health and how serious mental decline isn’t necessarily a given as we age. Apparently, lifestyle choices we make over time have a huge impact on brain health. Sleep plays a major role. The speaker provided some basic tips to ensure quality sleep, such as staying on a schedule, limiting screen-time prior to bedtime and darkening our bedrooms at night followed by natural light in the morning.

Dementia, the speaker also explained, is a set of symptoms and not a disease, such as Alzheimer’s. A third of dementia is preventable and much is treatable if it’s caught early. Alzheimer’s research is rapidly evolving. 95% of what we know about the disease has been discovered within the last 15 years and much of that has come in the last few years. For example, the speaker talked about how our roughly 80 billion brain cells produce waste every day. This waste, if left to accumulate too long, starts interfering with how the cells in our brain communicate with each other. The waste gets cleared up during sleep, which is part of what makes getting a good night’s sleep so important.

Other tips for keeping the brain young included getting good exercise, going outside for even just a few minutes of nature-time daily, eating heart-healthy foods (“what’s good for the heart is good for the brain”), social engagement and learning new things. It’s also important to monitor for issues like sleep apnea and diabetes as both are risk factors for Alzheimer’s. Interestingly, these suggestions don’t require fancy gadgets or apps on our phone; they’re simple things we can do each day.

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Don't Call it a Comeback

There are some financial products out there that really get my hackles up. I’ve talked previously about my loathing for different types of annuities, for example. Products like these are said to be “sold and not bought” because anyone who went looking wouldn’t choose to buy due to the product’s complexity, lack of transparency and high cost. So, to get investors to buy, the products need to be sold by a slick salesperson who pockets a fat commission at the end of the transaction. This is an age-old problem and won’t be going away anytime soon.

Another product like this is the reverse mortgage. Just uttering the name causes a visceral reaction as I recall stories from folks who got swindled by clever salespeople. But as a fee-only planner charged with ensuring my clients accomplish their goals, I have to be open to investment products that may once have been anathema to me. In other words, I can’t continue to reject a product because it was bad in the past. It’s hard to say it, but the much-maligned reverse mortgage may be making a comeback.

The reason, as I see it, has to do with several factors. First, more Americans are retiring with insufficient cash and investments to cover their needs for what they hope will be a long retirement. The asset they do have, however, is the equity in their home but with limited ways to access it.

Second, expected returns from stocks and bonds are lower than they’ve been in the past. Interest rates are low and so is inflation. This makes it challenging to “lock in” higher interest rates on longer-term bonds, for example, to help fund retirement. Folks understandably look at CDs offering near 3% for a few years and compare this to a 30yr Treasury bond paying the same rate. It’s a no-brainer that many pick the short-term CD.

This leads to the third factor helping bring reverse mortgages back to the retirement planning toolkit: short-term thinking for a long-term problem. As investors focus more on short-term yields, they forget they probably need higher returns to meet their long-term planning objectives. A CD may sound appealing and “safer” but not if you need to average, say, 5-6% over time to ensure you don’t run out of money. If some are intent on having less exposure to stocks and bonds, they’re going to need to get creative with other income sources to help fill their personal performance gap.  

The fourth factor is recent favorable research about reverse mortgages and enhanced regulation making the product more accessible. Here are my thoughts about leveraging reverse mortgages:

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Reflections From the Trail

Many of you know that I like to run and that my event of choice is the ultramarathon. Whether it’s in the Sierras or our local hills and valleys, I’ve been running ultras for five years or so and have seen some beautiful scenery and had lots of time for reflection along the way. This past weekend was no exception.

On Saturday I ran the Napa Valley 50k, a 31-mile race beginning in Calistoga. The course wound its way up through the wild flowers and rock spires of the Palisades Trail before eventually turning around at the top of Mount St Helena and heading back to town. The race exemplified the rugged beauty and difficult terrain I’ve come to associate with ultras.

This was my third time running the race. I keep coming back for several reasons, but primarily it’s a time to appreciate my surroundings, be grateful for the good health that carried me through, and the periods of solitude. While the race is run with hundreds of other people, the nature of the terrain often means long stretches by yourself. It’s a good time to think.

It may seem strange, but I often think about my clients during these times. I think about their plans, the markets and the economy. I also reflect on how similar ultrarunning is to planning for retirement.

We’ve all heard about the importance of pacing ourselves. Maybe it’s working too hard for too long or eating and drinking too much. We tend to know intuitively how much we can handle, but it can be difficult to reset and slow down before we run into trouble. This week I thought I’d expand on this a bit with some reflections on the art of pacing, both in a long race and when planning for, and living in, retirement.

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Inheriting Problems

In recent days the stock market has been going though some turmoil due to tariff-related headlines you’ve probably heard about. In the midst of an otherwise healthy economy, this latest volley in our trade war with China seems ill timed. It’s frustrating for sure, at least in part because there’s nothing we can do about it in the short term. 

Since there’s no use trying to “trade” this kind of event it’s best to remind ourselves to instead focus on controlling what can be controlled. An example of this has nothing at all to do with geopolitics and trade: avoiding some common mistakes related to inheriting IRAs. 

I recently had questions from someone, let’s call her Jane, who was inheriting three IRAs from her recently deceased grandmother. Jane wanted to know her options and the best next steps for moving accounts into her name, accessing money and so forth.

Jane inherited one of the accounts 50/50 with brother, which is pretty straightforward. IRAs, like life insurance proceeds, can go direct to whomever is listed as beneficiary. There’s no probate either, which saves time, money and lots of headaches. The other two accounts were left 100% to her.

Jane knew that her grandmother had intended for all of her retirement money to be spilt evenly between Jane and her brother. But for some reason he wasn’t a named beneficiary on the other two accounts, so he’s not directly entitled to any of that money. This obviously presents problems.

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Don't Take the Bait

Identity theft is a scary thing and these days it’s all too possible for it to happen to you. One of the routes in for fraudsters is through so-called “phishing” emails. You’ve probably heard about these as they’ve been around for years. Early phishing emails were fairly easy to spot. They were plain text, perhaps with misspellings or grammatical errors, or the format just didn’t seem right. Now, however, these emails are much more sophisticated and dangerous.

For whatever reason over the past several months or so I’ve been getting pummeled by phishing emails. I’m guessing this is because my email address has made it onto a bunch of different lists. Most of the emails are of the old variety and are obviously fake, but others are good. Really good. Take a few emails I received from “Apple” as an example.

I have an Apple Developer account that goes along with the app clients can use to access their portfolio information. Several months ago, I received a few emails that looked exactly like other emails I’d received from Apple. The font and colors were right, and so was the general tone of the email as it asked me to click a link to update my account. I don’t know what it was about the email, but something just didn’t feel right, even though it looked good and generally coincided with my Apple relationship and experience. I decided to:

  • Slow down a moment and not simply click the email link as per muscle memory.
  • Read the email again to see if I could clarify what didn’t feel quite right.
  • Log into my Apple Developer account on my own by going directly to the website (not clicking the link in the email) to see if there were any popups or other flags that would indicate my account needed updating.

Seeing nothing, I decided to do nothing – at least in terms of clicking the link in the email. Instead, I contacted Apple. They hadn’t heard of this particular phishing attempt yet, so I sent a copy of the email to a special department. After a few days they confirmed the email was fraudulent. It turns out this email wasn't just sent to me, but pobably to thousands of others - phishing by casting a wide net. What would have happened had I clicked the original email link? My guess is I would have been taken to an Apple-look-alike website and asked to provide my personal information. Or, perhaps a file would been downloaded on my computer allowing fraudsters into my system. (By the way, I once saw a live demonstration of how this works, and it took only minutes for the hacker to start rummaging through the person’s computer.)

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Is Indexing Bad for Markets?

Index funds have been making the news lately but for the wrong reasons. Some commentators speculate that the rise of “indexing” as an investment approach might be casting too wide a net and is harmful to markets. The idea is that index investors “blindly” buy the performance of markets without paying attention to underlying fundamentals. This can lead investors to overpay for poorly performing companies that happen to be in the index and also to drive up prices for the “big” stocks like Apple, Amazon and Microsoft.

While this makes sense in theory, rest assured that we’re not blindly doing anything and that markets are healthy, even with the rise of indexing. This is confirmed in the following essay from Dimensional Funds. I’ve pared down the original to get to the core ideas. The language is a bit wonky but it’s worth a quick read. If you have any questions about how we use index funds and ETFs in your portfolio, please don’t hesitate to ask. Now on to the article…

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