The Blog of Lauterbach Financial Advisors

It can be hard to hear the best course of action during tough market times may be to do nothing. It can be even harder to repeatedly hear the message as things seem to get worse. But it is a message we would not repeat if we did not truly believe it was in your best interests. The following discusses why our message is not wavering despite market conditions.

Burton Malkiel, professor emeritus of economics at Princeton University and acclaimed author of “A Random Walk Down Wall Street,” addressed this question on the opinion page of the Wall Street Journal today.  We recommend you read his entire column.  Some excerpts follow:

“I think not….I believe it would be a serious mistake for investors to panic and sell out.  There are several reasons for optimism.”

“First, I believe stocks today are cheap.”

“Moreover, the structure of U.S. corporate earnings increasingly reflects economic activity abroad…[which] is more important than the inability of Europe to get its house in order and the paralysis in the U.S. and Japan.”

“And for those who believe that the decline in the stock market reliably predicts a new recession, remember the famous dictum of the late economist Paul Samuelson: ‘The stock market has predicted nine of the last five recessions.’ “

“No one can tell you when the stock market will end its decline…. We have abundant evidence that the average investor tends to put money into the market at or near the top and tends to sell out during periods of extreme decline and volatility… the average investor has earned substantially less than the market return, in part from bad timing decisions. My advice for investors is to stay the course.”

For additional perspective, we recommend you read Larry Swedroe’s latest blog post,
"How Markets Have Responded to Past Sovereign Downgrades."   

This quick presentation from the Washington Post explains what the "debt ceiling" means for the U.S.

The need to reform the Social Security system is becoming increasingly more evident as people are living longer and the number of taxpayers per retiree is decreasing. In fact, if you carefully review your most recent Social Security statement, you'll find a small note:

Most investors are stressed. They are always looking for the next stock or mutual fund that will make them rich. Smart investors, on the other hand, understand the importance of having a plan, controlling costs, embracing the market, and working with an advisor that puts their interests first.

Watch the video below to learn more.

Do you have a plan? Have you designed a strategy to help you balance what you want today with what you will need tomorrow? Do you have peace of mind around your money and finances? What about your investments? Have you had them reviewed them with an objective eye?
If your answer was negative to any of these questions, we can help you. Let’s make a plan.

Libya, Egypt, Japan, the Dow moving up, the Dow moving down, taxes, energy supply... Every day there seems to be something that impacts our peace of mind. Carl Richards, in the New York Times has a simple advice: Just ignore it.

Using his Sharpie and a napkin, he explains why. Here's the complete story.

LAUTERBACH FINANCIAL ADVISORS CONGRATULATES SUZANNE LINDAU FOR RECEIVING THE PERSONAL FINANCIAL SPECIALIST (PFS) DESIGNATION.

El Paso, Texas, February 9, 2011 –Lauterbach Financial Advisors congratulates Suzanne Lindau, the firm’s Investor Advisor Associate in charge of Client Services, for receiving the Personal Financial Specialist (PFS) designation from the American Institute of Certified Public Accountants (AICPA).

LAS VEGAS (January 19, 2011) — Jon Sonnen, CPA/PFS with Lauterbach Financial Advisors, gained enhanced education on investments, insurance, tax, estate, retirement and elder planning from some of the world’s foremost experts on those issues at the Advanced Personal Financial Planning Conference held January 9-12 in Las Vegas.

When you interview potential financial advisors, you should look for the advisor who gives the best advice and is the best fit for you. The best advisors begin earning their fee from the day they are hired by helping you determine your most appropriate asset allocation, according to your unique ability, willingness and need to take risk (what we call "risk personality"). This is what we do with every single investor who becomes a client.

David Booth, Co-CEO of Dimensional Fund Advisors has been named among “The Power 20 for 2011” by Investment News, a trade publication.
“The Power 20” is a group of regulators, industry leaders, and legislators that the publication believes that will influence the financial services industry in the year that just started.
Among others named in the list are included: Mary Schapiro (head of the SEC), legislators Sen. Tim Johnson and Rep. Spencer Bachus and Ben Bernanke.

You can access the complete "Power 20" list HERE (Free Registration Required).

David Booth is profiled HERE (Free Registration Required).

To see a video featuring David Booth explaining the story of DFA, please click HERE.

This week we recommend two articles, one from the New York Times, and the other from Larry Swedroe's Blog.

A Dying Banker's Last Instructions: Gordon Murray was a managing director at Lehman Brothers and Credit Suisse. He also worked at Goldman Sachs. For 25 years, he sold bonds to institutional investors like pensions and mutual fund managers, until he discovered the futility of trying to beat the market and decided to share his "discovery" to as many investors as possible. This article was published in the New York Times.

The Greatest Beneficiary of a Passive Investment Strategy? Your family: Larry Swedroe discusses how a switch in your investment philosophy can lead you to better relationships and to a more enjoyable life.

Lately, investors have been pouring money into gold (from ETF's to bullion to coins) given the rise in prices and the fears about inflation. However, is gold really a good protection against inflation? Is there a better way to hedge inflation risk?

El Paso, TX, November 12, 2010. - Recognizing the importance of Social Security benefits as source of income for the majority of retirees, Lauterbach Financial Advisors has added Social Security planning to its client services.

While corporate bonds have had slightly better returns than Treasuries, it is important to consider all the historical evidence before adding them to your portfolio.

The moment a person turns 62, one of his or her concerns is: “When should I file for Social Security?” Given the importance of Social Security benefits as a source of income for most retirees, it is critical to determine the most optimal way to file for benefits.

A number of public companies operate here in El Paso, Texas. Employees at those companies are often compensated with company stock. However, is keeping that stock a wise investment decision?   

We would like to congratulate Berenice Perea, wife of Miguel Gomez, our Marketing Associate, for winning the Best of Show Award at the Sun Bowl Art Exhibit hosted by the International Museum of Art. Her piece is going to be purchased by the museum and will be part of its permanent collection.

In today's weekly update, we present Larry Swedroe's review of The Big Short, the controversial book by Michael Lewis that narrates some of the trickery that Wall Street did in the last few years that ultimately led to the the largest financial crisis since 1929. The book ranks #76 of the 100 top-selling books on Amazon as of October 29, 2010.

Book Review: The Big Short, from Larry Swedroe's Wise Investing Blog.

As always, if you have any questions or comments, please Contact Us.

On today's weekly update, we have two articles, one about investing, and the other about wisdom and life.

If you have any questions or comments, please let us know.

Diversification is Still Alive and Well, from Larry Swedroe's Wise Investing blog.

How do you know when you have enough? It's a different answer for everyone, but not knowing can put your investments (and your peace of mind) in jeopardy.

Currently, rates in the fixed income market are very low. As of September 13, the yield on the five-year Treasury note was close to 1.5 percent. In a low-rate environment in particular, it is critical to understand the differences between and the concepts of coupon rate, yield and expected return on fixed income securities.

We believe that an educated investor is a better investor; and even with a well designed financial plan, investors are constantly receiving mixed messages from numerous places.  With that in mind, starting today we'll publish weekly updates with articles from various sources to help you make more informed investment decisions and to ignore the noise that surrounds the investment world.

One of our goals at Lauterbach Financial Advisors is to keep you informed about changes that may affect your accounts. To that end, we want to inform you of a change in IRS reporting requirements for Form 1099-B that begins in 2011.

The 2011 1099-Bs that you will receive in early 2012 from any custodian (for example, Schwab, Fidelity or TD Ameritrade) will report the cost basis and gain or loss on the sale of equity securities. This applies to equity securities that were purchased in your account after December 31, 2010 and then sold on or before December 31, 2011.

Some of our custodians will soon begin to publicize this topic via supplements included in your monthly statements. We are working closely with them and from time to time will provide you with more information on these changes. If you have any questions, please contact us.

One of the most common questions at the beginning of the financial planning process from prospects in El Paso and elsewhere is: what are your favorite stock picks? Our response is that stock picking or market timing doesn’t work, and we’re backed by decades of research. However, the hype and noise of Wall Street keep trying to persuade investors by pouring millions of dollars a year in advertising to showcase their "super star" managers and their latest “hot” stock picks.  

Here’s further evidence that supports our belief that active management doesn’t work.

The media continues to be focused on budget and pension obligation problems within the municipal bond market. However, it is important to remember that default risk has been incredibly small in the municipal market. The following provides our take on the municipal bond market.

With all the news and fears about inflation and deflation, along with the possibility of rising interest rates and current market conditions, Jon Sonnen discusses with Larry Swedroe some ideas on how investors should focus their fixed income allocation. The discussion continues with the benefits of passive over active management in equity and fixed income portfolios.

In this video, Jon Sonnen and Larry Swedroe (Director of Research at Buckingham Asset Management and author of nine books on investing) talk about the role that inflation plays in an investor's portfolio.

You’re ready to retire and have paid a lot into the Social Security system. Now that you’re finally eligible for benefits, your advisor and other experts might be saying, “Not yet!” Why should you have to wait any longer?

Investors are faced with a perfect storm of information overload, human emotions and market volatility. Following is a discussion of those threats to investors’ portfolios and a way to avoid the storm.

El Paso, Texas, July 14, 2010 – Local financial planning firm Lauterbach Financial Advisors was ranked 16 in Texas and among the top 250 wealth management firms in the nation by the 10th annual Top Wealth Managers survey published by Wealth Manager Magazine, a national trade publication. The survey is open to independent wealth management firms and ranks those that participate and meet the eligibility criteria based on total assets under management as of December 31 2009.

We just added two articles to our article library:

The Risks of Fixed Income Investing

Current State of the Municipal Bond Market

You may download them directly from our article library.

In this video, Brian Haywood, Fixed Income Advisor at Buckingham Asset Management explains why stretching for yield with bonds may not be a wise idea.

Weight loss and wise investing share a very important characteristic: they're simple, but not easy.

Let me explain.

Every year, Americans spend billions of dollars in weight-loss related products and services. Magazines that promote the new "secret Hollywood diet" fly off the shelves; strangely, people forget the last year "secret" diet in favor of the new one. "Diets" come and go, and products that promise to lose weight "without diet or exercise" are increasingly popular. People are willing to starve themselves to fit in a dress; if they succeed, they give their secrets to their friends, who will also buy the new miracle product. If they don't succeed, more than likely the blame will go to the product or to other outside factor.

This CNBC interview with Professor Eugene Fama, widely regarded as the Father of Modern Finance, explains the concept of market efficiency and the futility of market timing and stock picking. There is also discussion on the impact that recent government actions have had on financial markets.

El Paso, Texas, March 9, 2010 – The Financial Planning Association, a national leadership and advocacy organization that connects those who provide, support and benefit from financial planning, recently recognized David Lindau, CFP® and president of Lauterbach Financial Advisors, LLC (LFA) for his twenty five years of service as a Certified Financial Planner™ practitioner.

This video from Yahoo! Finance features Professor Kenneth French explaining in layman's English the difference between stock picking and index investing.

About half the actively managed U.S. stock mutual funds beat the market over the past 10 years, or so the headline goes. Does this mean index funds are dead and we should all go active? For the answer, continue reading on Forbes' website.

David Booth, DFA's CEO, discusses the relationship between risk and return when applied to retirement.

We've been asked a lot of we believed if "buy and hold" is dead. The short answer: it is not. The not too short answer: It is not dead, but it is not enough to obtain the best results. Let us explain:

Say you have $500,000 to invest. By doing a simple "buy and hold" you'd probably invest, say, $400,000 in equities and $100,000 in bonds and forget about it.

Unfortunately, that's not how you get the best results.

Click HERE for an interview with Larry Swedroe and the rest of the story.

For the wealthy, index funds have an image problem. They are considered the economy cars of the investing world: they’ll get you there but not in style and you’re always worried they may break down. Anyone at a serious level of wealth, the thinking goes, needs the equivalent of a luxury sedan, with strategic stock choices, hedge funds, private equity, and real estate. It can be argued that while people of modest means are hurt by not saving regularly, wealthy people lose out by chasing the latest, greatest investment... Continue reading in the New York Times.