Bill Appears in U.S. News & World Report

On Monday, March 23rd, Bill was quoted in an article titled 7 Bad Investing Habits That Are Holding You Back by Kate Statler in U.S. News & World Report. Bill mentioned how comparing portfolio performance to the wrong benchmark (e.g., S&P 500) is inappropriate and harmful to your realized investment results.


ahoo Finance picked up the article which can be found at the link below: 


Be Prepared For a Call from an IRS Imposter

A client recently contacted me regarding a very frightening call she received from someone claiming to be from the IRS. They told her that she was facing jail time for fraud and tax evasion. Their tactics were very aggressive and intimidating and they insisted on her sending money immediately to avoid a variety of harsh consequences. This included threats of audits, property seizure, and arrest.  She is not alone. Since October 2013, 3,000 victims have reported losing more than $14 million to these telephone con artists.   


If you receive a similar phone call from the "IRS" stating you need to send money immediately, you are going to be arrested, or they are filing a lawsuit against you, this is a scam! Do not provide any personal or financial information. They will try to obtain your credit card or checking account information over the phone in order to settle "past-due taxes".  These crooks are taking advantage of our fear of the IRS during tax season and are aggressive, relentless, and ruthless. They will give a fake IRS badge number, they may know part of your Social Security number, and the caller ID may say "IRS". 


Therefore, as a reminder, if the IRS wants to contact you, they will mail a letter. Also, the IRS does not call (as a first attempt at contact), use unsolicited email, or text messages to discuss your personal tax issue.  If this happens to you, you should:

  • Notify me.
  • Google the phone number as many times posts will reveal if this phone number was being used in an IRS scam.
  • Call the number yourself and explain that you have read IRS and press warnings of fraudulent activity and ask for the name, badge number, and division of the caller.
  • Register your phone number with; all known "robo" callers, telemarketers, and scam sources will be blocked.
  • You can report it to the Treasury Inspector General for Tax Administration at 800-366-4484.
  • You can file a complaint using the FTC Complaint Assistant; choose "Other" and then "Imposter Scams". If the complaint involves someone impersonating the IRS, include the words "IRS Telephone Scam" in the notes.

Finally, talk to your elderly friends and relatives about this as they may be targeted and more trusting.  You can read more about these scams at the following link:



Three Steps to Your Ultimate Outcome

targetThe cartoon to the left is from Hugh MacLeod and is a nice New Year’s reminder to live in the moment but with a long-term plan in mind. When planning for the long-term THINK BIG as most people underestimate the changes that can occur over a 10-year time period. Just look back over the last 10 years and think about all of the changes you have experienced. Now, think about all the positive changes that can occur over the next ten years—and write them down.

However, don’t think in terms of numbers or checklist goals. Instead think about what your Ultimate Emotional Outcome (UEO) could be. For example, perhaps your UEO is to live with a feeling of financial security. Make this outcome emotionally powerful by taking time to imagine how it will feel to be financially secure. Image how your life is in 10 years with total financial security. Where are you living? Who are you surrounded by? What do you do each day? Focus on how this feels. Make this a fun and enjoyable process getting in touch with what is most important to you. Now, create an image (or find an actual image) that represents your UEO. Look at this picture in your mind each day adding another detail. Vivid images are more powerful and motivating. This should not be an intellectual exercise, but an emotional one. This is done by focusing on the feelings associated with your UEO.

Once you have your UEO, write down what it is and WHY it is so important to you. Why is this a must in your life?

Now with a UEO, and a WHY, you have the proper motivation and context to begin to develop annual and monthly GOALS. Goals are not fixed, but must be constantly set, changed, and renewed. Goals are tools to keep us moving in the right direction and to fill us with a sense of purpose and accomplishment. In our example, this may be an annual or monthly savings goal. Share these goals with an “accountability buddy” such as your spouse or a friend, mentor, or coach.


Ignore The Bouncing Balls

The Hardest Thing to Focus On

One of the hardest things for investors to focus on is the long-term. Instead, investors are very focused on the day/week/month/quarter, etc.  It is a "what have you done for me lately" outlook to investing. Looking at the table below, which numbers draw the attention? Naturally it is the short-term losses of the international asset classes. None of us are really investing for quick profits, or to avoid temporary losses in these asset classes are we? Instead, we only invest those dollars we don't currently need in order to capture the long-term returns from business growth (across all asset classes). In the short-term, sometimes those returns are realized in the U.S. stock market, and at times in emerging markets, and at others in bonds.  Investors just don't seem to focus on the long-term returns.


How do you define investment success?  If it is by always beating the market, never losing money, or by always picking winning investments, then not only are you in for disappointment, you are actually setting yourself up for poor long-term returns. Why? Because the desire to outperform results in investors over-paying for the false hope bottled by the investment sales industry. Or, the desire to outperform results in investors tinkering with the portfolios in a way that hurts performance.  Investment success is not about a quick profit (that is gambling); instead is about obtaining the highest long-term expected returns by managing investments based upon disciplined rules. Discipline does not involve reacting to news, feelings/hunches, or equations. I don't need to be happy with my portfolio returns each day. In fact, I don't even care which assets classes are doing well and which are not right now. I only care that I have built a portfolio with a high chance of a successful outcome in the long-term. How that is done is a topic for another newsletter. 


Bouncing Balls in an Elevator

My well built portfolio is made up of a variety of moving parts (i.e., asset classes) - U.S. stocks, international value stocks, emerging markets, global bonds, investment grade bonds, cash, etc.  These parts are moving in different directions at the same time. Think of these asset classes as bouncing super balls in an elevator. At any one moment, there is no predicting which way each ball will bounce. If you are in the elevator moving up, all you see and feel is chaos in that elevator. However, YOU and your elevator car (which represents your entire portfolio) are still moving up over time. Yes, you will feel the chaos of the balls bouncing, and you will even stop at different floors on your way up. However, in the long-run, you know you will reach the top! What is amazing is that almost all investors have their eyes on the bouncing balls and never on the top floor of the building.


Which Bouncing Ball is Dropping?

In case you still like to know which ball is dropping in your elevator right now, as shown in the table below, it is emerging markets. They are getting hammered. Emerging markets are the most volatile ball in our elevator. Therefore, their recent performance is of no surprise. In fact, from a diversification standpoint, the volatility is actually a good thing - for the disciplined investor who buys up shares when the asset class is dropping and selling when the asset class is doing well.   






Income Tax Savings via Tax Alpha

In the world of investing, the quest for "alpha" is the primary goal for investment managers. Delivering investment alpha means obtaining investment returns that are better than their benchmarks. So, alpha measures the difference between a portfolio's actual return and what was expected based on its market risk. It is the ability to obtain returns higher than deserved by engaging in value-adding market timing or security selection. The problem with investment alpha is that while it is real, it has never been proven to be achieved as the result of skill.

However, unlike investment alpha, tax alpha is not elusive or hard to identify. Instead it can be quantified in dollars and cents and ends up as money in the bank. Tax alpha is the garnering of tax savings  beyond the tax liability you would have otherwise paid.

Let me give you a quick example of tax alpha realized for a client, Mr. Banks (not his real name), earlier this year.  Mr. Banks retired and as part of his retirement package, he received a lump sum distribution from a non-qualified retirement plan.  Transitioning into retirement always requires a major change in the amount and method of making tax payments/withholding. As part of our proactive tax-planning services, we calculate our clients anticipated tax liabilities and compare this to their tax withholding to see if any changes (such as making quarterly tax payments) are needed.  In order to calculate this for Mr. Banks, we asked him for his last pay stub showing the non-qualified deferred compensation payout. Upon reviewing this pay stub, I noticed that $3,000 worth of Social Security and Medicare taxes were withheld, BUT SHOULD NOT HAVE BEEN.  If we had not identified this, the IRS (and not the client) would have kept the $3,000.

This is just one example of how proactive tax planning generates tax alpha. 

Tax alpha is generally not generated by CPA's or tax preparers for individuals because these professionals spend most of their time preparing returns after the tax year is complete and not proactively managing their clients' tax liability/withholding.

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