NewsLetter Vol. 12, No. 2 – March 2019

Dear Reader: SPIVA UPDATE

S&P 500 SPIVA Institutional Scorecard “This report adds institutional accounts to the mutual funds analyzed in the U.S. SPIVA scorecards. Underperformance among institutional accounts was not meaningfully different from those reported for retail funds. “For active equity institutional managers, the one-year performance figures ending December 2017 were positive. Managers in 10 out of 17 categories outperformed their benchmarks, gross-of-fees. [Editor’s note: There are only two problems with this positive spin: gross-of-fees and short term.] “However, the majority of equity managers in 15 out of 17 categories underperformed their respective benchmarks over the 10-year horizon, gross-of-fees.”

https://us.spindices.com/indexology/core/spiva-institutional-scorecard?cmpid=email&mkt_tok=eyJpIjoiTkdRMk9UWTRPV1F4TXpVMiIsInQiOiI5KzJZVTB4R042T2pTQkhlYnMyUWN2bE5qUmZHM3NiRkRrN2l5SERDXC9wT0dkT1phMGxRd0I0NDc5M0RuM2crV3hSaWViZkNrdGw5NE4rbzJXc2MyQUZlemt4a1JqUVBkSXV2UUhUTjJxdTA2NFNUTXpESnJqTjFneEt4VXVWNnQifQ%253D%253D

NewsLetter Vol. 12, No. 2 – March 2019

COOL TIDBITS

The following bits of wisdom are from a talk by my friend Jane Bryant Quinn, one of the very best personal finance writers ever.

Clairvoyance Society of London will not meet this week due to unforeseen circumstances.

I am an optimist. I'm not someone who smells flowers and looks around for a coffin.

Her mom is 102, and five years ago married a young man of 85.

Broker: “I've looked over your assets and I'm happy to say there is enough there for both of us.”

The SEC is enabling fake fiduciaries: "Informed consent" supported by the SEC staff.

Lilly Tomlin: No matter how cynical you become, it's hard to keep up.

A man was going to die and asked God if he could bring some of his things with him. God said yes but only one suitcase. He scoured his investments—stocks, bonds, real estate. He decided on gold. When he got to the pearly gates, St. Peter asked, “What's that?” He opened his suitcase and all the gold bars spilled out. St. Peter exclaimed, "What, you brought pavement?!"

FROM MY FRIEND PETER

Don’t blame me for these—blame Peter.

England has no kidney bank, but it does have a Liverpool.

I tried to catch some fog, but I mist.

I changed my iPod's name to Titanic. It's syncing now.

I stayed up all night to see where the sun went, and then it dawned on me.

I'm reading a book about antigravity. I just can't put it down.

I did a theatrical performance about puns. It was a play on words.

Why were the Indians here first? They had reservations.

I didn't like my beard at first. Then it grew on me.

Broken pencils are pointless.

What do you call a dinosaur with an extensive vocabulary? A thesaurus.

I dropped out of communism class because of lousy Marx.

I got a job at a bakery because I kneaded dough.

Velcro: what a rip-off!

Don’t worry about old age; it doesn't last. THE WORST PERFORMING ETFs IN THE PAST MONTH As reported by Wealth Management magazine

Past month? You’ve got to be kidding. That’s noise, not news. This is a story I would classify as

financial pornography. https://www.wealthmanagement.com/etfs/worst-performing-etfs-past-month?NL=WM-013&Issue=WM-013_20190207_WM-013_548&sfvc4enews=42&cl=article_1&utm_rid=CPG09000010316599&utm_campaign=18594&utm_medium=email&elq2=aef88dc547744a7098904d4c3f2d5e99

NewsLetter Vol. 12, No. 2 – March 2019

2018: A YEAR TO FORGET FOR ACTIVE INVESTORS Excerpts from a Morningstar research report, as seen in Financial Advisor

“Proponents of active management may want to forget what happened in 2018. In fact, if they're large-cap investors, they may want to forget the entire past decade. “Only 38 percent of active U.S. stock funds survived and outperformed their average peer passive fund last year, which was down from 46 percent in 2017, Morningstar said in its year-end ‘Active/Passive Barometer’ report…. “While that was the year-to-year picture, the long-term view of active vs. passive fund performance wasn't any better, according to the Chicago-based research firm. Only 24 percent of all active funds beat their passive fund rivals over the 10-year period ending December 31…. “The data is based on the performance of 4,600 U.S. funds that account for about $12.8 trillion in assets, or about 69 percent of the U.S. fund market, Morningstar said.” https://www.fa-mag.com/news/2018-a-year-to-forget-for-active-investors-43206.html?utm_source=FA+Subscribers&utm_campaign=105600d5d3-FAN_FA_News_ETrade_BroadridgeFSI_020719&utm_medium=email&utm_term=0_6bebc79291-105600d5d3-236860153

DAN EGAN

I don’t know Dan, but I did enjoy his tweet: “How come we have Smart Beta and not Lucky Alpha?” DID YOU KNOW?

These come courtesy of my special friend Patti.

Humans are born with two fears: falling and loud noises. Every other fear is learned.

You once held the world record when you were born, for being “the youngest person on the planet.” Think I’ll add it to my resume.

An octopus actually has six arms and two legs, not eight legs.

There are exactly 46,783,665,034,756,288,456,012,645 moves possible in a game of chess.

Elephants can smell water from three miles away.

If humans killed each other at the same rate we kill animals, we’d be extinct in 17 days.

Without your pinkie finger, your hand would lose 50% of its strength.

Giraffes spend about 70% of their day eating. They must be on a cruise.

Cows have best friends and get stressed when they are separated.

Beer reduces the risk of developing kidney stones by 40%.

Dogs are capable of understanding up to 250 words and gestures. The average dog is as intelligent as a two-year-old child. And they pay about as much attention.

Tea is the most consumed drink in the world after water. I’m working on wine to give tea a run for its money.

Once a tractor company owner was insulted by the owner of Ferrari. Enzo Ferrari’s words were “You may be able to drive a tractor, but you will never be able to handle the Ferrari properly.” Today that tractor company is known as “Lamborghini.”

NewsLetter Vol. 12, No. 2 – March 2019

AND IF YOU’RE NOT YET CONVINCED THAT YOU SHOULD AVOID “GURUS” Barron’s runs an annual forecasting challenge. Last year it had over 4,000 entrants. Here are a

few of the results. What will the DOW industrials return in 2018, including dividends? Correct answer: Negative Correctly answered by 11.57% Which global market will do best in 2018? Correct answer: U.S. S&P Correctly answered by 25.03% Which of these developments is most likely to occur in 2018? Correct answer: Equity bear market, S&P 500 finishes in the red Correctly answered by 8.11% How many times will the Federal Reserve lift short-term rates in 2018? Correct answer: four or more Correctly answered by 5.98% WILL ROGERS QUOTES

Suggested by my friend Alex:

“Common sense ain't common.”

“Live in such a way that you would not be ashamed to sell your parrot to the town gossip.”

“The road to success is dotted with many tempting parking spaces.”

“When you find yourself in a hole, quit digging.”

“The short memories of American voters is what keeps our politicians in office.”

“A fool and his money are soon elected.”

“I don't make jokes. I just watch the government and report the facts.”

“The trouble with practical jokes is that very often they get elected.”

“Be thankful we’re not getting all of the government we’re paying for.”

“Last year we said, ‘Things can’t go on like this,’ and they didn’t—they got worse.”

“The only difference between death and taxes is death doesn’t get worse every time Congress meets.”

“There are men running governments who shouldn’t be allowed to play with matches.”

“The taxpayers are sending congressmen on expensive trips abroad. It might be worth it except they keep coming back.”

I’ll let you decide whom these shoes fit. I can only believe Rogers would be having a ball if he were alive today.

NewsLetter Vol. 12, No. 2 – March 2019

AND IF THE MARKETS DON’T SCARE YOU, WHAT DOES? According to Popular Science…

Heights 28.2% Sharks 25.4% Reptiles 23.6% Public Speaking 20.0% Deep lakes & oceans 18.2% Clowns 6.7% https://read.texture.com/dl/content/psc/2018-11-01/ri/36436956-3992-3580-97ac-3930cc1266e6/?src=iOSShareMail

READY FOR A QUIZ? Also from Popular Science:

Sorry, you’ll have to wait for the end for the answers…

NewsLetter Vol. 12, No. 2 – March 2019

FOLLOW THE MONEY From Skip and InvestmentNews:

Fiduciary-based—IAA, FPA…………………………$ 468,264 NOT Fiduciary-based…………………………………$19,915,902

SIFMA—brokerage firms ICI —Mutual funds NAIFA —Insurance FSI —Commission-based advisors

SIFMA, the trade association representing major brokerage firms, spent more money lobbying lawmakers last year than Goldman Sachs, Fidelity Investments, Vanguard Group, and other top financial services firms. INTERESTING BUT DEPRESSING Notes from the Journal of Financial Planning:

In “Retirement Income Literacy: A Key to Sustainable Retirement Planning,” Hopkins and Pearce conclude “…those who better understand key retirement income issues are more likely to have a well-developed retirement income in place.” “Unfortunately, based on a 2017 survey of 1,244 respondents between the ages of 60 and 75 with at least $100,000 of investable assets: Mean Score for Retirement Income Knowledge Areas: 47%” “When asked: how knowledgeable would you say you are about retirement income planning, 88% responded they were moderately to extremely knowledgeable. However, of this same group, only 28.6% passed the literacy quiz with a score of 60 percent or higher. When asked about Concerns, “Running Out of Money” was of the least concern and health care costs and potential cuts to Social Security were the highest.” From the Center of Financial Services Innovation U.S. Financial Health Pulse Study:

NewsLetter Vol. 12, No. 2 – March 2019

“Only 28 percent of Americans are ‘financially healthy.’ Over half (55 percent) were categorized as ‘financially vulnerable.’”

And some less depressing news:

ETFs: 2018 was the 25th anniversary of exchange-traded funds. (I had no idea they were that old.)

Roth IRA: 2018 was the 20th anniversary

Bitcoin: 2018 was the 10th anniversary

Dow Jones Industrial Average (DJIA) removed General Electric, a member of the index since 1907, replacing it with Walgreens.

In 2018 Amazon and Apple reached a value of $1 trillion, and Fidelity reached $2 trillion in retirement assets.

INTERESTING STATS Also from the Journal of Financial Planning: $35,676: Average cost of tuition and fees for the 2018–2019 school year at a private college $21,629: Average cost of tuition and fees for the 2018–2019 school year at a state school for out-

of-state students $9,716: Average cost for state residents at public colleges for the 2018–2019 school year 40: Percentage of parents with 10th graders who have a financial plan in place to reach college

savings goal 56: Percentage of parents with 10th graders who have not discussed how much their kids will be

expected to contribute to the cost of college $16,400: Average amount borrowed per year by parents to pay for their children’s college

education in 2014, up from $5,200 in 1990 $37,180: Estimated parental debt from federal college loans for the 2017–2018 school year NEWS HEADLINES FROM NPR

That’s tough!

I guess it would have been OK if he had been legally spying.

NewsLetter Vol. 12, No. 2 – March 2019

MORE NEW, OLD PRODUCT PITCHES FROM PETER

WANT TO RETIRE IN COMFORT? HERE'S WHAT IT COSTS BY STATE PER YEAR: #50 – Arkansas $36,378 #37 – Texas $39,814 #30 – Louisiana $41,107 #24 – Florida $42,586 #4 – California $49,640 #3 – New York $50,321 #2 – Hawaii $54,590 #1 – Alaska $56,879 https://www.usatoday.com/story/money/personalfinance/retirement/2019/01/30/retirement-planning-cost-retire-comfort-every-state/38939609/

NewsLetter Vol. 12, No. 2 – March 2019

TECHNOLOGY, ONCE UPON A TIME

https://www.wealthmanagement.com/technology/riskalyze-fintech-report-card-january-2019

I KNOW YOU’VE ALL BEEN WAITING So here’s the link to our updated paper, “The Efficacy of Publicly-Available Retirement Planning Tools”: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2732927. A THOUGHT TO REMEMBER DURING ROCKY MARKETS

A boat that doesn't rock doesn't move. INSURANCE INDUSTRY BATTLES BACK AGAINST FIDUCIARY STANDARD

“The three leading insurance and agent associations are working in tandem to support a state

‘standard of care’ proposal for agents that rejects fiduciary responsibility for agents and advisors.

At stake, they say: middle-class investors.”

Of course, why on earth would middle-class investors deserve to be provided a fiduciary

relationship?

https://www.fa-mag.com/news/insurance-industry-battles-back-against-fiduciary-standard-

43404.html?section=4&utm_source=FA+Subscribers&utm_campaign=77f51b7628-

FAN_FA_News_Capital_Group_022019&utm_medium=email&utm_term=0_6bebc79291-77f51b7628-236860153

NewsLetter Vol. 12, No. 2 – March 2019

BARRON’S RANKED ADVISOR DIRECTORY

Barron’s publishes this ranking four times a year that it says is based on “…a deeply researched, quantitate approach.” Assuming I counted correctly, I found that the following large commission-based brokerage firms represented about 58% of the total.

Morgan Stanley Merrill Lynch UBS Wells Fargo J.P. Morgan 23% 21% 6% 4% 4% Fee-only fiduciary firms were just a small fraction of the listings. Go figure.

Of course, with the ranking Barron’s notes: “The list of highlighted advisors below is a special advertising section.” That might have something to do with it.

MORE FROM BARRON’S

Maybe their crystal ball isn’t so great, but I’ll give them credit for honesty. In an article reviewing the publication’s 2018 stock picks titled “A Mixed Year for Barron’s Stock Picks,” they wrote:

“Shares of the 71 companies we wrote about bullishly fell 10.5% on average, versus 9.5% for their benchmarks. Add back dividends and we were down 9.4% versus a drop of 8.5% for the benchmarks. The S&P lost 7.4% over the same period.”

GOOD TO KNOW

NewsLetter Vol. 12, No. 2 – March 2019

ANOTHER GOOD WEEK

Deena and I were honored with the Dr. A. William "Bill" Gustafson Distinguished Leadership Award, “…recognizing distinguished leadership that is consistent with the ideals of the Texas Tech Department of Personal Financial Planning and promotes the financial planning profession with commitments to developing leaders of the highest caliber and character.”

The award was presented by our department chair, Vickie, and our partners Katie and John (John won the Distinguished Alumni Award last year).

SHOW YOUR SWAGGER We are happy to introduce a new website, Advisor on My Side (https://www.advisoronmyside.org/), where investors can get reliable information from ethical financial advisors who truly have their clients’ interests at heart. Here’s an excerpt:

It’s a fact. Objective and competent financial advice can be life-changing. Yet with confusing information from the industry and regulators, it can be tough to figure out who’s who. To know which advisors are on your side. Advisors who are actual fiduciaries. All advisors talk the talk. Only some can walk the walk. Advisor On My Side brings together the best tips from investors, fiduciary advisors, and

experts. The mission: to help investors learn what they need to know to protect themselves.

Be sure to look at the short video to understand what we mean by “swagger.”

NewsLetter Vol. 12, No. 2 – March 2019

THE ANSWERS

FINAL FOOD FOR THOUGHT

Also from my friend Alex

Hope you enjoyed this issue, and I look forward to “seeing you” again.

Harold Evensky Chairman Evensky & Katz / Foldes Financial Wealth Management