You can find a fuller description of CFP® certification requirements here.

Update on Elissa and Dave’s Live Big® Adventure.

In preparation for our trip, which begins June 23, we’d like to ask you to think about any advice you may need between now and our return on July 24. Likewise, please let us know about any deposits or withdrawals you expect to make over that same time period (other than those regularly or already scheduled). As much as possible, we’d like to plan for all of your needs before we depart.

While the YeBu team will certainly find us if any urgent needs arise, our goal is to be as “unplugged” as possible duuring our travels. As an example, we will not be collecting our company email at all during our trip (although, to repeat, we will absolutely be reachable in the event of an urgent need).

Have a great weekend!

Elissa and Dave

And if you’re curious about what it means to become a Certified Financial Planner^® licensee, please read on…

The Certified Financial Planner^® mark was originally offered by the College for Financial Planning, which was established in 1972, three years after the profession of financial planning came into existence.  The college graduated its first class of Certified Financial Planners^® in 1973.  In 1985, the ownership and responsibility for granting the CFP^® marks transferred to the newly-created International Board of Standards and Practices for Certified Financial Planners (IBCFP), which is now known as the Certified Financial Planner Board of Standards (CFP Board).

To obtain certification, a planner must have satisfied the “Four Es” – Education, Examination, Experience, and Ethics.  Candidates must hold a bachelor’s degree upon certification and must have completed a CFP Board-approved education program covering 78 financial planning topics.  After the education requirement is complete, candidates may apply to sit for the CFP^® exam, which is a 10-hour examination administered over two days.  Candidates must then accumulate three years of full-time relevant experience (two years if under the direct supervision of a CFP^®) and complete the ethics certification, which includes an inquiry into the candidate’s background and contains an agreement to adhere to the CFP Board’s Code of Ethics, before being eligible to use the CFP^® marks.  To maintain certification, CFPs^® are required to complete at least 30 hours of “Continuing Education” credits every two years.

CFP^® licensees are held to a fiduciary standard, which means they must act in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client. By contrast, many other financial professionals are held to a suitability standard, which means they will give recommendations that are “suitable” to the client’s circumstances, but are not required to put the client’s best interests first, nor are they obligated to disclose conflicts of interest.

Over its now 40-year history, the Certified Financial Planner^® marks have emerged as the dominant professional standard in the United States and, through the Financial Planning Board of Standards, in 22 other countries as well.

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In commentary broadcast yesterday, CNN economist Fareed Zakaria notes that the austerity strategy adopted by the Europeans – primarily at the insistence of Germany – is quite the opposite of the approach adopted in the U.S., and with dramatically different results.

The U.S. economy, which received monetary and fiscal stimulus, will grow at well over 2% this year. European economies that have followed the path of cutting spending and raising taxes to reduce deficits are finding themselves in a downward spiral: cutting spending means laying off people, which means less demand for goods and services, which means the economy shrinks, which – ironically – means lower tax revenues and thus larger budget deficits.

Take a look at Britain. Britain has followed a brave austerity plan, cutting government spending across the board and raising taxes. The result, British growth has stalled; the economy will grow barely 0.8% this year. And while its budget deficit was predicted to be under 13 billion dollars in February, it was in fact 24 billion dollars for that month alone.

This has been our own position throughout the policy debates both here and abroad.  There’s no question that both the U.S. and Europe need to get government spending under control over the long run, but cutting too soon only makes the debt problem worse and, perversely, exacerbates the very problem it was meant to solve.  You can watch Zakaria’s full comments below.

One immediate consequence of renewed Euro-pessimism has been a decline in stock prices on both sides of the Atlantic, with the sharpest declines seen in European shares. As always, we think there are two ways to think about this:

First, European shares have already been “priced” for higher returns and the latest drop is simply the continuation of that process.  It’s very easy to look at current and prospective economic conditions in the Eurozone and think that European markets are going to be a bad investment for the foreseeable future.  However, this isn’t how markets work.  The declines we saw last year, combined with those seen in more recent days, serve to price shares for the higher returns that should correspond with worsening economic prospects.  The following illustration shows how this market mechanism works.  As you can see, when markets push prices down in response to new information (including increased uncertainty, as in the example below), it is for the purpose of establishing a new, higher (steeper), expected return path.

All other things being equal, a lower price translates into a higher expected return, with forecasts of poor economic performance “priced in.”  While it’s true that an individual company might have its price pushed all the way to zero when it goes out of business (like Enron, for example), stock markets generally do a good job in the aggregate.  Which means that it’s very important to be extremely well diversified at all times, minimizing the risks of any individual company or industry and maximizing your chances of capturing the market’s inherent “goodness.” As further evidence that poor economic performance gets “priced into” the markets, note the table below.  Investors around the world are risk-averse and price securities to provide an appropriate risk-adjusted return whatever’s happening in the economy as a whole.

Second, we suggest that it is important to keep the scale of recent events in perspective.  In the context of the strong positive trend that we’ve seen over the past six months, recent reversals are quite modest and loom large only because of the sometimes overblown economic doomsaying. This can be seen in the chart below, showing the advance of the MSCI All Country World Index over the past three years through this past Friday, with April’s hiccup encompassed in the small circle on the right.

While we agree with Zakaria that European policymakers should have focused more on stimulus first and austerity later, we still believe that they’ll provide sufficient support, especially for the fragile banking sector, to avert economic calamity.

As in all times, politicians will generally do the right thing in the end, though often not before exhausting every other possibility!

The Yeske Buie Team

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“There have been numerous nearly apocalyptic scenarios out there that haven’t played out,” he said. “Despite the scares we’ve had, the global economy continues to grow. The adage about the market climbing a wall of worry has never been more relevant.”

In Mr. Yardeni’s view, investors are ignoring a persistent lift to economic growth and corporate profits from reduced constraints on international trade.

“What the bears have been missing is the power of globalization,” he said. “The liberalization of national economies through relatively free-trade policies is creating a lot of wealth. There are a lot more consumers out there than before the end of the cold war.”

The same day the Times article appeared, CNN economist and commentator Fareed Zakaria gave his latest assessment of the American economy.  Zakaria finds many more positive trends than negative, including demographics and energy, two trends that we have discussed before.

The United States, alone in the industrialized world, is demographically dynamic. It adds 3 million people to its numbers every year. At some point, kids don’t want to live with their parents and that will produce demand for housing. And at that point, the recovery will gain full steam.

The new, potentially game-changing trend for the United States is the rise of shale gas. Thanks to the new process of fracking, America now has 75 years of natural gas – and most important, it is the world’s low-cost producer.

The rise in gas prices has obscured this more important fact – energy costs are plummeting in America. That’s why manufacturers like Dow Chemical are actually opening new factories in the United States. Asia has the advantage of lower labor costs, but now the U.S. has the advantage of lower energy costs. And this is a process that has just begun.

As we’ve often noted in last year’s “Economic Vomatility” webinar, humans are wired to give more weight to the negative than the positive, a trait that served our ancestors well when they were trying to avoid the neighborhood Sabertooth.  Not to mention the heightened sensitivity to the any negative events in the post-traumatic shock syndrome world we inhabit.  As always, we don’t deny the inherent risks that fill our world, we simply feel the need to offer a healthy counter-narrative.

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“I do not believe in the collective wisdom of individual ignorance.”

Of course, the evidence is ever before our eyes that the expert opinion of the moment is far less reliable than the collective wisdom of the (ignorant) crowds.  A wonderful illustration of this reality comes from Dimensional Fund Advisors’ Wes Wellington, who recounts the litany of negative “expert” opinion offered to the public between August of last year and the present, even as we’ve seen the equity markets rising more than 30% since October. Individual assessments of the moment are both compelling in their immediacy and unreliable in their predictive power.

WHERE’S THE PARTY?
by Wes Wellington, vice-president, Dimensional Fund Advisors

The surge in stock prices around the world in the first quarter serves as a reminder that predicting market trends can be a frustrating business. Six months ago, the outlook for stock prices appeared to be fading from grim to grimmer: Congressional leaders were wrangling unsuccessfully to craft a deficit reduction plan, Standard & Poor’s had removed its AAA rating on US Treasury obligations, and Greece appeared one step away from defaulting on its debt. Yet just when many investors least expected it, stocks staged a powerful rally: From the low for the year on October 3, the S&P 500 Index rebounded 28.1% through March 30 while the Russell 2000 Index jumped 36.2%. As the news excerpts below suggest, it is worth recalling the Wall Street adage that “bull markets climb a wall of worry.”

• August 5, 2011—S&P downgrades US Treasury debt to AA+ from AAA; stocks plunge in the biggest selloff since 2008.
• September 3, 2011—Journalist: “The US economy slammed into a wall in August, failing to add new jobs for the first time in nearly a year.”
• September 5, 2011—Gold reaches a record high of $1,895 per oz. (London Fix).
• September 19, 2011—Wall Street chief equity strategist: “I don’t think we’ve seen the lows for the year by any stretch. Things have to get much worse before they get better.”
• September 23, 2011—Journalist: “The world economy once again stands on a precipice.”
• September 26, 2011—Investor: “I don’t see anything changing in the next two or three years.”
• October 1, 2011—Economist cover story: “Unless politicians act more boldly, the world economy will keep heading towards a black hole.”
• October 3, 2011—US stock prices slump to their lows of the year: 1099.23 for the S&P 500 and 609.49 for the Russell 2000 Index.
• October 13, 2011—Census Bureau reports the weakest income growth over a ten-year period since records began in 1967.
• October 20, 2011—Col. Muammar el-Qaddafi killed by Libyan rebel forces.
• November 20, 2011—Consumer goods CEO: “Consumers everywhere continue to be cautious and hesitant to spend.”
• November 21, 2011—US Congressional “supercommittee” fails to reach deficit reduction agreement.
• November 24, 2011—Market strategist: “Earnings growth is very quickly decelerating.”
• November 28, 2011—Moody’s Investors Service warns that multiple countries could default on their debt.
• November 29, 2011—AMR Corp., parent of American Airlines, files for bankruptcy.
• December 10, 2011—Detroit’s mayor predicts the city will run out of cash by April 2012.
• January 6, 2012—Gasoline prices are at the highest point ever for a new year.
• January 18, 2012—World Bank: “Developed and developing-country growth rates could fall by as much or more than in 2008–09.”
• January 18, 2012—Eastman Kodak files for bankruptcy.
• January 25, 2012—Report from Davos World Economic Forum: “Global elite fears renewed downturn.”
• February 13, 2012—Journalist: “There is still plenty that could go wrong in Europe, while U.S. economic growth remains slow and corporate earnings are looking less and less robust.”
• February 27, 2012—Money manager: “This is a business-as-usual overpriced market and you’ll get a zero return for seven years.”
• March 2, 2012—Eurostat reports that Eurozone unemployment in January reached 10.7%, the highest in fifteen years.
• March 12, 2012—Strategist: “The stock market has effectively doubled since the March ‘09 low, and we’re still in redemption territory for equity funds.”
• March 19, 2012—Journalist: “Expectations for earnings have been steadily scaled back this year, as the mood among companies has worsened.”

References

E.S. Browning, “Downgrade Ignites a Global Selloff,” Wall Street Journal, August 9, 2011.

Sudeep Reddy, “Job Growth Grinds to a Halt,” Wall Street Journal, September 3, 2011.

Quotation from Adam Parker, chief US equity strategist Morgan Stanley. Jonathan Cheng, “Wall Street’s Optimism Fades,” Wall Street Journal, September 19, 2011.

Chris Giles, “Financial Institutions Stare into the Abyss,” Financial Times, September 22, 2011.

Tom Lauricella, “Pivot Point: Investors Lose Faith in Stocks,” Wall Street Journal, September 26, 2011.

“Be Afraid,” Economist, October 1, 2011.

Phil Izzo, “Bleak News for Americans’ Income,” Wall Street Journal, October 13, 2011.

Kareem Fahim, “Qaddafi, Seized by Foes, Meets a Violent End,” New York Times, October 21, 2011.

Quotation from Jim Skinner, chief executive of McDonald’s. Jeff Sommer, “From the Mouths of Executives, Little Comfort,” New York Times, November 20, 2011.

Jonathan Cheng and Brendan Conway, “Panel’s Failure Sinks Stocks,” Wall Street Journal, November 21, 2011.

Quotation from David Rosenberg, chief market strategist, Gluskin Sheff & Associates. Tom Petruno, “Wall Street Gets Cautious on Earnings,” Los Angeles Times, November 24, 2011.

Brendan Conway and Steven Russolillo, “No Year-End Stock Surge in Sight,” Wall Street Journal, November 26, 2011.

Liz Alderman and Stephen Castle, “Dire Warnings Are Building on European Debt Crisis,” New York Times, November 29, 2011.

“Nowhere to Run—The Motor City Flirts with Fiscal Disaster,” Economist, December 10, 2011.

Ronald D. White, “Gas Prices Ring in 2012 at a High,” Los Angeles Times, January 6, 2012.

Chris Giles, “World Bank Warns on the Risk of Global Economic Meltdown,” Financial Times, January 18, 2012.

Chris Giles, “Pessimism Hangs in Mountain Air,” Financial Times, January 25, 2012.

Tom Lauricella and Jonathan Cheng, “Too Late to Jump Aboard?” Wall Street Journal, February 13, 2012.

Ajay Makan, “S&P 500 at Post-Crisis Peak but Investors Remain Wary,” Financial Times, February 25, 2012.

Quotation from Jeremy Grantham, chief investment strategist, GMO. Leslie P. Norton, “Not So fast: Coping with Slow Growth,” Barron’s, February 27, 2012.

Brian Blackstone, “Poor Economic Data Slam Europe,” Wall Street Journal, March 2, 2012.

Quotation from Liz Ann Sonders, chief investment strategist, Charles Schwab. Nikolaj Gammeltoft, Inyoun Hwang, and Whitney Kisling, “The Bull Turns Three. Where’s the Party?” BusinessWeek, March 12, 2012.

Ajay Makan, “Wall Street Braces For Hit to Soaring Markets,” Financial Times, March 19, 2012.

Storm Clouds and Silver Linings
Key Message: Things may be really bad economically, but stocks have become cheap by almost every measure.

Control What You Can Control (and don’t sweat the rest)
We roll out a guidbook of the same name.
Key Message: While we can neither control nor predict the economy or the stock market, that doesn’t mean we can’t work to program resilience and survivability into our financial lives.

The Extended Malaise Scenario (this one sent on March 9)
Key Message: History shows that stocks can provide positive returns even during economically challenging times.

What does it mean to Live Big in these trying times?
We roll out the Live Big List
Key Message: In these crazy economic times, it can sometimes be difficult to remember the areas in our life where we can Live Big without spending (much, if any) money.  But if we can find the place of gratitude for what we have, we can find joy in the most mundane of places, and, hopefully, at least get our minds off of how scary the world can feel at times.

At their best, anniversaries offer the opportunity to remember events that had a great impact on our lives and to reflect on the lessons learned and implications for the future. Hopefully, the travails of the past three years have left us all, not fragile and afraid, but feeling the confidence of the survivor, knowing that we had and continue to have the resilience to come through challenging times.

Here’s wishing you and yours a restful weekend break.

The Yeske Buie Team

“Clients will sometimes say, ‘Dave, you keep telling me not to pay attention to the Dow (Jones industrial average), but it seems like my portfolio just tracks … it,’” said Dave Yeske, co-founder of wealth management firm Yeske Buie.

To illustrate how a diversified global portfolio has outperformed the Dow index of 30 U.S. industrial companies, Yeske shows clients a chart outlining the performance of both over the last decade. Their relative movements do track closely, particularly in downturns, but the broader portfolio’s gains are substantially larger.

“The fact that they’re moving in sympathy doesn’t mean they’re producing the same return,” he tells clients.

Read Janet’s full article

IMPORTANT: Date change for the Virginia Open House to March 29, 2012.  See new invitation below

The Tax Man Cometh
With April 15 looming (though, technically, the official deadline this year is April 17) we wanted to point out a few “tax facts” to help you get prepared.

• Your Schwab 1099 now includes cost basis information and is the only source for cost basis.  We will no longer be producing a year-end Realized Gain/Loss Report, although we will continue to produce these – along with Income Reports – on a quarterly basis for tax planning purposes.
• You will find a report of taxable IRA distributions for the preceding year under the Tax tab of your Client Private Page.
• You will also find a summary of advisory fees paid during the preceding year under the same Tax tab.  These may be deductible to the degree that your Miscellaneous Itemized Deductions exceed 2% of your Adjusted Gross Income.

Cloud Hygiene
With more and more of us using “cloud” based email services, such as Google’s Gmail, we’ve seen an increasing number of instances in which accounts get “hacked,” or taken over by malefactors intent on stealing from you and your friends. James Fallows wrote an interesting article on this topic in the November issue of The Atlantic (“Hacked”),  in which he relates the experience he and his wife had when her Gmail account was hacked.  Fallows ends the article with several pieces of advice received from engineers at Google, including a suggestion to use Gmail’s two-step verification process, whereby you’re required to enter a verification code that has been sent to your cell phone any time you try to access your account from a computer other than your own.  The idea being that a hacker might get your password, but is unlikely to have access to your cell phone (not least because most of these scams still originate out of Nigeria, according to one Google engineer).

As additional security, Yeske Buie has a policy of verifying by telephone any requests to distribute money received by email if the funds are being sent to a third party.

Upcoming Events

• March 29: Client Open House in the Vienna office (RSVP here).
• IMPORTANT, this is a new date! Please note that the Virginia Open House will be held on Thursday, March 29, NOT on March 22nd, as previously announced.
• June-July: Elissa and Dave one-month sabbatical.
• October 24: Client Open House in the San Francisco office.

Have a great week!

The Yeske Buie Team

Join us for our Client Open House on March 29!

Though you’d pay more to replicate your 401(k) with identical mutual funds in an IRA, because the IBM plan gets institutional pricing, you could instead use exchange-traded funds to gain access to the same asset classes with lower expenses and no 401(k) compliance costs, said Dave Yeske, a financial planner and co-founder of wealth management firm Yeske Buie.

Read the full article