Woodward Financial Advisors to Teach Retirement Planning Class: May, 2017

For the past few years, we’ve been teaching a retirement planning course on the UNC-Chapel hill campus. Several clients and blog readers are graduates of this course, and reviews have been consistently positive. Our next course offering will be in May, 2017. If you know someone who might be interested in the course, please forward this on to them.

(Please note that this course is not intended for current clients of Woodward Financial Advisors since the material covered is already part of the advice given to current clients.)

Classes will be held on Tuesdays (May 9, 16 & 23) from 7 PM – 9 PM

Location: UNC-Chapel Hill Friday Center (100 Friday Center Drive, Chapel Hill, NC  27517)

Course Description: Retirement Planning Today Course Description

Instructor: Benjamin Birken, CFP®

Tuition is $49, which includes the 224-page textbook.

To register, please complete the online registration form  and use Course ID: P00N21, or call our registration hotline at (984) 960-1985

Posted in Classes, Retirement Planning

Human Nature: Where Weather Meets Investing

Miller Family Spring Break 2017

The Miller Family (from left to right): Ava, Melissa, Jim, Mason & Liza

We recently returned from our family spring break trip to Puerto Rico.  It was a wonderful week spent with good friends of ours (two families – ten people – one house!) exploring a part of the world our crew had never visited before.  We met lots of delightful people, ate delicious local cuisine, and took in a plethora of beautiful beaches and countryside.

While the week was fantastic, it wasn’t without its moments of anxiety, particularly as we landed and were met with a 7-day weather forecast sporting something like a 40-80% chance of rain each day!  While the other three adults in the house started to strategize about the weather, my mind quickly hopped to its parallel with investing.  Island weather is unpredictable at best, but when it’s a tropical island in the spring, it’s truly a crapshoot.  So, as I listened to everyone I silently gave each of us a nickname.  Real names have been changed to protect the guilty….

“Stormy” (aka Technical Analysis man) – the patriarch of the family we traveled with loves to track weather patterns and attempt to glean information from them.  He’d say things like, “The wind has been out of the southwest each morning so we should be fine once it breaks around noon, which will push the clouds off towards the north and calm the ocean tide. The best beach time looks to be in the 12:00-3:00pm window.  That’s going to continue for the next couple days and then the pattern is shifting.”  That prediction would be fine if patterns were always predictable and guaranteed; the same goes for weather and stock markets.

“Cloudy” (aka Market Timer woman) – the matriarch of their family is a little more willing to bounce around in hopes of always being in the perfect weather place.  She’d conjure ideas like, “There is less chance of rain in the morning at Beach A, less in the midday at Beach B, and less in the afternoon at Beach C.  So, let’s go to Beach A from 10:00am-noon, Beach B from noon-2:30pm, and Beach C from 2:30pm-4:30pm.”   This may seem reasonable, but what about the transaction costs involved, such as travel time between locations, the cost of gas, and lost time loading and unloading ten beach chairs and towels?  And that’s just the guaranteed losses: what if the weather prediction part is also wrong?  Similarly, we can aim for the perfect investments at every moment in time based on ideal predictions, but, even if our predictions could be consistently right (they can’t), the transaction costs and taxes of constantly changing investments will eat away the earnings.

“Overcast” (aka Forecast woman) – my bride loves the weather channel app and was glued to it from the time our plane landed.  She’d exclaim: “They are saying we’ll have clouds and over 50% chance of rain basically every day.  We aren’t going to see much sun, and we came all the way here for a tropical vacation!”  I’d liken the all-knowing forecast to an economist’s prediction.  Someone publicly assigns a likelihood to a future state.  But meteorologists and economists are rarely held accountable when their predictions are wrong, as they often are.  So why would we blindly base our daily activities (or retirement funds) on them?

“Spring” (aka Fundamentals man) – Okay, so this is me.  My spring break outlook became: “Alright, we’re here and the weather is going to be what it is going to be.  I can worry about it and spend a lot of energy trying to strategize about it, but it’s going to be what it is.  We’re on a tropical island that traditionally has temps in the low 80’s in March, sunshine most of the day, frequent rain showers in the late afternoon, and a similar pattern daily.  Let’s develop a sound plan (i.e., pick what looks to be the worst weather day and plan some non-beach activities and set aside the days that are supposed to be the nicest for activities that need sun).  Let’s monitor this game plan as time goes by (i.e., check the radar) and course correct if needed (i.e., not put our head in the sand – pun intended).”

It’s human nature to want to avoid all the “bad” (weather in this case but markets in others) and experience only the good.  But life doesn’t work that way.  The effort to attempt to avoid bad isn’t worth the cost, and it can’t consistently be avoided anyway.  It’s more prudent to set a plan that is reasonable for your circumstances and course correct as new information arrives.  That makes for a great trip, and a wonderfully enjoyable retirement.


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An Investment Lesson from My Busted Basketball Bracket

bustedbracket image

It’s hard to live in Chapel Hill and not be aware of the men’s basketball team this time of year– especially when they continue playing into late March. After the team won their game this past Saturday, I saw the following statistic on one of the websites that allows fans to complete a tournament bracket:

Only 657 brackets out of 18.8 million correctly predicted the four teams that remain in the tournament.

No one at Woodward Financial Advisors has a bracket among the 657.

For readers who might not know how the college basketball tournament bracket game works, there are websites that allow you to select which teams you think will win each game in the tournament. A bracket must be filled out entirely prior to the tournament’s start. Consequently, if you have picked a team to win several games but they suffer an early loss in the tournament, then your bracket is “busted.”

Needless to say, it is challenging to accurately predict which teams will win and advance, particularly to the tournament’s final weekend.

That got me thinking about an alternative bracket picking contest. What if you had the option of picking a group of 12 teams to reach the Final Four, rather than picking the four specific teams? You could still win a cash prize (as is offered in many of these contests), but it would be smaller than the prize that you would receive if you correctly picked the specific Final Four teams.

Now you are faced with a trade-off. Accurately picking which 4 teams will make the Final Four is difficult and you run a greater risk of not receiving the prize, but if you are correct, the prize is large. Alternatively, the 12-team option increases the likelihood that your group will contain the four final participants, but the prize is smaller.

While this type of contest isn’t yet available to college basketball fans, investors face a similar choice every day. Some investors try to pick the individual securities or parts of the financial market that they think will be this year’s top winners. Others create a portfolio that includes a mix of investments that differ from one another in type (stocks vs. bond), size (small vs. large companies) and location (U.S. versus international). The latter approach is referred to as “diversification”, and it tends to serve investors well over the long term.

The table below, courtesy of Morningstar, shows the annual performance of various asset classes ordered highest to lowest by return going back to 1997.  If you are unable find a pattern, other than the gray rectangles, then you are in excellent company. The overwhelming majority of professional money managers cannot consistently find a pattern that predicts future market returns either. Notice how the gray box, which represents a diversified portfolio, consistently appears in the middle.

Diversification, by design, means that a portfolio will not be at the very top of the performance ladder, but it avoids being at the bottom as well. In basketball terms, you might not win the championship in any given year, but you also won’t exit the tournament in the opening round.

Moringstar grpah

Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. The diversified portfolio is equally weighted between small stocks, large stocks, long-term government bonds, Treasury bills, and international stocks (20% each). © Morningstar. All Rights Reserved.

At Woodward Financial Advisors, our brackets may be busted but we know how to build and maintain well diversified investment portfolios for our clients. If you have any questions about investment management or financial planning, please let us know.

Posted in Uncategorized

The Tortoise, The Hare, and Your Investments

Tortoise and the Hare

Photo: Gabet Carlson 

The tortoise and the hare set off on their journey (aka race!). Each can see the road ahead as they envision their destination.

They can see the beautiful landscapes, the vistas, and the adventure. But they can also see hilly terrain, storm clouds, blind curves, and ominous forecasts – you know, seemingly treacherous conditions. And, like investors, how well they do depends primarily on adhering to a strategy for getting to their destination.


On Pace

The tortoise moves slowly, at times very slowly, but never tires enough to stop. She doesn’t move off to the side of the road because things might get bad: she’s fixed on her destination. Her motto is “Obstinate Perseverance.”

The hare, on the other hand, comes out of the gate quickly and then seeks out short-cuts, always looking for a way to get there faster. Paradoxically, he sometimes takes naps and tries to wait things out because he believes there’s always a better time to run (i.e., invest). His overconfidence in his abilities makes him feel that he can wait to invest until whenever he wants and that he’ll simply catch up, using his superior skills and special investing techniques.


On Distractions

The tortoise rarely gets distracted. She acknowledges from the outset that things will not always be easy, but she accepts this as part of the journey to her greater goal.

Conversely, the hare goes down rabbit holes. He concerns himself with how he should be positioned for Brexit or Grexit or the elections or the next Federal Reserve meeting or some potential geopolitical event. He is easily distracted by reports warning of impending doom. He pays particular attention to urgings to stop the journey and wait until things “get better.” Or to try a new path that might be better. Maybe he should try options or credit spreads or hedge funds or investment vehicles that are hard to understand.  Or maybe not.


On Limitations

The tortoise knows her limitations and has reasonable expectations for her progress.  She knows that she can’t bank on double-digit investment returns.  She knows she must be patient and that sometimes the markets will not move in her favor.  And she accepts these conditions as part of the trip.

The hare, on the contrary, believes that he can be an investment “outlier.” Why can’t annual returns of 15% be within his grasp?  Why can’t he have all the upside of the markets with little of the downside?  Historical evidence is not going to stand in his way.  He’s heard some stories and read about folks who have some secret investing formula.  They’ve done really well – last he heard, they had never suffered a down year and their accounts were always up double digits.  Allegedly.


Historically, slow and steady has won the investment race. Develop your strategy and course correct accordingly.

Posted in Uncategorized