What Every Investor Needs to Know About 2014 Market Predictions

Happy New Year!

And if you were invested properly in 2013, a prosperous New Year to you!

2014 Market Predictions

2014 Market Predictions

2013 was the best year for the S&P 500 since 1997, with total returns in excess of 32%.

Wow. Just wow. We needed that.

I truly hope you were able to capture some of those remarkable returns. It’s all too tempting to look back over a good year or a bad year in the market and say to yourself, “Of course. All the signs were there. It was obvious that was going to happen.”

But the truth is that nobody has ever accurately predicted market movements consistently over time, and hindsight really is 20/20.

But considering how many 2014 market predictions I’ve seen published over the past few weeks, it might be tempting to think that there are experts who DO know what’s coming. Market predictions are the ante for many Wall Street pundits, fund managers and the like, and if we knew whose 2014 market predictions were going to be accurate we could have leveraged our bets and really made some money.

And so, in my quest to bring reason and science to your investing life, I will now showcase some of my favorite 2013 market predictions.

It turns out they didn’t fare so well…

One prominent economic forecaster who earned a name for himself by predicting the financial crisis in 2008 suggested that the conflagration of four economic factors—slow US growth, the EU debt crisis, military conflict in the Middle East and a slump in emerging markets—could combine and lead to what he termed a “superstorm.”

Time Magazine, for one, ran a market outlook article in November of 2012 titled “Why Stocks are Dead” (in bold, large point font). Barron’s ran a cover story that same month warning investors to “get ready for the recession of 2013.”

A famous financial analyst whose articles appear regularly in Forbes, The New York times, and The Wall Street Journal enumerated a host of surefire growth killers including persistent housing foreclosures, weak consumer spending, government deficits, high unemployment and “unsustainable” corporate profit margins. He predicted that in 2013 the S&P would drop to 800, a 42% decline!

And, if negative economic world events led inevitably to negative market returns, pessimism wasn’t entirely unjustified. Recall that in 2013, North Korea continued to conduct nuclear tests, the Pope resigned (for goodness sake), the EU agreed to bail out Cypress, crazed maniacs bombed the Boston Marathon, Edward Snowden fled the country and the entire U.S. federal government shut down for 16 days.

Yet the market climbed steadily skyward.

So, did those Wall Street characters change their tune and get on board?

Of course not! That would be admitting defeat. And relief doesn’t sell newspapers.

On March 5, 2013, when the Dow Jones Industrial Average finally surpassed its previous high of 14,164.53, from October of 2007, the Financial Times reported that the mood among long-in-the-tooth New York Stock Exchange traders was “more anxious than joyful.”

In fact, here is an interesting list of headlines from some of our best known news sources:

  • “Rebirth of Equities Ain’t Necessarily So,” Financial Times, January 12
  • “Scant Pickup in Economic Growth Seen for 2013,” Wall Street Journal, February 8
  • “Stock Markets Defy Economic Woes,” Financial Times, March 7
  • “As Investors Rush in, Stocks Are Sending Warning Signals,” Wall Street Journal, July 7
  • “Lofty Profit Margins Hint at Pain to Come for U.S. Shares,” Wall Street Journal, August 24
  • “Profits Boost Needed for Wall Street’s Equities Run,” Financial Times, September 18
  • “Get Ready For a Drop in Stock Prices,” Wall Street Journal, October 7
  • “Is This a Bubble?” Wall Street Journal, November 16

Unfortunately, if you heeded the advice of some of these so-called experts, you ran for the hills in 2013 and missed some pretty serious gains.

And now that we’ve finished a killer year like 2013, everybody’s favorite 2014 market prediction is, “But it won’t happen again this year!” Because of course, 2014’s returns couldn’t possibly rival those of 2013. Right?

Who knows?

Not me.

And certainly not them.

Best to just stay the course.

Pioneer of Modern Finance, Professor Fama, Wins Nobel

Professor Fama’s work has shaped the investment philosophy that we, Family Wealth Consulting Group (the financial advisors behind the Healthy Wealthy Families blog), have been using with clients for more than 20 years. Since the early 1990’s, we are proud to have adopted an Efficient Markets approach to portfolio construction. Our clients’ results over the years have strongly confirmed the soundness and practical wisdom of Fama’s research.


Today we’re pleased to announce that University of Chicago Professor Eugene F. Fama, has been awarded a Nobel Prize in Economic Sciences.

Fama is widely recognized as one of the “fathers of modern finance”, and he shares this Nobel with Lars Peter Hansen, who is also at University of Chicago, and Robert Shiller of Yale University.

The prize was awarded for research that has transformed our understanding of markets, stock prices and investing and has had an enormous, practical impact on countless investors.

Fama’s research showed that financial markets are efficient, meaning that the prices on traded assets—like stocks—quickly reflect all known information.

What this means for investors is that it is impossible to consistently outperform the market, except through luck. In other words, active management strategies are unable to either consistently pick stocks that will outperform or guess the best time to be invested in a certain market or stock.

Ultimately, investors are likely better off accepting the market’s rate of return and not taking the unnecessary risks involved with trying to outguess it.

As economist Burton G. Malkiel noted, the Efficient Markets Hypotheses means that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”

In combination, the Nobel committee recognizes that this research has guided the investments industry into building index and asset class funds as well as reshaped the science of portfolio management. In fact, Morningstar data shows that more than 26% of all assets in the US are now invested in market-based index or asset class investments, including 41% of estimated net flows in 2012.

Professor Fama also collaborated with Kenneth French on research that showed that some stock pricing anomalies can be explained by what is known as the Fama-French three-factor model. This research showed that, in general, stocks produce higher returns than bonds, small stocks produce higher returns than large stocks, and value stocks produce higher returns than growth stocks (after you diversify away as many risks as possible).

Fama is a prolific author and researcher, having written two books and more than 100 articles. He is also one of America’s most cited academics and has taught generations of noted economists, professors and investment professionals—his list of former students reads like a Who’s Who of finance.

In a recent paper, Fama wrote: “I love my work. I have no intention of stopping as long as I’m breathing—and I may even do it after that.” Now, in his seventies, he continues to be a financial pioneer and thought leader.

Thanks to Fama, many investors no longer spend precious time and money trying to outperform markets. Instead, they focus on taking reasonable, compensated risks, and put their faith (backed by data) in the long-term potential of free markets and capitalism to create long-lasting wealth.

Congratulations, Professor Fama, and thank you.

The Guide to Choosing Assisted Living: For Caregivers and Loved Ones









This post was written by Peggy Martin, MSFS, ChFC, CASL. Peggy is a financial advisor with The Family Wealth Consulting Group and a contributing author to this blog.

Guide to Choosing Assisted Living for Your Loved Ones

The PBS Frontline program “Life and Death in Assisted Living” (hyperlink: http://www.pbs.org/wgbh/pages/frontline/life-and-death-in-assisted-living/), which aired for the first time last week and is now available for viewing online, was a dramatic wake-up call for many people. The program primarily focused on one provider of care, whom the patients’ loved ones chose as assisted living, and how multiple acts of negligence put several patients’ lives at risk and led ultimately to their deaths. The full impact of the program on the assisted living facility industry is not yet known.

As a family caregiver, I have had the opportunity to be an advocate for the parents in my family, placing their needs first when working with medical providers. As a financial planner, I have worked closely with many clients to navigate the complexities of managing care for their aging loved ones or for themselves.

I have interviewed owners, managers, and the staff of assisted living facilities and I have given clients guidance to do the same. I have found that being proactive, present, and asking the right questions contributes to a positive experience for your love one and allows peace of mind for you.

The Guide to Choosing Assisted Living below should help you make informed choices about assisted living facilities. If you have further questions or would like to know if we might provide customized assistance, please Contact Us:

1. Has the facility recently been taken over by a larger company? New ownership can mean that both the quality of care and resident costs may soon change.

2. How long have the current owners/managers operated the facility? In large corporations, managers can change frequently and not understand the needs of the residents.

3. Your loved one will be spending the majority of their time in the facility. Things to look for or request:

a. Do you get the sense of a homelike environment?
b. Do you hear staff calling the residents by their name?
c. Is socializing between residents taking place?
d. Are you allowed to speak with residents about their experience?
e. Are social and recreational activities provided and residents encouraged to participate? Are guest speakers and special programs provided?
f . What about small pets?
g. Does the facility provide transportation to and from doctors’ appointments and for light shopping?
h. Is there a licensed nurse on staff?
i.  How is medicine dispersed and where is it stored?
j. Is staff available 24/7?
k. Find out how frequently staff is interacting with the residents.
l. Are there staff meetings with management where there is encouragement to speak freely about residents’ concerns.

4. For the residents of a facility, food is very important. Eating meals with other residents is social and friendships are often created around the dining room table.

a. When are meals provided?
b. Can special meals be prepared due to dietary restrictions? Is a nutritionist involved?
c. Can a resident eat meals in their room?
d. Do apartments have a kitchen or kitchenette?

5. Safety and cleanliness of the facility:

a. How clean do the building and grounds appear? Is the building free of odors?
b. Are there fire sprinklers? Can residents easily see exit signage?
c. What is the facility’s policy on smoking?
d. Do apartments have heaters and air conditioning that can be regulated by the resident?
e. Is the facility locked for dementia patients?
f. Are there hazardous chemicals on site? Where are they stored?

6. Be sure to contact your state’s community care licensing division to find listings of facilities in your area and what complaints, if any, have been registered. For California, www.ccld.ca.gov.

By staying in touch with your loved one and the community serving him or her, a lot of tragic outcomes can be avoided just by knowing what is happening.

What do you think about assisted living facilities? I’d love to hear from you.


This post was written by Peggy Martin, MSFS, ChFC, CASL. Peggy is a financial advisor with The Family Wealth Consulting Group and a contributing author to this blog.

Should I Invest My Cash Now?

“Hey, Ms. Advisor/Economist/Person I met at a party: Should I Invest My Cash Now??”

Too often, I hear questions like:

“I have some cash in my portfolio… do you think I should invest invest my cash now or wait for the market to come back down a little bit?”
(Honey, if I knew that, I’d be sitting pretty on my own island, for sure!)


“Shouldn’t I wait for the market to go back up a little bit before I invest my cash?”
(See how silly, people can’t decide if they want the market to go UP or DOWN before they invest, and this last question is a prelude to, “Oh no! I waited too long and the market left me in the dust!”)

Trying to predict the market seems like an obvious thing to do—not only could you potentially make yourself some money, but the media tends to completely support the (false) assertion that these things can, in fact, be predicted. No one can predict the future though, and even the most handsomely paid economic experts are wrong when we need them most.

This is a great video from a very smart company, Loring Ward, about why you shouldn’t worry about a few percentage points when it comes to putting your money in the market. If you’re wondering what the truth is about market predictions, watch it now!

NOTE! This advice only applies to cash that is earmarked for long-term goals–events that are 5+ years in the future.

Should I Convert to a Roth IRA?

Congress recently made it easier to convert to a Roth IRA than it ever has been, but is it really the lucrative opportunity everyone thinks it is? roth

Roths are popular because, unlike Traditional IRAs, distributions in retirement are tax-free.

However, the ability to contribute to a Roth IRA has always been subject to fairly restrictive income caps.

To lessen the restrictions, in 2010, Congress passed a law allowing anyone (no income restrictions) to take an already-existing Traditional IRA and convert to a Roth IRA.

Roth contributions are after tax dollars, though, so the conversion amount becomes taxable income. This can translate to a hefty tax bill depending on the size of your conversion, and the taxable income can trigger the new Medicare surtax.

This year, Congress lightened restrictions even further by declaring that employer-sponsored 401(k) account balances are convertible to Roth 401(k)s, as long as your plan allows for Roth 401(k) accounts.

Since then, many people have converted or are considering converting to a Roth with the idea that they are taking advantage of a huge tax benefit: tax-free retirement income.

So are these folks really getting a free lunch?

Actually, the answer to this question involves you guessing what tax bracket you’ll be in during retirement relative to the tax bracket you’re in now.

As it turns out, the only way you’ll be better off in retirement with a Roth IRA is if you are in a higher income tax bracket then than you are now. [i]

Here’s how it works…

…with a Traditional IRA

Say you’re in a 30% tax bracket now.

Further, let’s say you earn $1,000 before tax and contribute the entire $1000 to your Traditional (pre-tax) IRA. Now say you earn a rate of return that triples the money by the time you retire.

So now you have $3,000, and when you take the money out of that account after age 59½, you pay 30% tax on it, so that leaves you with $2,100.

…with a Roth IRA

Now, let’s say you earn the same $1,000.

You pay 30% tax on it, leaving you with $700 and contribute that amount to your Roth IRA. In the Traditional IRA scenario, compound interest tripled your IRA money, so this money will triple too[ii].

So, now what do you have? That’s right: $2,100

Look at that. You end up with exactly the same amount of money!

And the math works the same for every dollar amount, so again,

The only way you’re better off with a Roth is if your tax rate is higher during your retirement than it is now. 

In that case, for example, if you were in a 30% tax bracket now and a 40% tax bracket in retirement, the Traditional IRA result, paying 40% of $3,000 ($1,200), would be $1,800 instead of $2,100. Now you’re better off with the Roth.

Stay in Control of Your Taxes

That said, it is a good idea for you to be able to have some control over your tax rate in retirement, so I do recommend having some portion of your savings in a Roth, some in a Traditional IRA and some in a taxable account.

So, should you convert to a Roth?

Since Roth conversions turn into taxable income and you’ll have to come up with the cash to pay the bill, my recommendation is that you consider taking some of your Traditional IRA or 401(k) and convert to a Roth if you have the cash to pay the tax.

[i] This assumes you are saving the same amount of money no matter if you’re saving in a Roth or Traditional IRA or 401(k).

[ii]  (assuming same time horizon and investments)

Have You Already Received Sudden Money and Don’t Know It?

When I tell people I specialize in helping sudden money clients the most common response I hear is,  [laughing] “Great! I’ll call you when I win the lottery!” Most people think sudden money only occurs in factors of tens of millions of dollars and only comes by a stroke of luck.


Actually, sudden money occurs far more frequently than we are aware of. Unfortunately, we often don’t see it or plan for it before it’s too late.

What is a Sudden Money Event?

A sudden money event occurs any time someone receives an amount of money that can dramatically alter their financial future.

For someone making $50,000 per year with $20,000 in savings, inheriting $250,000 is a sudden money event.

However, for someone with $2,000,000 already in the bank, the $250,000 is just nice to have. It would probably take more than $5,000,000 to be a sudden money event for our friend who already has $2,000,000 saved.

For a young person, like a college student with minimal income, a seemingly trivial amount like $10,000 can even be a sudden money event (truth: it happened to me).

A divorce can be a sudden money event. In many marriages, the husband handles the finances. After a divorce, and especially if the wife hasn’t worked or her husband has far out-earned her, she will eventually end up with a lump sum of money, but no skill in preserving or managing it.

NOTE: In some cases, the wife handles the finances, and in that case the roles above could be reversed.

Inheriting money or property can be an extremely emotionally complex sudden money event because of the grieving process and some people’s mixed emotions about inheriting money that they didn’t earn from a loved one.

Divorce and inheritance are by far the most common sudden money events. Other sudden money events include lucrative compensation contracts, an IPO, selling a business, and of course, winning the money.

The Sad Fate of Most Sudden Money Recipients

Sadly, the National Endowment for Financial Education reports that as many as 70% of people who receive financial windfalls lose the money within a few years. The majority of financial windfall recipients squander their life-altering sum and end up living with tremendous regret.

However, contrary to popular opinion, these folks don’t squander money because they’re uneducated or because they don’t care. Unfortunately, we all have a Money Mindset that programs us to behave around money in a particular way, and many times these programs don’t get seen until they are magnified by a sudden money event.

And don’t start thinking, “But that wouldn’t happen to me!” Our behavior around money is ripe with cognitive biases—our brains play funny tricks on us. Remember that before 70% of financial windfall recipients lost their money, they all knew about the ones who did it before them.

How to Preserve Your Sudden Money

With appropriate education and planning, you can maximize the value of your sudden money to yourself and the people you love the most.

But please, don’t go it alone. The first thing you should do when you know you have received or will receive sudden money is to gather a team of advisors who will get to know you, including your principles values and goals, and then set about helping to make sure you achieve the things that are most important to you.

The Best Gift Cards: Holiday Gift Giving Tips

The holidays are upon us, and shopping for gifts for everyone on your list can be overwhelming–so it’s tempting to just send gift cards to those hard-to-buy-for loved ones. But, which gift card should you buy?

Of course, stores and banks aren’t going to go through the trouble of putting value on plastic cards if it isn’t going to generate revenue, so understand what you’re getting into. Gift cards can be more secure than cash, but you should make sure you’re not paying expensive fees and that the cards can be replaced if stolen.

NerdWallet, a San Francisco based personal finance site, recently completed a comprehensive study of the costs, features and benefits of the 96 most popular gift cards on the market. Here are the highlights of that study:

There are three types of cards: store gift cards, bank gift cards and prepaid debit cards.

If you select a store gift card, make sure the card can be replaced if lost or stolen (preferably without a receipt) and that the store doesn’t charge you a fee for shipping the card.

Bank cards are more likely to be replaced if lost or stolen, but a full 100% of those cards carry a transaction fee and many cards charge inactivity fees beginning after 12 months.

Some prepaid debit cards seem to be the worst option, most of them charge either an activation or a monthly fee, and 31% of them charge for every PIN transaction!

The favorite gift card of the study was the American Express Bluebird, but there is good reason to believe that American Express, which offers the Bluebird card in conjunction with WalMart, will begin inching up fees as the card becomes more popular. Also, the card is only accepted where American Express is accepted, so your loved one might face disappointment at the register if they’re not paying attention.

The final lesson on gift cards is this: Never, ever use gift cards to give more than a trifle of value, maybe $25, $50 or $100, but not more. Consider cash if you can hand the gift directly to the recipient. If you want to give a gift larger than $100, I suggest doing so via personal check or an interbank or bank-to-bank transfer.

As for me, I’m folding up a crisp $50 bill and handing it to my 12yr old godson this Christmas. If he loses it, he’ll cry crocodile tears but it is my hope that he’ll learn the lesson of taking care of his money.


For the details on NerdWallet’s study, click here.

Also, check out this cool infographic:


Prepaid Gift Cards

Via: NerdWallet

Want a copy of my FREE eBook 10 Steps to Ensure You Won’t Outlive Your Money which teaches you the secrets of wealthy investors? Sign up here to get your complimentary copy!

Happy Anniversary Black Monday – What’s Happened Since?

by Craig Martin, MSFS, CFP®, CLU, ChFC

Today is my 67th birthday. True! But no, I didn’t think that momentous occasion had enough universal appeal to force you to read about it. Today is the Silver Anniversary of Black Monday: October 19, 1987, the day of the largest ever one-day stock market decline.

To remind you…


Black Monday, By the Numbers

  • Dow Jones Opening Value: 2248
  • Dow Jones Closing Value: 1738
  • Loss in Market Value: $500 Billion
  • Market Decline: 22.6%, which still ranks as the largest percentage drop in one day
  • Cause of Black Monday? Unknown

A closing thought about the “disaster” of Black Monday from someone with almost 40 years in the financial planning industry:

I bet you probably don’t remember the details I listed above describing what happened on Black Monday. Take heart, it really doesn’t matter that you may not remember, because…

The Dow Jones closed on December 31, 1987 at 1939. But do you know what it is today?


Which represents nearly a 6x return on a dollar invested the morning of Black Monday.

Yes, the markets have recovered fully since then, and as I think about it, this is the story of EVERY market movement.

As for me, all is well in spite of my age. For sure, I am very grateful for my health and all the people in my life, including Peggy who is my wife, my family, friends and acquaintances, and especially our family business.

Want a copy of my FREE eBook 10 Steps to Ensure You Won’t Outlive Your Money which teaches you the secrets of wealthy investors? Sign up here to get your complimentary copy!

Silicon Valley Gets a New Area Code


For those of you located in Silicon Valley, we’ll be getting a new area code this November. In practical terms, though, what this means to you is–enjoy it while you can–only one more week of 7-digit dialing.


(As in, where you can pick up the phone and call your friendly neighborhood financial planner at 453-2220).

After October 20, 2012, you’ll have to dial all 11 digits for all calls (as in, 1-408-453-2220).

We’ll be making room for a new area code in our same geographical region. The new area code, 669, will be issued to customers beginning in November 2012.

The 408 area code is predominantly in Santa Clara County, including the cities of Campbell, Cupertino, Gilroy, Los Gatos, Milpitas, Monte Sereno, Morgan Hill, Santa Clara, Saratoga, Sunnyvale and part of Palo Alto.

Here are some reminders to make sure you’re prepared for the change:

1. Begin dialing 1 + area code + telephone number for all calls.

2. Update numbers in your cell phone’s memory with the 11-digit protocol.

3. Notify alarm service providers.

4. Reprogram automatic dialers, speed-dial, call forwarding, modems for computer or internet dial-up access, etc.

5. Ensure your security door and gate systems are reprogrammed to deal 1 + area code + telephone number.

6. Update items such as stationery, checks, business cards, promotional items, brochures, Internet web pages and catalogs to reflect the change.


Want a copy of my FREE eBook 10 Steps to Ensure You Won’t Outlive Your Money which teaches you the secrets of wealthy investors? Sign up here to get your complimentary copy!

Are Equities Really Dead?



Reading the financial media these days can feel a bit like reading the obituaries, as pundits like PIMCO founder Bill Gross rush to eulogize the stock market.

You almost expect to read something like, “Dow Jones had a long and profitable life.  Like all mortals, though, his time eventually passed and now investors everywhere will have to face the future without him.”

So, are equities really dead?

Actually, fortunately for investors everywhere, though, Dow Jones and his family of equities are still alive and well.

The basic argument for the death of equities is that the stock market cannot long outpace the economy because the math just doesn’t work.

For example, the doomsayers claim that if the economy is only growing at 6% a year (real growth – the headline number – plus inflation), the stock market cannot continue its 10% historical average return for very much longer, because the overall size of the stock market is, logically, reigned in by the overall size of the economy.

So, they claim, because stock returns have outpaced the economy for more than a century (somehow), we who have been living on borrowed time must now suck it up and face dismal returns for the remainder of our investing lifetimes.

Uh oh. Sounds bad.

But will someone please tell the pundits (especially the ones running billion dollar bond funds!) that they fail Finance 101? They’ve left out the balancing effect of the debt market completely!

It’s the total value of corporations (enterprise value)—not the stock market alone—that is logically constrained by the growth of the economy.

Enterprise value is the sum of the stock market and the corporate debt market. And because corporate debt offers returns below the rate of economic growth, stocks must logically return more than the economic growth rate.

In fact, as long as corporations continue to issue debt, we can and should expect the stock market to continue to return its historical 10% over the long run.

Here is an example:

Suppose the entire U.S. economy is now embodied in just one firm: TED. And TED produced $100 of goods and services in 2011 (that’s GDP).

Let’s say that TED’s equity value is $100 on January 1, 2012 (that’s the stock market in our example). And TED also has $100 worth of debt on January 1, 2012. TED starts 2012 with a $200 enterprise value that is twice the firm’s output.

Now, let’s say that TED’s output grows 6% in 2012 to 106. And, of course in our example economy this means GDP grows 6%. In a perfectly balanced system, what happens to TED’s stock market value?  And remember, TED is the entire economy so the question is really, what happens to the stock market when the economy grows 6%?

Because TED’s output grew 6%, to 106, we will assume that TED’s enterprise value also grows 6%, to 212.  What happens to the value of TED stock depends crucially on TED debt.  Suppose TED’s debt is paying 2% –  debt does, after all, offer a much lower return than equity:  just check what you’re making on your bank deposits these days! – then the value of the debt rises 2% to 102.

Because TED’s enterprise value rose to 212 and enterprise value is, by definition, the value of TED’s debt plus TED’s equity, TED’s stock market value must rise to $110.  That’s a 10% return on 6% growth!  And what’s true for TED is true for the economy as a whole.

Because the economy is supported by both the stock market and the debt market, the pundits heralding the death of equities are using faulty logic, and are, in fact, flat wrong (and, surprise, they’ve claimed this before and been wrong).

As this simple example shows, in an economy with corporate debt, or any relatively safe security offering low yields, on average the stock market will, over the long haul, return more than the economic growth rate.

While there can be long periods where the stock market underperforms, that doesn’t change the basic math.

Debt paying less on average means the stock market pays more in the long run, and can keep doing so forever.



Want a copy of my FREE eBook 10 Steps to Ensure You Won’t Outlive Your Money which teaches you the secrets of wealthy investors? Sign up here to get your complimentary copy!

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