Financial Advice

Want a Better Investment Experience? 10 Principles to Live By

Want a Better Investment Experience? 10 Principles to Live By

With the market’s recent volatility, your portfolio may have taken a hit. And you probably have feelings about that. Maybe some fear. Maybe anger. And you may be wondering what you can do to avoid taking a hit again.

September a Month for Birthdays and Awareness

Happy 40th birthday, Vanguard 500 Index Fund! The Vanguard Group First Index Investment Trust (now the Vanguard 500 Index Fund) launched on August 31, 1976, with only $11.3 million in assets, far short of the goal of $150 million. According to The Wall Street Journal, critics called the fund “un-American” and a sure path to mediocrity.

Going back further in history, in 1963 legendary financial analyst Benjamin Graham had advocated for the creation of an index fund. In 1971, a division of Wells Fargo launched a $6 million indexed portfolio of New York Stock Exchange stocks for the pension fund of luggage manufacturer Samsonite. In June 1975, American National Bank in Chicago was running about $300 million in several index funds, and one of the investment officers was Rex Sinquefield, who went on to be one of two co-founders of Dimensional Fund Advisors (DFA Funds).

Today the Vanguard 500 Index Fund holds more than $252 billion (with a “b”) in assets, and index mutual funds and exchange-traded funds tout nearly $5 trillion in assets.

Did you know that September is Life Insurance Awareness Month? Insurance—in the form of auto/home/liability, health, disability, life and long-term care—is the foundation of a financial plan and a pillar of financial security. Let’s face it: Most people don’t like insurance companies and insurance agents. (News flash, right?) Nonetheless, life insurance is important, and a well-defined, well-thought-out strategy is essential. Feel free to contact us to review your life insurance plan.

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Speaking of insurance, fall is also open enrollment season for many employer benefit plans and Medicare. Again, take the time to evaluate your needs and goals and the options available. Make sure employer life insurance beneficiary designations are accurate and include a primary and secondary or contingent beneficiary. We are not experts in Medicare Supplements but can make referrals if you need assistance.

Finally, one and only one comment on the presidential election: We have had good and bad economies and stock markets with both Democratic and Republican presidents over the years. The president is only one person and doesn’t control the economy or stock market. Don’t put too much emphasis on what may happen with a new president.

Enjoy these final summer and early fall days! As always, please contact us with any questions, news or comments.

Financial Fire Drill: Quick, What's The Password?

I have a confession to make. I don't know how to run our washing machine. I knew how to run the old one, but not the new one. Truth be told, we've had the "new" washing machine for at least five years now. Sad excuse. Fortunately, I have a loving wife who does laundry for me. As a double bonus, my college and high school age children know how to run it. I'm on easy street, it seems. But I would be up the creek if I had to do laundry myself. Heaven help me.

Schedule a Financial Fire Drill

We're in a similar situation when it comes to our home banking and bill-paying. I do it all. I am as high-tech and paperless in our banking and bill-paying as possible. My dear wife, God bless her, is out of the loop. I have told her the master password to our accounts, but we've never had the equivalent of a fire drill to see if she remembers it and would know what to do if I became seriously ill or died. I need to put that on the "should do" list.

In the old days, if a spouse or child had to take over banking for their spouse or parent, they just picked up the checkbook and started writing checks.

The days of just picking up the checkbook and writing checks are over.

So stage a fire drill. There is no gender bias here. If the spouse who pays the bills had a stroke, would the other spouse be able to pay the bills? If your single mom or dad had a stroke, would you be able to pay their bills?

It's better to be safe than sorry.

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About Bruce J. Berno, CFP® Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com.

Financial Planning Must Be Inspired by the Heart

With February comes the celebration of St. Valentine's Day, which leads us to highlight a financial planning belief that isn't commonly considered: Successful financial planning must be inspired by the heart. Financial planning takes time and effort and requires the sacrifice of today's pleasures for tomorrow's. Why would we do this? We do it because of our heartfelt desire for financial peace of mind for ourselves and because of our love for those most near and dear to us. Have you ever thought of financial planning this way?

What Does Your Heart Want?

There are many things we "should" do or "want" to do but, in reality, we only get done what we truly commit our hearts to accomplish. Think of the priority you assign to:

  • Your relationship with your spouse or significant other
  • Your relationship with your family
  • Your relationship with your friends
  • Your mental well-being
  • Your physical well-being
  • Your spiritual well-being
  • Your career or avocation
  • Your financial well-being

It's OK to Ask for Help

Some people can accomplish all they want on their own. Most cannot, due to limitations in expertise or time. Most people need some help from other people.

For example, some people enhance their physical well-being with the benefit of a coach or trainer or by being on a team for support. Since personal financial planning is confidential by nature, it is hard to achieve in a group setting. You can do financial planning on your own, but most people don't have the time or expertise. There are also behavioral finance obstacles that are best managed with help from another person's perspective. In other words, you may need another person's insight before you can see how you need to change your behavior.

A CERTIFIED FINANCIAL PLANNERTM professional is best qualified to serve your comprehensive personal financial planning needs.

Put your heart into it today. Your financial peace of mind will be greatly improved.

"Successful financial planning must be inspired by the heart."
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About Bruce J. Berno, CFP®
Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com.

Personal vs. Web-Based Financial Advice

Technology is a wonderful thing. It has dramatically improved our access to information. But is it a double-edged sword? Is information the same as advice? Can the web be a substitute for, or a supplement to, personal advice?

Ask yourself the following:

  • Would you see a doctor for medical advice or do a web search?
  • Would you consult an architect to design your house or pick a blueprint from a website?
  • Would you consult an accountant for a tax question or rely on the IRS website?

While you could rely on the web for any of the above, should you?

We live in a complicated world, but we are fortunate to have experienced, knowledgeable professionals in many specialties. The web can supplement, but not replace, personalized professional financial advice.

At Berno Financial Management, our goal is to give you the advice that you need, tailored to your specific situation, or to refer you to a specialist when needed and then coordinate implementation of that advice.

Personal, professional advice should always put your interests first. Can you trust the web for that?

About Bruce J. Berno, CFP®
Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com.

Reality Show for Investors: "Survivor" by Weston Wellington

Note from Bruce:The best stock performer in 5 or 10 years will probably be a company we haven't heard of today. History is filled with icons that have crumbled. A broadly diversified, passively managed fund is the best way to capture new stocks and tomorrow's best performers. -Bruce J. Berno, CFP® Anyone studying the long-run history of American business cannot help but observe how many of the prominent firms of one era fail to make it to the next. Free-market economies are characterized not only by intense competition but also by disruptive change. Sometimes a company's toughest competitor turns out to be a firm it has never heard of selling a product or service that didn't exist until recently. The list of companies that once dominated their industry but have fallen on hard times is lengthy enough to give every thoughtful investor reason for sober reflection.

Among many possible examples, a number of firms come to mind that were once highly regarded but later encountered serious or even fatal problems.

  • Bethlehem Steel pioneered the steel I-beam, which launched a skyscraper boom in cities across the country. Its engineering expertise supplied the steel sections for the Golden Gate Bridge. But growing competition and a changing marketplace eventually took their toll, and the firm filed for bankruptcy in 2001.
  • In 1973, Eastman Kodak held a seemingly impregnable position in the lucrative market for photo film and chemicals, enjoyed a reputation for innovation and astute marketing, and boasted a market value even greater than oil giant Exxon. Kodak shareholders had been favored with an uninterrupted stream of dividends dating back to 1902. Today the company is struggling to reinvent itself as the film business shrivels, the dividend has been suspended, and the share price is limping along under $3.
  • Fortune article profiling Pfizer in mid-1998 praised it for having "one of the richest product pipelines in the Fortune 500." A Wall Street analyst enthused that "some of my clients refer to Pfizer as the best company in the S&P 500." In early 1999, a Forbes cover story sounded a similar note, crowning Pfizer "Company of the Year" and observing that "the people who brought us Viagra have more blockbusters on the way." Thirteen years later, the Viagra boom has subsided, patents are expiring on highly profitable products, and the gusher investors expected from the research pipeline has slowed to a trickle. The share price has slumped over 50% since year-end 1998 compared to a 3% loss for the S&P 500 Index.

Some companies almost single-handedly create new industries but still find it difficult to turn innovation into a permanent advantage. Pan Am (air travel), Kmart (discount retailing), Polaroid (instant photography), and Wang Laboratories (word processing) all had impressive initial success and provided handsome rewards for their investors. Alas, neither Pan Am nor Polaroid survives today, and Kmart shareholders were wiped out when the firm emerged from bankruptcy in 2003. (Kmart, Polaroid, and Wang Laboratories were all cited as examples of "excellent" companies in the 1982 bestseller In Search of Excellence.)

Evidence of this "creative destruction" appears all around us. For example, the Wall Street Journal reported that shares of Minnesota-based Best Buy Co. slumped Wednesday (9/14) to their lowest level since 2008 after reporting a 30% drop in quarterly profits. For most of its life, Best Buy has been the toughest kid on the block, vanquishing rivals such as Highland Superstores and Circuit City on its way to becoming the nation's leading electronics retailer.

Will Best Buy fall victim to even tougher competitors such as Amazon.com or Walmart? Or is this current downturn just a speed bump on the road to even greater success? No one can say. For every riches-to-rags story, we can find another tale of decline followed by dramatic recovery. According to some accounts, for example, Apple was only a few months from bankruptcy when Steve Jobs returned to the company in 1997. Now it vies with ExxonMobil for the number one spot in a ranking by market cap. And who would have imagined that a floundering New England textile firm with a low-margin business that sells suit-lining fabric would one day become a financial colossus known as Berkshire Hathaway?

The thrill of owning a great growth company during its most lucrative phase is a powerful incentive to search for the Next Big Thing. But almost every company with a highly profitable position is under constant attack from competitors seeking to garner a portion of those hefty profits for themselves.

As a result, the search for firms destined to generate greater-than-expected profits for many years into the future is fraught with peril and likely to end in frustration. Most investors will be far better off harnessing the forces of competitive markets and putting them to work on their behalf by holding a diversified portfolio. As Nobel laureate Merton Miller once observed, "Above-normal profits always carry with them the seeds of their own decay."

Miguel Bustillo and Matt Jarzemsky, "Best Buy Gets Squeezed" Wall Street Journal, September 14, 2011.

David Stipp, "Why Pfizer Is So Hot," Fortune, May 11, 1998.

"Pfizer: Company of the Year," Forbes, January 11, 1999.

Standard & Poor's Stock Guide, 1974.

Thomas Peters and Robert Waterman, In Search of Excellence (HarperCollins, 1982).

Merton Miller, "Is American Corporate Governance Fatally Flawed?" Journal of Applied Corporate Finance, Vol. 6, No. 4, Winter 1994. Original Article (Login Needed) About Bruce J. Berno, CFP®

Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com/.