Articles of Interest - Amphora Wealth Management

The “Hit By the Bus” Binder

Created on Sunday, 07 December 2014 18:00

By Brian Zdrowak

I am 35 years old, and the world is in front of me. I have a wonderful and supportive wife, three fun and energetic kids under the age of 5 and a dog. My wife and I are trying to balance it all: being good parents, finding time for each other, playing tag at the playground for endless hours and building a career. Then, my worst nightmare occurs. Late one night, my wife receives a call that, while on my way home from working late, I have been in a terrible car accident. She rushes to the hospital, anxious, hoping and praying only to learn that by the time that she arrives I am dead. She is 33. Not only does she have to be there for the kids and deal with the loss of her husband, she has no idea where we stand financially.

I actually dreamt this scenario prior to a business trip to Houston. My mom died when I was 5 and, with my oldest child having just turned the same age, I found myself worried about how my family would fare without me. Most of all, I worried about what my wife would do and whether she would be okay. I had been handling all of the family’s finances since we were married and I started to wonder, was it realistic to expect my wife to just step in if something happened to me? It was at this point that my wife and I sat down to put together a financial plan for our family, which included the first edition of our ”Hit by the Bus” binder.

Hopefully you can find something meaningful in our experience, and in the financial planning lessons we learned from it. Perhaps it’s applicable to your own life. Regardless, a “Hit by the Bus” financial planning binder is a valuable way to prepare for the worst.

As we started talking through our situation and putting together a plan, we realized that we had no life insurance, a woefully outdated will and no documentation showing where our savings and investments were. Prior to this, my plan (which was in my head) was for my wife to rejoin the workforce if something happened to me. However, we both came to realize that even though my wife is extremely talented and a hard worker, jumping back in the workforce after raising our kids for five years, and at her previous salary level, was not realistic. With significant household debt and household savings that were still building, if something happened to me, while the emotional toll would undoubtedly be hard, the financial toll could be a true disaster. Therefore, we both agreed that at this point in our lives, life insurance for each of us was our first step.

Next, we agreed to put together our survivors guide, the “Hit by the Bus” binder. Within this binder we listed our key contacts, such as our insurance agent, a human resources representative for dealing with work benefits, and our lawyer and tax accountant. Also included was our banking information, including the safe deposit box key, and a list of the safe deposit box contents. Finally, we included a back-up record of our family finances, specifically our investments, user names, passwords and the appropriate contacts. Our intention was to re-visit this binder every few years. In reality we update it any time we both travel.

My family is my most cherished treasure, and it is sad to think about how little time I had dedicated in those early years to ensure they would be OK. Raising a young family is hard, especially finding the time to dedicate to planning for financial stability. Thank goodness I had that terrible dream. It’s even better that it did not happen, particularly before our plan was in place. If it had, it would have put a huge strain on my family. The loss of a breadwinner is hard enough. But how horrible would it have been for my spouse to deal with my loss, the need to be strong for the kids and then, on top of all that, have no time to grieve because she was busy looking for our passwords and worrying about whether she could pay the mortgage? I would like to believe my family would have managed, and that our extended families would have been there to support them. But looking back, I can't believe we took that chance.

Today, our dog has been replaced by two cats. My kids are 16 years older and growing into wonderful young adults who still keep us running. My wife and I are enjoying more time together. We now have a good financial plan in place and our “Hit by the Bus” binder continues to be updated for the benefit of the survivor.

For some, talking about finances and planning for the future is like going to the dentist. It’s the last thing we want to do. At the very least, however, it’s important to have a plan in place, one that includes a “Hit by the Bus” binder. Include the names of your most trusted advisors and the location of passwords, user names and your investments. Doing so will provide some direction to your survivors, especially during a very emotional time. It will provide time for the survivors to be there for each other, mourning the loss of a loved one.

Copyright © 2014, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.

The Risk of Reacting

Created on Sunday, 23 November 2014 18:00

By C.J. Baxter

Many investors are feeling a little jittery these days, and rightfully so. We have had to deal with fears of Ebola, constant tension in the Middle East and a sluggish overseas economy. And that short list fails to mention we recently went through one of the biggest market pullbacks since The Great Depression. With the events of the 2008 crash so close in the rear-view mirror, many investors think the latest market volatility means that we are now doomed to repeat that down cycle (we call this a “recency” bias).

However, when things get a little unnerving, don’t conclude that it’s best to just sit on the sidelines for a while and then get back into the market when it's "safe." It never really is. Instead, consider the graph below.

It illustrates how missing out on just a few days or weeks can hurt your performance. The graph presents the annualized compound return and growth of $1,000 dollars invested in the S&P 500 Index from 1970-2013.

The first bar shows us that staying invested throughout this period would have produced an annualized return of 10.40 percent. Now look at the third bar, and you will see that missing out on the five best single days during this period could have reduced your performance to 9.33 percent. Now let's look at the fifth bar. As you can see, this bar demonstrates that missing the 25 best single days in that period would have reduced your return to 6.86 percent. That’s a difference of 3.54 percentage points. And it’s from leaving the market for only 25 days (less than a month) over a 33-year period.

Now, to really drive the point home, let's frame this scenario with a larger dollar value. If you invested $100,000 in 1970 and applied the index's performance of 10.40 percent compounded annually over the same period, you would end up with $7,780,400. That’s what you would earn from staying invested the entire time. If you use the same scenario, but plug in the 6.86 percent return, compounded annually, that an investor would earn from of missing the 25 best days, you end up with $1,853,300. The difference is more than $5.9 million. What would you do with that additional money?

This is why it’s so important to have a solid investment plan in place. If your plan is built to suit your goals and risk tolerance, hopefully you won’t feel the need to jump in and out of the market. Another crucial aspect of such a plan is to engage a fiduciary advisor, who will make sure that you stick with it.

Recently, I reached out to reassure a client about the market’s volatility. He simply responded back, "That's what seatbelts are for!" Not only did I get a good chuckle, but I realized that it made a great metaphor for the role of an advisor. When the road gets rough and bumpy, advisors are there to make sure you don't go flying off course, keeping you buckled down and disciplined so you can reach your financial destination in the most prudent way possible.

Disclosure: Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. In U.S. dollars. Performance data for January 1970-August 2008 provided by CRSP; performance data for September 2008-December 2013 provided by Bloomberg. The S&P data are provided by Standard & Poor’s Index Services Group. U.S. bonds and bills data © Stocks, Bonds, Bills and Inflation YearbookTM, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).

From the Sharpie of Carl Richards

Created on Sunday, 23 November 2014 18:00

By Carl Richards

At the start of 2014, predictions of a market correction were rampant. So what has happened? The market has gone up on some days and down on others, and the volatility that was absent in 2013 has returned. This has led to even more talk about market corrections and projections about what lies ahead. But the problem is those predictions are based on feelings and emotions. An investment plan should be based on data and evidence, and it should take into account the inevitable fluctuations that the market experiences.

In fact, Carl Richards, director of investor education for the BAM ALLIANCE, writes in his book The Behavior Gap about the importance of staying level amid market ups and downs: “It makes far more sense to ignore what the crowd is doing and base your investment decisions on what you need to do to reach your goals. But man, is that hard to do.

“It’s not that we’re dumb. We’re wired to avoid pain and pursue pleasure and security. It feels right to sell when everyone around us is scared and buy when everyone feels great.

“It may feel right. But it’s not rational.”

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