​I am pretty happy this week because our St. George airport has finally re-opened after being closed for runway repairs. Though only a few years old, the runway had become unusable due to damage from underlying expansive soils. The loss of air service, and the high repair costs could have been easily avoided had the runway been built properly in the first place. Site engineers initially recommended procedures to protect against the well-known soil problem, but government officials did not want to spend the money. As is often the case, the cheaper route ended up being the most expensive.
 
It’s common for people to do things on the cheap up front, only to pay a much higher cost down the road. Investors are prone to this same tendency as they resist spending the time and money to get things right the first time. Here are just a few situations I see regularly where people know what they should do but try to cut corners anyway.
 
1 – Not saving enough. I suggest saving 10% of income during the working years, but 5% at a bare minimum. Not doing so when you are young can result in a financially difficult retirement.
 
2 – Not buying sufficient life insurance. Unless you are unhealthy, term life insurance is very inexpensive, while the cost of not having it can devastate those left behind. I married my wife, Launa, after she had been widowed at the age of 22, with two small children. I see no excuse for not having basic life insurance if people depend on your income.
 
3 – Not getting some financial education. If you don’t take the time to learn basic budgeting and investing concepts, the mistakes you will make can be costly.
 
4 – Not being willing to hire professionals. I know more about income taxes than most people, yet I pay a CPA to do my taxes. I have a pretty good understanding of legal matters, but I pay lawyers to do my personal and corporate legal work. I have extensive knowledge of investing, yet I regularly pay specialists to teach me more. Hiring a CFP® professional to help with your financial planning may help you avoid expensive mistakes.
 
5 – Not hedging a portfolio. It’s fun owning an all growth portfolio, until a recession comes. Balance your account with some lower earning investments that are less affected by market swings. It will cost you a little in returns when times are good but may save you from a painful loss when things turn ugly.
 
6 – Not correcting mistakes. Spend the time to review your investing mistakes and learn from them so you don’t repeat them.
 
Nothing looks more beautiful to a weary pilot at the end of a long flight than that lovely runway out the window. Nothing looks better to a weary worker as they approach retirement than a well-planned and properly maintained retirement account. In both cases, success depends on being willing to spend the time and money upfront to do it right.

​I would like to share some thoughts with my younger readers. In my youth I remember thinking there were two types of people, old people and young people, and I was one of the young ones. I never realized I would one day join the other group until recently when I entered a crowded waiting room and a member of the “young” group stood up and offered me their seat. I wasn’t sure if I should be grateful or offended.
 
In young adulthood, Americans have a mountain of ambition, energy and responsibilities. A house, car, education, children and the never-ending school fund raisers take their toll on a young family’s budget. Each item demands priority as often-meager funds are allocated. Young people also know they should start saving for retirement but with so many other needs, many decide to put it off. This is not surprising since few people in their 20’s can comprehend actually being 70 one day.
 
A person fresh out of school can expect to work for 30-40 years, followed by another 30-40 years of retirement. Consider the financial math of that reality and you will see the need to make an early and regular friend of the power of compound interest. Simply put, you must get some of your dollars set aside and working for you, or those last 30 years may be very tough.
 
Young people regularly tell me they simply can’t afford to save for retirement, but when they have some extra cash, they will set it aside. As the years go by most learn the harsh reality that “extra cash” is never going to magically appear. Some current need or want will always try to take priority. And so the best and perhaps only way to solve the challenging math of retirement is to make saving for it a non-negotiable part of your young budget. You must start early and save regularly. Doing so should be as important as budgeting money to put food on your table, because one day that is exactly what it will do.
 
If it seems difficult to live on a tight budget while you are young, healthy and working, imagine how tough it will be when you are old, unhealthy and unemployable. You owe it to your future elderly self, to set aside money today because the person in the best position to care for you financially when you are 70, is you, while you are still 30. Let me emphasize that point. No government program, charitable organization, or well-meaning family member is in a better position, or has a greater motivation to care for you at 70, than YOU while you are still 30, 40 and 50. Start today and make the financial well-being of your future self a personal priority by regularly investing into a retirement account. Believe it or not, you will one day join that group of “old” people, and when you do, your elderly self will be very grateful for the sacrifice the young you is making today. 

​I have decided this week to list a few areas of the economy that I believe are worthy of a look by investors. I base my thoughts on the well-known elephant theory that I teach regularly. It is that if you want to capture an elephant, you don’t sneak up behind it with a rope, but you decide where they herd is heading and get out in front of them and dig a big hole. Here are my thoughts on where I think the American herd is heading.
 
Healthcare: This sector has been strong so some may argue it has gone up high enough. But when I look at the size of the growing American population, and the aging of the large baby boom demographic, I only ask myself one question. Will Americans 10 years from now be using more or less healthcare than they use today? The political debate over who will be paying the bill does not concern me. I focus instead on the amount of dollars that the sector will be receiving, and I am very confident our healthcare needs and costs will be growing.
 
Technology: This sector has been hot for several years and for good reasons. One industry analyst put it in simple terms for investors. He said, “Everything that can be automated, will be automated. In cars, airplanes and dishwashers, the future is mainly about the software.” As I write this column, my little robotic vacuum is making the most beautiful vacuum lines you have ever seen as it carefully circles my chair.  Technology has a long way to go to automate everything.
 
Leisure: This sector encompasses everything that has to do with recreation and vacationing. If you have been on vacation this summer you already know how crowded the hotspots are becoming. The newly retired and financially fat baby boom generation places a lot of value on seeing the world. They love to travel and they love to play. Whether it be cruise lines, hotel chains or theme parks, anything that fills the insatiable need of this generation to get out of the house and play is worth taking a look at.
 
Consumer Discretionary: This final sector focuses on products that people don’t really need but love to have when they are feeling good financially. Consider how often a package is delivered to your own front door these days, and those of your neighbors, and you will see the power of discretionary spending. Remember, not only are the baby boomers a huge generation, but they have mostly already earned their money, and love to spend it. Retired people don’t lose their jobs in a recession. So discretionary spending by this spend-happy generation is worth looking into.
 
These are not recommendations to invest but merely ideas to consider as you decide where to place your money. I have always found it best, when the herd is moving, to pay attention to the direction it is heading and get out in front if you can. 

​Few financial products create more confusion than annuities. These are basically an investment issued by an insurance company and tied to an insurance policy. In some manner, the issuing insurance company takes a risk based on the anticipated lifespan of the person whose life the annuity is tied to (the annuitant). For taking that risk the insurer charges the annuity owner a fee of some kind. They also pay a fee or commission to the agents who sell them.
 
I have heard salesman tell clients they won’t pay any commissions or fees because the insurance company pays the fees for them. Such claims are usually not the case. Insurance companies are a business that does in fact pay agents to sell their products. But the money for those payments can only come from the customers they serve.
 
Discussions surrounding annuities can be quite polarizing with often little room for middle ground, much like the current political climate. Some profess that all annuities are bad while others sell them like they are suitable for everyone. In this debate, both sides are being unfair. Once understood, annuities offer benefits that can be a blessing to those who need them and who understand the limitations and costs. But they are certainly not suitable for everyone and must be used judiciously to solve specific financial challenges.
 
When our office does initial meetings with potential clients, we ask about their entire investing experience and when we get to annuities, we often get a very emotional response. From these personal experiences I have concluded that people who own annuities are unhappy with them and feel they were misled in the sales process. This does not surprise me because there is a huge industry in America that focuses almost exclusively on selling annuities, and I have often seen them presented in ways that focus on their strengths while minimizing their weaknesses.
 
Confusion surrounding annuities can be avoided since these are highly regulated and the terms of the contract are very specifically spelled out in the paperwork. Although the contracts are not easily understood by most people, individuals can always seek out second opinions from other trusted professionals before making a decision. Unfortunately, too many rely heavily on the advice of the agent making the sale without doing proper outside research. Since annuities may lock your money up for many years, it certainly pays to take a few weeks to understand what you are getting into.
 
I have seen many people unhappy with their annuities. I have also seen many who bought them for a specific purpose, who understood the limitations and costs, and who were quite pleased with the outcome. In our office we have found them to be especially useful in planning and controlling distributions to heirs. An annuity used properly and in very specific situations can be a great benefit. An annuity used improperly or sold without a clear understanding of its costs and limitations, will likely lead to disappointment.
 

​I love the Disney musical “Newsies.” The movie originally didn’t do too well, but in recent years the world has embraced it with the very popular live Broadway versions.
 
The story centers on a group of mostly orphaned newsboys who hawk daily papers on the streets of New York. The more experienced “Newsies” teach the younger boys that the secret to selling papers is a great headline, even if you have to just make one up because ultimately, “Newsies gotta sell papers.” One of the newer boys is unhappy with the dishonesty and says to the group leader, “My dad taught me not to lie,” to which the more experienced boy responds, “Well my dad taught me not to starve.” The story is set in the 19th century but not much has changed in the news media.
 
Over Labor Day weekend I decided to spend some time reviewing the financial headlines for the month of August.  Here are some of my favorites: “Dow Plummets,” “Stocks Skid,” “Markets Sharply lower,” “Stocks Crater after Fed Chief Speaks,” “Investors Plow money into Bonds,” and “A Wild month for stocks.” I began wondering if I had missed some major market disaster.
 
One of my favorite headlines was a picture of a floor trader with his head in his hands and the caption, “Floor trader agonizes as market falls.” Our office got a great laugh out of that one. The guy probably got to bed late and was just wishing his shift would end. I am sure he wasn’t worried about a few points of market movement. But hey! Newsies gotta sell papers!
 
After reviewing the dismal headlines, I looked at my client accounts and didn’t see anything that even slightly resembled the gloomy picture that was painted. In my conversations with other advisors I didn’t hear of any unusual moves into bonds and we didn’t field any calls all month from panicked investors. I don’t know which “investors” the news people were referring to but they certainly weren’t any that I knew of.
 
The truth about volatility in the investment markets is that it is normal. In fact, volatility is a necessary part of an efficient market. There has to be push and pull, a give and take, in order for markets to properly adjust. The alternative would be an artificially controlled market, and no one should want that. As the numbers get bigger, ie. DOW 26,000 versus DOW 8,000 just a few years ago, the daily movements will naturally “seem” bigger. On black Monday in 1987 the DOW average fell 508 points or 22%. That would be a nearly 6,000 point drop in today’s numbers. Now that might be something to “agonize” over, and yet we survived it.
 
So here we are in September and already the gloomy headlines have begun, so hold on to your seats. We could be in for a rough ride. Or perhaps, only those who react emotionally to the dire headlines will be. After all, newsies gotta sell papers.

​Launa and I love to take walks along a particular California beach. Ten years ago the hillside adjoining the beach was developed into a premier ocean front neighborhood. Laid out in tiers, the area is a classroom on the value of location in real estate. The lots right on the beach start at $15 million. Just a few feet back on the next tier up for “only” $10 million you can get the same sized lot with a 9,000 foot  home sitting on it.
 
For people who can afford lots along this beach, the cost of building the actual home is insignificant. We enjoy seeing the exotic materials and designs involved in those amazing homes. But building on a beach brings with it many challenges as the moist, salty ocean air that feels so wonderful to human skin, can be very destructive to building materials.
 
We have watched as the beautifully ornate iron fences and railings in the neighborhood have rusted away in just a couple of years. It seems that almost before the new homes are completed, the iron begins to deteriorate. It amazes us to see ugly, corroding wrought iron work surrounding these $10-30 million dollar homes.
 
Many of the newest homes in the neighborhood have begun installing glass railings. Glass is not corroded by salty air, so its use makes sense. But glass does not prevent seagulls from leaving their messes and it also attracts salt deposits from the air. One homeowner told me she has to clean her glass railings every few days. But she mentioned it is far less troublesome than maintaining iron in the ocean environment. The fact is, no matter where you live or what you build with, all homes require maintenance.
 
Last week I met a person who admitted to neglecting his investment portfolio for five years. Investments, like everything else, need maintenance, and some require more than others. A portfolio of high maintenance investments may start off being exactly what you want but keeping it that way requires constant attention and effort. It will need some regular light touch up. Occasionally you might have to get out the financial version of a sandblaster for a major overhaul, or you may even need to tear it down and start over. High maintenance investments might include options, futures, or even individual stocks. As with a beach house, if you are not willing to do the work, do not own the investment.
 
The investing world invented lower maintenance items for people who prefer a “glass railing” portfolio. Things such as mutual funds, exchange-traded funds, and bonds are some items that might require less maintenance by the owner. They still need regular cleaning (rebalancing), but the overall time commitment should be much less.
 
A wise person once said, “Never build a house without first considering the cost.” The same principle applies to investing. Do not put together a beautiful “wrought iron” portfolio unless you are prepared for the maintenance that will follow.  

​This week I am still thinking about the hills I climb and descend on my regular bicycle rides. On my road bike every part is designed to be as light as possible to reduce drag and increase efficiency. One of the heavier items on a bike are the gears. Mine has 16 gears, yet at any given moment I can only use one of them. Those extra 15 add weight, but they are worth carrying along because of the utility they provide. Low gears make possible the climbing of steep hills, while high gears can really get you moving downhill or on a flat road. Each gear has its use and when you need it you are glad you brought it along.
 
As an investor you have a similar situation. Your portfolio works like a bicycle whose purpose is to get you from one place to another. You want your portfolio to be efficient, not carrying a lot of dead weight to slow you down. The diversified investments in your accounts act like gears on a bicycle. Some are better at making money when stock markets are going up. Small cap growth stocks might be an example of some of these. But when stock markets are going down, the same growth stocks may struggle. For that situation you may prefer to have some value oriented stocks, or income focused investments such as bonds. The markets change regularly, just as the terrain changes continually on a bike ride, so having several gears available for your use can come in handy.
 
It is not uncommon for me to visit with people who try to create a portfolio with just a couple gears in it. If the markets are climbing, they complain if they have any slow moving bond type investments. But when things are going badly, they wish they didn’t own any growth stocks. They fail to learn what riding a bike has taught me.
 
My bicycle has a gps which tells me how far I have gone, and at what average speed. Those two numbers are what really matter in tracking my long-term progress. I never worry about how slowly I climb a hill, or how quickly I zoom down the other side, but I focus instead on the final average speed when the ride is through. Though all those extra gears may weigh me down a bit, in the end they provide the results that are important to me by helping make the most of both the hills and the valleys.
 
When the stock market is hot, don’t complain about your bonds. When markets are falling, don’t regret that you own stocks. Focus instead on having a good mix of investments that can help you both climb the hills and soar through the valleys along the way. Remember to keep your eye on the overall average return those investment gears are working together to obtain for you. 

​ 
One of my regular bike rides include a pretty good-sized hill. Initially I had to psyche myself up for that hill, preparing mentally in case I needed to de-couple my shoe cleats quickly and walk to the top. It can get ugly if you are on a steep hill and your forward motion stops with your feet still attached to the pedals. I remember well those challenging rides, gasping for air as I struggled to get to the top of that hill, muscles burning as I climbed.
 
As I approached that once dreaded hill this week, I had my music playing as I thought about some of the things I would need to do when I got into work. I wasn’t paying particular attention to the hill, my body going through the motions pretty automatically including the occasional downshifting, normal to hill climbing. As I rounded the top and headed off on the flat road that followed, I passed a man standing on the roadside, straddling his bike. He was huffing, puffing and sweating profusely as if he had just finished a marathon. As I passed by he said between breaths, “That hill is a killer.”
 
Suddenly I was reminded of my first attempts at that hill, with a similar outcome, yet on this particular day I had hardly even noticed climbing it. My legs did not burn and my breath was only slightly elevated. As I pondered his words I realized that it isn’t the hill that kills you, but your lack of preparation for climbing it. In all my rides the hill has not changed, but I have.
 
Investors know that the ups and downs of economic cycles come with the territory. Like a good bike ride, the lifetime investing experience will include many types of terrain. Sometimes the ride is smooth and easy allowing you to coast along with hardly a care. Other times the hill seems steep and long and you find yourself gasping for air as you try to reach the top. There are rocks in the road, flat tires that slow you down, and even other people along the way that sometimes force you to alter your course. In the end, the message is the same. It isn’t the hills or the obstacles, but your lack of preparation for dealing with them that ruins your day.
 
In every economic setback there are at least two types of people; Those who are financially prepared for a steep hill, and those who are not. The former, climb the hill with little effort and often are able to take advantage of the opportunity. The latter find themselves huffing and puffing and praying they don’t die before reaching the top.
 
Economic times are very good right now. Do not squander this opportunity to get your finances in shape so you will be prepared to climb that steep hill that is most certainly ahead on the road.
 

​Our second home in California home has some beautiful plants but one of my favorites is the plumeria. The delicate flowers on these plants put off a lovely fragrance that becomes more powerful at night. Coinciding with the strong scent of the plumeria is the nightly arrival of the sphinx moth, eagerly seeking the sweet nectar on which they must feed. Since the plumeria fragrance is stronger than the surrounding flowers, the sphinx is attracted first to them, flying rapidly from flower to flower. As they do so they fulfill their important role of pollinating the Plumeria, but unfortunately, all is not as it appears, or smells, to the frustrated moth. Despite its strong and lovely aroma, the plumeria flower contains no nectar, and so the poor deceived moth who has provided much service to the plant, receives nothing in return. Yet every night the moths return, failing to learn their lesson.
 
The investing world has its own versions of the plumeria plant in the form of opportunities that may look tempting or smell good but have little or no nectar to offer in return. It may be a stock market that takes a big dive and the investor thinks “Oh look how far it has fallen, it will rebound quickly” and so he jumps in chasing the sweet smell of quick profits. Or the market has been on a long and rapid climb and he thinks to himself, “This market is so wonderful. All it does is go up,” and once again he piles in only to learn that the nectar has run out just before his arrival.
 
What the Sphinx moth does not realize is that the plumeria flower does not care about the moth. The selfish plant only cares for itself and night after night sends out false signals to attract the moth for its own gain. Such behavior would not be a problem for the sphinx if the moth would just learn its lesson. What some investors often fail to understand is that the stock and bond and real estate markets do not care about individual investors. The markets seek their own good and often in so doing send out deceptive signals that lure in the nescient investor, over and over again. Investor behavior as they chase from one “flower” to another was illustrated in two headlines I read this month only days apart. The first read, “Investors Flee stocks for the safety of Gold,” followed by “Investors rush to buy stocks on renewed hope.”
 
If the deceptive short-term behavior of the markets tempt you to flit from one opportunity to the next, you may want to consider the often fruitless nightly efforts of the sphinx moth. Then focus your efforts on patiently seeking out, then holding on to, those investments that can provide you with flow of rewards upon which all great investors build their futures 

​In my youth I loved backpacking with my uncle and his Boy Scout troop in the mountains of Eastern Utah. I have many fond memories of beautiful vistas, campfire stories and lots of fish. Over the years I transitioned from being a young scout to a seasoned adult backpacker. With the transition, my backpacking experience changed. As a boy it was all about the fun. As an adult leader I spent more time in the preparation stage, and found joy in helping to provide a happy and safe experience for the young scouts. This was brought home one day when a fierce lightning storm came upon our group while out on a day hike. The lightning and thunder would hit simultaneously and the hair on our heads literally began to stand up. The boys thought it was great fun, but the leaders only thought was for the safety of the troop.
 
Successful backpacking requires a careful consideration of how much weight to carry. If you carry too much you risk injury. If you carry too little you may lack critical supplies. Hiking in primitive areas, there was nowhere to turn in an emergency except to ourselves and what we carried in. I didn’t learn until I was older that the leaders carry a lot of extra weight so they will have the necessary medical supplies and equipment, and even spare food, to care for the troop if things don’t go exactly as planned.
 
Preparing for retirement it is not unlike preparing for a backpacking trip. You are heading into unknown territory (at least to you) and the lifelong safety nets, such as a weekly paycheck, are no longer there to bail you out. You must fill your retirement backpack with everything you will need, or may need, for your journey.
 
In November 2017, Forbes magazine ran an article on retirement planning that should concern all who are preparing their pack for this adventure. They reported that 65% of adults over age 50 provide monthly financial support to at least one adult child, and that 25% of Baby Boomers support a parent. So, like a good scout leader, it may not be enough to just figure out what you might need in retirement. You may want to consider packing a little extra in case some loved one around you needs your help. In fact, I have personally worked with many retirees who were well prepared for retirement but whose financial health suffered under the weight of caring for other family members.
 
My wise uncle taught me that being prepared for a backpacking trip made the difference between having a great time or finding yourself stuck on a mountain and dreading it. And that meant being prepared to care for others as well. Retirement is a tough time to come up short on supplies so prepare your “pack” with what you need for yourself, then carry a little extra for those unexpected emergencies that are certain to occur along the way.