Who Needs a Plan? We Do. You Do.

It is a fair question to ask your financial advisor if he or she “eats their own cooking.” In other words, do they invest in the same way that they advise their clients to invest? If so, it shows that they have strong enough beliefs about investing to follow their own advice. That would be a comforting feeling if I were in a client’s chair.

We could take it a step further, though, and ask an advisor (continuing the food analogy): Do you follow the recipe? In other words, do you have a plan for how to get to the desired result. As someone who can’t help but plan for every eventuality, I think this is an even more important question than asking about the investments. If a professional tells you they will help you meet goals, make decisions, and understand your situation, are they disciplined enough to do it themselves when it counts?

I mention this because Katie and I were invited to be guests on a podcast hosted by our friend, Steve Sanduski, entitled Between Now and Success. Steve had come to know how we were planning our business in a very purposeful way and wanted to explore our methods for the benefit of his national audience. You can listen to the conversation and read the show notes here.

To summarize an hour’s worth of conversation, we have thought very deeply about what it takes to serve the families who trust us now and those who may come to us in the future. We know that being good planners and investors will help a lot of people, but we also know that firms like ours hit stumbling blocks along the way. They fail to plan for growth. They fail to use technology to improve the client experience. They fail to develop talented people. From our inception we have embraced the idea that Morton Brown Family Wealth could grow accidentally. There are too many people in need, and the number of qualified advisors is shrinking. We need to have both the ability and the capacity to serve.  We need to be prepared.

We started with a Creed that defined our values and focused our efforts on helping families make Confident decisions. Then we started building Playbooks that helped us articulate what we do, how we do it, and deliver on those promises. The client experience should be consistent and robust; Playbooks have focused our attention on both of those goals.The result is a living, breathing plan that evolves with every new day, much like the financial plans that we create for our clients.

Financial decisions are too important to not have a plan. Our work here is too important to not have a plan. We follow the recipe, eat our own cooking, and are happy to be able to pull back the curtain and share some of the work that goes on behind the scenes.


A Moving Target: Thoughts on Target Date Funds

The Wall Street Journal ran a feature recently on the popular target date funds that are often found as an investment option inside of retirement plans. These funds are designed to manage risk based on the age that investor plans to retire, typically in five year increments (2020, 2025, etc.).  The use of these funds has grown tremendously in the last decade because they are now the default investment if someone does not actively elect an investment choice.  This was done so that plan participants wouldn’t sit idly in cash and miss out on return potential.  That is a noble concept, but as the Journal points out, target date funds have some quirks that are worth understanding especially for those who are approaching retirement.  If you have the option to own these funds in your 401(k), here are some things you should know (we use the Vanguard Target Date 2020 fund as an example)*:

  • They are designed as a Funds of Funds. The Vanguard 2020 fund has five different funds inside of it, each representing part of the stock or bond market.  To assess how the fund is invested, we need to look inside to see what the underlying holdings are.  The balance between different kinds of a stocks and bonds can have an impact on performance.
  • Be careful with comparing performance. Because they are made up of different assets, target date funds should not be compared to an all stock index like the S&P 500.   Over the last decade, a 2020 fund would lag behind a U.S. stock index because it has bonds and international stocks (20% International in our example) that have not performed as well.  2020 funds should be compared to similar funds based on cost, holdings and long-term strategy.
  • They are riskier than you might think. That could be a good thing, though.  The year of retirement is not a finish line as we all hope to live long lives beyond then, and target date funds take that into account.  Since there is a need to grow over what could be 20+ year of retirement, many funds will still have a sizeable portion in stocks well past the retirement year.  In Vanguard 2020, there is over 50% in stocks for investors retiring next year.  That might come as a surprise to someone who thought they were going to be very conservatively positioned by this stage.
  • They are a good accumulation tool, but a blunt instrument for retirement planning. For people whose retirement horizon is far off, target date funds are a simple strategy that ensures diversification.  Once the retirement situation becomes clear, the investments need to be more tailored than target funds allow.  Two people retiring in the same year are going to have very different risk profiles and income needs.  Odds are they need to invest differently based on the circumstances of their plan.

Target date funds have improved the investor experience in retirement plans but they run the risk of breeding complacency as retirement approaches.  As with any investment, it is important to know both what you own and why you own it.  A financial plan should tell us investor how much income and growth is needed in retirement and with that knowledge we can decide when a target date fund might no longer be a fit.


*Source: YCharts.  Before investing, consider the funds’ investment objectives, risks, charges, and expenses. Contact Vanguard for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.
This information is intended to be educational and is not tailored to the investment needs of any specific investor. Investments in target date retirement funds are subject to the risks of their underlying funds. The investment risk of each target date fund changes over time as its asset allocation changes. That is, the fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date. These risks are subject to the asset allocation decisions of the Investment Adviser. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. These fund suggestions are based on an estimated retirement age of approximately 65. Should you choose to retire significantly earlier or later, you may want to consider a fund with an asset allocation more appropriate to your particular situation. All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Investments in bonds are subject to interest rate, credit, and inflation risk.

One Year On: Freedom, Fearless, Celebrate

Morton Brown Family Wealth has crossed the milestone of one year since our founding. Katie and I continue to be overwhelmed with gratitude for the trust of the families whom we serve, the team who has bought into our vision, and all of the family and friends who give loving support for the work that we do.

I keep a Moleskine notebook with me every day and write (illegibly) my thoughts and observations, some of which eventually make it here to the blog. I am trying to get better at this writing habit because at times like this, when I want to reflect, I can reach back to what I thought in the moment.

What did I think when we flipped the switch and the firm went live? Humbled. When the markets sank at our first year-end? A healthy test for us and our clients. When work was coming back from vendors sub-standard? Fight for higher standards.

The most recurring words that surface though, are the three words that we decided at the start would define our first year: Freedom, Fearless, Celebrate. They are simple reminders for us of the opportunity ahead, the challenges we will face, and the attitude that will make it all worth it.

Freedom: I have heard it said that the highest expression of Freedom is Commitment. I could do anything, I choose to do this. A year ago we could have built a firm any way that we chose, but we expressed our freedom by defining what we are creating: Confident families. We will not be all things to all people, but rather focus on supporting the unique decisions that families make about money. That commitment has been liberating.

Fearless:  Launching Morton Brown felt bold in the moment, but that need for boldness has not subsided. We have found that it takes guts to have candid conversations with clients, to speak out loud about our strongly held beliefs, and to take on some of the lesser practices of our industry. It is necessary, though, and it builds muscle. I think we are much better today at seeking out those fearless moments, supporting each member of the team as they do courageous things, and using the strength that we build to benefit our clients.

Celebrate:  This one’s for me, especially. I feel blessed to always have an eye out toward the horizon, looking ahead to see what might be coming. That means the blind spots are often in the moment, when great accomplishments and special moments are happening here and now. I want our culture to be one of celebration, where we pause to recognize how amazing it is that we get to do this work. For people we care about. With people who cheer for each other.  Supported by the people who love us. Cheers!

I am going to keep these words top of mind for the remainder of 2019, then retire them and look out for what will define 2020. Looking back, Freedom, Fearless, and Celebrate, felt right as a concept a year ago and helped build a culture of which I am very proud.

A Little Fear Goes a Long Way

In March, the actor Luke Perry passed away at the young age of 52 from a stroke.  Shortly after his death, I read an article in Forbes describing how Perry was prompted to draft a will just a few years ago after a cancer scare.  With a full slate of recent celebrity deaths that highlight poor estate planning (Tom Petty, Aretha Franklin, etc.), it was refreshing to think that this particular star had his affairs in order.  Why were they in order?  Because he had fear.   When the risk of cancer was presented, Luke Perry had to think about mortality and the impact on his family if his wishes were not clear.  We don’t know if absent that fear he would have taken the initiative to draft a will.

I would not recommend acting emotionally based on fear when managing your health and wealth, but it is such a strong motivator and can be used to make positive changes.  Here are some positive and negative outcomes that emerge from deciding based on fear:

Good decisions driven by fear:

  • Reviewing your estate plan. A brush with mortality or a bad family estate experience can cause us to schedule a meeting with the estate attorney that has been put off for too long.  Consulting with an attorney can help pinpoint the risks unique to your family situation and also make sure your wishes are documented in the event medical decisions need to be made for you.
  • Getting regular health screenings. Seeing a friend fight cancer can be a wake-up call to the health risks that come with aging.  The fear of not being there for our families can help to overcome our reluctance to get to the doctor’s office on a regular basis.
  • Finding the proper levels of insurance. Young families especially need to consider how to replace the earning potential of spouses and what the impact of passing at a young age would be on their financial plan.  The fear of your family not having enough money to support financial goals may be an incentive to add or increase coverage. (Caveat to Follow)

Bad decisions driven by fear:

  • Moving to cash when the stock market drops. It is natural to seek safety when the market is falling, but moving to cash is a sure way to lock in losses. Timing the market is impossible to do and trying to do so can cause performance to suffer
  • Focusing on one particular risk. Call this recency bias or our tendency to “fight the last war.” If we focus too much on the things that just happened, we can be blinded to other risks that are possible in the future.
  • Seeking too much safety. This is caveat to the insurance note above.  It is possible to pay too much in premiums for too much insurance coverage because of a fear of dying young.  Make sure you have a financial plan and know how much coverage you need and of what type before piling on policy after policy.

Our life experiences give us all different fears, but it can be constructive to take some of those fears and turn them into action.  A financial advisor should help you step back, address what scares you in a positive way, and help to monitor the risks that could be on the horizon.