APRIL 2010 NEWSLETTER

From the desk of Matt Brennan

This past month I had the opportunity to watch a great deal of college basketball. The NCAA Tournament is far and away my favorite rite of Spring. However, the least appealing aspect of the tournament is the countless commercials from financial services firms that pepper the viewer. I counted an average of three per commercial break. Two ads that you may be familiar with stood out to me.

In the first commercial, investors are seen walking around every-day life holding large orange numbers in their hands. These numbers are meant to represent “The Number”; as in, the amount of money you need to accumulate in order to successfully retire. One version of the ad depicts an investor chiding his neighbor about the fact that he does not know his own number. While I will credit the commercial with being a unique representation of a common variable in financial planning (Your “number”), I did perceive the core message to be disconcerting: Accumulate a certain dollar amount, and then forget the rest.

The second ad that routinely catches my eye uses a computer generated green pathway on the ground that guides investors towards a destination. Dubbed, ‘The Roadmap to Retirement,’ the green line represents the firms ability to show you what you need to do in order to reach this place, or state of being. The simple question that continually pops up in my head every time I see this is: “But then what?”

The accumulation phase is a very important period of time in the life of an investor. Acquiring a sufficient amount of savings and resources to feel comfortable enough to retire is no easy task. However, the notion that the achievement of “The Number” is where the game ends is extremely misguided in my opinion. Equally important is the distribution phase; the life you live in retirement where you are dependent on those savings and resources to provide the cash flow you need on a monthly basis. Reaching a certain dollar threshold, and then assuming you can “set it and forget it” is a certain recipe for failure.

The March 2010 issue of Kiplinger’s draws attention to an August 14th, 2000 article in Fortune Magazine. The title of the article being reviewed was “10 Stocks to Last the Decade.” The piece shared 10 specific stock tips that an investor could follow and be confident that they would come out ahead 10 years down the road. Here in 2010, we have the benefit of hindsight. We have all lived through the past decade and experienced the roller coaster ride the markets have taken – beginning with the tech bubble bursting and ending with the unraveling of the subprime mortgage crisis. If you are interested in all the details, the Fortune article can be found online, however here were the highlights –

• Only One of the selections produced a positive return (Genentech)
• The second best performer in the group was down -34% over the period (Oracle)
• One of the recommendations was Enron

Looking back, the list seems almost comical. However, you probably would not find it humorous if you had followed the recommendations and purchased the 10 stocks in 2000 and failed to open a statement until 2009. Investment markets will rise and fall, the important thing is that you have a plan in place for providing you the income you need throughout retirement. There are several variables to analyze in order to determine the most appropriate funding source for this income. Tax efficiency, investment yield, portfolio performance, and rate of withdrawal are just a few for consideration. As the Kiplinger’s article suggests, simply acquiring a sum of money and moving it into stocks is not a sufficient plan – Hope is not a valid investment strategy.

A true wealth management firm must develop a portfolio that is not only tailored to your specific situation, but they must manage long-term risk by forecasting what lies ahead. Your plan must be continually revisited and tested for potential shortcomings. Being comfortable enough to retire is a big step, living your best life in retirement is what will define your success.

Until Next Month,

Matt Brennan