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How Do We Choose the Funds We Use?

When introducing evidence-based investing, we like to begin by explaining why we feel it’s the right strategy for those who are seeking to build or preserve their wealth in wild and woolly markets. Of course sensible strategy is best followed by practical implementation, so it’s also worth describing how we select the funds we typically employ.

Round One: Speculative vs. Evidence-Based Strategy

Our selection process is like a highly personalized, single-elimination tournament. We still consider the entire mutual fund universe and its thousands of possible contenders. But it’s relatively easy to eliminate the vast majority of them in the early rounds, with only the strongest surviving as viable candidates.

In the first round, we want to eliminate speculative fund managers who are playing an entirely different game from what we have in mind.

Speculative: Speculative strategists try to forecast the upcoming performance of securities, sectors or markets and trade accordingly. Individuals may do this by gazing at funds’ “star” ratings or acting on seemingly hot tips from any number of sources. Fund managers may hire well-heeled analysts to probe the universe for secrets about to unfold, and issue buy, sell or hold recommendations accordingly. Either way, these are not exercises that are expected to beat the market, especially after the costs involved in trying.

Evidence-Based: Instead, you and your fund manager can simply hold the universe and be part of its expected expansion. Speculative fund managers may be working very hard at what they’re doing, but it’s an exercise that is more likely to detract from than benefit your goals of building and preserving durable wealth in volatile markets.

By eliminating those who are engaging in speculative tactics from our recommended playlist, we can readily knock out a wide swath of would-be fund selections in the opening round.

Round Two: Passive vs. Evidence-Based Strategy

Once we disqualify speculative fund managers, that still leaves a relatively large (and growing) collection of funds that seek to efficiently capture various dimensions of the market’s expected long-term growth without engaging in seemingly fruitless and costly forecasting.

In this category, you’ll find two broad types of funds:

  1. Index Funds: Index funds track popular benchmarks such as the S&P 500 or the Barclay’s Global Aggregate, which in turn track particular market asset classes such as U.S. large-cap value stocks or global bonds.
  2. Evidence-Based Funds: Evidence-based funds seek to wring the highest expected returns with the least expected risk out of similar market asset classes in a more flexible, but still rigorously disciplined manner.

The goals of each are similar, mind you, making it harder to choose among these second-round contestants. Each emphasizes the importance of minimizing wasted efforts and maximizing the factors we can expect to control.

Still, all else being equal we typically favor evidence-based funds for the core of our clients’ portfolios. We feel they are structured to do an even better job at participating in relatively efficient markets over time. By being freed from slavishly following a popular index benchmark and similar restrictive parameters, they can focus directly on the fund management factors that matter the most according to what the evidence has to say on the matter. This includes most effectively capturing markets’ expected returns, while aggressively managing for market risks, minimizing trading costs and dampening some of the noisy volatility along the way.

Round Three: You AND Evidence-Based Strategy

Once we’ve narrowed down our fund choices to a manageable group, the final step is to match the best funds with the most important factor of all: you and your individual goals.

This is one of many reasons why we want you to have a personalized plan in place, preferably in the form of a written Investment Policy Statement. For example, investing heavily in even the best emerging market fund may be a poor choice for you if your greatest goal is to preserve the wealth you already have accumulated. Conversely, an excellent bond fund may be best used in moderation if you are seeking aggressive growth (and are willing and able to take on some market risk to do so).

A Solid Fund Selection Strategy

Bottom line, our final round typically involves forming the remaining contenders into a unified team that is optimized to reflect your unique goals and risk tolerances. Then, you must stick by your carefully constructed portfolio, not just for a game or two, but over the seasons of your life.

When we talk about fund selection, we deliberately emphasize the qualities that decades of empirical and practical evidence have indicated are worth pursuing over time. We explicitly downplay the more typical “play by play” reactionary antics. Star performers – their glittery victories and agonizing defeats – may be interesting to read about and may seem important. But we believe that the best investment selections are the ones that help you achieve your own hopes and dreams by keeping your financial footing on solid, evidence-based ground.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

A Thanksgiving Ode to the Turkey

Whether you and your loved ones gather for a traditional feast or more exotic fare, it’s hard to think about Thanksgiving without the noble turkey coming to mind. As we pause to give thanks and enjoy a break from life’s more serious labors, we thought we’d share some food for thought about this understated creature who Benjamin Franklin lauded as “though a little vain & silly, a Bird of Courage.”

One of the biggest birds still roaming woodlands and farmlands alike, consider the turkey’s many other admirable traits:

Turkeys are patient. Turkeys are often mistaken as flightless birds. That’s probably because they don’t fly very often. It takes a lot of energy to get that much bird airborne, so they typically only do so when it makes good sense. When they do rise up, it’s a sight to behold, as they can reach speeds of up to 55 mph.

Turkeys are best understood by heeding the evidence. Turkeys aren’t to be trifled with, especially the gobblers, or a hen defending her brood. But the risks can be managed by knowing what to look for. When a turkey’s wattle or snood turns deep red, that’s solid evidence that you’d best watch your step. (The wattle is their extra neck flesh; the snood is that dangly thing hanging off their beak.)

Turkeys are efficient. Once a turkey does end up as part of your holiday festivities, it makes for efficient nutrition. Four ounces of turkey breast offers 30-35 grams of protein with less than a gram of fat, and substantial immune-boosting B vitamins and zinc.

Turkeys offer wide diversification. Which is your favorite: Roasted or deep-fried? Classic herb-stuffed or Cajun turducken? Drumstick or breast? Or maybe you’re one of those outliers who fancy the neck or the gizzard. A turkey offers a diversity of form and flavor to go around … and that’s before we even consider the creative possibilities for the leftovers.

We admit, some of our analogies between Ben Franklin’s Bird of Courage and our disciplined evidence-based investment strategy may be a bit of a stretch. The point is, as you take time to savor time spent with family and friends this Thanksgiving, we hope you’ll think of us with a smile – as we are thinking of you and yours.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

Finding Your Fiduciary Financial Advisor

In selecting or retaining a financial advisor, how do you know if you’re making a wise choice?

It’s a challenging subject for us, anyway, and one that we take very seriously as we develop and expand on our firm’s own best practices. It is even more challenging for investors. First, the stakes are high. The quality of the selection, or lack thereof, can literally make or break your family’s fortune. Second, the choices can seem bewildering. With a glut of baffling jargon and conflicting complexities clamoring for your consideration, it can be difficult to determine what to look for and who to trust.

Let’s cut through the confusion, and arm you with the information you need to choose an advisor who is a good fit for you and your wealth. Three essential steps can be your guides:

  1. Understanding the broad advisory environment
  2. Addressing the decisive details
  3. Doing your due diligence

Part I: Understanding the Advisory Environment

First, There Is Fiduciary

Before you interview a current or prospective advisor to determine his or her worth, it helps to arm yourself with information.

In the medical profession, physicians practice according to a familiar standard: “First do no harm.” It seems that there should be a similar level of commitment for anyone who wants to advise you about your financial well-being, right?

Unfortunately, wrong. Financial advice is subject to a double legal standard: “fiduciary” versus “suitable” advice. Worse, it’s up to you to spot the differences between them, and heed the quality of the advice accordingly.

Fiduciary vs. Suitable: Different Incentives Drive Different Advice

Why the different legal standards? Government regulators assume that a broker’s primary role is to place trades, so any advice he or she offers is considered secondary to this main, transactional business. As such:

Let’s provide an example of how suitable and fiduciary advice can differ from one another. Imagine you are comparing two mutual funds that are equally appropriate for your portfolio, except one entails higher fees that just happen to offer a bigger commission to the trader. Brokers offering suitable advice can freely recommend the fund that compensates them more handsomely at your expense … without disclosing the underlying incentive to you.

On the other hand, if all else is equal between two investment selections, a fiduciary advisor must recommend the lower-cost investment that represents your best interest. As a fee-only firm, we do not accept third-party commissions or any other sales incentives to begin with, but even were we to do so, we would still be obligated to disclose the conflicts to you, place your interests ahead of our own, and recommend the lower-cost solution.

In his Washington Post column, “Find a financial advisor who will put your interests first,” Barry Ritholtz describes suitable advice in blunt terms: “The suitability standard is far more complicated – and offers much less protection to investors. The simplest way to describe this standard is ‘Don’t sell AliBaba IPO to Grandma.’”

A Suitable Illustration in Inaction

You may wonder whether suitable conflicts of interest really matter. If you’re working with a financial pro and your investments seem to be doing okay, is there any harm done if he or she receives a few extra dollars along the way?

We believe that the investment damage done can be considerably more significant than most people realize. Take this illustration of a couple in their 70s, the Toffels, who were featured in a New York Times exposé, “Before the Advice, Check Out the Adviser.”

The Toffels were not sold an AliBaba IPO for their $650,000 life savings, but their broker did saddle them with a variable annuity that cost more than 4 percent annually. “That’s more than $26,000, annually – enough to buy a new Honda sedan every year,” observed the columnist. The annuity also included a 7 percent surrender charge, effectively trapping the Toffels into the overpriced holding. Consider this in the context of a typical, no-frills index fund costing less than 0.25 percent, with no surrender charge.

The article points out: “Like many consumers, [the Toffels] say they didn’t realize that their broker wasn’t required to follow the most stringent requirement for financial professionals, known as the fiduciary standard.”

The Cost of Conflicts of Interest

Not yet convinced? In February 2015, the White House weighed in on the subject with its report, “The Effects of Conflicted Investment Advice on Retirement Savings.” Drawing on evidence from more than 50 independent resources including dozens of peer-reviewed academic studies, the report estimated that retirement investors may be losing an aggregate of $8–$17 billion each year from conflicted advice.

“Conflicted payments are payments to the adviser that depend on actions taken by the advisee,” explains the report, and lists an abundance of such practices, including revenue-sharing, 12b-1 sales fees, front-end and back-end sales loads, commissions on products sold, and additional incentives for pushing one product over another. And of course such common cost leaks are by no means limited to retirement savings.

Granted, the White House estimates may themselves be influenced by the political backdrop. But combine this with The New York Times piece (and many other examples we could cite), and the illustrations draw a clear conclusion: Suitable “advice” costs plenty of families plenty of wealth that would otherwise be theirs to keep.

That is why it behooves you to turn to a fiduciary investment advisor whose legal duty is to always advise you strictly according to your highest financial interests, ahead of any such conflicts of interest. When it comes to your life’s savings, we believe you deserve better than advice that is merely suitable.

Part II: Addressing the Decisive Details

Fiduciary vs. Suitable: How Do You Know?

One way to determine whether your advisor will be acting as your fiduciary is to ask these two essential questions with respect to your own relationship and your own assets:

  1. Will your relationship with me be only and always as my fiduciary advisor? Take no less than an unqualified “Yes,” with no ifs, ands or buts. Some advisors are dually registered, which means some of their advice is dispensed with a broker/suitable hat on and other advice is delivered in a fiduciary role. If someone will not or cannot agree to always act in your best interest under all circumstances, of what worth is the advice?
  2. Will you agree to a fiduciary relationship in writing? How reliable are verbal assurances if an advisor won’t agree to the same in writing? For example, here is a simple but powerful fiduciary oath from fi360, an advocate for excellence among financial service providers. In our estimation, any advisor worth heeding should be happy to sign such an oath.

Complementary Qualities for Your Advisor Relationship

Beyond accepting a fiduciary duty, there are other important ways that advisors can position themselves to sit on the same side of the table as you and your personal financial interests. Following are some of the details worth delving into.

Business Structure: The Registered Investment Advisor Firm

By law, independent Registered Investment Advisor firms must provide strictly fiduciary advice to their clients. In contrast, brokerages, banks, insurance agencies and other transactional businesses more typically offer suitable advice.

Regulatory Agent: Seek State or SEC Oversight

When a firm and its team of advisors are providing only suitable advice, they may not go out of their way to tell you so. A short-hand approach to sorting out the players is to determine which financial regulator oversees the firm by checking their fine print.

Compensation Arrangements: To Whom Is Your Advisor Beholden?

Speaking of potentially dueling interests, another way to determine how well your advisor’s interests are aligned with yours is by determining his or her sources of compensation.

If your advisor is receiving commissions from third-party sources, suffice it to say he or she is exposed to conflicting incentives to recommend particular products or transactions that may not be in your best interests. In addition, these conflicts and their resulting costs (which silently drag on your returns) often remain undisclosed to you.

A transparent, fee-only arrangement is preferred. First, you can clearly see what you’re spending in exchange for what you’re receiving. Second, if your advisor’s only compensation comes from you, it enhances his or her ability to offer the impartial, product-neutral advice you deserve.

A fee-based arrangement warrants further inspection. Fee-based advisors are receiving your fees, plus commissions from others. If the advisor is entirely fee-only, except he or she can write insurance policies for you as needed to protect your primary investments (with full disclosure of all commissions being received for this singular activity) then a fee-based relationship may still complement your best interests. If the commissions are coming from investment activities, the same conflicts arise as those described above for a fully commissioned advisor. 

Investment Planning and Execution: How Stable Is the Strategy?

Bottom line, how is your advisor managing your money?

A comprehensive investment approach that you can consistently apply to your total wealth is core to your advisor’s fiduciary care of your interests, through the years and across various market conditions.

Custody Arrangements: Insist on Independence

Even if your advisor checks out so far, there’s one more way to protect your interests. After all, Bernie Madoff looked fine on paper before he was exposed as a smooth-talking criminal. In protecting yourself against scoundrels in disguise, it’s essential to ensure that your money is held in your name at a fully independent custodian that reports directly to you.

Ensuring your money is held at a separate custodian affords you the opportunity to review separate financial statements for any discrepancies. (Madoff maintained custody of his clients’ accounts at his New York brokerage house, enabling him to falsify their reports.) It also lets you log into your account anytime to keep an ongoing, “trust, but verify” eye on your assets.

Part III: Doing Your Due Diligence

Selecting the Right Advisor for You: How Do You Know?

Once you’re equipped with an understanding of the broad and detailed decisions involved in selecting an appropriate advisor relationship for you and your wealth, your final step is to actually conduct your due diligence.

A good place to start is by considering the insights of author, commentator and Wall Street Journal finance columnist Jason Zweig. Like us, he is a strong proponent of investing guided by rational evidence over reactionary emotions –which seems advisable no matter who may be helping you take care of the rest. We respect Zweig for telling it like it is, with his commendable mission to serve as a “Safe haven for intelligent investors.”

What does Zweig have to say about the challenge of selecting an advisor relationship that is right for you? In “Full Disclosure: Is Your Adviser Hiding Something,” he observed: “So how can you make sure you know everything you need to know about a financial adviser before you hire him? You can’t. While most advisers are undoubtedly honest, the few who aren’t can always find clever ways to hide another skeleton in an already bulging closet.”

And there’s the crux of the challenge. We know that we are fully committed in principle and practice to serving your highest financial interests, even ahead of our own … but how in the world do we prove it? And how do you, the investor, believe it? Following are some helpful tips on the due diligence that you can and should do when considering a new advisor relationship or reviewing an existing one.

Google It

Use your favorite search engine to periodically check up on what the virtual world has to say about your advisor or would-be advisor. Search on both the individual and firm names. Make sure you’ve got the right person or firm in your hits, especially if the name is a relatively common one, and remember that some resources will be more reputable than others. 

Check the Reports (Form ADV)

Whether registered with their state or the Securities Exchange Commission (SEC), Registered Investment Advisor firms must file a Form ADV that is typically available on the SEC’s Investment Adviser Public Disclosure website. A firm’s ADV discloses a number of important details worth knowing. ADV “Part 2 Brochures” are meant to serve as the closer-to-plain-English version of the adviser’s full report, so you may want to start there. Most current and former brokers and advisors should also be listed in FINRA’s BrokerCheck system, where additional details and disclosures may be found.

Just Ask

Last but certainly not least, any reputable advisor should relish your candid inquiries, no matter how detailed, direct or seemingly delicate they may be. If the response underwhelms – if it’s incomplete, confusing, defensive or otherwise lacking – this may indicate an ill-fitting relationship, even if everything else checks out fine. Remember, it’s not only what an advisor knows, but how comfortable you will be working with the individual and his or her team over the long haul. If responses to your important questions feel stilted, defensive or incomplete – with either or both of you, if you are a couple – it’s unlikely you’ll end up living happily ever after in the relationship.

Finding Your Right-Fitting Advisor: Coming Full Circle

Finding Your Fiduciary Financial Advisor

We circle back to the question we posed at the outset: In selecting or retaining a financial advisor, how do you know if you’re making a wise choice?

We hope you’re convinced by now that the first order of business is to review an advisor’s background and ensure that his or her advice will be of the highest, FIDUCIARY standard, with the commitment confirmed in writing. Take advantage of resources such as the advisor’s Form ADV and other legally required disclosure statements that enable more apples-to-apples comparisons. Look for the additional characteristics described above, that best position an advisor to sit on your side of the table.

After that, look for someone you get along with on a personal level. If you and your advisor don’t “click,” even good advice will be hard to take, as described by author Seth Godin:

“Good advice … is priceless. Not what you want to hear, but what you need to hear. Not imaginary, but practical. Not based on fear, but on possibility. Not designed to make you feel better, designed to make you better. Seek it out and embrace the true friends that care enough to risk sharing it. I’m not sure what takes more guts – giving it or getting it.”

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

Combating Hidden Trading Costs: Here Be Dragons

In days of yore, navigational maps were often illustrated with dragons and sea monsters, indicating that danger was afoot on the high seas. The imagery may have been mythical, but the risks were real enough, especially for travelers who failed to equip themselves for the journey. To this day, risk and reward remain tightly connected for those venturing into our global markets. In seeking market returns, we must equip ourselves with reason and evidence, separating fact from fiction to tackle the real dangers that lie in wait. Hidden trading cost is one such elusive but formidable foe.

Trading Costs: Now You See Them, But Sometimes You Don’t

Some investment expenses are easier to spot than others. For example, a fund’s expense ratio must be disclosed in its prospectus, and when you buy or sell shares of a security you should see a brokerage fee appear in your trade confirmation statement. You may or may not take the time to scrutinize these costs, but at least they are in plain sight. (In fact, if these sorts of costs are not readily disclosed, that is a red flag in and of itself.)

Then there’s the assortment of trading costs that are not as apparent as directly reported expenses. Among the financial professional and academic community, these are sometimes referred to as “friction costs” – invisible forces that drag unseen against your end returns.

The Hidden Damage Done

If we can’t directly see hidden costs, how do we know they’re there? Similar to the way physicists study gravity, capital market researchers seek to measure hidden costs by observing the effect they have on what can be more readily seen: the end returns you receive from your investment, compared to other, similar kinds of investments.

For example, imagine you are comparing paints for your home renovation project. Brand A and Brand B both cost $25/gallon. At first, it may seem there’s no difference in price. But what if you learned that you’d need two coats of Brand A to achieve the same coverage that Brand B provides in one coat? By observing the end results of this hidden cost, it’s easy to see it showing up as real dollars spent from your wallet.

Studies have indicated that hidden costs can add up in significant ways as well. “Shedding Light on ‘Invisible’ Costs” is one such piece, published in the January/February 2013 Financial Analysts Journal. According to the paper’s abstract (emphasis is our own), “The authors found that funds’ annual trading costs are, on average, higher than their expense ratio and negatively affect performance.” A report on the same study posted by the UC-Davis Graduate School of Management noted, “Funds’ average annual expenditures on trading costs (i.e., aggregate trading cost) were 1.44% compared to their expense ratio of 1.19%. And there was considerably more variation in fund trading costs than in expense ratios.”

How To Slay a Dragon: Step One, Spot the Dragon

Hidden trading costs can be difficult to combat; they are by definition elusively observed and slippery to measure. Most investors are unaware they even exist. So the first step in minimizing them is to familiarize yourself with them. Some of the more notorious friction costs include bid-ask spreads, market-moving costs and opportunity costs.

Bid-Ask Spreads

Bid-ask spreads are the difference between the highest price a buyer wants to pay for a security (the bid) and the lowest price a seller wants to accept (the ask). For example, if a buyer hopes to purchase a security for $10/share but the seller hopes to receive $11/share, the bid-ask spread is $1. Whoever “loses” in the transaction by selling for less or paying more than desired incurs a hidden cost; they are essentially starting out $1 behind on the end return they were seeking to receive.

Market-Moving Costs

If you, as an individual investor, decide to sell or buy 50 shares of Whizco stock today, the current price will be the price at which you trade all 50 shares. The rules change when a major market player such as an institution or mutual fund seeks to rapidly trade enormous blocks. In a classic case of supply and demand, when the market notices a trader who is anxious to buy or sell large lots, it reacts by temporarily moving the supply price up or down and widening the bid-ask spread against the demanding trader. This generates market-moving costs before the trading is completed. For example, index funds face market-moving costs when they must rapidly buy or sell positions after their underlying indices reconstitute. They end up paying more for their buys and receiving less for their sells than would otherwise be expected.

Market Opportunity Costs (Moving to Cash)

In the broadest sense, opportunity costs are incurred when you commit to one opportunity that is less desirable than another. In investing, it means committing your assets to one strategy when another would have offered better results, given your particular goals. The cost is the difference between the value of the position you took versus the one you could have had instead.

The academic evidence on the factors that drive long-term market returns informs us that a highly efficient way to participate in the market is to simply be there: patiently, globally diversified, cost-effectively, capturing expected returns when and where available, according to individual risk tolerances. In the absence of this sort of disciplined strategy, it’s easy to forever torment yourself by considering every “opportunity” the markets make available. Fund managers aren’t immune to this same angst, which is why significant market opportunity costs can occur when they disregard this body of evidence and instead seek to second-guess the market, moving to cash when markets turn volatile and trying to predict when it’s time to move back in.

In his classic, “Common Sense on Mutual Funds,” Vanguard Group founder John Bogle explains: “The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly fifty years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently.”

Combating Hidden Costs: Our Role as Your Advisor

Now that you have familiarized yourself with these hidden costs, how should you proceed? As an investor, your goal is to seek fund managers who are best positioned to:

Traits to seek that enable this level of managed trading include:

Identifying fund managers who meet these qualifications and ensuring that they remain true to their policies and procedures is a role we take very seriously at [Your Firm Name]. Combating hidden costs is part of our fiduciary obligation to serve your highest financial interests, and one of many ways we feel we handily offset our own, fully transparent advisory fees. Contact us today to learn more.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

Advice That Adds Up During Down Markets

As recent global markets continue to test the patience of even some of the most stoic among us, how are you holding up? Are you finding it feasible (if not necessarily fun) to stick with your existing strategy, or have you been eying it with increasing suspicion of late?

If you fall into the latter category, we understand. In his book, “Your Money and Your Brain,” personal finance columnist and author Jason Zweig explains what is going on deep inside our heads during falling markets: “Step near a snake, spot a spider, see a sharp object flying toward your face, and your [brain’s] amygdala will jolt you into jumping, ducking, or taking whatever evasive action should get you out of trouble in the least amount of time. This same fear reaction is triggered by losing money – or believing that you might.”

In short, our amygdala, which Zweig refers to as “the hot button of the brain,” is a welcome ally in keeping us away from many of life’s threats. But it often plays against your best financial interests. Whenever you see bad market news, it’s best to assume that your instincts are going to spur you into panic mode long before rational thinking kicks in. And if you try to have a one-on-one showdown with them, your impulses just may get the better of you.

For this reason alone, one of our greatest roles as advisors is to remind you why it is highly likely that your best reaction to market downturns is to stick to the investment plan we’ve already helped you prepare to withstand just these sorts of rough patches. As Behavior Gap author Carl Richards once tweeted: “You don’t hire a real financial advisor because you aren’t smart enough. You hire one because you aren’t an objective 3rd party.”

There are other ways we add ongoing value to the financial well-being of our clients, during fair times and foul. For example, that investment plan we referenced above did not take place in a vacuum.

As such, we believe that the market risk that is intentionally built into each portfolio – and that each of is enduring at this time – should not be taken as a sign that “something is wrong.” Rather, we believe it is a sign that the portfolio is working as planned.

Each plan was never intended to eliminate all risk or guarantee certain returns. We designed it to offer the best, evidence-based odds for personal success. Our aim is to help each client strike a reasonable balance between minimizing the market risks that you and your amygdala would rather avoid, while moving toward the financial goals our client’s would like to achieve.

If you remain in doubt, though, we still understand. It’s possible that your risk tolerance isn’t what you thought it would be when you were planning for it in a theoretical sense. It’s also possible that your life’s circumstances have changed, and it just happens to be time to reallocate your portfolio, regardless of what is going on in the markets.

If you have questions we can explore with you about your goals, your investment portfolio and current market returns – we would love to hear from you. Please reach out to us any time.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

Our Client Bill of Rights: The Four C’s

We believe every client deserves the “Four Cs”when working with a financial advisor:

CONFLICT-FREE
Advisors should always put their clients first – period. As a Fee-Only firm, we never take commissions or sell financial products. Our compensation is not product based and is transparent and easy to understand. As a result, our clients can trust that we have their best interests in mind.

COMPETENT
Clients need to have an advisor who is highly educated on a variety of complex financial scenarios. Jason has a degree in accounting from the University of Iowa and passed the Uniform CPA examination in the state of Iowa. Jason is also a Certified Financial Planner™ and is a member of the National Association of Personal Financial Advisors (NAPFA). What’s more, he completes a minimum of 60 hours of continuing education every two years.

Andrew has earned an accounting degree and a masters in business degree from the University of Nebraska at Omaha. He also earned a certificate in financial planning from the Boston University Institute of Finance. Andrew is a Certified Financial Planner™ and a member of the Financial Planning Association (FPA) & the National Association of Personal Financial Advisors (NAPFA).

COORDINATED
Today’s financial world is complex, and each client presents unique planning requirements. Therefore, we provide coordinated wealth management advice to our clients by analyzing their investments, taxes, estate planning, insurance, education planning, and charitable giving. We also have an extensive network of “related” professionals (accountants, lawyers, etc.) who we leverage when appropriate.

CLIENT-ORIENTED
Although the financial industry is full of numbers, we pride ourselves on developing deep and meaningful relationships with each of our clients. Through these relationships, we are better able to help our clients identify and achieve their goals.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

If It’s Headline News…

There’s a joke circulating online that, if you commit a crime and you need to hide the evidence, you can stash it on page two of a Google search. At least 90 percent of the time, nobody looks there. In fact, about half of our clicks are bestowed on the first two hits we see.

The serious implication behind the satire is that it remains at least as easy as ever to be overly influenced by what others have decided should be the most important information we receive. Behavioral finance has identified any number of ways we tend to give too much weight to just these sorts of hits that popular curators feed us. The results can tempt us into believing that leading financial news – the Chinese economy, global oil prices, interest rates, and so on – should be the driving force behind our next market moves.

We’re here to remind you: If it’s headline news, it’s already been incorporated into market pricing. Even if we could predict the outcomes (we can’t) it’s too late to act on them – so you shouldn’t. Instead, consider the following observations related to the recent market correction. While perhaps less splashy, they are far more important to your enduring financial interests.

These pieces of advice and many others we could share made good sense earlier in the year. They make good sense today. The evidence is strong that they will continue to make good sense tomorrow, regardless of what is breaking on the Internet. As always, if we can answer any additional questions about your own portfolio or the latest financial news, please be in touch.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

A NEW Tradition: Family Wealth Planning Conversations

Whether it’s gathering for an annual reunion, recounting an anecdote about quirky Uncle Jim, or simply being there for one another during difficult times, family traditions are the comfort food that nourishes our most satisfying relationships. We’d like to invite you to begin a NEW and important family tradition: family wealth planning conversations.

What Are Family Wealth Planning Conversations (And Why Have Them)?

At their best, family wealth planning conversations engage every family member, each of you contributing your talents and interests to achieving your collective and personal lifetime goals.

That’s not to say everyone must participate equally. As we work with families, one individual often emerges as the spokesperson or steward for the group. That’s fine … if the role is based on a mutual and deliberately planned arrangement. If it is instead based on unspoken assumptions or force of habit, your family wealth planning may benefit from a fresh conversation.

Even if your family is in full agreement on who is best suited to champion its interests, there’s always life’s many “what ifs.” Are others in your family adequately prepared to assume the stewardship role when and if it is required of them? Might they have unexpressed questions or concerns that are best addressed well before that day may arrive? Carving out time to hold candid conversations is where it all begins.

Let Us Guide Your New Tradition

To kick off your family wealth planning conversation, we invite you and your family to meet with us at your convenience. (A face-to-face meeting is optimal, or we can harness technology to hold the meeting online.) We can guide you in exploring key considerations such as:

We encourage you to think outside the box on this! For example, even though a family member may have never joined in prior meetings, we encourage you to include them at this time. You may well discover insights about one another that could strengthen both your financial conversations as well as your overall family dynamics.

As tradition suggests, we also hope you’ll consider this the first in a recurring conversation — with or without our participation, as you prefer. Regardless of who may be “in charge” of your family wealth,  you are equally as dependent on the outcome of the efforts. Enabling a forum for everyone’s voice to be heard is another way Hiley Hunt helps you achieve your greatest life goals, keeping your family’s wealth fresh and meaningful over time.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

Making Sense of Fixed Income

Anyone who is keeping even a casual eye on financial headlines is aware that fixed income returns are a bit topsy-turvy these days. With bond prices reacting negatively to uncertain economic news, investments that are supposed to be our reliable safety net and income stream during troubled times are experiencing uncertain times themselves. Many investors are abandoning their existing plans (or had none to begin with), and are selling off their bond funds. To cite a June 28, 2013 column in The New York Times, “Taking a Cue From Bernanke a Little Too Far,” the month’s outflows neared $77 billion, handily exceeding the last high-water mark of nearly $42 billion bond-fund outflows in October 2008.

That’s too bad. None of us can forecast the future, but we see no strong evidence that the overarching laws of the investment universe have suddenly changed. As the New York Times columnist said: “The rush for the exits really means one thing: investors are betting that interest rates are about to begin their upward trajectory, something that’s been expected for several years now.” While this news may be important – maybe even good – for our economy, we would not advise joining those who are betting their life’s savings on outcomes that are yet to unfold.

Guiding Rule #1: Invest According to a Sensible, Customized Plan.

When Hiley Hunt Wealth Management initiates a relationship we begin by exploring our client’s personal circumstances, to determine the levels of investment risk they could or should accept in pursuit of  financial goals. Next, we crafted an Investment Policy Statement (IPS) to guide our way. Only then do we make specific, customized investment recommendations for your portfolio, including building – and maintaining – an appropriate balance between stocks and bonds.

As a result, our client’s stock-bond allocations are closely tied to their specific needs. Our portfolios are also based on the available evidence on how markets are expected to deliver their long-term returns. In contrast, current headlines are based on predicting events over which we have no control. While there is no guarantee that an existing portfolio will deliver the outcomes for which it’s been designed, we recommend that our client’s stick with it, ignoring the temptation to react to near-term news. We believe that each carefully crafted portfolio continues to represent the client’s best interests for achieving their personal goals.

Guiding Rule #2: Bonds are safer; they’re not entirely safe.

Many have already heard repeatedly advise to “stay the course” during troubled times. Still, it is easy to wonder whether, this time, it’s different. In our collective past memories, when market uncertainty has appeared, it’s usually been within stock holdings. We’ve grown used to thinking that bonds will keep plodding along, reliably if unspectacularly.

This is close to, but not quite accurate. Compared to stocks, bonds have historically exhibited lower market risk (uncertainty) along with commensurate lower returns. But they have exhibited some market risk, along with some expected returns.

Consider the roles for which each asset is intended. We employ stocks to help build new wealth over time. Bonds are meant to help dampen the bumpier ride that stocks are expected to deliver over time, while contributing more modestly to your portfolio’s overall expected returns. In the face of inflation, cash is expected to actually lose buying power over time, but it’s great to have on hand for near-term spending needs.

 

  Expected Long-Term Returns Highest Purpose
Stocks (Equity) Higher Building wealth
Bonds (Fixed Income) Lower Preserving wealth
Cash Negative (after inflation) Spending wealth

 

Thus, in performance and predictability, fixed income is meant to be “cooler” than stocks, but “warmer” than cold, hard cash. Based on its in-between role, we actually expect fixed income to periodically deliver disappointing returns, sometimes even for extended periods. These periods are expected to be less severe and less frequent than what is seen in stock holdings … but as we’re seeing right now, they exist. They need to, for fixed income to fulfill its intended role.

In other words, based on the long-term evidence on market performance, we see no compelling reason to abandon our existing plans at this time, at least not due to market forces. Our position is substantiated by a July 2013 article by DFA Australia Ltd.’s Jim Parker. In it, he observed: “We are seeing a classic example of how markets efficiently price in new information. Prior to Bernanke’s remarks, markets might have been positioned to expect a different message than he delivered. They adjusted accordingly.”[1]

Guiding Rule #3: Act on What You Can Control

So, where does that leave the long-term investor who is diligently adhering to a carefully wrought strategy? Is there really nothing to be done? There are some possibilities we can help you explore at this time.

Guiding Rule #4: Be Brave.

More than four centuries ago, Galileo Galilei is attributed to have said: “All truths are easy to understand once they are discovered; the point is to discover them.” He also was accused of heresy and placed under house arrest for the remainder of his life after he observed that the earth revolves around the sun.

Galileo’s experiences offer an early illustration that there’s a big difference between understanding and accepting best available evidence in an uncertain world. In many respects, investing is a scientific endeavor. But there are times when it requires courage and perseverance to remain confident about that evidence, particularly when others are succumbing to irrational doubts.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

[1] Jim Parker, Outside the Flags, “Second-Guessing.” DFA Australia Limited, July 2013.

Three Key Investment Strategies Hidden in Plain Sight Strategy #3: Controlling Costs

In the first two installments of our three-part “hidden in plain sight” investment strategy series, we’ve covered the importance of staying invested to earn market returns, while managing the risks involved. We’ll conclude with what may be the most obvious and powerful advice of all, even if it does not seem to receive the attention it deserves.

  1. Being there
  2. Managing for market risks
  3. Controlling costs

Plain-Sight Strategy #3: Controlling Costs

Don’t spend more than you need to.

Why do investors spend more than they need to on their investments?

Revealing the Numbers

While spending less to earn more seems obvious, the costs themselves aren’t nearly as apparent. Disclosure requirements exist in most developed countries, but too often, the focus seems to remain on adhering to the letter rather than the spirit of the laws.

The issue does not just affect individual investors either. The California Public Employees’ Retirement System (CalPERS) is currently the largest U.S. public pension fund, with nearly $300 billion in assets as of September 1, 2015.  In 2015, it embarked on an aggressive campaign to cut costs by seeking to eliminate its most fee-intensive money managers. According to a Pensions & Investments report, CalPERS officials “concede[d] they have been unable to determine just how much they do pay.” If the country’s largest public pension fund officials have difficulty assessing their all-in fees, what chance does an everyday investor have?

Demanding the Numbers

Financial professionals and investors alike should insist on clarity wherever it seems lacking. As Vanguard founder Jack Bogle describes in this CNBC article, “If you had a crowd of investors who said, ‘Look, this is just wrong,’ [fund company] directors would have to listen, whether they want to know or not.”

Instead, there is considerable evidence that, even when investors should be credulous consumers, they seem unwilling to question the costs. As expressed in a 2015 North American Securities Administrators Association (NASAA) report, “While broker-dealers may be complying with the technical requirements governing fee disclosures, our research shows that improvements are needed to raise awareness among investors of the costs associated with their brokerage accounts.”

The NASAA report was based on a survey that found widespread confusion among investors. The report concluded: “Brokerage firms routinely charge fees to serve and maintain brokerage accounts, yet nearly one-third (30 percent) of investors said their firm had no such charges and one-quarter (25 percent) indicated they did not know whether they were being charged.” Of those who did know there were fees involved, more than half did not know the amounts.

In short, the first step in managing investment expenses is to know what they are. A detailed analysis of all-in investment costs is beyond the scope of this series, but we would be delighted to provide you with additional information at any time. Here, we offer an overview.

Trading costs – When you buy or sell funds, stocks, bonds or other securities, you pay a broker a commission to place your trade. These commissions are typically disclosed in your custodian’s trade confirmation statements.

Fund management costs – If you are investing in funds versus individual stocks and bonds, you’ll pay anywhere from a lot to a little to the fund company that manages them. These costs typically appear in expense ratio disclosures in a fund’s prospectus or listed as an expense percentage by looking up the fund’s ticker symbol on any number of online services such as Morningstar, Yahoo Finance and many others.

Advisor support – If you are working with a fee-only advisor like Hiley Hunt Wealth Management, we’re here to help you build and maintain your investment portfolio in the context of your greater wealth management interests. Our fees are disclosed in the quarterly reports we distribute, as well as in the independent statements from our account custodian.

Administrative oversight – If you are invested beyond the pale of an individual brokerage account containing funds or securities, expect added costs to compensate for the extra administrative oversight and infrastructure involved. Think retirement plans, separately managed accounts, annuities, hedge funds, Real Estate Investment Trusts (REITs), private equity ventures, and so on. This is a key area where hidden costs can fester. As a result, investors often fail to realize there are added costs involved at all, let alone the extent to which they may exist.

Joining the Cost-Management Movement

As financial professionals, we deserve to be fairly compensated for our efforts. But as an investor, you deserve full disclosures and clear explanations, so you can determine for yourself whether the costs are justified. We look forward to helping you join us and a growing community around the globe as we advocate for the importance of clarifying and controlling investment costs. If we could offer only one piece of advice on the matter, we would conclude by urging you to forever heed this familiar adage: If it sounds too good to be true, it probably is.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.

Why do we choose to work with women in transition and women business leaders?

Why do we choose to work with women in transition and women business leaders?

Nearly every day we get some iteration of the question: “I saw on the internet that your firm focuses on working with women – why?”

It’s been our experience that:

HHWM focuses on fostering meaningful relationships and we intentionally limit the size of our practice. We do this because is gives us the ability to be available for each client and to be able to promptly respond to needs. We can actually have a meaningful understanding of the unique situation each client faces.  An added bonus is that we are also more successful in the implementation and execution of our recommendations.

Our role is really to be three things: a coach, a cheerleader, and an accountability partner.

Most people intuitively know how to build wealth – spend less than you earn. It’s pretty straight forward, but where to save and what to invest in can be an enigma. This is where coaching comes in to play. We have to write up the game plan to be able to know which play to run at any given time. That’s our starting role – to coach up our clients to a place where they can articulate the game plan and execute.

If you lost 30 pounds and I ran into you at the grocery store, I would probably say Wow! You look great, keep up the awesome work! That little bit of encouragement might be enough motivation to get you to the gym after a hard day at the office or a night with no sleep.

If you saved $30,000 there is no way I could tell just by looking at you – but that doesn’t mean you don’t need encouragement to keep it up! Our role as a cheerleader is to celebrate those successes with you and give you the extra boost you need to keep up the progress even when it is a grind.

There is nothing like volatile capital markets to make you start questioning your investment game plan. A great accountability partner is the driving voice of reason that reminds you of the goals you set out to accomplish. That partner will also remind you that markets move through cycles – they move up, and move down. Our third role is to be a proactive accountability partner to help our clients navigate the uncertain times.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management . If you have a friend or family member who you think would benefit from working with an advisor who is a coach, a cheerleader, and an accountability partner please don’t hesitate to introduce us!

Three Key Investment Strategies Hidden in Plain Sight Plain Sight Strategy #2: Manage Market Risks

In our last piece, we described why most investors should ignore the never-ending onslaught of unpredictable financial news and tend to three strategies that can be much more readily managed – at least once you know they are there. Hidden in plain sight, these potent strategies include:

  1. Being there
  2. Managing for market risks
  3. Controlling costs

Plain-Sight Strategy #2: Managing for Market Risks

Don’t take on more risk than you must.

 There is no getting around the fact that the market does not deliver rewarding returns without periodically punishing us with realized risks. That is why it’s so challenging for most investors to “be there,” consistently capturing available returns by remaining invested over time. It’s also why it’s vital to avoid taking on more risk than you must in pursuit of your personal goals. For this, we have two powerful tools at our disposal, best used in tandem.

Diversification: Eliminating Unnecessary Risk

Diversification helps you spread your risks around. If you instead concentrate your portfolio in too few holdings, sectors or geographical locales, you may feel you’ve made smart selections when they happen to be doing well. But when bad news hits an undiversified portfolio, it often arrives without warning, and with a vengeance. That’s a real risk that investors too often ignore at their own peril.

For example, sometimes, tech stocks are red hot; sometimes domestic securities may seem safer than international choices – or vice-versa. Your company’s stock or a popular IPO (Initial Public Offering) may seem like a sure thing. But by trying to position yourself to catch the next trend or dodge some bad news, you’re also accepting the risk that your “sure thing” may fail you.

Decades of academic inquiry has informed us that, despite the risks, there are no extra returns expected by trying to consistently predict individual winners and impending losers. Instead, you are best off eliminating this form of risk by putting diversification to work for you.

Asset Allocation: Minimizing Unneeded Risk

While some risks can be diversified away, some remain. These are expected to enhance your long-term returns if you build them into your total portfolio, and if you stay the course with them over time. They include a handful of factors, categorized into asset classes such as:

  1. Equity – Stocks (equities) have returned more than bonds (fixed income).
  2. Size – Small-company stocks have returned more than large-company stocks.
  3. Value – Value companies (whose stocks appear to be either undervalued or more fairly valued by the market) have returned more than their growth company counterparts.
  4. Term – Bonds with distant maturities or due dates have returned more than bonds that come due quickly.
  5. Credit – Bonds with lower credit ratings (such as “junk” bonds) have returned more than bonds with higher credit ratings (such as government bonds).

By blending a customized mix of riskier and less risky asset classes into your portfolio, you can seek to build wealth toward your personal financial goals while fine-tuning the risks involved. In contrast, chasing returns you don’t actually need can result in sacrificing what you’ve already accumulated if the risk is realized. Why go there?

Diversification and Asset Allocation: Your Double Defense

Investment risks are most effectively managed by using the combined powers of diversification and asset allocation. Many investors believe they are well-diversified when they are not. They may own a large number of stocks or stock funds across several accounts. But upon closer analysis, the bulk of their holdings may represent one or two factors, such as mostly large-company domestic stocks. They may think they are managing their risks through diversification, but by failing to implement appropriate asset allocation, excess risk remains.

If there is such a thing as a free lunch for investors, it’s enjoyed by making best use of market risks and expected returns. Diversification helps you eliminate unnecessary risk – the kind that is not expected to improve your investment returns to begin with. Guided by your financial goals, asset allocation helps you diversify appropriately to minimize unneeded risk and to properly manage the market risks that must remain.

In our next piece, we’ll introduce one more plain-sight strategy for investment success: controlling the costs involved.

Learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management