Commentary
Dennis Covington
11/08/2012: Investment Implications of Higher Taxes: Pay Now or Pay Later?
Now that the 2012 election is behind us, we finally have some certainty about which political parties will control which branches of government.
Dennis Covington
10/01/2012: The "Whac-A-Mole" Approach to Investing
“The Market seems uncertain to me right now; maybe I should take some equity investments off the table”.
This statement, or a derivation of it, is commonly put to advisors such as me.
Jack Calhoun
08/08/2012: Flight or Freeze?
“Don’t just stand there – do something!”
That is the refrain of anxiety, fear and panic. It is the fight-or-flight survival instinct put into words – a plea to do anything other than stay put.
Andrew Allen
05/18/2012: Are IPOs A Good Investment?
The Facebook initial public offering (IPO) has generated a large amount of attention in the media. With other popular technology companies such as Groupon, Pandora, and LinkedIn going public in recent months, the IPO landscape looks similar to the dot-com days of the late 1990s.
Jack Calhoun
03/02/2012: Is the Rally for Real?
A recent article in the Atlanta Journal Constitution featured an angle that I have seen frequently in the media in the past few weeks, which can be summed up in five words: “Is the rally for real?”
John McMillen
03/02/2012: The Failure of Alpha
All investors have to make a choice to embrace either a passive or active strategy when selecting investments. Passive strategies attempt to capture the market’s return, while active strategies attempt to outperform it. Gains that active managers earn above the stock market’s return are commonly referred to as alpha.
Andrew Allen
03/02/2012: Are the "Dogs of the Dow" a Valid Investment Strategy?
Occasionally, the financial media reports on an investing strategy known as “The Dogs of Dow.” This strategy was first popularized in the early 1990s and involves selecting the ten stocks in the Dow Jones Industrial Average with the highest dividend yield.
Jack Calhoun
11/03/2011: Is The Recent Market Volatility Really "Unprecedented'?
I attended a symposium in Austin, Texas recently where the esteemed finance professor, Gene Fama, addressed our group. If you aren’t familiar with Dr. Fama, he is one of the pioneers of Efficient Market research, is often referred to as “the father of modern finance,” and has been a candidate for the Nobel Prize in Economics. So, to borrow the old E.F. Hutton line, “when Dr. Fama speaks, people listen.”
Dennis Covington
11/03/2011: The Planning Process is More Important Than the Plan
The political clashing that is occurring over our country’s entitlement programs highlights an ideological divide in our country over how to solve our deepening debt crisis. But it also highlights an important facet of Comprehensive Wealth Management: assumptions about the future are just that – assumptions – and should not be set in stone.
John McMillen
11/03/2011: Just How Long Does It Take To Get Those Long-Term Returns?
One of the most important determinants of an investor’s ability to assume risk is their stated investment time horizon. It is well documented that the longer an investor’s time horizon, the more likely a significant equity allocation may be appropriate. But what, exactly, is “long term”?
Jack Calhoun
02/16/2011: Muni Bond Mayhem, Or Just Another Version of "A Nightmare on Main Street"?
One of the most painful things about my line of work is watching the investing public commit one grievous mistake after another and being unable to do anything about it. I can help my clients avoid the emotional, reactionary missteps that are so tempting in times of turmoil, but there is nothing I can do for the masses who seem predestined (hey, I’m a good Presbyterian) to destroy themselves in every conceivable market cycle.
Dennis Covington
02/16/2011: Don't Let Inflation Risk Wreck Your Purchasing Power
I continue to be astonished and frustrated at the media reports of how much collective cash investors hold as a percentage of their investable assets. Incredibly, the percentage of cash that investors hold relative to stocks actually increased during 2010, despite two years of strong equity returns...
John McMillen
02/16/2011: Fund Failures, Survivorship and Your Money
Mutual funds have a lifecycle not too different from any living entity: They are born, they grow up, and then, eventually, they die. Unfortunately, many funds perform very poorly and are sent to an early grave, taking much of their shareholders’ original investment with them.
Jack Calhoun
08/25/2010: Morningstar Finds Fund Fees Are More Important Than Star Ratings
The old adage in the journalism business is that "dog bites man" is not news, but "man bites dog" IS news. I thought of this recently when fund-research giant Morningstar – originator of the ubiquitous "star rating" system for mutual funds – published a study in which it found that fund expenses were actually a better predictor of future performance than were star ratings.
Dennis Covington
08/25/2010: Why Concentrated Stock Positions Make Planning Pointless
One of the key components of Comprehensive Wealth Management is to run scenarios using different variables to make sure we are addressing different possible outcomes for our clients. For instance, do you want to retire at 58 or 65? Do you want to take Social Security early, or defer to later? Do you spend 2% of your portfolio a year or 12%? (You won’t have a portfolio for long if you take out 12%, by the way.)
John McMillen
08/25/2010: Does Dollar Cost Averaging Makes Sense?
The recent market volatility has created anxiety for many investors who have excess cash to invest in the equity markets. With painful memories of the 2008-09 downturn still fresh, many investors are, understandably, hesitant to put a significant amount of money into stocks all at once.
Jack Calhoun
05/25/2010: Foreign Currency Crisis: Deja vu All Over Again?
“History doesn’t repeat itself, but it does rhyme,” goes the old saying. In that regard, the pattern of the sovereign debt crisis in Europe, its effect on the Euro currency, and the impact on the stock market is a familiar tune from the 1997-98 foreign debt and currency crisis that roiled world markets.
John McMillen
05/25/2010: That Mutual Fund Ad May Be True, But Is It Accurate?
Someone once said that the difference between unethical and ethical advertising is that unethical advertising uses falsehoods to deceive the public, while ethical advertising uses truth to deceive the public. Looking through all the mutual fund ads that run in the consumer press, it appears the investment industry has become expert in the latter.
Jack Calhoun
03/27/2010: All Asset Allocation Is Not The Same
Recently we met with a prospective client in our office who offered an opinion that surprised us. “I don’t really believe in asset allocation,” he said. “It certainly hasn’t worked for me.”
This particular individual is a savvy investor who sits on a large block of concentrated stock. He understands the inherent risk of being so heavily invested in the fate of a single company, but he didn’t see a lot of benefit to diversifying, either.
Dennis Covington
03/27/2010: Trying to Clear Up the Confusion about Estate Tax Law
Much has been written about the failure of Congress to address the scheduled “repeal” of the estate and generation-skipping transfer (“GST”) taxes before 2010, thereby wreaking havoc on professional estate planners and their clients. We need not repeat the details, but a summary of how this came about is important.
John McMillen
03/27/2010: Tax-Efficient Investing in a Tax-Inefficient World
Trying to guess what the politicians in Washington are going to do in the coming year is a nearly impossible task; however, one thing most observers agree on is that taxes are likely to be increased for affluent investors in the years ahead.
Dennis Covington
12/21/2009: What's All the Fuss About Roth IRA Conversions?
Roth IRAs have been around since 1998, yet most of our clients don’t have a Roth IRA. The reason is that the ability to contribute or convert traditional IRAs to Roth IRAs has been limited to taxpayers with relatively low Adjusted Gross Incomes (AGI).
Jack Calhoun
11/23/2009: What If The Market Goes Back Down?
The stock market in 2009 has put investors through just about every kind of emotion possible: frustration, fear, elation, hope, depression and relief come to mind. I’m sure there are more, but you get the picture.
Dennis Covington
11/23/2009: What's The Most Important Role of a Wealth Manager?
The notion of a “wealth manager” is relatively new in the financial services field. The term evolved to differentiate an advisor who primarily offers investment advice (the vast majority of advisors) from an advisor who is dedicated to helping clients achieve all of their financial goals through a consultative process.
John McMillen
11/23/2009: The Hidden Cost of Market Timing
Volatile markets are especially dangerous for investors as they often lead to dramatic changes in an individual’s willingness to assume risk, causing those who would normally embrace a buy-and-hold strategy to engage in market timing. When stressed investors are contemplating bailing out of the market, most willingly admit that they won’t be able to make a perfect call on the market’s bottom or top, but believe they can get “close enough” and view any lost return due to a timing mistake as negligible.
Jack Calhoun
08/19/2009: The Bulls Stampede While The Bears Stamp Their Feet
Back in July I was reading an article on the Wall Street Journal’s web site that I must admit I found amusing. It was an analysis of the sudden and dramatic rally the stock market had recently experienced, a period in which the Dow Jones Industrial Average gained 10% in only about a week.
Dennis Covington
08/19/2009: Government Intervention and Stock Prices
The events of the past year were disconcerting to all of us. We’ve seen home prices plummet, the bankruptcy of major corporations, and the inability of business owners to access credit. The list goes on and on.
John McMillen
08/19/2009: Do Inflation Hedges Really Help?
Ask economist and layman alike about the recent activities of the Fed and you’ll likely hear the foregone conclusion that inflation is right around the corner. As a result, many investors are questioning whether their current portfolio is properly structured for such an environment, and, if not, what changes should they make?
Jack Calhoun
06/09/2009: How Much do Free-Market Policies Impact Stock-Market Returns?
One of the challenges I face as an investment advisor is that no matter who is President, there is always some portion of my client base that is tremendously unhappy with the current political administration.
Dennis Covington
06/09/2009: Can We Use a Trading-Range Strategy to Time the Market?
As we develop wealth management plans for our clients we find that discovering their goals and creating a plan to maximize the probability that they achieve these goals is sometimes the easiest part. The more difficult part, particularly in volatile markets like 2008, is putting the plan into action, particularly when it involves putting cash into the market. Why? One word – EMOTION.
John McMillen
06/09/2009: Have Active Managers "Limited the Downside" in This Market Environment?
If there was ever a time in which active managers had the ability to prove their worth, it has been in the past year. After all, if active managers can’t foresee the worst recession and subsequent bear market since the Great Depression, what makes us believe they can see the little ones?
Jack Calhoun
03/26/2009: Is This a "Bear Market Rally"?
Scanning the day’s media reports after Monday’s monstrous market rally, I was bemused by the number of analysts who continue to inform us, the unwashed masses, that this is a “bear market rally”, meaning that anyone who thinks the market downturn is over is a fool.
Dennis Covington
03/26/2009: Focusing on Things You Can Control-Part 3: Wealth Enhancement
There is no denying that we will see changes to federal tax policy over the next few years; newspapers and magazines are full of stories and opinions on the matter. One of our roles as wealth managers (in partnership with our clients’ tax advisors) is to identify provisions that may help them save tax and thereby enhance their wealth.
John McMillen
03/26/2009: What Does Bank of America's Acquisition of Merrill Lynch Tell Us About Stock Picking?
The investment industry is full of individuals who claim to have the ability to make great stock picks (i.e., accurately assess mispricings in stock valuations and beat the market). Irrefutable evidence, however, shows that this is rarely accomplished, and when it is accomplished it cannot be attributed to skill anymore than luck.
Jack Calhoun
02/04/2009: Did Active Managers Protect Us From The Bear in 2008?
“Active managers really add their value in down markets.”
That is the old canard that gets resurrected every time turmoil returns to the capital markets. It is an arrogant assertion that any old fool can make money in an up market, but the real pros are the ones who safely protect their clients when the bear comes prowling around.
Dennis Covington
02/04/2009: Focusing On Things You Can Control-Part 2: Estate Planning
“Obama Plans to Keep Estate Tax – Democrats Want to Freeze Levy at Current Levels Instead of Letting It Expire Next Year” reads the top headline in the January 12, 2009 edition of The Wall Street Journal. The article details recent history about the estate tax and various legislative initiatives to change it. The driving force behind the incoming administration’s desire to deal with this issue now is that current legislation calls for the estate tax to be repealed in 2010 only to see it sunset and return to Clinton-era legislation which taxed estates over $1 million ($2 million for couples) at 55%.
John McMillen
02/04/2009: Protecting Your Assets From Unscrupulous Advisors
I typically write on topics pertaining to portfolio construction and how embracing widely accepted investment theories such as Modern Portfolio Theory and Efficient Market Hypothesis can go a long way in protecting investors from needlessly assuming excessive risk. Given the current market environment, however, I feel compelled to touch on some basic principles outside of investment theory that can also go along way in helping you protect your wealth.
Jack Calhoun
12/09/2008: Fear and Greed in the Stock Market
“I try to be greedy when others are fearful, and fearful when others are greedy.”
That is one of Warren Buffett’s most well-known lines about investing.
Dennis Covington
12/09/2008: Focusing On Things You Can Control-Part 1: Life Insurance
Most people don’t enjoy talking about life insurance and, as a result, have not looked at their policies in years. When I ask clients about the need to review their policies it’s usually an item that is pushed down their priority list UNTIL the day they get a notice from their carrier that the policy they haven’t paid on in years will lapse unless a hefty premium is paid each year.
John McMillen
12/09/2008: Market Timing a Recession
The big news last week was the official announcement by the National Bureau of Economic Research (NBER) that the economy has been in a recession since December 2007. Many investors who have not yet bailed out of the market will no doubt interpret this as a clear sign they should now.
Jack Calhoun
10/30/2008: Of Panics and Recoveries
Whatever the market does over the next few days, suffice it to say that October 2008 will go down as one of the worst months in the history of the stock market. The declines were steep and jarring, reminiscent of October 1987, with the unfortunate caveat that they came after the market had already declined about 20% from its high a year ago before the month even began.
Dennis Covington
10/30/2008: A Good Plan Is the Main Key to Weathering Financial Storms
Over the past few months I’ve had the opportunity to interact with many investors – clients, associates, friends and family – in the midst of the current financial storm. It seems most investors are weathering the market downturn with resolve, but I’ve also spoken with some individuals who panicked and abandoned their long-term strategy.
John McMillen
10/30/2008: Are Concentrated Stock Positions Worth the Risk?
Holders of a concentrated stock position often resist diversification for a variety of reasons, including tax avoidance, over-confidence and emotional attachment. Though any investor with a highly appreciated stock position will likely face a daunting tax bill, investors must be careful not to let the “tax tail wag the investment dog”.
Jack Calhoun
09/23/2008: The Chickens Come Home To Roost on Wall Street
“The End of Wall Street.”
That is the stark headline that greeted me Monday morning as I scanned the headlines in the newspaper. It is a reference to the sudden demise last week of Wall Street's "Big 5" brokerage houses, all of whom have now either collapsed or changed their stripes and no longer exist as independent investment banks.
Dennis Covington
09/23/2008: Impact of Changes to Capital Gains and Dividend Tax Rates
In 2003 federal capital gains tax rates were reduced from a top rate of 20% to 15% and the tax rate on qualified dividends was lowered from a taxpayer’s marginal income tax rate (which at the time was 38.6% at its highest) to a flat 15%. The tax bills enacting these rates included “sunset provisions” that cause these tax rates to revert to their pre-2003 levels in 2008.
John McMillen
09/23/2008: A Clear Lesson On The Virtues of Effective Diversification
The recent market turmoil has shown that diversification is more important today than ever before. With the implosion of some of Wall Street’s oldest and largest companies, many of whom have survived numerous crises before, the hard lesson is that no individual stock today is immune to a sudden collapse.
Jack Calhoun
08/18/2008: Darkest Before The Dawn? Don't Tell The Talking Heads...
Commodity prices, led by oil, have soared in recent months, prompting fears ranging from unbearably high food and gas prices for consumers to a significant crimp in corporate profits. But just as a continued run-up seemed inevitable, a decline set in. (“Oil Hits Three-Month Low As a Pullback Feeds on Itself”, Wall Street Journal, August 9, 2008, B1.)
Well then. So much for inevitability…
Dennis Covington
08/18/2008: Charitable Planning: A look at Donor Advised Funds
More and more we see clients who have a strong desire to leave a portion of their wealth to charity. Their motives vary from a desire to support a cause they care about to not wanting to leave a significant inheritance to their children or grandchildren in an effort to eliminate some of the negative behavior demonstrated by many who inherit or feel entitled to wealth.
John McMillen
08/18/2008: How Many Active Managers Really Add Value?
The recent market turmoil has shown that diversification is more important today than ever before. With the implosion of some of Wall Street’s oldest and largest companies, many of whom have survived numerous crises before, the hard lesson is that no individual stock today is immune to a sudden collapse.
Jack Calhoun
07/25/2008: Looking Back At The Most Admired Companies of 1998
The other day I decided to Google the phrase “Fortune Most Admired 1998”. It may sound to you as though I don’t have enough to do in my day, but I had my reasons. I was reading an article about the struggles at pharmaceutical giant Merck and thinking about how it seemed like just yesterday everyone was in love with that stock.
Dennis Covington
07/25/2008: Do You Need Long-Term Care Insurance?
The average life span continues to increase, and so does the cost of health care. As a result, many individuals are mulling the benefits and considerable costs of long-term care insurance (LTCi). Whether you need such a policy depends greatly on your financial situation and your desires for how your wealth will be spent.
John McMillen
07/25/2008: The Dangers of Style Drift
Mutual funds are classified based on the type of investments they hold – large or small, growth or value, foreign or domestic, etc. Because all such market segments will move in and out of favor over time, and it is impossible to tell when this will happen, creating a well-diversified portfolio is of paramount importance.
Jack Calhoun
07/01/2008: Just How Wise Is The Conventional Wisdom?
One of the biggest mistakes I see investors make is taking the day’s conventional wisdom and trying to apply it to their investment strategy. The thing about wisdom is that it is seldom conventional, otherwise it wouldn’t be so impactful to us when we actually do get that rare bit of truly sage advice.
Dennis Covington
07/01/2008: Business Owners and Exit Plans
Because we are intimately involved in our clients’ financial lives, we get a first-hand look at the planning techniques that really make a difference in people’s peace-of-mind. For business owners, I don’t think there is any thing I have seen that has a greater positive impact than a sound succession (exit) plan.
John McMillen
07/01/2008: Fees Really Do Matter
A basic tenant of successful investing is to be acutely aware of all fees being incurred. In today’s investment marketplace – with an endless number of options and less-than-clear fee disclosure – it is often difficult investors to truly compare apples to apples.