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October Financial Insight- 5 Simple Steps to Accumulating Wealth

| October 09, 2017

Well here we are, the 4th Quarter , the beginning of Autumn and it is still in the 80’s on a regular basis!  This is an interesting time of year for sports fans. Baseball, Football, Hockey and soon Basketball will all  be going on in October.  Throw in a little tennis, some golf and maybe some gymnastics or figure skating and you have more choices for sports than at any other time of the year. 

 Being an athlete has much in common with being a consumer of financial services.  All athletes want to do better, to realize their potential, to be able to play their chosen sport within the rules. So what do committed athletes do?  Well they learn all they can on their own and then they hire a coach, trainer or a specialist in some area where they feel they need assistance to help them go to the next level.

As a consumer of financial services who wants to do better, we can do the same.  We can hire a coach or trainer to help educate us, encourage us and help us through rough spots.  Generally, that person is called a financial planner or a financial advisor.

As you know, there are many reasons to engage the services of a financial advisor.  Some investors don’t understand the complexities and the array of choices, and they would prefer to have an expert deal with it for them. That’s understandable.

Others enjoy the DIY approach. They love to explore the various strategies of money management. Grasping and understanding new ideas and concepts creates that “Aha!” moment. But time has become a major impediment.

 Then there are those who were comfortable managing their own finances, and, having amassed a fair degree of wealth, can claim success. But climbing to new financial heights can sometimes create a fear of heights. At this juncture in their life, they are more comfortable having a financial professional keeping an eye on their choices.

 Retaining an advisor is akin to having a personal trainer coaching you as you go through your daily exercise regimen. The trainer keeps you on track, encourages you, and can suggest beneficial adjustments.  If you find yourself in one of these categories, you now know that you aren’t alone.

 Once again, though, let me emphasize that each individual situation is unique, each client is unique, and we adapt our advice so that it matches your circumstances and financial goals. And we are always here to answer your questions or address any concerns.

 But, while each person’s plan has its unique qualities, there are fundamental principles that must be woven into every financial blueprint. These fundamentals are the building blocks for wealth accumulation over the long term, and it's important to keep them in mind, always.

 Let’s take a look at the fundamentals:  

5 steps to accumulating wealth

1.  Avoid get-rich-quick schemes

 I've been around the block many times. If it seems too good to be true, it probably is. After reading that common sense advice, many of you are probably thinking, “I know that. Why did you lead off with something this simple?” Well, I've seen too many smart folks fall for get-rich-quick schemes that leave them poorer. Sometimes much poorer. And it’s heartbreaking to hear the tales.

 Maybe it’s simply greediness we’re afraid of losing out on perceived riches. Maybe it’s fear—fear we’ll miss out on a once-in-a-lifetime opportunity. Maybe we’re too trusting. The best con-artist’s pitch is steeped in sincerity. Maybe our judgment gets clouded, as we’re dazzled by the flashing presentation or personal flattery.  If you ever come across something you believe might lead to quick riches, please let me review it with you. I promise I will provide you with an objective viewpoint.

 2. Avoid trying to time the market

 It sounds so simple. Buy low, sell high.  Or, here’s another take: “Buy when there’s blood in the streets.” It’s still bounced around in financial circles.  Forbes credited the saying to Baron Rothschild, an 18th Century British nobleman and member of the Rothschild banking family. Coincidently, or not, Forbes published the article two weeks prior to the market bottoming in 2009.

However, in both cases, these are platitudes that are best ignored, in my view. You see, we’re not wired to dive off a cliff and buy when everyone is selling. Instead, the temptation is to circle the wagons and play defense.  In reality, it’s much easier to buy when markets are heading higher. Euphoria can breed euphoria, which leads to a feeling of invincibility. It’s the “follow the crowd” mentality.

 We eschew trying to pick a few winners, avoid trying to predict the future, (i.e., market timing) and preach diversification and a disciplined approach that strips the emotional component from the investment plan.  Longer term, stocks have historically been an excellent vehicle to accumulate wealth. Let me explain.

Crestmont Research produces a chart each year that reviews the annual 10-year total returns for the S&P 500 Index going back to 1909. These are rolling, 10-year periods; i.e., we are reviewing over one hundred 10-year periods.  Since 1909, there have been only four 10-year timeframes that have generated negative returns. Want to hazard a guess as to when they may have occurred?

 That’s right--the late 1930s and the end of the last decade. That shouldn’t come as too much of a surprise given extreme valuations that occurred in the late 1920s and late 1990s and early 2000s.  Oh, and the average annual return? It can vary by a considerable amount, but it averages 10%.

3.  You must start somewhere, but start

 Don’t try to climb Mt. Everest overnight.  Ideally you will start saving and investing as soon as you get your first job.  The reality is that many of us do not have the opportunity to start until much later.  So what do we recommend if a client is not yet saving and investing?  We advise them to get started now! Start with one or two percent of your annual income.  Add a percent or two a year and in several years, you will find yourself saving 10%-15% and not missing it at all!

 I’m thrilled when I have the opportunity to speak with people in their early 20s who are embarking on their careers. They truly have a once-in-a-lifetime chance to get a head start on wealth accumulation. But people in the 30s, 40s and 50s can make huge strides towards their financial goals as long as they take a consistent disciplined approach.

 4. Diversify

 Both Mark Twain and Andrew Carnegie allegedly said, “Put all your eggs in one basket, and watch that basket closely.” Twain and Carnegie didn’t live in an age where the dissemination of information is almost instantaneous. Bad news comes in like a WWE smackdown on a stock. It’s the defensive end leveling the quarterback, and it can happen in seconds.

 A fixed income component is critical for most folks. Being 100% diversified in a portfolio of stocks can leave you exposed to a market decline. It’s for someone with a very long-term time horizon. If you are nearing retirement, you may not have the time to recover in the event of a steep market decline.

 Bonds, cash, and fixed income securities are not earning spectacular returns right now. However, they help anchor the portfolio. As the percentage of stocks decline in relation to cash/fixed income, the portfolio is likely to experience less volatility. You won’t see the peaks in a roaring bull market, but you’ll sleep better at night knowing that a sudden dip in the market is far less likely to take a big bite out of your investments.

 5. Have a goal

 Why are you saving? What motivates you to contribute to your savings on a consistent basis? Dream big and keep the goal in front of you! Remember,  if you don’t have a map to where you are going you will not ever be sure of knowing whether you reached the right destination.

 Switching gears: New highs and the fundamentals

 The S&P 500 Index finished the quarter at a record high. Notably, the closely followed gauge of 500 large U.S. stocks ran up its quarterly winning streak to eight consecutive quarters (WSJ, MarketWatch data).

 It’s done so in the face of three devastating hurricanes—Harvey, Irma and Maria, massive flooding and wildfires, unsettling news from North Korea, and gridlock in Washington.

 But in many respects, it shouldn’t be all that surprising. As I’ve wandered through the literary tulips with you, one common theme is a focus on the economic fundamentals.  Stocks take their longer-term marching orders from corporate profit growth. And profits are driven primarily by economic growth at home and abroad.

Currently, we’re in the midst of a synchronized global expansion, which has created a strong tailwind for earnings.  Moreover, interest rates remain near historic lows, and the Federal Reserve hasn’t been shy about signaling that any rate hikes are expected to come at a gradual pace.

If I had to concoct a recipe for bull market, I’d go heavy on profits, economic growth, and low interest rates—Oh, wait a minute—that’s today's environment!

 Now, I understand the hurricanes have changed lives and wrecked property in Texas, Florida, and Puerto Rico. If you are so inclined, please consider donating to relief efforts. Short term, the economic data is taking a hit from the storms. Longer term, it’s unlikely to have much impact on the economic trajectory.

 While North Korea’s quest for an ICBM that can strike the U.S. is very unsettling, short-term investors seem to be pricing in the unpredictability of the rogue regime. More importantly—speaking strictly from an investment perspective—investors aren’t anticipating a disruption in the economic cycle.   So, while you should be prepared for more troubling news, it simply isn’t affecting U.S. economic activity.

 Table 1: Key Index Returns




3-year* %

Dow Jones Industrial Average




NASDAQ Composite




S&P 500 Index




Russell 2000 Index




MSCI World ex-USA**




MSCI Emerging Markets**




Bloomberg Barclays US Aggregate Bond TR




Source: Wall Street Journal,, MarketWatch, Morningstar

MTD returns: August, 2017-September 29, 2017

YTD returns: December 30, 2016-September 29, 2017


**In U.S. dollars


Tax reform

 “Don't tax you, don’t tax me, tax that man behind the tree,” was attributed to the late Louisiana Senator Russell Long, who chaired the powerful Senate Finance Committee from 1966 to 1981 (NYT).  He assisted with tax reform in 1986, and Congress is now considering the first major rewrite of the tax code since then.

The initiative that’s been proposed by the President and the Congressional Republican leadership is simply a blueprint. It must clear a lot of hurdles before becoming law.  The framework is silent on how dividends and capital gains will be treated, and no mention has been made of the 3.8% surtax on investment income for high-income Americans.  The outline calls for special treatment for retirement accounts, but no other details were provided.

Therefore, anticipating and positioning for changes becomes very difficult given the uncertainty surrounding the bill. Meanwhile, a 20% top corporate rate has been proposed, down from 35%. It’s roughly in-line with most developed nations, and is expected to be supportive of stocks.

But it’s early in the game and any discussion of the final points is purely speculative.  Nonetheless, please reach out to me if you have any questions about tax reform or tax planning. Or, if you would like to discuss any other matters, I'd be happy to talk with you.

 I’m simply an email or phone call away, and can be reached at or on my cell at 850-776-9209.  As always, I’m honored and humbled that you have given me the opportunity to serve as your financial confidant and advisor. Kind Regards, Rudy