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

Farewell Fiduciary?


(photo source:

On Friday, February 3, the Wall Street Journal reported that the new administration would likely sign an executive order that would delay or rescind the pending Department of Labor rule that says that anyone who provides advice on retirement accounts will have to operate as a fiduciary.

For those unfamiliar with the fiduciary concept, it’s pretty straightforward: anyone who acts as a fiduciary is required to put a clients’ needs and best interests ahead of their own. The alternative standard of care in the advisory industry is suitability, which says that an advisor’s recommendations to a client need only be suitable for their situation: an advisor is free to suggest a higher cost product that might have an associated commission coming back to the advisor when a perfectly comparable lower cost alternative is available.

Over the last few years, banks, brokerage companies, insurance/annuity providers and their associated lobbying organization have spent millions of dollars fighting against the Department of Labor rule. And it’s easy to see why. Their entire business model was being threatened! If they couldn’t legally push higher cost, commission-based products onto unsuspecting consumers, they would see a huge hit to their bottom line. Some of our industry publications even reported that large numbers of older advisors were considering retiring rather than trying to comply with the new fiduciary rules.

This always struck us as strange. Maybe it’s because Woodward Financial Advisors has always acted as a fiduciary and always will! We can’t understand why an advisor wouldn’t want to openly embrace the fact that they placed client’s needs ahead of their own. We sure do! And what client wants to work with an advisor that can’t say that they always operate as a fiduciary in every circumstance?

Pretend this same situation was at play in the medical arena. Let’s assume your doctor prescribed you some medication. Would you rather she prescribed the drug that cost $100 (and by the way, had a 20% rebate coming back to your doctor that she wasn’t required to tell you about), or an equally effective drug that only cost $20? Would you at least want to know about the $20 option? Doesn’t this seem obvious?

Critics of the fiduciary rule argued that it would limit consumer choice. Consumer choice works great in a system where both the buyer and the seller have equal amounts of knowledge and information. That is NOT the case with financial products. If limiting consumer choice means fewer ridiculously high cost/high commission variable annuities and other nonsensical products foisted on unsuspecting people, that limit is fine with us.

But that’s not going to happen. Barring some public outcry, the Department of Labor rule will be perpetually delayed, drastically changed, or die some legislative death. And some time in the future, when the financial services industry has once again taken advantage of an unknowing public, we’ll hear the outcry and moral outrage about greedy bankers and unscrupulous brokers. We probably won’t hear how great it was that we had all that extra consumer choice. And maybe then we’ll get to try this whole thing again…


Posted in Financial Planning, Firm News, Retirement Planning | Tagged , ,

‘Tis the Season for Market Predictions


The start of the new year is prime time for past year’s reflections, new year’s resolutions, and—in the world of investing—market predictions for the upcoming year.

Here at Woodward Financial Advisors, our thoughts on market predictions are easy to summarize: we don’t have an investment outlook, we have an investment philosophy.

An investor would get the opposite impression by scrolling through the news as headlines boldly predict the future and urge investors to take action.

It is understandable to find comfort in seemingly concrete predictions and to seek out some level of certainty in a very uncertain world. The problem is that we know consistently timing the market is very difficult (if not impossible) and that trying to do so often leads to poor investment results over the long term.

As disciplined investors, we must be careful not to fall into the traps set forth by the media. We need to remember that headlines are designed to grab our attention so that we will read the article. After all, a headline that says, “it is unclear how markets will perform in 2017” or “the market will go up, or it will go down,” would not garner many “clicks” from readers.

What is the individual investor to do to combat this season of predictions? We have three recommendations for our clients.

The first is to remember your portfolio is built upon a dynamic financial plan that accounts for a thousand possible market outcomes. This plan is intended to ensure your spending goals can be met in a multitude of investing environments.

Our second recommendation is to focus on what you can control: minimizing costs and taxes, maintaining an appropriate asset allocation, staying diversified, and monitoring your saving or spending rates. All of these elements are key facets in our investment philosophy and planning process.

Lastly, if you find yourself glued to a compelling headline this time of year (as many investors do), take a step back and remember what the headline leaves out: investors have been rewarded by long-term discipline. Doing nothing, while difficult, has often led to far better investment results than doing “something” in the face of uncertainty.

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Knowledge Through Candy: Together, We Know More Than We Do Alone


How many times have you heard someone refer to “The Market” as if it was practically a sentient being, complete with its own goals, motivation and personality quirks?

Obviously, that’s not the case. We know that rather than being its own independent entity, at its core, “The Market” is simply a collection and reflection of the thoughts, opinions, hopes and fears of all market participants.

Every day, investors effectively meet at “The Market” to practice an exercise called price discovery: individuals work together – separately, yet collectively – to arrive at an agreed upon price for a stock, bond, or some other asset.

Some investors may think this agreed upon price is too high and will choose not to participate in buying. Others may think the price is too low and will refuse to sell. Ultimately, the group mentality of “The Market” finds a price where buyers and sellers will sufficiently agree for trades to go through. Even though “The Market” includes non-participants, the upshot is that together, we know more than we do alone.

We recently demonstrated this concept in a much tastier way than using charts and graphs of stock prices. At a recent client event, we put a jar of jelly beans on a table and asked attendees to guess how many jelly beans were inside. To make it interesting, we said that whoever got closest to the actual number got to take the jar home.

35 participants offered a guess, ranging from 427 on the low side to 25,000 on the high side. We had one attendee whose guess was only 49 away from the true count of 1,575 jelly beans, and the average guess was 2,047.

At first glance, it would seem like our participants didn’t demonstrate very good collective knowledge. But that’s distorted a little bit by the maximum guess, which was 20,000 more than the next highest guess. If we exclude that one outlier, the average comes down to 1,372 jelly beans, which would have been the fourth most accurate guess. That’s pretty darn good.

We’re not the only advisory firm to try this experiment. In almost every case, the average of all guesses usually comes close to the actual amount of jelly beans, coins, gumballs, or whatever else advisors can think of stuffing into a jar. The combined intelligence of a group tends to be better than the knowledge of a single individual.

This simple concept illustrates why it’s so difficult to beat “The Market” on a regular basis. Consider for a moment that, in 2015, there were an average of 98.6 million equity trades placed each day, resulting in a daily average dollar amount of $447.3 billion.[1] This is the staggering backdrop against which investors who try to beat “The Market” are facing. They are counting on their superior intellect (or illegal inside information) to identify assets or asset classes that the collective intelligence of “The Market” hasn’t properly priced. That’s a pretty daunting task.

And yet, this is the entire premise behind actively managed mutual funds, where a manager determines what to buy and when to buy it, with the goal of beating “The Market” as a benchmark.

The graveyard of individual stock pickers and market timers is littered with failed geniuses who couldn’t live up to this premise.  The chart below (courtesy of Dimensional Fund Advisors) indicates the challenges faced by stock fund managers who tried: of the 3,711 equity funds that existed in 2010, only 29% outperformed their benchmark over the next 5 years. Going all the way back to 2000, only 17% outperformed over the following 15-year period.


“The Market” isn’t always going to get the price right. Sometimes, folks go a little crazy and drive prices way up or way down above where they should be. But it’s really hard to take advantage of those times over a lifetime of investing. Instead, investors are better off taking advantage of combined intelligence and simply capturing market returns.

That’s the sort of investing we do for clients of Woodward Financial Advisors. If you would like to talk about how we might be able to do that for you, please  let us know.

[1] Source: The World Federation of Exchanges

Posted in Financial Planning, Investing