Livingston Financial Planning

04/13/2022

Earlier this week was Mama’s birthday, April 4.

She wanted me to attend a prestigious college, and I did, but the University of Georgia wasn’t her first choice. Last month, though, I jumped on a conference call with Ken French, Ph.D. His Dartmouth college bio credits him as an expert in investment strategies.

So here’s your birthday present; I finally made an Ivy League lecture.

Listening to French, the figurative light bulb went off. Instead of measuring risk as the potential for losses or volatility, it is more accurate to look at risk as the uncertainty about lifetime consumption.

It makes perfect sense; start with goals and work backward to the portfolio. Then, adjust the portfolio for returns and other sources of future income. At my age, it’s nice to get an 'aha' moment.

While the average dollar invested holds the global market of stocks, bonds and other assets, investors weigh their individual shares differently and for a good reason. For example, as a U.S. resident, it’s logical for me to overweight dollar-denominated assets. Age, risk aversion and future income sources also affect how an individual portfolio may deviate from the global market.

Chance dominates returns. Humans are hard-wired to look for patterns, but this evolutionary trait bodes poorly for investors. Being an academic, French pointed out that in the investing world 'a non-trivial fraction of the patterns are false positives.' Since Dartmouth sent me a rejection letter, a plebian observation is don’t confuse luck with brains.

Mama’s dad, Granddaddy Joe, bought a single stock, Coca-Cola, correctly pronounced 'KO koluh.' A banker named Pat Munroe encouraged him to plow some profit from his farm into Coco-Cola shares.

For the last half of the 20th century, Coca-Cola beat the S& P 500 but hasn’t over the last two decades. So it’s dangerous to believe current high-flying stocks will be able to maintain their outperformance.

Active investment doesn’t work; full stop. Since active management has higher fees, that drag dooms active management over time. In addition to higher transaction costs compared with a passive portfolio, investors in actively managed portfolios pay higher management fees. Investing actively can trigger greater tax consequences, too.

Active management often means overweighting a higher allocation of a particular individual stock. Because there’s a seller for every buyer, some party underweighted that stock. One team wins, and the other loses, but both pay to play.

Finally, most people benefit from diversification. Yes, some people like Warren Buffett can benefit from concentrated positions. But, more than likely, you aren’t as sharp as Buffett or have a partner as shrewd as Buffett’s right-hand man, Charlie Munger. Importantly, diversification reduces uncertainty about lifetime consumption.

French’s presentation resonated with me. Start with your spending goals, then build your portfolio to eliminate as much lifetime consumption uncertainty as practical. Understand the limitations of chance along with the folly of active management. Diversification may not be a free lunch, but it’s close enough.

Happy birthday, Mama. You tried to raise me better, I know.

You can’t always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 W. County Highway 30A, M1 Suite

03/28/2022

With gloomy news reports and wild market fluctuations, you might be tempted to follow John Prine’s advice, but don’t.

First, it’s March, and that includes must-see basketball. Plus, baseball season is approaching (finally), and even with no Freddie Freeman in the ATL, the Braves are still World Champions.

To some, I may sound like an out-of-touch sports nut. Au contraire, take it from 2017 Noble Prize in Economic Sciences winner Dr. Richard Thaler. Years ago, when quizzed by a financial news network host about how best to deal with volatile markets, Thaler replied, 'Switch to ESPN.'

Immediately the producers cut to break.

Like Prine, Thaler was serious and funny simultaneously. Clever is the word. The Noble Committee blundered by never recognizing John Prine’s brilliance. Maybe if he’d lived longer they would have. They should have, but that’s the way the world goes round.

Follow the news, but don’t let it lead you. Some financial gurus may say stick with your plan. But that depends on what the plan is. If it’s a lousy plan, sticking with it likely won’t help. For instance, if you planned to beat the market, Thaler warns you probably can’t, certainly not consistently.

Look at projected spending for the near-term; less than two years. Then, in addition to an emergency fund for unexpected expenses, make sure withdrawals for essential costs are in cash or projected dividend income.

It’s OK to spend retirement savings during a market downturn, but avoid having to sell a stock position during one.

Regular readers know I lobby for using I-bonds, inflation-linked Treasury bonds. They pay over 7% through April and likely will for the following six months, given their yield is based on the Consumer Price Index. Thaler recommends them as well.

Even if inflation moderates, having super-safe assets free from market fluctuations remains a good strategy. Advisers don’t tell you about them because there are commissions or management fees to collect. While I-bonds have drawbacks, they are minimal.

Given increasing longevity, retirement savings have a multi-decade window. So while the stock market is a good bet for the long-term, it’s not perfect, and it’s absolutely no sure thing.

Instead, pay attention to another Noble Prize winner, Dr. Eugene Fama, who warns it’s 'probably' a good bet for the long run. However, Fama stresses there’s always risk in the stock market. 'It never goes away.' And, which way will the market go? Fama’s reply: 'My whole life’s work says you can’t answer that question.'

The best option is to have a portfolio reflective of your goals, time horizon and risk tolerance. Most importantly, don’t look at the market constantly.

Instead, here’s a short list of things you should do more often.

Change your air filters, get a haircut, do the laundry, floss, eat at your favorite restaurant or go for a walk.

Like my Twitter friend Cody Garrett said, 'Be passive with your investments so you can be active with your lifestyle.'

You can’t always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 W. County Highway 30A, M1 Suite 230.

With gloomy news reports and wild market fluctuations, you might be te

03/20/2022

Follow The Money
(c) Buz Livingston

In the film adaptation of Carl Bernstein and Bob Woodward’s 'All the President’s Men,' their confidential source, 'Deep Throat' played by Hal Holbrooke, reminded them to follow the money.

Holbrooke also had a multi-decade career playing the role of 'Mark Twain.' Samuel Clemens also portrayed 'Mark Twain' and would find the adult film reference amusing.

However, laws and regulations in the United States make it difficult, sometimes impossible, to follow the money. The Tax Justice Network ranks the United States third in secrecy behind Hong Kong and Switzerland.

But, like college football recruiting, differences exist in how teams are ranked. Andrew Penney argues the United States is the number one tax haven globally. While Arthur Bullough claims the United Kingdom is the top dog. Regardless of who is on top, money laundering is a worldwide problem.

Criminals launder money by using multiple transactions through seemingly unrelated companies. For example, in his book 'Me, The Mob and The Music,' Tommy James of the Shondells fame recounts his adventures with Morris Levy.

James signed a record deal with Levy, who was later convicted of extortion along with a high-ranking Genovese family crime figure. Levy, for instance, owned musical venues, record-pressing plants, recording studios and record labels, along with a chain of record stores.

James left New York to avoid a mob war.

Crooks often use shell companies to hide ownership and the source of funds. Moving money from one shell company to another is a way to clean money. In early 2021, Congress included the Corporate Transparency Act (CTA) with a defense authorization bill. The law went into effect after both houses overrode a late-term Trump veto.

While a much-needed step, unfortunately the CTA provides for ownership disclosure to remain private and only available to state and federal officials generally under only a court order.

Real estate and art purchases are another way dirty money is cleaned up. Art sales traditionally have been secret. Both art and real estate transactions depend on how much someone is willing to pay. Last year, an unnamed Russian bought a $140 million home in South Florida. If they overpaid, so what. They have a marketable asset.

Money laundering takes different forms. Unsavory characters use philanthropy to polish their image and ingratiate themselves into society. American universities, charities and museums have accepted millions of dollars from Russian oligarchs. Venerated names include New York’s Museum of Modern Art, the Guggenheim Museum, the Massachusetts Institute of Technology and the Mayo Clinic.

Under the CTA, beneficial ownership information is reported to the Financial Crimes Enforcement Network (FinCEN), the Treasury Department’s financial intelligence unit. FinCEN is woefully underfunded. Currently, its budget is roughly the cost of a single F-35.

Dark money is as dangerous as any foreign threat.

For years, some downplayed the role of dark money, but Putin’s brutal invasion of Ukraine belies that argument. The Russian oligarchs who park their money in the United States are extensions of Moscow. The politicians, pundits and people who support them are useful idiots.

You can’t always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 West County Highway 30A, M1 Suite 230.

12/16/2021

JUST PLAIN TALK: Christmas comes early for college athletes

12/08/2021

Suppose you want a strong economy, a growing 401k, and the ability to travel and go to restaurants, then we must focus on controlling coronavirus. It’s not a hoax; 800,000 Americans have died. Omicron is not a sly plan by the Democrats to monkey with the 2022 mid-terms either. The Fox News clowns that parrot that hokum are all vaccinated. Everyone on Fox News is vaccinated. Heck, I bet Tucker’s been boosted.

JUST PLAIN TALK: Why we can’t have nice things

11/23/2021

Of course, having enough money for retirement cannot be underemphasized, but health and relationships with peers are equally important. Importantly, all three require diligence before retirement and afterward. Think of retirement as a three-legged stool.

JUST PLAIN TALK: A different take on retirement planning, with maintaining friendships

09/10/2021

JUST PLAIN TALK: Vaccine refusal biggest threat to economy

08/22/2021

Let's use tax revenue wisely

08/02/2021

When Steve Goodman and John Prine wrote "You Never Even Called Me by My Name," they added lyrics to the finished product, sort of what I'm doing today. A loser covered it, but we won't call his name.

JUST PLAIN TALK: Additions and amendments to earlier columns, I-bonds to hurricanes

06/28/2021

For decades, the financial services industry has focused primarily on savings, with less attention on spending. While the emphasis has been on accumulation, decumulation can present a unique quandary.

JUST PLAIN TALK: Unexpected retirement pitfalls include divorce, adult children, spending

06/24/2021

The biggest threat to your portfolio might not be inflation but infection.

Vaccination rates in America aren't going to get us to herd immunity. Inflation can be severe, but worrying about it while ignoring science is akin to putting the cart before the horse.

JUST PLAIN TALK: Inflation or infection — which is worse