Friday, 15 December 2017
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The U.K. voted to leave the European Union (EU) and stock markets around the world had a negative reaction.  What should you do?  First, a little background on what happened.

The vote by U.K. citizens was a non-binding referendum, so nothing officially changed today.  Based on the referendum, the U.K. Prime Minister, David Cameron, announced that he will resign by October of this year.  Mr. Cameron lead the stay in the EU coalition and feels it would be better for someone else to lead the U.K. through the EU exit process.

The U.K. has never been as tightly connected to the EU as some members, retaining their own currency and passport monitoring.  But, there is still a lot to do.  Once the U.K. officially notifies the EU they are leaving, it is estimated that it will take several years for the U.K. to negotiate new trade deals and unwind their other EU connections.  Despite threats from the US and other countries during the debate to put trade negotiations with the U.K. in the back of the line if the U.K. left the EU, my guess is that those negotiations will be fast tracked.

The US stock market (Dow 30) was down 3.4% today.  To keep that in perspective, it does not even come close to cracking the top 20 daily percentage declines (the 20th largest decline was 6.98% on September 29, 2008, more than double today's drop). Markets do not like political instability.  You can never know for sure, but my guess is that this will be a small blip with a relatively quick recovery.  The U.K. wants to remain friendly with the US and their European allies, so everyone should cooperate and make the transition as smooth as possible.

So, what should you do with your investments?  First, you should have a written plan with a portfolio designed based on your goals, risk tolerance and investing time horizon.  Remember that short-term volatility is why stocks have a higher long-term returns.  Times like these are when your plan can help you stay the course and improve your chances of reaching your financial goals! 


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Help Children Create Good Financial Habits

I come across many people entering their 50s without much retirement savings.  They will have to either work substantially longer than they want or substantially lower their lifestyle in retirement.  Neither is a good option.

If your child has a job this summer, help them create good financial habits so they do not end up in this situation when they are 50.  Suggest they save 15% of what they earn for retirement.  If you want to help them and give them a feel for how employer sponsored plans (like 401ks) work, tell them you will match their contributions dollar for dollar up to 15% of what they earn.  That provides additional encouragement to make saving for retirement a life-long habit.

A Roth IRA account is a great savings vehicle at this age.  Contributions are made after tax and withdrawals are tax free after they reach 59.5 years of age.  Have them buy a total US stock market mutual fund or exchange traded fund and leave the money alone for the long-term.

It is not that the amount of money they are saving that will make their retirement.  The important part is teaching them the habit of saving 15% of their earnings for retirement.  If they do that throughout their career, they should be in financial position for a comfortable retirement when they reach retirement age.

While you are at it, encourage them to give some of their earnings to a not for profit that would be of interest to them.  10% is a good target for this type of giving.

Have a great summer.

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Market Slide

It has been a wild week in the stock market.  As of now (8/24/15 at 9:35 am central), the S&P 500 is down 9.6%, developed international markets are down 10.4% and emerging markets are down 13.2% since they opened one week ago on August 17, 2015.  With a large drop early today in all of these markets.  That can be disconcerting to anyone investing in the stock markets. 

The press is not holding back.  Here are a few web headlines:

CNN – GLOBAL SELL-OFF (in large font bold)

Forbes – Dow Sheds More Than 1,000 Points After Opening Bell (don’t check and see its down 342 points now)

Fox News – WALL STREET MELTDOWN (in large font bold)

The Wall Street Journal – Dow Pares Losses After Plunge But Still Down Sharply in Global Rout

All of these sound scary (at least the Wall Street Journal provides some context).  My wife even called to say that they broke into her radio program to provide a special report on the stock market drop.

No one knows what the stock markets will do in the short-term.  According to Bloomberg Business historically after a 5%+ drop in a week for the S&P 500, 71.4% of the time the return for was positive over the next 12 weeks.  See full article here:


Remember the press is in business to get more reader/viewers.  Sensationalizing is the way they attract more readers/viewers.  Keep a long-term perspective on your investments and do not worry about short-term market fluctuations.  I am not predicting that the markets will be up in the short-term, but I do believe that long-term investors will be rewarded for living with the volatility of owning a well-diversified portfolio designed based on their specific situation.

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Investment Advice

You wake up one day and realize you have a substantial amount of money saved for retirement, but you are not comfortable managing the retirement portfolio you will depend on for income in retirement.  The money may come from years of savings, and inheritance, or a divorce where you ex handled investing in the past.  Where do you turn for help?


There are financial advisors, brokers, registered investment advisors, wealth managers and financial consultants to name a few titles used to describe professionals that provide investment advice.  Three key areas to consider for each professional are their legal obligation to you, their compensation method and their investment approach.


Fiduciary and suitability are the two legal standards that must be followed by investment professionals.  Fiduciaries are required to always do what is in your best interest.  Professionals that adhere to the suitability standard must provide investment options that are suitable for your situation.  Fiduciaries have a much higher legal standard that they must adhere to.


The most important non-investment information you need to understand when looking for investment advice is how the investment professional compensated.  All forms of compensation create conflicts of interest between the professional and their client.  However, a fee only structure minimizes the conflicts.  The fee may be flat or based on the value of the portfolio.  Commission based compensation creates the most conflicts as the investment professional may personally make more by trading more than necessary or investing in products that pay him a higher commission.


You can get great advice from investment professionals compensated with either method.  However, it is important to factor in the compensation method when you evaluate the advice you are being given.


The final area you should understand is the investment approach that will be used in managing your portfolio.  I will cover investment approaches in a future blog entry.

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KDM Blog

The U.K. voted to leave the European Union (EU) and stock markets around the world had a negative re...

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