We’d like to welcome Trudy Meister to Paragon. She is our new Director of Client Services.
If you have questions or need assistance, she is the one to call. Trudy is friendly, personable, and easy to reach if you need anything. Her responsibilities include opening client accounts, generating statements, and responding to all clients’ inquires. She is looking forward to working with you and helping you in any way she can.
Trudy is from Orem. She comes to Paragon with a wide range of skills and experience. She has worked in office administration, human resource management, payroll/benefits administration, accounts payable, and customer/client relations. She also spent time working as an executive assistant.
She loves to spend time with her family, travel, quilt, make crafts, read, and spend time outdoors. She also enjoys planting beautiful flowers in boxes around her yard in the summer.
Written by Dave Young, President
YOU MAY BE SURPRISED to hear that one household in 50 declare bankruptcy a year. On average, when a widow receives a death benefit, it is usually completely gone within three years. Credit card debit is at an all time high. Payday loan centers charging effective interest rates up to 500% are thriving. Gambling is epidemic. In the richest country in the world, millions of Americans are experiencing major financial problems.
What is the solution to this problem?
Make more money?
Most people think that the only way to solve these problems is to make more money so they have more money to spend. In reality, that might help their situation, but it isn’t the solution.
It may sound like obvious advice to spend less than you earn, but it is often ignored. According to an article in Smart Money, Americans collectively spent more than they earned after taxes for the past two years in a row. This bad habit afflicts people at all income levels– those with less may feel as if the extra expenses are necessary evil, while those with more may assume their high income protects them from any future financial trouble. This mentality must be changed in order to build wealth over time and save money.
I’ve personally met individuals who earn $40,000 a year but save $5,000 of that for the future. Although it may seem like a small annual amount, that money adds up to future wealth and security. In contrast, I have met others who earn $200,000 a year and spend $220,000. This is a quick way to destroy yourself financially. While it may sounds simplistic, in order to build wealth you must spend less than you earn.
Politicians talk about change… beauty contest contestants talk about world peace… all great ideas, but not practical unless they have a disciplined plan.
The solution that provides the structure or the disciplined plan to help you meet your financial goals is:
First, understand your personal numbers (the money you need on a regular basis) and write down a plan to spend less than you earn by making a budget.
Usually when you mention a written “budget”people often start to groan. They don’t like budgets because they take effort and force you to decide what is a real NEED and what is a WANT.
A budget is the cornerstone of any financial plan. It brings control to the “numbers”. It also takes your numbers out of the “world peace” type of plan and provides some substance and a road map to meet your goals. Budgeting can benefit both frugal people and spendthrift types.
A budget encourages frugal people to balance their spending. It helps them see they can spend money on things like entertainment when they normally wouldn’t have spent the money. It also helps spendthrift people balance their spending so they buy things they need first and then have money to spend on additional items. Budgets help them keep their spending under control so they don’t spend more than they make.
Six Steps to making a budget:
1- If you are married, include your spouse.
2- Make a list of all income.
3- Make a list of all expenses from the previous month
4- Determine your needs versus wants. Sometimes we may think we need something, like a new ski boat, when we actually don’t. We would like one, but we don’t need one at that time. Instead, a need may be something like groceries. You definitely need groceries on a regular basis. We will discuss this topic further next week in another post.
5- Structure your budget so that you are paying yourself first, i.e. paying towards your savings or debt reduction, and your bills second. It is important to put money towards your savings or debts first and then set your budget. If this is done in reverse, your savings and debt usually don’t get paid.
6- Determine if your goals are realistic
Second, start setting financial goals after you have set your budget to determine your spending needs.
I suggest setting three goals. First, set two financial goals that you want to meet in five years from now. Second, set two financial goals that you want to meet three years from now. Third, set two financial goals that you want to meet by the end of 2008.
Last, exercise patience and evaluate your progress month to month.
Overall, with anything in life, it takes patience, self-control, patience and more patience to actually start accomplishing your goals. Over time, as you continue to use your budget and stay on track with your goals, you will see results.
Feel free to ask questions or make comments.
Written by Dave Young, President
At Paragon we follow the mantra of the three “P’s” – Private, Proactive, and Protective. These guiding principles direct our unique approach to investment and wealth management. I thought this would be a good time to focus specifically on the Protective side of our investment approach – what we do to monitor and benefit from market movements.
In one of my newsletters, I wrote about how a consistent investment program can minimize the negative effects of inevitable market downturns. Unlike many advisors who talk about accepting what the market gives, we embrace the challenge of getting the best the market has to offer while avoiding the worst. Our portfolios are designed to maintain and/or accentuate the positive movements of the markets while limiting the negative movements. A pretty tall order, right? Well, what else do you hire an investment manager for?
We are often asked about the criteria we use to choose investments for maximum investor benefit. The protective aspect of our investment philosophy leads us to perform quantitative analysis that considers many market indicators to help determine market risk. What is quantitative analysis? I’m glad you asked. Investopedia defines quantitative analysis as “a business or financial analysis technique that seeks to understand behavior by using complex mathematical and statistical modeling, measurement and research.” In other words, it’s a way to objectively measure things.
In the investing world, quantitative analysts are usually stereotyped as pure numbers people who disregard the qualitative aspects (management expertise, industry cycles, labor relations, etc.) of companies or markets. Many investment managers will often adhere to one type of analysis (fundamental vs. technical) while eschewing all others. This is usually a result of their training, education and experience. We find this to be a narrow and incomplete point of view. We don’t believe that any one style of analysis can give a full picture of market behavior by itself. They all have advantages and disadvantages, and we feel it most effective to use the best elements of each style.
At Paragon, we employ a type of quantitative analysis that incorporates fundamental, technical, behavioral and qualitative factors. These quantitative indicators give us a feel for the market at the present time. They help us determine where the strength of the market is, the degree of the strength and any changes in strength that appear to be occurring. We use them to find out what other market participants are actually doing and what they think about both the current market and where it might be headed.
One of the primary models we use is based upon a composition of monetary, economic, valuation and sentiment indicators. This model attempts to identify periods of outperformance and underperformance of the stock market by gauging the external environment of the market while staying in harmony with the primary trend.
Another one of our favorite models is a sentiment model that uses a variety of indicators to measure investor psychology and the changes in attitude as they occur. This model indicates what percentage of all investors can be classified as bullish on the stock market at any given time. This allows us to anticipate reversals in investor psychology, and thus the market. Our policy is to mirror the general sentiment until it reaches an extreme, at which point we take a contrary position. High bullish sentiment has frequently coincided with intermediate-term peaks in stock prices. Conversely, when sentiment has fallen to low levels (meaning investors are bearish), markets have typically been near a bottom. By understanding sentiment we can take advantage of these market movements by anticipating them before they occur.
Another type of sentiment indicator we rely on uses the CBOE Equity Put/Call ratio. When sentiment gets extreme we can use this information to anticipate market movements that are contrary to the general expectations. Put/call ratios track the activity of highly speculative options traders, who are notorious for being wrong when taking extreme action. In practical terms, this means that the S&P 500 tends to perform poorly when an extreme in optimism has been reached. Conversely, extreme pessimism is often accompanied by high market performance. By keeping our eye on put/call ratios we can identify the extreme sentiment levels that tend to precede reversals in the market and move our investments accordingly.
Other models that we use measure items such as earnings yields, Treasury bill yields, price/dividend ratios, median price/earnings ratios and the number of stocks hitting 52 week new highs or lows. By watching each of these indicators we can get a well-rounded picture of the current state of the market as well make good educated guesses about what will happen next.
Our general policy is to stay invested in the market, using these models to assess overall market risk. When our indicators signal an increase in risk, we reduce our exposure to the market by degrees while keeping the majority of the portfolio invested. Only rarely do they signal for us to be entirely out of the market.
While these models do measure a great many financial indicators, they can’t eliminate risk altogether. Many market events are simply unpredictable. The markets, like life, are full of the unexpected, and the only way to succeed is to stay in the game, keep your head up and be as informed as possible.
Written by Dave Young, President
A friend of mine, Steve Moeller, did research on the science of happiness. He gathered information to write a book about what really makes people happy. He gave me permission to share some excerpts with you from an article he wrote for Investment Advisor magazine. I found his thoughts very interesting, and hope you will too.
The assumption that more money will make us happier is etched into our consciousness. Happiness is something we all want; it’s the holy grail of Western civilization. Biologists have recently proven that all higher species from lizards up to humans are biologically programmed to pursue pleasure and positive emotions. It’s a basic subconscious drive that all creatures have. Everything we do, we do because we consciously or unconsciously believe that it will make us happy.
That more money will lead directly to more happiness is such a basic assumption that most people never stop to question it. When researchers at the University of Michigan asked research subjects what would improve the quality of their lives, the majority of the respondents said “more money.”
The assumption that more money will bring us more happiness is etched into our consciousness, championed by our culture, promoted with billions of dollars of advertising each year, and institutionalized in our public policy. And it is still the primary promise of benefits that many investment advisors focus on. But is it true?
“Happiness” researchers have conducted more than 150 surveys all over the world with more than a 1 million participants. Let’s take a look at what they have learned.
Since the end of WWII the purchasing power of American households has tripled. New homes are now twice as big as they were after the war, we have twice as many cars per person, and we eat out more often. The average American now lives much better than most of the kings and queens throughout history.
So are we happier? No!!
This spectacular increase in wealth has had almost no positive effective on our society’s happiness. In fact, from 1957 to 1996 the proportion of people telling the University of Chicago’s National Opinion Research Center that they are “very happy” declined slightly (from 35% to 30%.) Over the same time period; divorce doubled, the prison population quintupled and major depression rose tenfold, turning it into the fourth most common debilitating disease. America’s not alone; Europe and Japan have experienced the same basic trends.
One of the happiness researchers’ more noteworthy findings came from a survey of Forbe’s 400 wealthiest Americans. These cent millionaires and billionaires were asked to rate their life satisfaction from “extremely dissatisfied” (1) to “extremely satisfied” (7). Surprisingly, the respondents’ average rating was 5.7, only slightly above the average rating.
But here’s the really interesting part. Masai tribesmen from Kenya in East Africa also participated in the life satisfaction survey. Although they live in huts made out of dirt and cow dung, herd cattle for a living, have no electricity or running water, and don’t have any money, they also rated themselves a 5.7 in the life satisfaction scale.
Quite a few studies now show that believing that money is more important than other values—like relationships with loved ones, spirituality, a feeling that your life is contributing to the greater good—is actually detrimental to happiness. Clearly there’s more to happiness than wealth, luxury and material comforts.
So, how much is the right amount of money to maximize our happiness? Here’s the bottom line from the scientific research on happiness—once we have enough money to pay for life’s basics like food, clothing and housing, more money has very little impact on our happiness.
More money does buy more happiness and well-being if you are poor, and increases fairly quickly until you achieve a solid middle class income. But research shows once your household income reaches the middle class range, increased income has a diminishing positive impact on your happiness and well-being.
The point is, above a certain income level, which isn’t by any means “wealthy”, additional income alone has almost no impact on our happiness. And depending on the price you pay to earn it, more income could even reduce your quality of life.
In fact, a large and growing number of studies support happiness researcher Ed Diener’s comment that, “Materialism is toxic for happiness.” But most Americans don’t seem to believe this.
Why, if we tell researchers that more money doesn’t make us happier, do we chase it so hard? We could blame it on advertisers and the media, two giant institutions that have a vested interest in having us consume more and more stuff each year. But there is another, more subtle villain; the subconscious workings of our brain.
Psychologists have developed a term “hedonic treadmill” to describe humans adaptation to more wealth and material goods. So if you get a new car, you will be happier for a while, but then you will adapt, and so think it’s normal. In order to maintain the same level of happiness through consumption, you must continually buy new things. This is what the concept of “retail therapy” is all about. Adaptation is great for the economy, but bad for you and your financial security.
As an investment advisor, I often work with people who believe that more money will buy them more happiness. As evidenced by this article, in reality, I should help clients determine what will really make them happy and then determine how much income their ideal life will require. It may be a lot less than they originally thought.
Posted by Dave Young, President
Adapted from articles: Financial Life Planning: What do you want to be? By Diliberto and Anthony and 20 Tough Questions for an Easier Future by Liz Pulliam Weston
A new school of thought among investment advisors and financial planners is “financial life planning.” Financial life planning takes an in-depth look at the bigger picture– not only considering a client’s investment goals, but a client’s investment goals in conjunction with their life dreams, values and happiness. Instead of isolating only the monetary side of things, the life planning approach is more holistic and considers a client’s most deeply-held values.
The objective is to assist clients in visualizing their goals, then home in on what’s really most important in their lives. With the core values identified, an investment plan can be built to help make the dream an eventual reality, while helping the client incorporate those ideals into day-to-day living.
While writing the book, “The New Retirementality” by Mitch Anthony, Anthony would gather groups of professionals and half-kidding ask, “What do you want to be when you grow up?” He was always amazed at how many of these individuals, many in their fifties, dreamed of doing other things–of being something other than what they currently were.
An accountant talked about being a consultant. A consultant talked about being an investment advisor. A marketing executive talked about being a creative director, and a creative director talked about being a speaker and trainer. A speaker and trainer talked about going into television. A television personality talked about going into sales. A sales professional talked about being an executive coach.
When these people, who said they weren’t fully engaged, were asked why they didn’t just do what they dreamed of doing, without fail, they cited money issues as the reason. How many people have mortgaged who they are in favor of what they could get, and later wished they had made a more informed decision? Some estimate that it may be as much as 70 percent of our society. If it is indeed a money issue holding an individual back from his or her ultimate dream, then it may be permission from a financial professional that helps them move forward.
George Kinder, in the goals-setting portion of his “Seven Stages of Money Maturity” distinguishes between having, doing and being. What do you want to have? What do you want to do? What do you want to be? Americans have put who they want to be on hold for what they can have. The fact that so many people wish they were doing something else cannot be good for individuals, the family, the workplace or society as a whole. Change can be brought through a meaningful dialog around client goals.
For example, someone who thought he wanted an early retirement may find instead that the most important thing to him is spending time with his young children. He may decide to throttle back on his career and retire later so that he doesn’t miss out on his kid’s formative years.
Or a physician who focused on working harder and creating a more aggressive portfolio in order to retire earlier, when what he really wanted was to get out of medicine because he felt the stress was killing him. The doctor’s fear of stress was creating much more stress. Ultimately, he decided to work half-time and reallocate his portfolio to be slightly more conservative, which reduced stress in his life.
The real work comes in trying to figure out how to change your life to reflect your values. Here are some questions to help accomplish this task:
* What’s standing in between me and what I want?
* What’s my plan for overcoming each of these obstacles?
* What do I have, in terms of personal strengths and outside resources, that will help me deal with these obstacles?
* What skills and knowledge do I need to add to accomplish this change?
* Are there other people I can call on for help in overcoming these obstacles?
* How can I make these changes happen sooner?
* Do I need my family’s support for making this change?
* If so, how can I rally that support?
* How can I evaluate and monitor my progress toward my goals?
One of our goals at Paragon is to implement financial life planning with our clientele. Not only discovering your goals in regards to retirement, funding college educations, estate planning and family protection, etc., but also discovering what your desires are. Instead of the obvious “I want to retire in five years”, “I want to double my money in 10 years”, etc., the goal discovery process will include questions about a client’s core values and what is most important in your lives. This begins a dialog between us and our client that results in a process that will help merge your money with your life.
Written by Dave Young, President
On a recent trip, I recognized the value of leaving a legacy. My trip reminded me of the sacrifice, hard work, vision and commitment made by others that have benefited me immensely. The gift of my ancestors has enriched my life and provided amenities for which I am grateful.
As I reflected on the greatness of leaving a legacy, it brought to mind the importance of leaving a financial legacy and the benefit of creating a nest egg for progeny and future generations.
It is prudent to not only prepare for retirement, but to keep in mind the beneficiaries of residual retirement and other savings and the enriched lifestyle it affords to them. I have one client in particular who communicated how important it is to him that his spouse and his children and their children are financially taken care of upon his death. His top priority for investing prudently and wisely is for the benefit of his family. In choosing Paragon as his financial advisor, it was important to him that his priorities were equally important to us.
The value of leaving a financial legacy is priceless for both you and your family. First, your financial preparation allows you to be self-sufficient during retirement. Your preparation contributes to your peace of mind knowing your family will have increased financial ease. And in some cases, a monetary gift now to family members translates into tax benefits to you now. Most importantly, the simple act of giving is empowering and fulfilling for you.
Your progeny, of course, also benefits from you gift and preparation in countless ways. First, your monetary gift continues its growth possibly for years after death. Your gift enriches the lives and lifestyle of its beneficiaries– college education paid for, down payment for your newly married son or daughter, unforeseen financial strains eased etc. etc. Your preparation also sets a precedent and begins the pattern and habit of financial intelligence and education for years to come. Your gift opens doors and opportunities to financial success that otherwise may not have been available. Most importantly, your forethought, sacrifice and commitment will be remembered, appreciated and emulated by the next generation.
I am a big proponent of retirement planning, and planning now. One way to give to our families is by naming spouses and/or children as beneficiaries of IRA’s, 401(k)s, etc. Not only designating beneficiaries, but apprising family members that they are the recipients of such a gift. And then follow up with education on prudent investing when the funds transfer to their possession. Several different retirement options allow significant contributions, tax deductions, and ample time for growth and compounding. Of course, it is always important to consider risk, inflation, tax bracket, and investment time horizon, etc. when considering how to invest retirement monies.
Another option to ensure future generations benefit from your financial success is to establish trust. Trusts specify to whom assets are to be allocated and of course, are legally binding. Trusts also aid in estate planning and reconciling this aspect of financial planning. Most importantly, as my client did, make it a priority to leave a financial legacy.
My trip was enlightening as it reminded me that it isn’t all about me or us, but about what we give to others and the principle this instills in ourselves and in our families. Leaving a financial legacy to our families and future generations is empowering to both the giver and the recipient, and it is a gift that can grow for years to come.
Written by Nathan White, CFA
I feel sorry for anyone who bet on the January Effect this year! With so much doom and gloom you would think that the end of the world is nigh.
I’ve heard a lot of negative prognostications about the future of the markets lately. It’s seems to me that people have forgotten what an economic cycle is: expansion-peak-contraction-trough. Just because the economy is in a contraction phase doesn’t mean it is the end of the world.
Such is the state of our modern, media- hyped world. The true threat to the economy is not sub prime/credit contraction per se, but the government’s responses to it (i.e., higher regulation and taxes, unnecessary bailouts, etc.)
It’s interesting to watch the market make regular fools of people who are so confident in their predictions. A lot of what I call the “urban legends” of the financial markets are talked about this time of year especially if they have seemingly negative implications.
You might have heard the following two which have been touted lately: “As January goes, so goes the rest of the year” or the Super Bowl indicator, which says that it is bearish for an AFC team to win and bullish for an NFC team to win. As for the first indicator, we all know how January turned out. Going into the Super Bowl, the heavily favored Patriots (from the AFC) seemed to cement the bearish view. That’s why they play the game! With a Giant victory, which indicator is right? Tune in December 31, 2008 to find out.