Wednesday, December 15, 2010

Puttin' It In & Takin' It Out - Avoiding 'Premature Distribution' - Part II

Takin’ It Out - Avoiding ‘Premature Distribution’

(Preamble or Pre-ambulatory?)

Distribution requires a mind shift from accumulation.
Distribution connotes a dilution – a lessening. And in a culture wired for ‘more, more, more’ (despite more, now, better typically becoming less, worse, later), dispersal indicates a weakening, a reduction, a thinning out – over.
In professional rasslin’, the wrestler, whether baby face (hero) or heel (villain) seeks to get ‘over’ with the crowd. But in personal financial planning, distribution signifies implies and or predicts to some – they no longer can cut the mustard, they are no longer productive even worse useless having to (particularly in retirement) depend on their passive assets rather than their active effort, exertion and talents.
Thus, takin’ it out seems to too many to be a lessening of oneself, a dependency, a loss of importance. They are uncomfortable with distribution despite the assets being the fruits of their active labors (save inheritance). And worse, they fear and often become dependent on the assets identified as themselves forgetting it was their own adaptability and resourcefulness (save inheritance – the lucky sperm club) that with their God given talents and efforts secured the assets and the current currency in the first place! As identification and belief in the assets rises, belief in oneself seems to diminish with the excuse, ‘I’m older now.”
The underlying fear of distribution is, ‘I don’t want to outlive my assets (as I can’t earn them back if necessary and I’ll wind up eating Little Friskies at 16th & Larimer rubbing my gloves hands without finger covering over a sterno can fire.)
I’m not making this up.
Personal Financial Life Planning aside – this scenario – is not uncommon and if I may break character a minute – defies our self professed faith in God and ourselves.
Of course, all bets are off with the continuation of the Obama Administration after 2012 (back in character).

The above doesn’t apply to accumulation distribution cycle for your kids education (though if you think about it, the 300% over inflation higher education cost is personal financial ebola crowding out and or delaying the workfree retirement due to those whining collectivist Scholar Barons on the Honor Dole (tenure)). Nor does the same the cycle apply to a slow down income prior to retirement (assuming it is less than 10 years). But when one is ‘no longer cutting the mustard’ the sense of self becomes tested when the paycheck is no longer coming in and one depends is into distribution – takin’ it out – instead of accumulation

If one is not in touch with the above ‘I am my assets – the growth of my net ‘worth’iness therefore I am’ regardless of distribution methods described below (qualified by the previous blogs) they will be ‘worth’less.
Takin’ it out isn’t costing you ‘an arm and a leg’ (unless there is a divorce lawyer on the other end of your limbs).

The foregoing said, there are other qualifications, considerations & cautions which have been mentioned in previous blogs which you may wish to revisit prior to selecting your method(s) of distribution:

1. The Flaw of Averages & The Sequence of Rates of Return
2. Monte Carlo Probability Analysis
3. Your Investment Policy Statement

4. Exhausting taxable accounts prior to non taxable accounts (IRAs, 401ks, profits sharing) prior to age 70 UNLESS there is required distribution method considerations by law which shifts you into a much higher bracket (and surcharge for medicare!)
5. Rule #1: the closer one is towards distribution from accumulation the greater the liquidity of the investments especially where the payoff is of a short time horizon for distribution (i.e. 4 years for college though in Colorado only 17% graduate in 4 years due to the competency of the arrogant Scholar Barons on the Honor Dole.)
6. Rule #2: the closer one is towards distribution from accumulation the lower the volatility (beta etc.) of the investments in the portfolio for the objective especially where the need for distribution from these assets is within a short time frame (less than 3 years typically) subject to the method chosen below.
7. Where you end up depends on where you start (Go back to previous blogs!)

For all the methods below, regardless, I would suggest

1. RR&R: Recycling, Replenishing & Rebalancing: recycling all distributions, dividends, interest, gains into your money market accounts for living expenses & replenishing and rebalancing per the method & allocation chosen, & your investment policy statement
2. Have at least 1 year if not 2 or 3 of living expenses in money markets to minimize the fright (and stupidity) of selling in panic in a volatile down market. (Yes, your rate of return will decline. However, the savings on your insurances should be added to your rate of return in all fairness.) REMEMBER JOSEPH’s DREAM INTERPRETATION OF THE 7 FATTED COWS AND 7 EMACIATED COWS- (Storing 7 years of grain. The emaciated cows ate the fatted cows and gained no weight - THE FIRST ATKINS DIET – DOW & COWS)

DECUMULATION Methods: To minimize the risk of “pre-mature distribution”

· 4.4% & Variations
· Buckets (‘Kick The Bucket?’)
· 100 less your Age (and variations)
· Layering

4.4% & Variations

Fee only financial planner, Bill Bengen’s extensive research shows that 4.4% can be withdrawn yearly + inflation for a 30 year period with a 80%+ probability of success. That said, at the end of the period, there is nothing left for inheritance. Thus, it is, constructively, almost a do it yourself variable annuity approach without the double and triple dipping fees from insurers. The allocation is typically 65%-70% in equity and 30%-35% in bonds. For Bill Bengen’s variations – look him up on the web.
Fee only planner Michael Kitces (The Kitces Report) assuming at least 60% equity (market) exposure, tweaks the Bengen research with a P/E (price to earnings of the overall market as variable allowing increases (plus inflation) and or decreases in the withdrawal rate:

Kitches Rules for Adjusting Safe Withdrawal Rate
P/E Safe Withdrawal Rate Impact
Above 20 P/E Safe withdrawal rate of 4.5%
P/E between 12-20 Increase safe withdrawal rate 0.5% to 5.0%
P/E below 12 Increase safe withdrawal rate to 1.0% to 5.5%

Why increase by 1.0% to 5.5% when the market is down (P/E 12 implies the market is down and a value)? Because the odds are historically at this low valuation the market will increase while when the market is at a P/E of 20 or more the probabilities of increase are much lower. So the portfolio can take a larger withdrawal when the market is down (which seems counter intuitive) because the remainder of the portfolio should increase in valuation to more than counteract the withdrawal.

The Slices Variation – (Death by a 1000 Slices?)

The withdrawal rate in this method is typically modified per age period/ phase below:

· Age 65-75 ((Higher))Expenses plus inflation)
· Age 75-85 (Expenses plus ½ inflation rate)
· Beyond age 85 (Assumes lower expenses plus inflation)

Given escalating health care escalating costs without restraint in Obamacare (my own AARP Aetna Essentials is going up 72% - so much for Obamacare’s costs will be restrained), adding 30 million people in demand with a shrinking supply of health care professional while, in the immortal words of comedian Timmy Rogers ‘everybody wants to go to heaven, but nobody wants to die,.’ this is my second favorite distribution method. My favorite: almost anything else.

The 5 Year Moving Average:

Other planners use a 5 year moving average – which for most individuals is in the inevitable words of “HD” – “too much trouble”

The Buckets/Tranche Approach (‘Kicking The Bucket?’)

In this distribution approach, you match your investments time horizon and goal. Essentially, one is corresponding assets to the time horizon of the liability/claim (like an insurer). Example: (in all cases the amount is modified by the pension and or social security amounts estimated during the particular tranche/bucket)

Period Investments
1-5 years CDs, short term annuity – less social security
And pension payouts
6-10th year Intermediate bonds, REITs
11-15th year Bond funds, balanced mutual funds
15-20th year Equity mutual funds

My Preference: The Eclectic Layering for ENOUGH

Overriding Factors

1. 4.5% a year + inflation but no more than 3% inflation increase
2. Add 0.5% when P/E is 12 or below and no inflation adjustment (regardless the inflation rate) when P/E 20 and above
3. No inflation adjustment when market is down year to year
4. Recycle all dividends, interest, and distributions (capital gains etc.) back into one’s money market account (to replenish and or distribute to meet the goal set for living expenses)
5. Rebalance per the layers below – once a year
6. The above is subject to your Investment Policy Statement, yearly Monte Carlo analysis and recalculation of goal.

Layer 1 – Emergency & Stupidity

Joseph in response to his 7 fatten and 7 emaciated cow dreams (representing 7 good years and 7 bad years), stored 7 years of gain to weather the potential (and realized) famine. And Egypt got rich when the famine hit because Joseph had the grain.
No grain – pain (which goes against the grain).
While I am not suggesting 7 years of cash or gold (gold bugs – you can’t eat gold – and ps in 1982 or 1983 gold was $850 given a 3% average inflation conservatively – gold to be even would have to $1945 today wise guys – if anything silver would be the better hedge historically at a 16:1 ratio with gold – gold to silver is now 80+:1) – 2 to 3 years of cash (money markets) makes some sense (subject to my thoughts on leveraged etf ‘insurance protection’ later)
Why? As stated in previous blogs, volatility kills investment and therefore goals. From a probability standpoint 2- 3 years is typically the worst of in a terrible market. (However, this is no guarantee remember the Black Swan of 2008 – and the swan dive.) So while your heart rate is racing with 500 point down days – having two years emergency should minimize you from selling at the bottom.
(Forget market timing – study after study has shown this is a loser’s game over time).
While you are at -consider a year of food from Emergency Essentials or some other reputable food storage company etc. (I am not a Morman or MOREmon just a Dogged Jew.)
PS There is an unrecognized added rate of return benefit in that you can take larger deductibles on your health, home, auto etc policies reducing these policies’ cost.

Layer 2 – Longevity Income to Reduce Fear of Outliving Your Assets

This layer is NOT about rate of return, Moreons!! And this layer is subject to inflation risk. But this layer is about not outliving your income or at least a substantial part of it. This layer is for a ‘floor of income’ not ‘if come.’

· Long term care insurance
· Pre or post nuptial agreement
· Asset protection trust (?)

You need long term care coverage sufficient to offset capital depletion due to home health care costs and or nursing home and air tight pre or post nuptial agreements . For those who think they can self insure the long term care risk – remember this: the odds of a fire wiping out your home is 1 in 435 whereas the chance a 60 year old will need some assistance with care in his lifetime is 70% and 40% he or she will stay in a nursing home someday. (Please kill me first). The average cost of one year in a nursing home facility in 2030 will be $178,510 – probably what it costs in New York or Boston now.
So, you’ll insure your house with a 1 in 435 chance of it burning down but not transfer the risk of $178,000 with a 40% probability?
And, as to the reframe, my spouse will take care – oh, please. Studies show this fantasy strains 37% of the marriages. Go lie on the floor right now, and have your spouse pick you up 8 times. Think of that week in and week out – at best you won’t need Jennie Craig.
Wouldn’t it be better to bifurcate – have you spouse to ‘care about you’ and a trained professional (preferably good with their hands gentleman) to ‘care for you?’
With 50% divorce rate of first marriages and 70% rate of second ones – why would you be without a pre or post nuptial agreement given the capital depletion a divorce can cause?
And while outside the scope of this essay, given our litigious society and significant assets, might you not consider an asset protection trust to minimize lawsuit potential capital depletion?

After calculating the present value of your income needs for life after tax after inflation risk adjusted (see prior blogs) – this is the amount you need at the basic living need level to be funded by this layer. (If there is income from layer one, reverse annuitizing one’s home, social security and or pensions that are not Ponzi schemes and underfunded – the amount of the goal to be funded by this layer is reduced.)
Of course, the question becomes do you count on anticipated social security benefits given the multi trillion dollar underfunding and the trend towards making social security more of a welfare program which will entail cutting back benefits especially at the higher end? The second question is the potential value of a stream of income from reverse annuitizing one’s home typically after the age of 70 for a lifetime income to partially offset the need at this level especially with declining housing values.
The above said – here are some of the tools for this level’s funding:
· immediate annuities (spread the purchase in installments over 5 years)
· ladder bonds to match income needs and timing and or bond funds\
· ‘balance mutual funds’ which are part bond and higher yielding stocks
· extractive mineral and or pipeline master limited partnerships traded as stocks
· utility mutual funds/etfs
· income real estate investment trusts
· mutual funds whose object is stocks with increasing dividends.

Layer 3 Discretionary – 70% of Remainder

I recall a story told to me by a former Fortune 500 President relative to his company’s estimated earnings for the quarter. When he inquired of his accounting firm as to the projected earnings, the partner in charge of the account stated, ‘what would you like them to be.’
Accounting for earnings is fiction and bookstores should rearrange their shelves to put accounting texts with Patterson, Grisham and The Secret.
Accordingly, I have a bias against growth stocks which typically trade with projected earnings (based on accounting) and prefer value oriented mutual funds, and mutual funds disguised as stocks both domestic and foreign (Berkshire Hathaway is an example).
Value oriented investments typically do better in down markets and not as well in up markets but when all is said and done – overall outperform growth funds without the big roller coaster effect.
My second bias is (Focused Diversification): – I believe a good analyst – fund manager can really only know maybe 15 stocks. Therefore, I prefer value oriented focused funds but only in the context of focused diversification.
Focus diversification – what have I been training to be a Starbucks Barista, an Obama’s teleprompter and a Cass Sunstein hand puppet?
The concept is to have 3 or more value oriented focused funds (typically each fund has 50%-70% of the holdings in 10 stocks) which buying one alone doesn’t diversify but buying at least 3 ‘focus funds’ gives one ‘diversification.’ Examples: Fairholme and Sequoia (which I do own)
Added to this ‘focused/concentrated diversification’ should an international value fund (focused or not).

Again all interest, dividends, distributions and capital gains are recycled into level 2 or level 1. Additions can be made to a desired a longer emergency fund term though the offset is to balance the longer emergency funding without sacrificing the resource level to maintain one’s Enough goal.

Level 4 Hedging -30% of Remainder

Everybody wants to go to heaven, but nobody wants to die
Comedian Timmy Rodgers

Health Mutual Funds & ETFs
Conventionally, Health industry funds are not considered a ‘hedge.’ Yet, as long as everybody wants to go to heaven and nobody wants to die and as Stalin said, ’10,000 deaths is a statistic, one death (mine – fill in your initials) is a tragedy,’ we will spend, Obama or not, on that last breath as long as there is hope. (‘Hope,’ per Ambrose Bierce, ‘is deferred disappointment.’
Thus, a Health ETFs or mutual funds are ‘a hedge’ as life is an ‘addiction.’

Energy Funds, ETFs etc
We want the energy to live and need energy for our standard of living. (This is despite Watermelon Democrats -Green on the outside – Red lefty on the inside - who have houses costing $3000 a month in heating bills while being against wind farms in Martha’s Vineyard that might hinder ‘their view.’) In any event, when there is no wind – who you gonna call – Ghostbusters – nope – natural gas – oil. Methane combustion from Barney Frank may be large, long and even silent but still not enough to get those wind turbines going when there are no gusts even from blowhards. IYE and VDE are examples of energy ETFs. Also consider for this inflation hedge and yield (in layer 2) pipeline master limited partnerships (examples: PAA, EPD).

Commodities & Leveraged Short Funds
While asset categories that go contrary or less positive (negative correlation or less positive correlation to the market) have basically bit the dust in the global economy, there is still negative correlation with yes – commodities and leveraged ‘short’ ETFs. The concept here is not commodity speculation but smoothing the rate of return – the ups and downs of the entire portfolio. Examples: Rogers (RJI), DBA, VAW, and PCRIX. Leveraged ‘short’ ETFs are new. For example, to protect against the downside of the market there are ETFs like for SDS that when the S&P goes down “1” it goes up “2” – 200% leverage.. However, when the S&P goes up 1, SDS should fall 2 – the 200% leverage working in reverse. ETFs like SDS should also be considered to protect one’s emergency fund buying for example a 50% position of 1 year’s emergency so that if there is a drastic decline in market and currency – you may have replaced 1 years’ worth of the fund (remember the 200% leverage). In this context, the leveraged short ETF is an insurance premium not a speculation.

Gold & Silver
(As for Gold see previous comments – but if one is to do gold or silver – consider the ETFs GLD & SLV or coins with denomination value as well as high gold or silver content to give a floor to the value of this hedge to inflation. )

Given the monetization of the currency, should the ‘sh*t hits the fan scenario’ occur, this calls for the hedge strategy of seeds and bullets. For seeds, an ETF of agricultural commodities like DBA as well as Smith & Wesson, Ruger and or OLN (the only semi pure play in bullets) are examples. The position in DBA supplements the year of food. For bullets and training – NRA Instructors are plentiful to instruct you and your family not only in shooting but for handgun and shotgun strategizing for self defense in your house to protect you and your dogs. (Note: employing the human shield strategy involving one’s spouse which would lower the present value of your Enough need in layer 2).

Taking It Out Distribution vs Whipping It Out Distribution

As a general rule of thumb, after all is said and done – qualified by not compromising the goal, take out 4.4% or 4.5% a year plus inflation up to 3% but in year after the decline in value of the enough amount, do not take out the additional inflation bump until the amount necessary to fund the present goal is restored. Per Kitces’ research only bump the 4.5% to 5% when the P/E of the market is 12 or lower.. And yes, you can make the case of three different enough tranches – early retirement, mid retirement, and Lawence Welk time (living on much less) leading to higher withdrawal rates earlier, but the 4.4- 4.5% rule is easy and has worked in the past (though no guarantees).

More is ‘managing assets and lives in relative external comparison (Dow Jones, S&P, coveting, envy --).
In contrast, Enough is managing goals internally: aligning personal resources with life goals and missions – healing financial anxiety, putting money in it’s place to transcend to your significance especially in your preservation and distribution phase of this earthly existence.

Saturday, December 4, 2010

Puttin’ It In & Takin’ It Out Part I: Puttin’ It In

Okay, if you’ve gotten this far (doubtful), know specifically each of your personal financial planning life goals specifically (not hopes, wishes and dreams – dry or otherwise), and there is a deficit overall today to achieving the goal (and the assumptions of the goal are not to be changed), the question becomes how to make payment in to make up the deficit to the objective?
Some believe they can time the market.
As Tony Soprano would say, ‘Furr get about it.’
Studies show for example:

· In the ‘90’s the S&P 500 was up 15%-16% but if you missed the top 10-15 days you were up 5% per year
· If you were invested in all 2516 days in the S&P Stock Index from 1997-2006 you made (before taxes and fees) 8.4% a year. If you missed the 10 best days you averaged 2.2% a year
· In a series of studies from 1994 to 2002, scholars have show that from 1926 to 1993 you had a
0000000000000000000000000000022883557% chance of correctly timing the stock market just 50% of the time

(Besides if you or I could time the market, I wouldn’t be writing and you wouldn’t be reading this – and that’s a 99%+ probability)
So now, given your investment policy statement with predetermined allocations per objective via retrofitting etc., you are either going to change assumptions (amount of the goal after tax, assumed inflation, after tax rate of return, delaying the start of the objective or duration) or you are going to have to fund the objective.
Now the question is not into what investment (see previous section) as that has been determined but how and when – or puttin’ it in (payment) and sequence risk. (Takin’ it out – withdrawal etc and sequence risk will be in Part II)

Think of sequence risk this way. How successful is a guy trying to go to second base when he hasn’t even gone to first on a date let alone cross home plate? How much lovin’ is there without the huggin’ first?
So are you going to go on whim (the ‘loin quiver factor’ as one recovering MOREon called it), all in a (lump sum), or have a sequential formula for puttin’ it in – in periodic payments? If the latter:

· Do I put it in annually, quarterly or monthly etc?
· Is there some other trigger for regular investment? (i.e. the market is selling on a price to earning ratio of 12 would mean a higher monthly payment than when the market is selling at 20 times price to earnings modifying by X% the amount paid in.)

When accumulating I prefer putting it in – in equal amounts (unless transactions costs make it prohibitive)- monthly but no less frequently than quarterly. This is referred to as Dollar Cost Averaging (aka Constant Dollar Plan). Some prefer to put in equal amount of shares on a regular basis which is called Share Cost Averaging. Some prefer value averaging (which is really asset allocation rebalancing on a more frequent basis). The point is – neither you nor I can time the market. If you could, you wouldn’t be reading this commentary and I wouldn’t be writing it. You want to roll the dice, go to Vegas or get remarried without a prenuptial.
Yet, here of some of the but, but, butts I’ve heard for NOW, NOW, NOW

· I’ve got the money – let’s invest it NOW (“Impatience” – money burning a hole in your pocket)
· The inheritance with biblical guilt: I just got this inheritance from my Iron Fist & Velvet Glove Dad and even though I’m just a lucky sperm club member I don’t want to waste ‘the talents’ given to my ‘stewardship’. NOW (Stewardship is the tip off to being a guilt ridden liberal tight fisted with their own money – inherited – but generous with other people’s money).
· The market is getting away from us, so let’s ‘deploy’ NOW (really, is that how you will feel when the market is down 600 points in one day?)
· I’m getting bubkis on money markets NOW
· So I put it in (monthly, quarterly), then I have to rebalance yearly, too much trouble (just do it all NOW)

If you want NOW – join the National Organization of Women
NOW is a Nag – double entendre intended.
NOW becomes HOW NOW Brown Portfolio and I ain’t talking UPS logistics.
NOW originates from the impatient entitlement of ‘give me, buy me, take me’ which itself stems from MORE (itself derived from the palliative for fear of physical extinction: Acquisition).
NOW is the cousin once removed of More – favoring puttin’ it all in immediately without even a kiss or hug.
And remember e.e. cummings statement with slight adjustment, “more, more, more, what are we all MOREticians?”

Monday, November 15, 2010

Ground Rules & Constraints: Investment Policy Statement (IPS)…Puttin’ It Together Part III

Ground Rules & Constraints: Investment Policy Statement (IPS)…Puttin’ It Together Part III

(Note: An IPS is not to be confused with IBD – though some say it has the same effect)

Amount (after tax)
Rate of Return (after tax)
Inflation (deflation?) rate?
Time Horizon for Accumulation if applicable
Time Horizon for Distribution (if different than
Frequency (of monitoring)
Rebalance (frequency)
Probability desired (Pessimistic, Optimistic, Realistic)
(no 100%!)

Where At Today:
Amount of Dedicated Resources
Monte Carlo Probability:


Risk Constraints: Present Level – Desired Level (see prior blogs)

· Inflation or Deflation Risk
· Systemic Risk
· Interest Rate Risk –
· Liquidity Risk
· Market Risk Market Timing Risk
· Reinvestment Risk Repayment
· (Credit) Risk Monetary Risk – the value of currency declining
· Political Risk.
· Divorce Risk

· Third, after you retrofit your portfolio per objective what each risk would look like (prone to offset) to make tradeoffs between the requirements of the goal and you concern for the risk –prone/offset ratio.

Retrofitting Constraints by Percentage by Level
(see prior blogs)

· Preservation of nominal capital
· Preservation of purchasing power
· Liquidity
· Restored liquidity (income from an illiquid assets)
· Current taxable income
· Tax sheltered income
· Capital appreciation
· Asset protection (from creditors)
· Tax savings

Level 1 (lowest risk)- _________% criteria:
Level 2 (below average risk) __________%, criteria:
Level 3 (average risk) ___________%, criteria:
Level 4 (above average risk) __________%, criteria
Level 5 (highest risk) ____________% criteria:

Target Percentage Allocation (as a result of the above)

Asset Categories to Avoid:

As is Target Acceptable Range Beta
Fixed Income
Equity Value
Domestic Growth & Inc.
Domestic Growth
Int’l Large
Int’l Medium
Int’l Small
Equity Income
Equity Growth
Overrides (i.e no one stock, mutual fund etc investment to equal more than ____%

Other Factors Impacting & What To Do:

1. Percentage decline willing to accept before triggering sale:

2. Total Disability (are your insured, if not…)

3. Partial Disability (see #2)

4. Long term care (see number 2)

5. Advanced Medical Directive (what should change?)

6. Financial Durable Power of Attorney (who, what changes if in effect?)

7. Other

Potential Problem Analysis

(I suggest dealing with those that have a medium to high probability(P) (1) and medium to high seriousness (S) (2) and attempt to transfer the risk of those via insurance or otherwise that have a low probability (P) and a high seriousness (S) ((i.e. think hurricane, disability, long term care etc.)

Potential Problem P(1) S(2) Cause(s) Prevent Minimize





Whew! – that’s a lot – but it’s the first run. The question is do you want to play – who do your trust – or manage your goals? Most will spend 100,000 hours working making over their lifetime $2million, $5 million, $10million or more and not spend 200 hours keeping it.

Would you invest in a firm that has gross revenues of $10 million but spends less than 200 hours keeping it? What would you think about it’s management?

Again, personal financial life planning (Enough) is about healing financial anxiety – not making you a planner but for you to manage your goals and planner. Otherwise you can just blame, complain, and play the victim (which should come easy to liberals, collectivists, & progressives) --- Your choice.

At the least, this investment policy statement gives you a working paper framework to deal with your advisors

For more – get my book Enough probably available on ebay or used (as it is out of print) for a couple of bucks until – when and I – I do a third edition (which would be titled:

FUability©: Healing Financial Anxiety Puttin’ Money In Its Place- The ENOUGH(sm) Process

Saturday, November 6, 2010

Ground Rules & Constraints Asset Accumulation Part 2 Retrofitting

Ground Rules & Constraints – Asset Accumulation:
Part II Retrofitting

(aka Retrofitting Portfolio to Objective by Criteria (rather than whim and your brother in laws’ suggestions)

Most people’s portfolios consist of what they have been sold – not what they have bought

Assuming the last blog entry Risk Ground Rules & Offsets exercise has been completed relative to each accumulation objective (there should be separate portfolios for for education, slow down (a percentage of standard of living from passive investment sources prior to a work free retirement), retirement etc, the next phase is retrofitting each portfolio. (This is unlike the typical ‘which one, which kind – I thought it was a good thing to buy at the time’ or the liberal cumbaya rationalization ‘I guess the portfolio grew organically,’ retrofitting begins with criteria rather than MSNBC, stock, bond jockeys, or Rachel Madcow compost.)

The journey of discovery consists not of conquering new lands but seeing with new eyes
Marcel Proust

One more time – risk is not making the goal. That said, lowest, below average, average, above average, and high risk is in the eyes of the beholder (until contrasted by the light of the reality of the objective and where you are relative to it.) So, we start with the eyes of the beholder. And risk ‘tolerance’ changes when one sees how far or near he is to achieving, or maintaining the objective as to what is required and assumed (amount, after tax after inflation ‘risk adjusted’ rate of return, start and duration).

In March of 1985, Dick Wollack published in the Digest of Financial Planning Ideas, “The Orange Juice Analogy” relative to what an investment – may provide in terms of “juice.” And to paraphrase, ‘there is only so much juice in the orange.’
Taking the analogy a bit further, no matter how you slice it (regardless of the some planning clients who want ‘certainty, permanence, continuity’ plus 15% or at least 5% after tax after inflation with no volatility’) again there is only so much juice one can squeeze from an orange even if you are a divorce lawyer.

The orange and its limited juice is analogous to what an investment can do to degrees. The juice from the orange can provide whole, part but not all of the following:

· Preservation of nominal capital
· Preservation of purchasing power
· Liquidity
· Restored liquidity (income from an illiquid assets)
· Current taxable income
· Tax sheltered income
· Capital appreciation
· Asset protection (from creditors)
· Tax savings

You can’t have it all – from an investment or radical feminism’s pipe dream. As important as what you need from the investment is what you don’t need and can’t have. The is without recognition of the is not – is snot.

A most mutual fund offering capital appreciation and liquidity most likely doesn’t offer asset protection, and preservation of capital in bad markets. (Thus, out of 8 ounces or juice, maybe 5 oz are capital gains, 1 oz is current income and 2 oz are liquidity.) Bonds may give income, and a deflation hedge but their isn’t much juice left to preserve purchasing power during inflation. (4 oz of current income, 1 oz of preservation of nominal capital, 1 oz of deflation hedge and 2 oz liquidity). Income oriented real estate may throw off sheltered cash flow and give appreciation but one loses liquidity. (4 oz of sheltered income, 2 oz preservation of purchasing power/inflation hedge, 1 oz restored liquidity).

The point is there is only so much juice in the investment orange even using the Jack LaLanne juicer for maximum extraction. If someone tells you otherwise, it’s pulp fiction.

So forget about which individual stock, bond, real estate etc orange, mango, acai, banana, apple (unless from Eve) – and concentrate (pun) on the fruit salad - the portfolio construction per objective process termed retrofitting.

(It should be noted even after retrofitting, the portfolio will be back tested against the aforementioned risks in part I, and forward tested by monte carlo analysis relative to the probability of achieving the particular objective. Enough per objective is a reiterative process – culminating in an Investment Policy Statement per objective reviewed and rebalanced at least annually).

Retrofitting Steps – (The Pyramid Scheme)

1. Create a pyramid creating 5 levels bottom to top
2. The lowest level should be lowest risk and the highest level in your ‘gut’ estimation (at least at this point in the reiterative process of ‘do’ and dodo looping.)
3. At each level put what you see as the two key criteria you desire. (For example, at the lowest level you might put preservation capital and liquidity. Proceed up each level with what you expect that successive rung to provide.)
4. Once #3 is finished place next to the criteria the generic types of instruments that may correspond to the criteria. For example – next to preservation of capital and liquidity – you might put money moneys, short term CD’s etc.
5. Once #4 is done – now place the percentage you wish in each rung of this laddered pyramid
6. Now the tricky part – you need to assess the rate of return for each rung weighted. For example if you say 20% in money markets – and they are yielding 1% - that’s a .2% rate of return for this rung in the portfolio – and that is before taxes!. If in level four, in contrast, you put capital appreciation and liquidity – this might be growth or value mutual funds or ETFs etc. Now what rate of return will you use, 8%, 10% etc? Don’t worry this is just a start.
7. After weighting each rung for rate of return – apply taxes (ordinary rates for income, lower capital gain rates for long term appreciation, and obviously no tax on sheltered income – which is merely deferred.)
8. Now does the rate of return as you have defined your risk and the types of vehicles you have generically selected make your hurdle rate for the objective?
9. Furthermore, given the prior risk exercise of prone and offsets, does this type of portfolio (assuming the hurdle rate of return is met) met your preferred risk prone/offset assessment.
10. Probably not – but so much for the much vaunted ‘risk tolerance’ scales financial planners use without the context of the goal and its requirements.

A couple of other notes

First, there is no current tax consideration relative to the retirement goal as all income and gain is tax deferred until distributed by the plan. Furthermore, a portfolio owned by your kids for their education will have a lower tax burden – but check the rules under 14 and over 14 years of age). Secondly, many have a level below the lowest level in the rung – emergency/deductible fund.

What is this emergency deductible fund? Think 1 or 2 years of cash or cash equivalents to weather terrible markets and not get antsy selling at the bottom (or 7 years if you are a direct descendent of Joseph remembering the 7 fatted cows and 7 emaciate lean cows – 7 good years and 7 bad years). (1) Also, having this emergency fund allows you to take larger deductibles on your homeowners, auto, disability, long term care policies reducing premiums. The savings in premiums from these higher deductibles, wait periods etc. (which are all after tax dollars) are an after tax rate of return planners and clients typically fail to recognize in their rate of return calculations. Add back the savings into rate of return from this self insurance. (And yes, you can argue this may just be a deferral of a cost eventually incurred. Maybe yes, maybe no – so if you want discount the savings to reflect this potential.)

(1) The 7 emaciated cows ate the 7 fatted cows actually losing weight – biblically the first proven trial of the Adkins Diet.

NEXT: IPS (not related to IBS though it can cause it) Investment Policy Statements

Tuesday, October 26, 2010

Ground Rules & Constraints – Asset Accumulation: Part I

First, delineate the ground rules to stop leaks (asset protection) which ironically is addition by subtraction (via transference of capital & income depletion potential impacts) Next, is accumulation ground rules and constraints (hopefully to avoid premature accumulation which typically requires ‘more’ (personal financial Viagra that disappoints or for the alternative complementary devotees Extends which financially typically less-ends.)

Unfortunately, the nomenclature for most typical asset accumulation ground rules/ constraints is the word ‘risk’ and secondarily a description of what the asset provides. (As to the latter, there is only so much juice in an orange – which will be the metaphor relative to these factors in the discussion of retrofitting.

“Risk Ground Rules”

Per previous entries, I have defined risk as ‘not making the goal – the chance of not making the goal.’ That said the following considerations, which are either “prone” or “offset” in part or in total depending upon your defined parameters – become a basis for ground rules and are typically referred to in terms of risk:

· Inflation or Deflation Risk – fluctuation in purchasing power of assets and or income is a function of inflation or deflation. For example, in general, cash’s purchasing power is eroded in inflation while increases in purchasing power in deflation

· Systemic Risk - occurs when the failure of one party to meet a financial obligation causes others to also not be able to meet obligations. For example, a person who purchase a home for investment purposes may depend on rental income to make the mortgage payments. If the tenant is unable to pay the rent, the home owner in turn may not be able to make the mortgage payment. A more recent example: you pay make your mortgage month in and month out, year in and year out, and you wind up paying your deadbeat neighbor’s mortgage through government bailout due to Barney Frank, Chris Dodds, Andrew Cuomo and Bill Clinton’s Fannie Mae& Fredie Mac policies making renters into owners who could not afford the mortgage and default impacting the value of your house as well!

· Interest Rate Risk – the value of an investment goes up or down with interest rate changes. For example, there is an inverse relationship of bonds to interest rates. When interest rates go down, bonds typically go up and vice versa.

· Liquidity Risk – the potential that one will not be able to sell the investment quickly enough or in sufficient quantities because of selling options are limited often resulting in a dimunition of value of the investment at the time. See forced sale.

· Market Risk – market risk exposes our intangible assets (stocks, bonds, and alternative investments trades as stocks) to the fluctuation of the market and potential capital depletion or appreciation

· Market Timing Risk – attempting to time market movements, investors ‘risk’ being out of the best markets and going into the worst markets

· Reinvestment Risk – that risk that market interest rates/dividend rates have decreased at the time payments/dividends/interest from an investment are received. The investor will be forced to reinvest his or her payment amount at a time when rates are not as favorable as they may have been previously

· Repayment (Credit) Risk – chance that a borrower will not repay an obligation

· Monetary Risk – the value of currency declining

· Political Risk – the possibility of nationalization or other unfavorable governmental actions or Obama being reelected.


· Divorce Risk – the up to 50% risk of first marriage dissolution, and 70% of second marriages dissolution causing capital depletion (see previous section on asset protection)

Offsets & Prone

I’d advise you to make three spread sheets consisting per each objective the assets dedicated to the objective running down the column vertically and across two columns for each risk – the amount of the asset ‘prone’ (to that risk), and the adjacent column ‘offseting’ amount (if applicable). For example, the amount of a $200,000 position in intermediate bonds prone to interest rate risk may be $200,000 with no offset. However, the same $200,000 invested in short term bonds (1-2 years) one might say is but $100,000. Relative to deflation risk, the same $200,000 in intermediate bonds (assuming high quality) might be put in as $200,000 offsetting deflation risk whereas if the intermediate bonds were junk quality – maybe the number is $50,000. The net effect, inflation risk – prone versus offset should be divided by the total value of the objective’s portfolio value as a percentage. This analysis should be run three times:
· First baseline relative to each risk if you do nothing per the objective
· Second, what the prone to offset should look like ideally
· Third, after you retrofit your portfolio per objective what each risk would look like (prone to offset) to make tradeoffs between the requirements of the goal and you concern for the risk –prone/offset ratio.

Next: Ground Rules & Constraints – Asset Accumulation: Part II Retrofitting
(The Tease: Most people’s portfolios consist of what they have been sold – not what they have bought)

Monday, October 11, 2010

Ground Rules & Constraints – Part I: Asset Protection

Though my practice was overwhelmingly dealmakers (energy, cable, and real estate), I had one client, an heiress to quite a large position in a publically held oil refiner. Yes, she wanted to be passively financially independent of her large position, without selling a portion of this position – it wasn’t possible.

Thus, not selling any of the stock in this oil refiner became a ‘ground rule / a constraint’ on her personal financial life planning goal of passive financial independence regardless of my mantra ‘an asset is just an asset is just an asset, we manage personal financial life goals not assets’ nor fall in love with the asset.

Another client who bought into Enough – needed his financial Vegas fix. No he didn’t go to Las Vegas but he had a need to speculate. Thus, with a portion over and above Enough as defined, together we recognized what he called ‘his need for speed’ into his Las Vegas fund (which he could afford to lose – and did). Again, another constraint/ground rule that had to be recognized in planning.

Then there is the ‘world is coming to an end, everything should be safe, liquid but I still need to make 15%’ type client. I referred this individual to another planner as there was no way – enough would have been enough as he was a Worry Butt on Steroids.

In Management by Objective terms, there are four Effectiveness Areas (EA) in personal financial life planning:

· Asset Protection · Asset Accumulation · Income Conservation · Asset Conservation
Asset Protection – Addition by Capital Depletion Subtraction!!

Asset protection is typically about capital depletion due to:

· Health/Illness
· Property & Casualty loss
· Liability
· Disability
· Long Term Care Needs
· (Some would include Divorce)

Examples of Ground Rules on Asset Protection (which typically involves shifting risk (large losses – capital depletion) via insurance in return for taking a small loss (premiums & minimum self insurance- deductibles, stop losses, company financial rating, complaint ratio etc.)):

· Health Coverage
1. Deductible
2. Stop loss
3. catastrophic coverage

· Vitamins – “supplemental health insurance!”

· Homeowner Coverage –
1. deductible
2. full replacement value of structure
3. full replacement value of contents
4. replacement value by ordinance (check your policy most don’t have this – and specifics are beyond the scope of this writing
5. underlying liability coverage

· Automobile –
1. deductible
2. collision
3. comprehensive coverage
4. liability coverage

· Liability –
1. underlying coverages on home and auto
2. preferably a blanket excess liability on top of the underlying liability coverage
3. a separate flood insurance policy where applicable
4. where applicable Director’s & Officers insurance as well as Malpractice Insurance .

· Disability Coverage (income replacement due to disability – remember you are the working active asset creating asset accumulation etc until the goals are funded).
1. Loss of income upon partial and or total disability
2. wait period would be chosen before the benefit kicks in
3. inflation rider
4. (Social Security offset is again another subject)
5. coverage to age (65 – lifetime?)

· Long Term Care Coverage
1. Qualification (number of ADL’s activities of daily living out of 6 to qualify,
2. home health care coverage,
3. wait period, coverage years (or lifetime)

· Divorce Insurance – prenuptials, post nuptials – please no Sleepless in Seattle clap trap when 50% of first marriages result in divorce and 70% of second marriages. This is ASS-et protection. You have wills and trusts for contingent events (death) - and I never heard a spouse against those contingencies - why not prenupts, post nuptials. PS you can always change the pre and post nupts later if desired.

The point of the above is illustrative of ground rule/constraint concepts in the asset protection effectiveness area all of which are intended to minimize capital depletion (addition by reducing capital subtraction!) to allow asset accumulation and asset conservation.

Tuesday, October 5, 2010

THE WORRY BUTTS© aka Getting’ To The Bottom of the ‘But-t’

aka Getting’ To The Bottom of the ‘But-t’

You’re really a smart person….BUT
There is another …. BUT
I know I should have told you… BUT
You’ll always be special … BUT
Don’t be offended…. BUT
Different Times with Different Lines, by Jim Schwartz, 1971, Denver University Clarion

Confession: the above was written when I was a rationalizing testosterone driven BUTT HEAD of 19 or 20 trying to ‘win the affections’ (euphemism) of Wendy L. (And to answer the question, no, I didn’t ‘bag the babe’ - there was no shtuppee, whoopee and thank God, no chuppie.) (1)

Testostorone driven But-t Headedness is excusable for 19-20 year olds, however, after 20+ years in practice as a fee only personal financial life planner and an additional 16 years of writing etc in the area, I have a BUTinski Schwartzism © relative to BUTs:

When BUT #1 is fixed BUT #2 is promoted by the Butt Heads”

Oh, yes, as we grow older our “but’s” are more sophisticated with a little song, a little dance, a little seltzer down the pants – with a repertoire of excuses rivaling the yellow pages.
Why is there one but after another but after another in personal financial life planning?

Here’s an interesting personal financial life planning ‘But’ cascade:
· But, I don’t have ‘enough’
· I have ‘enough’ but I need a cushion
· I have enough and a cushion – the means to the end but I need to move the ends apart

Buts escalate even with ‘more and more’ money and resources.
· But Obama could reinflate the currency
· But I could have a bad year (even though I’m the last ice man)
· But What if the water is cut off?

There is no rest for the WORRY BUTT’s but’s – only but promotions. They just escalate exposing the underlying fear which despite the above sarcasm is very real and haunting.
And what is that underlying fear?

The fear of physical extinction (which we identify as ourselves) due to:

· The lack of faith in trust in God (or a higher power)
· The lack of faith in our own proven adaptability and resourcefulness overcoming past difficulties and challenges

No wonder the push for certainty, permanence, continuity stirred and shaken (olives optional) with a chaser of the dreaded secondary fear of being beholden. No wonder the BUTTressing- one BUTT after another BUT-T.

An exercise:

Suggestion: In one column, write down difficult times and challenges and in the other column write how you correspondingly overcame the problem, worry, difficulty, challenge. Then read the sheet in total – reduce it to size and stick it in your wallet for when the next WORRY BUTT wave hits.
(You may even be impressed with your own adaptability and resourcefulness – which earned the necessary current currency and or other resources to overcome the past WORRY BUTTs).

Oh, yes, I know, you’ll say:
· (But) That was then, this is now
· (But) I don’t have the same energy
· (But) I’m older now
· (But) This is different…BUT, BUT, BUT

The point is you have, you did overcome as the track record of the exercise proves, yet still WORRY BUTTs rarely give themselves credit for the evidence of meeting and beating these past challenges.

How come?

Because of the ‘if they only knew(s)’

The ‘if they only knew(s)’ is the deep down belief in being an imposter – derived from the conviction/ironically faith in one’s lacks (lack-tose intolerances) when one scratches underneath the bravado, Gucci and Rolex..
And so it goes, BUTT-er Cups (really only BUTT-er Flavoring).

The fact is we are not self sufficient regardless of personal financial resources. Today’s current currency is tomorrow’s money in a wheel barrow. Unfortunately, especially in an industrial and post industrial society with increased specialization – we need other people.
But if you remember to take out the above reduced piece of paper with the above exercise on it, you might just minimize the anxiety, the buts, and the pain in the butt. You might even remember from those difficult times, you were adaptable and resourceful such that no matter what the current currency – you have adjusted. (This is BUTT management (Preparation BUTT) not BUTT cure ).
Even better yet, I believe, is trust and faith in God to provide strength for one’s latent and or minimized adaptability or resourcefulness to manifest. I am reminded what The Rebbe (2) said relative to health, ‘listen to the doctors instructions, but one’s fate is in Hashem’s hands.’ We have more faith in the dollar or euro (the current currency) than we have in The ‘Everlasting’ Currency.

Of course, you could say all the above is projection. We do teach what we need to learn ourselves, BUTT-er Cups.

As a Rabbi once said, ‘you don’t get rid of Shtick (3), you manage it.’
ENOUGH said. Don't BuTT-er me UP?

1.-Chuppah – The Jewish wedding canopy, that is, the cloth under which the Jewish wedding cere-money is conducted.
2.- The Lubavitcher Rebbe, Rabbi Menachem Mendel Schneerson
3.- Shtick – a contrived gesture or routine done by anyone, often an actor or comedian i.e. my baseball cards for business cards etc.

Wednesday, September 29, 2010

Rat-e of Return & Me Inflation

It’s not how much you make, but how much you keep after tax, after ‘me inflation’ (or ‘me deflation) (1), risk adjusted (with the least nerve racking fluctuation ‘volatility’) to make each particular personal financial life goal.

The rest, as Rabbi Hillel would say, ‘is commentary. Go study.’

Instead, be it for external comparative validation or just ‘let me cut off my brother’s head so I can be taller,’ joining the Rat-e of Return race is for rats.
Inflation or better termed ‘me inflation’ (of deflation -me deflation) differs with each goal, your income status, and age in life cycle) ll as ‘me deflation.’
Do you really give a rat’es ass to beat the Dow if you meet your goal – and with less volatility? If yes, why- and take a minute to call your shrinks, others talk to yourself and kvell.

After Tax Rate/Rape of Return

As of today, the maximum long term capital gains and dividend tax rate is 15% (assuming you are not into the alternative minimum tax). The maximum marginal income tax rate on wages, short term gains, interest and other ordinary income (not sheltered by depreciation, depletion etc.) is not just 36% but closer to 38%+ given phase out of certain deductions at specified adjusted gross income precipices.
State taxes aside, on the same 10% gross rate of return before taxes, long term capital gains nets 8.5% whereas wages, interest, short term gains at the maximum rate nets 6.4% to 6.6% a 22%-24% net after tax difference in rate of return. (Discussions of the advisability of taxing capital and passive income sources differently than income is an aside. However, remember, long term capital gains and dividend preferred taxation – is not preferential – as there is double taxation involving these sources.)

Inflation adjusted Rate of Return

I gotta be me, I gotta be me, who else can I be than what I am?
Sammy Davis, Jr. “I Gotta Be Me”

Now let’s assume in the above example of 10% gross rate of return, 8.5% after tax return if derived from long term capital gains and dividends, 6.4% if derived from other sources of income, general inflation is 3%. The net rate of return drops respectively to 5.5% and 3.4%.
But WAIT, as the infomercials implore us – inflation is not inflation is not inflation. One’s inflation rate is dependent on:

· income level,
· where you are in the life cycle
· the particular goal in question

Thus, each of us has an overall ‘me inflation’ overall as well as a ‘me inflation’ relative to each goal.
A 60 year old married couple making $150,000 with their kids college education costs out of the way (and the kids finally having self supporting jobs after too long of a boomerang back to their house and food ticket) and no longer with mortgage or those durable good purchases facing them – has an overall ‘me inflation’ rate different than even a 30 year old married couple making $150,000 with two kids, saving for college, with a mortgage, and paying off student loans.
If the consumer price index of inflation is 3% overall, the overall ‘me inflation’ might be 1% (except for health insurance) for the 60 year old couple but 5%+ for 30 year olds!
More importantly, me inflation differs per goal.
Higher education costs (personal financial ebola because it cannibalizes, castrates and or defers the work free retirement due primarily to tenured unaccountable condescending Scholar Barons on the Honor Dole – another discussion) has been running 250% to as high as 400% over the consumer price index of inflation. Long term care costs (nursing homes, assisted home care) has even exceeded the education ‘me inflation’ rate – compounding at one point by over 9% (400% over inflation in some recent years.)
Back to our example of 5.5% and 3.4% after tax:
Given a higher education ‘me inflation’ rate of 6% - there would be a negative after tax after inflation rate of -.5% to -2.6% given the income is derived from ordinary sources (wages, interest, ordinary income, short term gains).
Isn’t that comforting, Bunkie, as you write out those tuition checks and wonder will you be a greeter at Walmart to make ends meet?

For whom does the inflation rate bell toll?
For ‘Thee’s Inflation’ (per goal) – not The Inflation.

Risk Adjusted After Tax After Inflation Rate of Return

That’s okay in practice but how doe it work in theory?
The French

Reality, not theory, is that it is volatility/fluctuation which is equated with risk (be it measurements such as beta, standard deviation etc.).
And fluctuation/volatility is nerve racking on the downside to most.
We have a risk capacity and it is related to:

· fluctuation (volatility) which rightly or wrongly becomes synonymous with ‘risk’
· the proximity to the timing of the goal – the closer to the objective the lower the risk capacity

In theory, risk capacity should be related to probability(P) and magnitude (M) or (PxM) but in reality, those are just words when the fluctuation hits the fans.

Nothing kills rates of return – on the ground, in the trenches – than fluctuation. Proof: Dalbar’s study of investor rates of return versus the S&P showed that the average equity investor earned 1.87%/yr. (overall inflation during the period was 2.89% a year) which the S&P index averaged 8.35%. The average bond investor earned .77% versus 7.43% for the index during the same period.
Furthermore, the rate of return of investors in mutual funds has lagged the rate of return of the mutual funds they are invested in.
The reason: investment returns are far more dependent on investor behavior than the fund/index performance. Thus: risk capacity is a behavioral function.
And people (especially those without a grip on the after tax, after inflation, risk adjusted required rate of return they need to meet the goal) regardless of their chest pounding bravado about their ‘risk tolerance’ hate fluctuation/volatility and equate it with loss. (And remember risk is really the chance/probability of not making the goal!)

So what do – recognizing fluctuation is a risk proxy in reality and remembering ‘the flaw of averages’ and ‘Monte Carlo probability analysis’ from previous sections?
In light of the fluctuation/risk equivalency (rational or not), beta – better yet ‘return on beta’ is a useful tool (1)

Beta, a measure of volatility, is the ratio of a stock or mutual fund’s fluctuation compared to an appropriate benchmark index (i.e. the S&P 500).
Let’s say you require after tax, after inflation, a 4% real rate of return (pretax rate of return 10%, after tax 8% and after inflation 4% yielding a 4% real rate of return). Now Mutual Fund A which you are considering had a rate of return, for argument’s sake, of 12% with a ‘beta’ of 50% when the market was up 12%! The return on beta is 24% (12%/.5%). You would have made 12% (all things being equal) with ‘half the volatility/risk’ of the index (in this case representing the US Stock Market). Goal for the year accomplished after tax, after inflation risk adjusted (12%x.8 tax rate ((inverse of tax rate of 20%))-inflation 4% = 5.6%. The risk adjusted return on beta after tax and inflation is 11.2%!
Fund B, in the same year, did 24% outperforming the index by 12% and made the goal after tax, and after inflation (24%*.8 ((inverse of tax rate)) -4% = 15.2% outperforming fund A. But did it when considering volatility/risk? Given a 300% beta, the rate of return after tax and inflation is 15.2% outperforms the index and fund A. But then when the after tax after inflation rate of return has beta applied the 15.2% becomes 5.06%. Now think, if instead of 24%, the rate of return, the return for Fund B was 16% with a 300% beta – the rate of return on beta becomes 2.93%. Thus, the goal adjusted for ‘risk’ is not made.
Is the heartburn worth it?
More demonstrable is applying rate of return on beta to the gross rates of return. At 12%, Fund A had a return on beta of 24% (24%/.5) whereas Fund B had a return on beta of 8% (24%/3.00).

However, none of this return on beta matters – if the rate of return after tax and inflation isn’t met – given the same present funding levels of the goal per year..
Please remember, return on beta is just a financial tool – and unlike Sears Craftsman tools, it does not come with a lifetime guarantee.

Now could there be an instance where, despite a lower return on beta, one can go for the higher rate of return? Yes (though typically not advised) where the client has a low personal beta.
What the heck is a personal beta?
A gastroenterologist’s income is more stable – varying little with the economy (though moreso with the increasing or decreasing demographic of 50 years old+ individuals who will require colonoscopies every 5 or 10 years. (It is reputed that gastroenterologists believe they are in a ‘sh*tty business’ and ‘love it.’). In contrast, a big ticket commercial real estate developers’ income have a high probability of varying widely with the economy. The gastroenterologists have a low personal betas from which income can more reliably go to fund their goals year in and year out in contrast to the big ticket commercial real estate developers whose income fluctuates (thus having a high personal beta) moreso with the general economy. As a result of the cushion of the low personal beta, the gastroenterologists have the cushion/tushion (though not advisable in most cases) to go for a higher nominal rate of return even if those investments result in a lower return on beta. The scenario for the gastroenterologists taking ‘higher risk’ for ‘greater nominal though lower return on beta’ returns would be that for some reason (divorce etc.) the gastroenteologists cannot maintain the funding level necessary in some year or two and the objective is 10+ years in the future.

Finally, the other risk measure is the probability of funding the goal. Some planners use 80%, others require 90% and still others 95% probability using Monte Carlo analysis previously discussed. Be aware that relative to asset accumulation goals (education, slow down, retirement etc.) the higher the probability required, the ‘more’ assets required (an Assets under Management compensation financial planner’s dream come true annuity). And even at the 95% probability level, there is the possibility of the Black Swan like in 2008.

Next: Constraints, Criteria & Other Ground Rules

(1) For purposes of this commentary, inflation is being assumed rather than the more rare over time deflation – spousal me deflation of one’s character and value is a different question
(2) others may prefer tools like standard deviation which asses the the extent to which a portfolio return differs from the mean. Still others like r2 or downside risk DVR measures.

Saturday, September 18, 2010

Temptation, More & Character

When the game is over, the king and the pawn go into the same box.
Italian Proverb

When the game of life is over, the only thing we take with us is our character.
Ironically, necessary for character building is tests (nes) in form of life temptations.

Temptation, however “presented,” manifests as ‘more, better and or now’ (1) as the ‘present situation’ is ‘not enough.’ If what we are and what we have was ‘enough,’ there would be no temptation nor would there be succumbing to temptation.

Ironically, temptation’s aim is not succumbing but rather it is an ally to character building – completing (shelemut) our incompletions.

Otherwise, without temptation how would character flaws, incompletions be limited, restricted or conquered?

Temptation is character’s foil or foil (down fall)

Consequently, temptation, manifested as ‘more,’ is both acculturated and hard wired. As a result, enough, be it ‘enough to live for, enough to live on,’ healing financial anxiety putting money in its place to proceed to significance – why I am, what I am meant to be do and be,’ is an uphill struggle, losing ‘more’ often than the Washington Generals lose to the Harlem Globetrotters, as there is never enough. Enough is futile though not delusional.

“As soon as you win the fight for hotdogs, they want hamburger, and after they get
hamburger, they want steak”
Saul Alinsky (yes, Saul Alinsky, my conservative friends as he has been mischaracterized)

The insatiability for more is originates from the fear of bodily physical extinction (identified as oneself) which germinates the delusional strategy of acquisition (Cain in Hebrew – yes, Cain – means acquisition). Thus Temptations (2) manifest one way or another) as more, better, now (not enough). Though temptation is the parasite we are the hosts.

Character pawn of a king, foil or foiled character – that is man’s work this year and every year relative to the his entry into the Book of Life on Yom Kippur.

(1)- more, better, now typically, in time, becomes ‘less, worse, later.’
(2) – on stage next: The Four Tops – sloth, anger, gluttony & pride

PS The above is why Enough (enough to live on; enough to live for) is a struggle

Thursday, September 16, 2010

Correction 9/15/10 Blog

see correction in bold

Personal Financial Life Planning RISK (Part B – Monte Carlo Analysis) – Part III Setting A Personal Financial Life Goal

If the Platte River an average depth of 3’ deep, most people over 3’ tall should be able to walk across without drowning. However, at some points, the Platte River is but 2” and other points 20’, so even Wilt Chamberlain would drown at the 20’ depth.

Wednesday, September 15, 2010

Personal Financial Life Planning RISK (Part B – Monte Carlo Analysis) – Part III Setting A Personal Financial Life Goal

If the Platte River an average depth of 3’ deep, most people over 3’ tall should be able to walk across without drowning. However, at some points, the Platte River is but 2” and other points 20’, so even Wilt Chamberlain would drown at the 2’ depth.
Thus, the average rate of return - The FLAW of AVERAGES – applied to personal financial life objective(s) is very ‘risky’ business – ironically increasing the risk that you won’t make your personal financial life objective(s).

Yet, average rate of return is still the employed by many financial planners, and cpas. Worse is that average rate of return is the predominant measure employed by actuaries determining the adequacy or inadequacy of public employees’ pension funds understated by multiple billions. (What does this mean to you? Higher taxes but that’s another story with the actuaries and politicians foolishly trying to obfuscate or defend average rate of return with accepted state of the art horse pucky. As one former Colorado Union official stated to me to paraphrase, “PERA (the Public Employee Retirement Association) funding is the nuclear bomb on the State of Colorado Finances.” And that statement was just on the underfunding using an ‘average rate of return.’

It is the sequence of the rate of returns that matter – not the average rate of return!

An example per Dr. Sam Savage’s Flaw of Averages.

“ Suppose you want your $200,000 retirement fund invested in the Standard & Poor's 500 index to last 20 years. How much can you withdraw per year? The return of the S&P has varied over the years but has averaged about 14 percent per year since its inception in 1952. You use an annuity workbook in your spreadsheet that requires an initial amount ($200,000) and a growth rate for the fund. "I need a number," you say to yourself, so you plug in 14 percent. Now you can play with the annual withdrawal amount until your money lasts exactly 20 years. If you do this you will be pleased to find that you can withdraw $32,000 per year.”

At the end of 20 years using the 14% average rate of return, your capital would be exhausted and the investment finished.
Here’s the rub – REALITY IS NOT AVERAGE RATES OF RETURN. Rates of return are volatile – they fluctuate – they are not smooth like Original Skippy Peanut Butter – but are chunky and can wipe out your duration in a JIF.
Given real market rates of return starting in the following years, here is how long the $200,000 would last:.

1973 – out of money in 8 years
1974 - capital intact despite 20 years of payouts at the end of 20 years
1975 - out of money after 13 years
1976 - capital exhausted in 10 years

How come?
The Dow Jones was 1020 at the beginning of 1973 but by the end of 1974 it was 616 or a 40% decline whereas by the end of 1975 having invested in 1974 the Dow Jones when the Dow was 616 was up 38% to 852!

In rate of return and the probability of making the goal, its SEQUENCE, SEQUENCE, SEQUENCE!

It’s the sequence of rate of returns NOT average rate of return!

Beware of averages alone – except in Lake Woebegone – or your personal financial life goal will woe be gone.

Therefore, employing average rates of return, alone, is RISKY and deluding. (Again, Risk is defined as the whether you make the goal or not per PART A. At a gut level: RISK is the danger of not making the goal – the failure to achieve the goal causing negative consequences.)

Okay, what then is an additional standard metric to employ besides ‘average rate of return’ and it’s flaws?

Monte Carlo Modeling.

Simply stated, Monte Carlo Analysis (which goes back to the Manhattan Project) models multiple (often many thousands) alternatives to come up with the probability (as stated as a percentage) of making one’s goal.
Thus: given w amount of resources, deployed in x allocation (% of stocks, bonds, cash etc) for y period of time, at Z payment per year, a existing asset level of assets, beginning in b etc – what is the probability of making the goal?
It should be noted that Monte Carlo Analysis did not save clients and their planners from the financial meltdown ‘black swan’ recently where 15 of 16 asset classes declined. Monte Carlo gives probability not certainty. It also should be noted that Monte Carlo, which typically requires a larger if not much larger funding level to achieve the goal, is an AUM financial planner’s dream of increased fees.

If all you know is a hammer, everything will look like a nail
Dr. Abraham Maslow

What is an AUM financial planner?
The compensation for this financial planner is based to assets under management. Thus, the “more” assets under management the “more”, he or she gets paid.
There is an inherent conflict between this type of compensation and it conflicts with the concept of Enough which is based achieving the financial goal with the less risk possible. The conflict occurs where the goal can be still be reached at a lower rate of return with the trade off being less risk (risk of not making the goal!). Thus, AUM planners inherently are MOREons though their pat answer would be ‘if we aren’t making the goal, we’d be fired – which serves as a check and balance.’ However, offsetting this response is AUM tends to make the goal relative to an external comparison – ‘how did I do versus the Dow Jones, the S&P, etc.’ rather than the internal goal!
There are good reasons and real reasons. Increased compensation – consciously or unconsciously – is the real reason – for the AUM compensation model (the hammer) with too many clients getting ‘nailed.’

(On a continuum of commission/transaction financial planners and flat fee, bracketed or hourly financial planners, I consider the AUM planner’s compensation a faux fee only planning or fee only planning not lite.)

In any event, Monte Carlo most likely will require additional assets under management therefore I prefer the assistance of a fee only planner who charges a flat fee, an hourly, or a bracketed fee (no less than, no more than based to an hourly but capped).
In summation, relative to making the goal, not running a Monte Carlo analysis, regardless of it’s windfall to AUM financial planners, would be close to malpractice – which is exactly what state governments like Colorado are doing which will wind up costing taxpayers and harming your personal financial funding. How? They plans which are underfunded on the ‘flaw of averages’ are way way way understated – in worse shape given monte carlo analysis. To get to the 90% or 95% funding level would require some or all of the following (assuming an actuarial emergency gets the states out of their locked in obligations):
· Increase in taxes or lowering of services
· Increase in bonds from the state – lowering credit rating, paying higher interest from general funds thus lowering services unless there is an increase in taxes
· Additional state and or employee contributions – again increasing or lowering services

Remembering it is not what you make but what you keep, if state taxes go up, your net rate of return goes down. You will then either have to increase your contribution to the goal and or increase the risk (really volatility of rate of return and remember ‘sequence, sequence, sequence’) to get a higher rate of return or lower the amount of the goal and or its start and duration.

Here is the effect of a .5% net increase in state tax rate on the growth of $100,000 for 20 years (7% net versus 8% net – inflation is not taken into account for this example) in reducing your assets:
8% grows to $466, 100
7.5% grows to $424,800

Thank the politicians (who are members of the state pension plans) for costing your goal $42,000…EVEN USING AVERAGE RATE OF RETURN!

State underfunding of employee/politician pensions, the personal financial ebola of higher education costs paying for Scholar Barons on tenure, and long term health care costs converge to cannibalize assets that otherwise would go to funding your goals and requiring less volatility, resulting in the delay or reduction of the goal or worse taking on more volatile ‘risky’ assets even illiquid assets – to meet the goal.

Tuesday, September 7, 2010

Personal Financial Life Planning RISK (Part A) – Part III Setting A Personal Financial Life Goal

Man seeks certainty, permanence, and continuity yet there is no fruit unless one goes out on the limb

Before elaborating on rate of return or even risk adjusted rate of return, lets deal with the question of risk

The following are definitions or ‘risk’:

· A Four Letter Word
· A Game by Parker Brothers (also makers of Sorry)
· Downside Volatility (Fluctuation) (1)
· Hazard or Peril
· Loss of Capital/ Principle Loss
· Beta, Standard Deviation, R2 and other financial measures/metrics/standards (2)
· Types: interest rate, political, inflation, longevity, deflation, credit, liquidity, currency, market, getting caught with your spouse’s best friend, etc.
· Probability/chance
· Gambling
· Being Wrong according to your insignificant other/spouse (correction: this is not a definition of risk but certainty!)

From the perspective of ENOUGH, all the above definitions of risk, whether qualitative or quantitative, are incorrect.

RISK is whether you make the goal or not.

The rest is commentary (i.e. probability of making the goal, return on beta etc.)

At a gut level: RISK is the danger of not making the goal – the failure to achieve the goal causing negative consequences.

Translating this definition to the most common fear (spoken or unspoken): risk is the fear of outliving one’s resources at retirement (and thus being dependent & or beholden).

(When I was in practice, when prioritizing personal financial life goals with clients, it has been my experience that the ranking of income replacement upon disability initially is ranked very low. However, then I employed an exercise for reprioritization. On one side of the page, the client would put his personal financial goals on one side (i.e slow down, retirement, education for kids, income replacement upon disability, income adequacy for spouse upon either’s passing etc.) Then on the other side of the page, I would have then write next to each goal what they would LOSE if the goal was not achieved. In the case of income replacement upon disability, most would write ‘being dependent, being beholden’ and some ‘having to take from my kids.’ When each goal was translated into the underlying value, they would re-rank the goal with the value attached. The re prioritization upon re-ranking with values were typically significant with income replacement upon disability always rising!
Try this exercise – but don’t if you are just going to lie to yourself.)

As am precocious child, I would play checkers with my Poppi. Often, he would let me jump one of his checkers only to find out it was a set up for him to take three of mine.

It is risky to sacrifice (risk a goal) what you have for what you don’t have – unless it is to reach a higher priority goal. Otherwise, Poppi Schwartz is just setting you up.
Besides, in the end, the king and the pawn (or checkers) all go in the same box.

Now there is a distinction between risk and uncertainty. Though I prefer to define risk as the danger of not making the goal in relationship to uncertainty (and there is a difference), author Frank Knight, makes the following distinction: risk has an unknown outcome, but we know what the underlying outcome distribution (of outcomes/results) looks like. Uncertainty also implies an unknown outcome, and we don't know what the underlying distribution looks like.

Insurers accept the risks with exclusions, don’t insure certainty except death, and fight uncertainty trying to establish it was not covered by the policy.

The risk of making a goal can often be quantified and dealt with. But planning for uncertainty, the black swan, is highly doubtful. Of the 16 asset classes during the last financial meltdown, only one, treasuries, increased during the crash.
So why didn’t one market time? Well, the probability of successful market timing over time, studies have shown is less than .00000004 whatever amount of zeros. In the ‘90’s the Dow was up something like 16% per year but if you missed the top 15 or 20 days your annual rate of return was in the 5% area.
So risk is either we make the goal or not. The probability of achieving the goal will be dealt with in greater detail next week in Risk (Part B – Monte Carlo Analysis) Part III Setting A Personal Financial Life Goal

Insurance is the transference of risk (hazard in this context). In return for transferring the risk of a large loss, one pays premiums (a small loss). Thus one substitutes a small loss to avoid a large loss.
When we seek a rate of return, after tax, that is greater than necessary to make the goal taking on riskier assets (whether for external validation, locker room bravado material, a thrill down their Chris Matthews leg, or whatever), we are increasing the probability of not making the goal. In doing so, one in seeking More potentially is sacrificing Enough – which makes one a MOREon.
Sacrificing what you need for what you don’t need – now that’s Risky Business without Tom Cruise in white socks.

And Schwartz Poppi would call you a nudnick.

Risk of not making a goal is interactive with achievement or non achievement of other goals.

For example, for whatever reason, your retirement goal is not funded as of yet. However, due to health reasons and vocational reasons, you are unable to secure good disability coverage (or what I would prefer to call income replacement upon illness or accident due to partial or full disability to avoid capital depletion).
Without your earnings if disabled, there is no retirement goal funded to your desires.

Thus, you would have to self insure the risk to the goal (or find employment where there is disability insurance on a guaranteed issue basis – but let’s stipulate that that option, marrying rich, nor getting a large inheritance are out of the question as well as getting social security disability payments as you are merely partially disabled).

All of a sudden, the risk/probability of not making the income adequacy upon partial disability impacts the rate of return you may get for your retirement or slow down prior to retirement goal.


You may make the decision that you’ll need two to three years of cash flow that is not subject to the volatility/fluctuation of the stock market or illiquid assets you hold because you can’t transfer this partial disability risk through insurance.
The effect may be starting the retirement or slow down period later (decreasing the duration of those goals.)

The point is – the amount of the goal, the duration of the goal, and risk are once again all interrelated.
You pull on the string on the sleeve on the sweater and sometimes the neck bent out of shape..

And that’s what happens when you play chicken (more, more, more) with your goals.

(1) Fluctuation/volatility is confused with the risk as defined as loss of capital. Fluctuation isn’t loss of capital
(2) The problem with beta, standard deviation, r2 is they begin with a reference point instead of what worries the investor most

Next: Risk (Part B – Monte Carlo Analysis) Part III Setting A Personal Financial Life Goal

Sunday, August 29, 2010

Cutting The Mustard: Beholden & enough

Why is a poor man like a dead man? He does not make a ‘living’ (chiyut) on his own, while the living sustain themselves and do not require the help of others. Since a poor man does not sustain himself, he is not considered among the living
Gur Arye, Ex. 4:19

Proverbs 15:27 states, “he who dislikes gifts shall live” meaning that he who disdains living off others has his own living (chiyut).

No wonder we hate being beholden (obligated, dependent, indebted) and value self sufficiency (enough – FU**ability©) and admire those who are independent, not bound, and those who have pulled themselves up by the bootstraps. Yet, while we value rugged individualism, being social beings and not being self sufficient necessitates a division of labor and mutual need.

Cutting the mustard = to do what is needed, live up to expectations

Not being ‘beholden’ conflicts with the need of others but can be ameliorated by payment and or contribution (cutting the mustard).

However, when one can no longer cut the mustard, even if he or she has accumulated sufficient resources to make payment for premium ingredient Grey Poupon, there is still that feeling of being ‘the poor man’ (using French’s) and not living.

As a personal financial life planner, I have seen over and over again those who are not financially beholden, sacrifice their ‘living” for fear that they no longer can Cut The Mustard (despite having 50 years of Grey Poupon accumulated)! Worse, some of these individuals will deplete the shelves of their Grey Poupon (sacrificing ‘enough’ even FU**ability©) supposedly in the name of contribution or even ‘needing more.’ Why? Not being able to ‘cut the mustard’ now means to be poor, dying and or dead.

So as not to be dead, beholden, poor – we put at risk & jeopardy enough & FU**ability© – all for the want of a condiment. (1)

(1) Guirjeff’s Law of 7: That which we intend becomes it’s exact opposite in time.

Wednesday, August 25, 2010

Schwartzing #1 Insurance & Res. Real Estate (Your Home) Is Not An Investment


(Schwartzing is basically - "I don't have time for nonsense. He's my thoughts & opinion (usually it is to a person who isn't looking for an information or opinion though they say otherwise - but ratification only or having someone to blame if their own choice doesn't work out) -

INSURANCE = substituting a small loss (premium) to avoid a large loss -IT IS NOT AN INVESTMENT - INSURANCE IS A TRANSFERENCE OF RISK - PERIOD.





AND THAT' A SCHWARTZING - go wash you hands

Thursday, August 19, 2010

Up OR Down (More): Up AND Down (Enough) + A Torah Goes To The Movies 'UP'

Up OR Down (More): Up AND Down (Enough)

Did it (the stock, the bond, etc) go Up OR Down?’ is the game of More. In contrast, Enough is concerned with Up AND Down relative to the goal.

· More is outside in relative to an external scoreboard; Enough is inside out – internally comparative.
· More is concerned with the Dow Jones whereas Enough is interested relative to progress toward or maintenance of a goal.
· More is ‘more, better, now’ which usually becomes ‘less, worse, and later’
· More is never ending as there is never Enough.

Societial external validation of worthiness, compounds the anxiety inducing Ups OR Downs of More. Then add for good measure the fear of not having Enough, and More becomes a hardwired almost instinctual autopilot. The More Up or Down result: - upsy daisy - upended.
And that’s the MOREal (‘upshot’) of the story – ‘enough’ to make one Up-chuck.

Up OR Down = More (Moreon Behavior)
Up AND Down = is achieving Enough – regardless.

And now an Encore Presentation of an UPPER (Fixer UPPER)

Up – Paradise Falls – Lost and Found: A Torah Goes To the Moves
By Uptrodden (1)

All lost; whole find
e.e. cummings

Up is two stories.
First there is the montage of the love between Carl and Ellie (from childhood where she attaches a grape soda bottle cap to his jacket signifying each other’s club membership) through the crushing weight Ellie’s passing with now 78 year old Carl being left behind to being crotchety and a curmudgeon in the Walter Matthau sense)
Set by Ellie predeceasing Carl, the second story, has Carl, now the homebody, pursuing his & Ellie’s lifelong dream of their youth: an adventure to South America’s “Paradise Falls” following the footsteps of famed explorer Charles Muntz.
In a last-ditch effort to save himself from becoming an inmate in a nursing home, homebody Carl harnesses thousands of helium balloons to his ‘abode,’ uprooting and literally takes flight to Paradise Falls (grape bottle cap still adorning his lapel)..

An underlying theme in Judaism (and Original Incompletion) is the cyclical circular process of down (descend) to go up (ascend) and up to go down. This process of our soul’s curriculum perfects oneself (Tikkun Atzmi) via developing one’s portion (chalik) thus completing one’s incompletions and meriting Teshuvah (return) to the world to come. (the hidden that awaits – temporally?). The metaphors for this up down, down up – comeuppance/uplifting – is often masked in tests (nes), choices, and dialectic tension masked symbolically between:
· clean/unclean,
· blocked,/unblocked (uprooting/uprighting),
· chamatz (‘uppity’ arrogance – puffed up /unleavened acknowledgment) and humility (balloon bursting - upchuck)
· light/darkness (down) – upsy daisy
(It should be noted that in ‘the perceived down’ can be an upshot revealing the concealed light if reframed properly – it’s a prism/prison refracting .)

There are three basic interpretations of the circular cyclical process:

· Down To Go Up -(descend) to (ascend) – (exile to redemption/deliverance) like the material (down) and spiritual (up) engaging in a process of dance spiritualizing the material, materializing the spiritual
· Uprising- ascension for descension. Man elevates first (ascend – up) for the spiritual to descend (come down) per the Tanya.
· Engagement – the material and the spiritual like the paraffin and the light of the candle INcounter (not old T groups) for illumination in a dialectic

May you have the strength to struggle with your dreams and when you fail, may you always fail forward
A Jewish Blessing (somewhat modified)

Carl, now with walker – an elevator on his stair, falls – forward ‘up’ward. Though his house is in good repair (Tikkun Bayit), the house has become his Egypt – comfortable though resigned memories and the adventure of his & Ellie’s youth unfinished. Rather than be taken to the nursing home, with the house affixed with the hundreds/thousands of helium filled balloons, Carl begins his Exodus from his Egypt (limitations) repairing himself (Tikkun Atzmi).
Carl’s mission: to finally fulfill the desired journey of his & Ellie’s childhood to “Paradise Falls” – ‘the promised adventureland.’
On this journey, Carl is accidentally accompanied by Russell, the Wildlife Adventure scout, who has a pursuit as well: his final ‘merit’ badge and recognition by his dad.

The pursuit for “Paradise Falls” reverses Carl’s Paradise Lost (Ellie) reigniting his candle. This quest also yields (hod) a kinship between Carl and Russell in part filling the hole in each other’s soul. (Carl’s caused by the loss of Ellie, and Russell’s levado (2) from absentee parents which no amount of merit badges fulfill). Carl and Russell, through their adventure, repairing a part of each other’s world – Tikkun Olam – inside out ).
The voyage to “Paradise Falls” is para-dicey with tests (nes – in Hebrew also means miracle) in Carl’s journey ‘upward’ Tikkun Atzmi (repairing perfecting oneself) (3)
Up, down, down Up.
Up, descend, ascend – to Paradise…Falls.

Not outward bound – but inward bound
The process of UpGrade:
Tikkun Atzmi, Tikkun Bayit, Tikkun Olam (inside out) completing one’s soul curriculum assignment.

The film concludes with Russell adorned with the grape soda top awarded by Carl.
And that’s the ‘merited’ badge.

“On ‘word, ’ & Upward – Olam Haba regained & Upheld: Upsy-daisy (4)

(1) Uptrodden has been my aol email name for 20+ years. As a fee only financial planner, I represented ‘the few, the proud, the rich, the former rich – The Uptrodden).
(2) Russell’s levado – the inability to share (symbolically) his merit badges with his dad.
(3) Note: there was no product placement for 7UP in this movie – though Refreshing & ‘the uncola’).
(4) No puns were harmed and all pun labor laws were complied with in the writing of this ‘screen’ play on words – The Punisher.