Welcome to the Jungle - Things to Watch Out for in 2016

The Ostrich Effect 

Bean counters have actually done a study showing that nearly half of us don’t know how much money we will need in retirement. Is this myth or truth? What is a myth is that the ostrich doesn’t actually bury its head in the sand, but it may appear that it does. Either way, if you don’t know how to determine what you will need in retirement, seek the help of an investment professional.

Kiss Frogs 

Kiss a lot of frogs to find your prince (or princess). We all know why we don’t want to keep all our eggs in one basket. What you may not know is that some forms of insurance got started this way, by spreading the risk over many baskets (um, ships) and not just one. In the investment world, this is called diversification, and there are many ways to do it. Make sure you know how.

Multiply like Rabbits 

Multiply like rabbits, but not in the way you might think! I am actually talking about the power of compounding. A little-known fact about compounding: all money is not created equal if invested over different time periods. Tell your college grad that investing $4,000 at age 20 and earning 10% a year until age 60 would give him a nice retirement fund of $181,037—but if he were to wait to invest the $4,000 at age 30 and earn the same 10% a year until age 60, he will only have $69,798. Now that is nothing to sneeze at, but wouldn't you rather have bucket one? That is a simplistic example of the power of compounding.

Counting Sheep

Don’t be a sheep and follow the herd—they may be going in the wrong direction. If you are investing in a good strategy, know that every good strategy still has its issues. So, be aware of the normal fluctuations of your strategy and hold the course. If you can’t, you may be in the wrong strategy. But course correction is often the reason why many of us don’t get the same returns over time, because we didn't hold the course during the normal fluctuations of our investment and see it through. Working with your financial advisor may help you overcome your fears and make the right move.


Just as successful athletes rely on coaches and trainers to help them achieve their goals, most investors can probably benefit from having a "financial coach" to remind them about their New Year's resolutions and keep them on track toward a more prosperous future.

Wishing you and your family good health and good wealth in 2016!


                                                    Your Team at BMM

.....Because Money Matters

Investment advisory services are offered through Berson Money Management, a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.  This article was provided by courtesy of Dimensional Fund Advisor LP, an investment advisor registered with the SEC. This communication is not to be directly or indirectly interpreted as a solicitation of investment advisory services to residents of another jurisdiction unless otherwise permitted.   The contents of this email and any accompanying documents are confidential and for the sole use of the entity to whom they are addressed.   They are not to be copied, quoted, excerpted or distributed without express written permission of the firm.  Any other use beyond its author's intent, distribution or copying of the contents of this e‐mail is strictly prohibited.  Nothing in this document is intended as legal, accounting, or tax advice, and is for informational purposes only.

Divorce American Style—Important milestones

Divorce is painful for most of us no matter the duration of the marriage.  It probably doesn't occur to you to think about it, but it should-because how long you were married may affect how your State's Divorce Court considers alimony and other issues.

Knowing what your state considers a “long duration” marriage will affect the payout of alimony.  Interestingly, in New York, no spousal support is usually ordered until the couple has been married for at least twenty years. While in California and Texas the duration of your marriage is 10 years. If you have been married for a shorter duration, then any alimony payout will usually be calculated over a much shorter time period.

How about splitting retirement accounts? Many couples know that the spouse usually gets a payout from the other person's retirement account. However, I have found that most don’t realize that the payout doesn't have to go directly to the spouse in their name-but can go into a retirement account in their name, savings on taxes.  You accomplish this with a court ordered QDRO, which will allow the payout to be made directly into the recipient’s retirement account.

This is true of a pension plan as well.  Usually there is no distribution from a Defined Benefit Pension Plan until that person retires.  However, the spouse is eligible for a portion of that payout.  You also need the QDRO and it needs to be recorded with the Defined Benefit Pension Plan.  With a Defined Contribution Pension Plan, usually known as a 401k, there can be a court-ordered QDRO which will allow for a tax-free distribution to the recipient’s retirement account.

As with most things, these decisions are based on your state’s divorce and tax laws, so always seek the advice of your financial team. At Berson Money Management, your financial team usually consists of your attorney, CPA, and advisor. Often it will include your mortgage broker, insurance broker, and banker so that your team is working for you on all of your financial needs.

Investment advisory services are offered through Berson Money Management, a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.  This communication is not to be directly or indirectly interpreted as a solicitation of investment advisory services to residents of another jurisdiction unless otherwise permitted.   The contents of this email and any accompanying documents are confidential and for the sole use of the entity to whom they are addressed.   They are not to be copied, quoted, excerpted or distributed without express written permission of the firm.  Any other use beyond its author's intent, distribution or copying of the contents of this e‐mail is strictly prohibited.  Nothing in this document is intended as legal, accounting, or tax advice, and is for informational purposes only.

Legacy Planning: Passing Your Wealth to the Next Generations

For years, the Family Living Trust was an important tool used in legacy planning by your financial team.  One of the purposes of this Family Living Trust was to help you transfer as much of your wealth to your heirs by saving on estate taxes (a.k.a. transfer tax—transferring your wealth to the government).

However, when the estate tax law changed it became less of an issue for estates valued below $10.6 million for a couple or $5.3 million for an individual because there was no estate tax.  So, do you still need a financial team in legacy planning?

Absolutely.

There are areas that are often missed and can cause issues for many families if not addressed.  This article will shed light on a few of those areas, and I recommend you reach out to your trusted advisor and advisory team for more details on what to do and how to protect your family and your legacy.

Let’s start with why you need legacy planning.  Legacy planning is used to pass as much of your wealth as possible to your heirs and to continue to create financial security for your spouse and your family (heirs) after you die. I have found that often only one person in a family will handle the financial affairs and planning.  If he/she is the first to die, then any planning that may have be done over the years usually goes awry.  Why?

A recent article in Investment News by Liz Skinner states that statistics show that 70% of family wealth disappears by the end of the second generation and 90% by the end of the third generation.

The article went on to highlight one of the reasons for this, and the example made me smile: A financial advisor had helped his client with legacy planning because the client wanted to make sure his son was financially secure.  He never had any discussion about his planning with his son.  Then, the week that the client passed away, the advisor got a call from the son wanting to know how soon he could have the money.  He was building a pool and the contractor needed to be paid.  So much for dynasty planning.

Not surprising, as many of us don’t include our grown kids in these discussions. And often it isn't a two sided conversation.  It seems that talking about money has always been such a difficult conversation.

Many of us will say that we never had these conversations with our parents when we were younger.  However, we don’t have to make this the norm.  I encourage clients to begin talking to their kids and teaching them what they know about money, as well as learning what their kids already know about money—and then planning as a family.

I have a client who inherited money, along with his 3 adult children, when the last of his parents passed away.  But his parents’ planning and what they had hoped for their heirs wasn’t clear.  While they wanted to honor the parent/grandparent, they didn’t know what that meant.

Proper contingency planning is often overlooked and can cause havoc with your estate.  Retirement accounts should have a designated beneficiary but often don’t.  Many clients don’t realize that naming their trust to be the beneficiary of their retirement plan isn’t a good idea, as it will cause a distribution from the IRA, and then taxes will be due immediately, eroding the value of the account.

A retirement account must name your spouse as your beneficiary.  However, the spouse is allowed to sign and acknowledge you are naming someone else as beneficiary (such as your child or grandchild).

Name a contingent beneficiary(s) in the event a primary beneficiary has passed.  Review the beneficiary information regularly, as death or divorce may change what is best in the legacy plan.  The paperwork should be as complete as possible, so you usually need their name, date of birth, relationship to you, and social security number.

When a spouse dies, it isn’t unusual for the other to remarry.  In fact, 61% of male widowers are in a new romantic relationship within 25 months of a wife's death. These new relationships can create issues later for the combined families.  One area of trouble can be spousal sharing rules and homestead rights, which in some states can trump wills. You definitely want to have a discussion with the estate attorney and your financial advisor about this.

Planning involves discussing the pros and cons to determine the right decision for your family. Talk to your team of financial experts, the estate attorney, CPA, and your financial advisor to decide what’s best for you.

I hope this stirs some thoughts and discussions to aid you and your loved ones.  Your financial team of experts working with your trusted advisor at Berson Money Management would be happy to discuss this or any other financial matters with you.

Investment advisory services are offered through Berson Money Management, a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.  This communication is not to be directly or indirectly interpreted as a solicitation of investment advisory services to residents of another jurisdiction unless otherwise permitted.   The contents of this email and any accompanying documents are confidential and for the sole use of the entity to whom they are addressed.   They are not to be copied, quoted, excerpted or distributed without express written permission of the firm.  Any other use beyond its author's intent, distribution or copying of the contents of this e‐mail is strictly prohibited.  Nothing in this document is intended as legal, accounting, or tax advice, and is for informational purposes only.

New Year's Investment Resolutions

It's that time of year when many of us think about establishing one or more New Year's resolutions. Everybody wants to be healthier, and many people want to be wealthier, but it's just not that easy. Most of us are creatures of habit and discover that making permanent changes in our behavior is surprisingly difficult.

Perhaps a set of New Year's Investment Resolutions, along with an advisor capable of helping investors adhere to them, will lead to a more prosperous future. Below are ten investment-related resolutions that will hopefully result in better long-term wealth:

1.	I will not confuse entertainment with advice. I will acknowledge that the financial media is in the entertainment business and their message can compromise my long-term focus and discipline, leading me to make poor investment decisions. If necessary I will turn off CNBC and turn on ESPN.
2.	I will stop searching for tomorrow's star money manager, as there are no gurus. Capitalism will be my guru because with capitalism there is a positive expected return on capital, and it is there for the taking. And for me to succeed, someone else doesn't have to fail.
3.	I will not invest based on a forecast—whether it is mine or anyone else's. I will recognize that the urge to form an opinion will never go away, but I won't act on it because no one can repeatedly predict the future. It is, by definition, uncertain.
4.	I will keep a long-term perspective and appropriately consider my investment horizon (i.e., how long my portfolio is to be invested) when determining my performance horizon (i.e., the time frame I use to evaluate results).
5.	I will continue to invest new capital and work my plan because it is time in the market—and not timing the market—that matters.
6.	I will adhere to my plan and continue to rebalance (i.e., systematically buying more of what hasn't done well recently) rather than "unbalance" (i.e., buying more of what's hot).
7.	I will not focus my portfolio in a few securities, or even a few asset classes, as diversification remains the closest thing to a free lunch.
8.	I will ensure my portfolio is appropriate for my goals and objectives while only taking risks worth taking.
9.	I will manage my emotions by learning about and acknowledging the biases and cognitive errors that influence my behavior.
10.	I will keep my cost of investing reasonable.

Just as successful athletes rely on coaches and trainers to help them achieve their goals, most investors can probably benefit from having a "financial coach" to remind them about their New Year's resolutions and keep them on track toward a more prosperous future.

We wish you and your family good health and good wealth in 2015.


BMM .....Because Money Matters



Investment advisory services are offered through Berson Money Management, a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.  This article was provided by courtesy of Dimensional Fund Advisor LP, an investment advisor registered with the SEC. This communication is not to be directly or indirectly interpreted as a solicitation of investment advisory services to residents of another jurisdiction unless otherwise permitted.   The contents of this email and any accompanying documents are confidential and for the sole use of the entity to whom they are addressed.   They are not to be copied, quoted, excerpted or distributed without express written permission of the firm.  Any other use beyond its author's intent, distribution or copying of the contents of this e‐mail is strictly prohibited.  Nothing in this document is intended as legal, accounting, or tax advice, and is for informational purposes only.

Making Costly Mistakes

Recently during an introductory meeting with a prospective new client, the following questions came up:

      - Why do I need a financial advisor?

      - Can't I build my own portfolio and pay much less?

Those are really great questions and we are the first ones to admit, having reviewed many portfolios, that some investors are able to design good portfolios. In fact, we know that portfolio structure and low cost are the main contributors for wealth accumulation. 

So, is the question really about advisory fees or, rather, gaining a better understanding of the benefits of having a financial advisor onboard?

Shouldn't the question be: "What is the real value of an advisor?"

The answer is simple: Behavioral Finance.

It is a term we use to help clients understand that the future outcome of their financial well-being depends on how they make decisions with their money.

What exactly do we mean by that? Take a moment to read and honestly answer the following questions:

How do I know with certainty that my decision-making process is truly a rational one?

Is it possible that my brain is wired to create and use faulty shortcuts, influenced by past investment experience?

Would I benefit from understanding why the brain makes investment mistakes?

And last, what is the value of avoiding those costly mistakes in the future?

Below are just a few examples of the brain's systematic errors, best described with behavioral biases.

• Familiarity Bias: Investors have a bias toward stocks they know. Frequently, they favor their employer's company stock and take comfort owning large U.S. company stocks. In both cases, the results are poor diversification, higher volatility, and potentially lower returns. "Owning what you think you know" can be a costly mistake.

• Over-Confidence Bias: This systematic error of the brain is very pervasive in people thinking they are smarter than everyone else. Being very bright does not necessarily translate into superior stock selection. Trying to bet against the collective knowledge of millions of other smart investors can sometimes lead an individual down a path of gambling away their fortune. Over-confidence bias is a serious threat to prosperity.

• Hindsight Bias: We all know that past performance is no guarantee for future results, or as we like to say: "hindsight is not foresight." Knowing that interest rates are at historic lows or stock markets are reaching new highs doesn't tell us anything about future results. Using the past to predict the future is really not foresight; it is still hindsight. Investors who have stood on the sidelines for many years waiting for the next big market drop in order to get in at a discounted price have to admit that hindsight bias can be a costly mistake.

So, the answer to the question, “what is the real value of an advisor?” is simply this: We provide the tools to help clients look at their behavioral biases and gain an understanding of how they make important decisions with their money—and how they may be doing it irrationally. Realizing our brain's own shortcuts and the impact it can have on our financial future is important. Having a financial advisor to prevent you from making costly mistakes in the future is invaluable.

Summing it all up:

We described a few examples of the many shortcuts our brain uses and how we make important investment decisions based on irrational biases. As financial advisors, we might not always agree with you, but our first priority is your financial well-being.

Think of BMM as your financial physician. Doctors go through your prior medical history, trying to cure whatever ails you by providing medicine or treatment. We are in business of increasing not your health, but your wealth.

It is our responsibility to help clients not only recognize behavioral biases and faulty reasoning, but more importantly to prevent them from making costly mistakes in the future. That is the true value that we as financial advisors add to our clients.

Investment advisory services are offered through Berson Money Management, a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.  This communication is not to be directly or indirectly interpreted as a solicitation of investment advisory services to residents of another jurisdiction unless otherwise permitted.   The contents of this email and any accompanying documents are confidential and for the sole use of the entity to whom they are addressed.   They are not to be copied, quoted, excerpted or distributed without express written permission of the firm.  Any other use beyond its author's intent, distribution or copying of the contents of this e‐mail is strictly prohibited.  Nothing in this document is intended as legal, accounting, or tax advice, and is for informational purposes only.

Is the U.S. Stock Market Overvalued?

I always make the effort to be very straightforward about how I approach a person’s finances.  This way my client and I will have no concerns as to where we are along our journey.

So, when I read the many Wall Street articles on this question, I found many misconceptions about our stock market today.  I wanted to write this article to clear up some of them and hopefully give you my insights on how to protect your investments the way successful investors do.

It begins with a strategy that outlines where a person is today in their financial health as well as where they are going.  Some people are at the very beginning of their financial health and need to tweak their fastest pathway to cash, while others are looking for their investments to grow.

We hear people talk about success in investing but most don’t talk about failures.   However, both are present.  Most people love to talk about the bull (stock markets moving up) versus the bear (stock markets moving down).  Today’s bull market began in 2009.  And for the past 5 years, it has been in an upward tear.  In fact, in 2012, the stock market (S&P 500) rose over 16% and a year later, in 2013, it rose over 30%.

So it doesn't surprise me when people worry about the stock market being overvalued.  At some point, this bull market will reverse and turn into a bear market.  Today’s 5-year bull market preceded our 2008 bear market where the stock market (S&P 500) dropped 37%.

The math will explain why a double digit fall can be so devastating.  As an investor, if you have a $100,000 investment account and it drops 37% ($37,000), you feel that.  And it doesn't feel good.

Ever start a hike walking downhill before having to turn around an hour later and walk back up the hill?  Walking up the hill is much harder and not nearly as fun.  That is the reality.  And this is the fear—because you would need more than a 60% return just to bring you back to your starting point of $100,000.

So, is our stock market (S&P 500) overvalued today?  In my opinion, it is.  But that isn't the question an investor should be asking.

As an investor, it is important to have a clear investment strategy—one that recognizes where you are today, what your needs may be over the next year and in the future, and how to best get you there while allowing you to sleep soundly at night.

This strategy is important no matter what our stock market is doing.  That doesn't mean you can’t invest a portion of your investment to protect you from a 37% decline.  That doesn't mean you can’t invest in the stock market.  It simply means having several strategies in place.

You could include a strategy that will reduce the downside exposure in the U.S. stock market during a severe bear market.  And add a global asset allocation strategy in addition.  There are many options.

The idea that you can’t time the stock market is nonsense.  However, most are looking for perfection—and that isn't a strategy.  This is no different than trying to correctly time which is the right lane to be driving in during severe traffic congestion.  You should focus instead on how to reach your destination safely.

It doesn't matter if you are person who breaks at every red light or if you floor the gas pedal when the traffic
light goes from green to yellow.   Knowing the risk in all cases and having a strategy to get you home safely is what is important.  Stock markets fluctuate.  This is expected if you are an investor.  Having an investment strategy in place to handle these fluctuations should be a requirement for every sound investment plan.

But the question at hand is, “should I be heading for the exit?”  At this point, I can only talk from a blind position, meaning one without a strategy in place.  But as of today, no, I wouldn't recommend heading for the exit.  Even though I believe the market is severely overvalued, I also believe it can still move higher.  I believe we will have a good 2014 and possible even a good 2015 in the S&P 500.

My advice is to develop a sound strategy that matches your temperament as a long-term investor.  In my experience, finding the next greatest hit is harder than market timing and usually the hit doesn't last forever. 

If you need help putting a strategy into place, we would love to be of service to you. Please schedule an appointment with us.

Investment advisory services are offered through Berson Money Management, a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.  This communication is not to be directly or indirectly interpreted as a solicitation of investment advisory services to residents of another jurisdiction unless otherwise permitted.   The contents of this email and any accompanying documents are confidential and for the sole use of the entity to whom they are addressed.   They are not to be copied, quoted, excerpted or distributed without express written permission of the firm.  Any other use beyond its author's intent, distribution or copying of the contents of this e‐mail is strictly prohibited.  Nothing in this document is intended as legal, accounting, or tax advice, and is for informational purposes only.

Finding the Best Investment Provider for You.

There are many reasons you may want help with investments: Maybe you are evaluating your options to assist you in saving for retirement; maybe you are looking for the right options for college planning for your children; or perhaps you are looking for help with the 401k or 403b choices your employer offers.

Without the right tools or understanding, investing can be confusing.  But often, my clients tell me that the harder choice for them has been to find the right investment provider.

I fully agree.  And we are not alone.  In 2010, the government signed the Dodd-Frank Wall Street Reform and Consumer Protection Act.

One of the reasons was to review whether all financial advisors, brokers, planners, and insurance agents should be held to the same fiduciary standards of a Registered Investment Advisor.

Simply put, the Registered Investment Advisor is held to a fiduciary standard that requires the action they take to be in the best interest of their client, while a broker or insurance agent is not held to that same standard.  Why?  Because, according to the law, their role is viewed differently.  The broker is in the business of buying or selling securities (trading) on behalf of their clients.  They are held to a suitability standard that the investment is appropriate to their client.  So, you might be left wondering, is there really a difference?

It has been 4 years since the signing of the Consumer Protection Act—so where are we today?  Unfortunately, we are still at a standstill due to opposing positions.

BMM would like to work with you to help you understand your options and choices.  Contact us for a private consultation.  In addition, here is some information that may help.

Investment Advisors: The term investment advisor is a legal term that describes a broad range of people who are in the business of giving advice about securities (which can include stocks, bonds, mutual funds, ETFs, and annuities).

They may use a variety of titles including investment manager, wealth manager, or portfolio manager.  They provide ongoing management of investments based on the client’s goals and objectives.

The client gives the advisor the authority to act on a discretionary basis, meaning that the advisor is allowed to make investment decisions without having to get prior approval from the client on every transaction.  Their role should be to come up with a investment plan that meets your goals over time.  It should take into consideration your risk tolerance and your needs.  And you should meet on a regular basis to review the plan and your goals.

Brokers: The term broker and broker dealer are legal terms that refer to people who are in the business of buying or selling securities (called trading) on behalf of the customer.  Individual sales people employed by brokerage firms (Merrill Lynch, Morgan Stanley, et al) are often called stockbrokers and are officially referred to a registered rep of the brokerage firm.  The sales people can also use titles like financial consultant, financial adviser, or investment consultant.   Again, they are sales people who are held responsible for the suitability of the product you buy from them.

Financial Planners: This is not a legally defined term.  It generally refers to a provider who develops and may implement a comprehensive financial plan that typically covers such topics as estate planning, tax planning, insurance needs, debt management, college planning and/or retirement planning.

Confused?  Not at all surprised.  Maybe this will help.

How do you want to pay for those services?

·      Management fee - A fee based on the percentage of assets under management by your investment advisor.  When the value of your assets increases, your advisor will increase the fee they collect.  However, when your account drops in value, the fees the advisor earns will also drop.  This is attractive to folks who want to feel the advisor will share in the gain and feel the loss on the downside as well.

·      Commissions – Brokers usually receive their compensation based on the commissions you pay each time they buy or sell a security or in addition from the product they sell you.  This can be an affordable option if you rarely make changes in your account and you want more control on what you buy and why.

·      Fees - Financial planners usually charge a fee for services provided.  This can be an hourly fee, a flat project fee, or an ongoing retainer fee.  And sometimes they may include a performance fee in addition to measure how well the account is doing.  Some also can be paid if they sell you a product, like a annuity.

Last but not least is the legal component.  For this discussion let me refer you to consumer advocate groups so you can do your due diligence:

Investment Adviser Association
Consumer Federation - Where to turn for help on your investments

Investment advisory services are offered through Berson Money Management, a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.  This communication is not to be directly or indirectly interpreted as a solicitation of investment advisory services to residents of another jurisdiction unless otherwise permitted.   The contents of this email and any accompanying documents are confidential and for the sole use of the entity to whom they are addressed.   They are not to be copied, quoted, excerpted or distributed without express written permission of the firm.  Any other use beyond its author's intent, distribution or copying of the contents of this e‐mail is strictly prohibited.  Nothing in this document is intended as legal, accounting, or tax advice, and is for informational purposes only.