“What’s Next Lecture Series” Event Sponsored by Pacific Mountain Advisors!

We would like to invite community members from the Santa Cruz Area to join us for a What’s Next Lecture Series Event to be held next Wednesday October 19 at 7:30 p.m. at the UCSC Music Center Recital Hall.

Pacific Mountain Advisors is sponsoring this lecture by Jacqueline Novogratz, author of The Blue Sweater: Bridging the Gap Between the Rich and the Poor in an Interconnected World.

We hope you can join us for what’s sure to be a thought provoking discussion. Make sure to save 45% by purchasing your tickets in advance here online.

We look forward to seeing everybody there!

Part Three: Retirement in Times of Uncertainty – Managing Retirement Income

For years, many retirees and people near retirement could bask in the near certainty that with sound asset allocation and a long term investing perspective, they could expect a steady and possibly even a growing stream of income during retirement.  Unfortunately, the recent global credit crises and ensuing recession has forced many investors to reevaluate their retirement income strategy.  Given that we are in a period of unprecedented uncertainty and global economic turmoil, what can be done to help provide a stress free retirement?

Clearly define your current and future income needs
The amount of income you require changes over time and is different for everyone but there are generally four phases that are relevant to most individuals.

1. The Spending Spree: During the first phase, people tend to initially spend a bit more than they did while working because of pent-up demand for activities like traveling and remodeling.This phase typically last 2 to 4 years and spending tapers off over time.
2. Reversion to the Mean: In the second phase, expenses tend to decline back to the pre-retirement level as the activities on people’s “want-to-do” list gets completed.
3. The Golden Years: During the third phase, overall expenses usually decline even further as people settle into their golden years and become less active. However, a notable exception is that health care expenses generally rise during this stage and should be taken into account as part of any comprehensive financial plan.
4. Accelerating Expenses: In the fourth phase, expenses can accelerate significantly due to the increased cost of health care and senior support services. Although this phase is typically the shortest, it tends to consume a relatively large portion of total retirement assets.

An understanding of these phases provides valuable insight into your potential  income needs and enables you to proactively plan for the future. It will also be helpful to consider both essential and discretionary income needs so that you can build some flexibility into your ultimate plan in order to respond to the many unanticipated future events that may occur.

Conservatively assess where you stand now
After projecting your future income requirements, the next step is assessing the likelihood that your resources will be adequate to meet these objectives. You should work with your financial advisor to establish reasonable assumptions for income growth, investment return, tax rates, inflation, etc. so that you will have a general idea regarding how close you will be to meeting (or exceeding) your goals. When making assumptions, it is best to use conservative estimates so that you won’t be taken by surprise by any unseen bumps in the road.

Create a strategy for success
After determining where you currently stand in relation to your goals, you can make adaptive choices to ensure success or you may decide that you don’t need a second vacation home and maybe your children can take on student loans or work part time to help cover education expenses. Delaying retirement, working part time and selling a primary residence are all common tactics for getting your financial plan back on track.

It’s also important to speak with your financial advisor about tactical distribution strategies such as whether to take distributions from your Roth or regular IRA first and what allocation of income versus growth investments is optimal.

Regularly review your strategy and progress
Life is an ongoing process of adapting to change and any retirement income strategy must be regularly reviewed and revised to ensure long term success. Changes to tax law, economic conditions, your personal life and health challenges are all things that could affect your strategy. Meeting with your financial advisor at least annually will help you stay informed and on track to meet your goals. Independent studies have shown that people who meet at least once a year with their financial advisor are more likely to feel confident about their future and to successfully achieve their retirement goals.

If you have any questions or concerns about your retirement strategy and progress, we would be happy to have a conversation with you so feel free to give us a call or send us an email.

All the best,
Pacific Mountain Advisors Team

Part Two: Investing in Times of Uncertainty – Low Risk and High Yield Strategies

In our previous post we emphasized the importance of having a comprehensive financial planning review as way to manage uncertainty and the never ending process of change. An important fundamental aspect of any personal financial planning review should include an analysis of your investment portfolio strategy. An investment strategy review enables you to incorporate new research and adapt to actual and probable changes in the global macro-economic landscape as well as your personal financial situation.

Since October 2007, we have seen the S&P 500 move from 1,565 down to 666 and then back up to 1,180. During that time, economic analysts made a wide range of predictions including a “small correction in housing” to a complete collapse of the financial markets leading to a second depression. Even now, there is nothing close to consensus on where the economy and market are heading due to pervasive and unprecedented systematic uncertainty. On one end of the spectrum, we have analysts forecasting a 1937 style double dip recession arising from sovereign defaults, deterioration in the commercial real estate market and a prolonged period of above normal joblessness which will eat away at consumer spending. However, there are analysts on the other side of the spectrum predicting a very robust recovery due to pent-up consumer demand supported by the expanding middle class in emerging markets.

The uncertainty arising from these widely disparate outlooks can make investment decisions all the more challenging. Fortunately, the ability to predict the future is not a requirement for successful investment management. At Pacific Mountain Advisors, we have observed over recent years that there is a suprisingly small correlation between performance metrics such as earnings/GDP growth and the prices of stocks. For example, the S&P 500 had one of its best performing years in 2009, even though unemployment was rising and GDP was contracting. Markets initially recovered last year as investors cheered that we had avoided a total global economic collapse, however, the subsequent stages of the rally took place because investors began speculating that economic conditions would dramatically improve resulting in the much ballyhooed V-shaped recovery. Although we would like to believe that the speculators are correct, we feel that it is wise to remain cautious and flexible until economic facts support this belief.

It’s easy to get caught up in the black and white hype of boom or bust, however reality is much more colorful and digging your heels in with either camp forces you into a situation where heads, you win – tails, you lose.  By remaining flexible and diversified we are better able to better manage volatility, reduce risk and benefit from the widest possible range of outcomes. For these reasons, we continue to be rooted in the core fundamentals of our value oriented  investment methodology such as diversification, cash flow and tactical asset allocation/rebalancing.

Since the founding of Pacific Mountain Advisors, our focus on intrinsic value, demand-based fundamentals and portfolio cash flow has helped us to substantially outperform the overall stock market on a risk adjusted basis. Although some aspects of our proprietary methodology have changed, our overarching principles remain untouched. We seek out investments that  A.) Are more conservatively valued relative to the overall market, B.) Have a history of paying substantial dividends that are growing (historically, reinvested dividends have accounted for over 40% of the stock market’s total returns), and C.) Stand to benefit from secular or demand driven growth trends such as clean energy or emerging economies. This low-valuation and high dividend approach enhances long term investment returns while also providing shorter term price support.

It is generally believed that nobody can reliably predict the future, however, not only is that technically untrue (you can predict that the world will continue to change and will be much different ten years from now), it also completely fails to address the real issue that you do not need to predict the future in order to effectively manage investments. Time spent trying to see into a crystal ball will surely be less productive than working with your financial advisor to  implement a diversified investment strategy customized to your individual situation and reviewing it on a regular basis. This will help ensure better outcomes by keeping your portfolio up-to-date with the constantly evolving markets as well as changes in your investment goals and preferences.

“I don’t look to jump over seven foot bars; I look for one foot bars that I can step over”.
– Warren Buffet

All the best,
Pacific Mountain Advisors Team