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There They Go Again

Bob Rall — Mon, 30 Aug 2010 15:17:00 GMT

Everybody knows Warren Buffett. He has been called “the greatest investor ever.” He is the primary shareholder and chairman and CEO of Berkshire Hathaway and is currently ranked as the third wealthiest person in the world. He knows his stuff.

Everybody in the investment arena, and regular viewers of CNBC, know Bill Gross. He was called “the nation’s most prominent bond investor” by the New York Times. He is the co-founder of Pacific Investment Management (PIMCO) and the portfolio manager of the largest bond fund in the world, the PIMCO Total Return Fund. He is currently the 897^th richest person in the world. Not as rich as Buffett, but pretty impressive. He obviously knows his stuff too.

Buffett and Gross are definitely two of the brightest minds in the investment world. So, how can it be that when they look at the most recent economic data, they come up with completely different ideas on how to position their investment dollars? Not only are their strategies different, they are the exact opposite of each other.

A week or so ago, Business Week reported that “Warren Buffett shortened the duration of bonds held by his Berkshire Hathaway after warning that deficit spending could force inflation higher.” Bond prices move lower when interest rates move higher. So, an active manager of a bond portfolio will usually shorten the duration of bonds when they are expecting higher interest rates because short-term bonds are less affected than longer-term bonds. They are trying to reduce the risk to their bonds that comes with higher rates. So, the logical conclusion of the Buffett move is that he expects interest rates to start rising soon.

Bill Gross has been doing just the opposite. In his Total Return Fund, he has been actively increasing the duration of his bonds. In fact, the fund is weighted towards the long end more than it has been in years. Obviously, Gross is not expecting higher interest rates or inflation. In fact, he has positioned his portfolio for deflation.

I’ve written about this type of situation in the past. We’ve got two heavyweights in the investment world with completely different views on what is going to happen in the economy, and therefore completely different views on what to do with their portfolio. One of these “Masters of the Universe” will be wrong. Which one do you think it will be? Are you certain enough to bet your portfolio on it?

It’s no different from what you can see played out on CNBC every day. In one segment we’ll see a smart, well-dressed and well-intentioned (we think) expert tell us why the economy, or the market, or an individual security will do very well in the short-term. In another segment we’ll see a different expert, who is just as smart, well-dressed and well-intentioned tell us why the economy/market/security is in trouble.

What is the average investor to do? Once again, this presents a very strong case for the use of a passive investment philosophy. As small investors, we can’t afford to gamble with our portfolio by trying to decide which guru is going to be right…this time. A passive investment strategy eliminates the guesswork. The investment portfolio is diversified across several different asset classes. The mix is determined by the investor’s goals, cash needs, and risk tolerance. Once the portfolio is properly diversified, the only buying and selling that occurs are the trades necessary to keep the mix in balance with the original target. If an asset class moves higher and becomes a bigger percentage of the portfolio than our target, we sell enough to get back to the original target. At the same time, we buy the asset class that has moved lower to bring it back up to its’ target percentage.

Buy low; sell high…what a concept! And it comes without trying to guess which one of the many “experts” of the investment world is right this time.

It Probably Is Time to Dump Your Broker

Bob Rall — Wed, 18 Aug 2010 13:13:00 GMT

Over the weekend, I read an article on Morningstar.com entitled “Is It Time to Dump Your Broker?” The author suggests that finding the right broker, or advisor, is like finding the right car. You want one that you are comfortable with for long periods of time, but one that doesn’t cost too much. The article lists six guidelines to keep in mind when evaluating your current relationship. After reviewing the list of guidelines, I am happy to report that my firm, Rall Capital Management, passes the tests on all six fronts.

Here are the guidelines recommended to make sure you are working with a good advisor, along with a little commentary on how my firm stacks up:

What Conflicts Does the Advisor Have? Do they have to sell a certain quota of proprietary products? They suggest that you ask to see a sample portfolio and determine if there are any cross-business relationships between the broker and the investment manager. If you are talking with a registered investment advisor, it’s as easy as asking for their Form ADV, part II.

As an independent registered investment advisor, Rall Capital Management, works only for our clients. There are no products to sell. We are fee-only and get paid for our advice and guidance, not for selling something. As a potential client, you don’t have to ask to see a sample portfolio; showing it to you is an important part of our initial meeting.

How Are They Really Compensated? Do they charge a standard asset management fee, which is typically around 1%? And the more money you have, the lower the percentage. The article mentions that you should be paying about 0.4% annually if you have more than $5 million to invest.

At Rall Capital Management, our fee starts at 1.25% and declines as the level of assets increases. Our fees are transparent, you’ll know exactly what you are paying, and they are listed on our website for the whole world to see. Unfortunately, not many folks have $5 million to invest, so they pay a bit more than the 0.4% mentioned in the article.

Will They Create and Adhere to an Investment Policy Statement? The article suggests that any advisor who doesn’t create a document for you that outlines risks, returns and objectives, that you fully understand, isn’t worth hiring. An IPS is the driving force behind your investment strategy and needs to be understood, and agreed to, by both you and the advisor.

We find that most people don’t have an Investment Policy Statement. Many don’t even know what one is. Every client of our firm has one. And more importantly, we make it a point to update it at least every two years to account for any changes in life circumstances.

Are They Fiduciaries? This is a big one. The author of the article suggests it be the first question you ask an advisor. The average person just assumes that a broker, or insurance agent, is going to work in your best interest. But the fact is that they work for their brokerage firm or insurance company and are agents to move financial products. From a regulatory standpoint, they are held to a weak “suitability” standard when it comes to recommending investments. Most independent financial planners and registered investment advisors are held to the higher, fiduciary standard. They can, and should be, sued if they wrong you.

Our firm gladly accepts and promotes the fiduciary standard. We know that the investment world is a complicated place and that everyone deserves someone working on their side and in their best interest.

What Designations Do They Have? The article points out that many advisors call themselves “senior/retirement specialist” and have sold unsuitable investments to hundreds of thousands of elderly investors. Ask your prospective advisor how much training and experience they needed to obtain their designations. Some designations are awarded in a day. You should look for a Certified Financial Planner^TM, Certified Public Accountant/Personal Financial Specialist, registered investment advisor, or accredited investment fiduciary.

As principal of Rall Capital Management, I received my Certified Financial Planner^TM designation in 1998 and have been a registered investment advisor since 2000.

Is Cost a Chief Concern? Of course it is! The higher your investment cost, the lower your effective return. The article states that “significant savings are possible on asset-management fees if the advisor can also choose from exchange-traded funds or passive index vehicles through groups like Vanguard or DFA.”

Our firm follows a passive management philosophy and the bulk of our invested assets are with DFA and Vanguard. They provide the most cost-efficient exposure to the different asset classes we use to build our client portfolios.

So, I think we are 6 for 6! If you are a current client, I hope that this article helps reinforce your positive feelings about our firm and the decision you made to hire us. If you are not a current client, we understand that the client-advisor relationship can be complex, but if you are feeling that it might be time for a change, we would welcome the opportunity to earn your business.

The Fallacy of a Financial Plan

Bob Rall — Tue, 27 Jul 2010 12:27:00 GMT

The title of this article may sound like blasphemy coming from a guy who carries the title "Certified Financial Planner®" after his name. But it's the way I feel. It's not that I don't believe in financial planning...I most certainly do. And I spend a large amount of my time working with my clients on their planning. What I'm referring to is what most people envision when they think about a financial plan...a nicely bound, thick report with lots of nice looking graphs, charts and spreadsheets. I received my Certified Financial Planner® designation in 1998 and I can count on one hand the number of these documents I have handed out to clients.

I believe that the role of a financial advisor/planner should be to help clients work toward their financial goals. I do not believe that we should try to teach them how to read a financial plan. I have spoken with too many people who have had a plan done for them at some point in the past, looked at it once, and then put it on the shelf where it's now collecting dust. But collecting dust is probably about all that it's good for now. And that leads to my problem with the written financial plan.

The "shelf-life" of a financial plan is about a year. Almost before the ink is dry and the plan is in your hands, it is dated. Too many things can change, and they can change in a hurry. Think about a financial plan that was done in early 2008. By early 2009 the investment landscape had changed in a dramatic way. With most of the world markets down 30-50% in that time period, your plan would certainly look a lot different than it did just twelve months earlier.

A financial plan tries to project your life and financial situation into the future. The only way to do that is by making some assumptions about various factors that will have an effect on your future. Some of those factors are: investment returns; rates of inflation; your income; the amount you are saving and spending each year; your life expectancy; and the most important part of a financial plan, your personal financial goals.

Every one of those factors can change. They can change quickly and in a big way. Some changes are positive, some are not. Take your income for example. A couple of years ago I was doing some planning for a client who was recently remarried. Both he and his new wife had decent jobs. They made a good living and had modest financial goals as they began their new lives together. Their plan looked pretty good. Within a year, he was fortunate enough to be offered a new position with some significant upfront incentives and a hefty increase in salary. All of a sudden, their old financial plan was dated...mostly because they could now afford to save more and spend more. Some goals that they once viewed as “maybe, if everything goes perfectly" were now "we can do this." In their case, they wanted to travel more.

Obviously, this was a positive change. But in today's economic environment it's easy to imagine how a negative change in your career could have a major effect on a long-term plan. A loss of a job, an illness or injury, or an untimely death can all have a huge impact.

So, should we just stop working on our financial plans? Of course not. A good plan will help you put the building blocks in place for the life you want to live. But it’s important to remember that just as your life, and the world around you changes, so should your plan. I believe that a good financial advisor/planner will work with you to update your plan as you go through life’s transitions. Every life transition we go through (e.g., getting married, having kids, educating them, buying a home, starting a business, changing jobs or retiring, caring for an aging parent, or dealing with our own end of life planning) will have a financial component. A good planner will be there with you to navigate through the financial issues and not just give you a nice-looking report to gather dust on your shelf.

Stuck In The Middle With You

Bob Rall — Mon, 19 Jul 2010 14:17:00 GMT

I know that I’m putting a date on myself, but the title of this article comes from one of my favorite skating rink songs when I was a teenager. “Clowns to the left of me, jokers to the right, here I am stuck in the middle with you…”

Sometimes it seems that way in the investment world. Some clowns are always predicting that because of… (insert favorite reason here) the markets are going to suffer and we should sell everything we own and invest in…gold? Then there are the jokers who predict that because of … (choose another favorite reason here), gray skies are going to clear up and it will be smooth sailing moving forward.

This was illustrated very vividly recently in a couple of different ways. As we all know, June was a tough month for the equity markets. The S&P 500 lost 5.2% for the month. The index of large cap domestic stocks closed out the month at 1030. On June 30th, I read an article in Smart Money magazine entitled, “How Low Can the S&P 500 Go?” The article discussed how technical analysts were predicting the index could drop to 1000, where it would find buying support. The very next day, July 1, there was an article from a Wall Street Journal writer that had “Seven Reasons the S&P 500 Is Going to 1500” as its headline.

The Wall Street Journal writer didn’t give us a time frame for when the index would be 45% higher than where it finished the month, but gave some good reasons. From an increase in the price of containerboard, to low interest rates that make it hard to find another place to put money, to almost $1 trillion in liquidity that companies are holding onto, he makes a great case for a rise in the markets.

So, as individual investors, what should we do? Do we believe Smart Money or the Wall Street Journal? But wait…before you make any moves in your portfolio, there’s more to consider.

On July 2nd, Businessweek magazine ran an article with the following title, “Krugman or Paulson: Who You Gonna Bet On?” This article discussed how in the last week of the month, two very smart guys made very different predictions. Paul Krugman, Nobel Laureate and professor of economics at Princeton University and editorial writer for the New York Times predicted that if the leaders of the developed world stick to the pledges that they made at the recent G-20 summit and actually cut government spending, the US economy will face not just a double-dip recession, but a full blown depression. At almost the same time, John Paulson, the hedge fund manager who made a gazillion dollars by betting against the collateralized debt obligations that blew up when the housing market crashed, was addressing the London School of Economics. His view? That the U.S. is in the middle of a sustained recovery, the risk of a double dip recession is less than 10%, and that, in particular, our housing market is an attractive buying opportunity.

Again, the question is…as individual investors, what should we do? As the lyrics to my teenage skating song says…” Trying to make some sense of it all, But I can see that it makes no sense at all.”

My advice has been, and continues to be, that you shouldn’t try to make sense of it all. Don’t listen to all the noise. Control what you can control. Make sure that your portfolio is properly diversified across all the major asset classes. Once it is, don’t pay any attention to the markets until your asset mix is out of balance because of movements in the markets. When that happens, make the necessary trades to get your asset mix back into balance. If you follow this strategy, you will be forced to buy low and sell high, which is the way the investment game is supposed to be played.

“Clowns to the left of me, jokers to the right, here I am stuck in the middle with you…”

Can You Afford To "Go To Cash?"

Bob Rall — Thu, 24 Jun 2010 18:04:00 GMT

Over the last week or two, I have had a very similar conversation with two different clients. They occurred while we were reviewing their investment portfolios and evaluating whether the risk profile and asset allocation we had in place was still appropriate for them. Both have been very successful accumulating assets during their working years and are entering their retirement years with comfortable nest eggs. They have been investing for many years, but like many of us, they have been shaken by the turmoil in the markets over the last couple of years.

While trying to determine if we could take some of the investment risk out of their portfolios, they both made almost the exact same comment…”If I liquidated all of my investments into cash, I couldn’t spend it all in my lifetime.” That’s a nice thing to be able to say. But is it true? Maybe. But they had not considered a few risk factors. And it is part of my job to point out the risks to their plan.

Longevity Risk
When they said that they couldn’t spend all their money in their lifetimes, they had simply divided their nest egg by their current spending to get the number of years their money should last. The resulting number of years was more than they thought they would live. But what if they live longer than expected?

It would be easy to plan our future if we knew just when our lifetime was going to end. I have often said that the best retirement plan is the one where the check to the funeral director bounces. That would mean you ran out of money just as you ran out of breath. But we don’t know when our time will be up, so we have to plan like it is far into the future. In fact, I usually run a financial plan that shows the client living until they are 95 years old. Most of us probably won’t live that long, but we would rather plan like we might live to 95 and have some money left for our heirs rather than running out of money before we die. If longevity is in your genes, we may even run your plan to age 100, or higher.

A recent survey of baby boomers by Allianz Life Insurance Company illustrates the importance of considering this risk factor. 77% of the respondents said that they fear outliving their assets more than they fear death!

Inflation Risk
Inflation hasn’t been a big concern recently. But over time, even a small level of inflation can greatly affect your standard of living. When prices go up, you will be taking a bigger piece of that pile of cash each year, just to maintain your lifestyle. And that pile is supposed to last the rest of your life. So, if we need that pile to last us 20 or 30 years, increasing prices can have a major effect.

Health Risk
Neither of my two clients who said they could live off of the current value of their assets for the rest of their life considered the effect of health care expenses as they age. They are both still very healthy. But, the older we get, the more costly it becomes to maintain our health. And, if we happen to get sick on our way out, it’s even worse. It’s expensive, and getting more so, to fight diseases and illnesses.

Most folks in the final years of their life require more assistance and they may move into retirement and nursing homes. Costs can be substantial. The average cost of a nursing home in the U.S. in 2009 was $210/day. And that cost has increased dramatically over the last several years. It’s easy to see how a couple of years spent in a nursing home can make that pile of cash dwindle pretty quickly. It is important to note, however, that this risk can be mitigated to some degree by owning long-term care insurance.

So, with the gut-wrenching volatility we have experienced in the investment world over the last couple of years, many people would like to just stop playing the game and “go to cash.” But when you eliminate risk from your portfolio, you also eliminate potential growth. If your nest egg is large enough, and your lifestyle is modest enough, you may be able to do so. But, just make sure you’ve considered all the risks.

Are We A Nation of Financial Illiterates, Who Also Don’t Care?

Bob Rall — Tue, 08 Jun 2010 13:13:00 GMT

Over the last week or so, I have read three different studies on personal finance that gave me cause for concern. I can’t really say that the results of the surveys surprised me, but they were still unsettling. Individually, they paint a bleak picture of the financial future for many Americans. Together, they are a sad commentary on the general state of financial preparedness in our country.

The three studies were: Hewitt Associates’ survey of Retirement Income Adequacy; a Retirement Confidence Survey from the Employee Benefit Research Institute; and a Consumer Financial Literacy Survey from the National Foundation for Credit Counseling. I will try to capture the highlights, or more appropriately, the lowlights, of the results in this article.

The findings show that the dream of a comfortable retirement is going to be out of reach for most Americans. As bad as that sounds, it’s made more frustrating when we learn that, generally speaking of course, people are not taking the steps they should to correct the situation. The Hewitt study shows that four out of five Americans are expected to fall short of meeting all their financial needs in retirement unless they improve their savings habits, or retire at a later age.

It is estimated that we will need a nest egg equal to 15.7 times our final pay to meet those needs when factoring in inflation and medical costs. Social security should provide 4.7%. That means that you will be responsible for the remaining 11 times your final pay. So, if you earn $50,000 in your last year of work, you will need a nest egg of $550,000. Hewitt’s study, which surveyed employees who are expected to work a full career, found that only 18% will reach that goal.

A lot of us have just given up. The EBRI Survey found that seven out of ten people currently employed have given up on the idea of retirement. That’s up from 63% in 2008, when the market plunge started eroding the values of our retirement accounts. Right now, only 23% of people at or above retirement age continue to work. So, pessimism has replaced confidence for most people when thinking about their retirement years.

And here’s where it gets really frustrating. It doesn’t have to be this way! We can make things better. But our lack of financial literacy, and even worse, our apparent lack of concern, provides some tough challenges. Here are some of the findings from the Consumer Financial Literacy Survey along with some commentary:

Only 43% of adults keep close track of their spending, which is actually an improvement over the 2007 survey. But 56% of us do not have a budget and more than 11 million adults do not monitor their overall spending. This means that they don’t know how much they spend on food, housing, etc. It’s pretty hard to plan when you don’t know where you are starting from.
33% of adults do not put any part of their income toward retirement. This is up from 28% in 2008.
33% report that they have no savings at all. That number is at 48% for Generation-Y adults! Of those that report not having any savings, more than one in four say that, if faced with an emergency, they would charge the expense to a credit card or take out a loan.
More than 13 million adults (6%) report carrying credit card debt of more than $10,000 from month to month. 26%, or more than 58 million adults, admit to not paying all of their bills on time. It’s interesting that as I am writing this story, it was just reported that US Consumer Credit increased by $955 million in the latest month.
64% have not ordered a copy of their credit report in the past year…despite the fact that it is FREE!
41%, or more than 92 million people, gave themselves a C, D or F on their knowledge of personal finance.
80% agreed that they would benefit from advice on financial issues from a professional. As a Certified Financial Planner®, this one is especially frustrating. I guess most people think they can’t afford to hire a professional. After reviewing the above findings, I would say that they can’t afford to not hire one. This brings to mind one of my favorite quotes…”If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.”

These findings make me want to launch into a rant about personal responsibility, living within our means, and the apparent indifference to change anything. If we don’t take care of ourselves, who do we expect to take care of us? Government? Charity? Friends? Family? The answers have some moral implications and could lead to a political discussion which would take a lot more time than I have for this article. Maybe another day.

Planning for Career Changes at the End of an Era

Bob Rall — Wed, 26 May 2010 19:32:00 GMT

The Space Shuttle program is coming to an end. Shuttle Atlantis landed today to complete its’ final mission. We have a launch of Discovery scheduled for September 16^th and a launch of Endeavour planned for mid-November. Those are the last scheduled missions for the shuttle fleet.

As a resident of Merritt Island, I will miss several things. The first is the excitement and the beauty of the launches. I will miss following the reports of the missions, and I will miss the twin sonic booms that rattle my house and scare my dog as the shuttle returns to earth at Kennedy Space Center. The shuttle program has long been a part of the fabric that makes life special on the Space Coast.

But the real pain from the retirement of the fleet will be the economic impact on the workers, surrounding businesses and property owners. There will be several thousand shuttle workers who will be left without a job. Their losses will cause a ripple effect across our local economy.

If you are in the unfortunate position of possibly losing your job, you should have already been fine-tuning your resume and exploring your career and retraining options. While there are a number of things you can do to enhance your employment opportunities, this is also an important time to plan for the financial impact of starting a new job or career. Below, I have listed some of the things you should be considering as you prepare to move into the next phase of your life.

Planning ahead can minimize financial losses

Determine how the change will affect your income and expenses.

Save up an emergency cash reserve.

Reduce consumer debt as much as possible. Pay off any credit cards and loans that you possibly can.

Determine whether you can afford to be out of work temporarily in case you are not able to find work right away. Are you being offered a separation package?

You may need to return to school. Figure out how you will pay for your education. You may be eligible for grants and financial aid. You may also be eligible for a Lifetime Learning tax credit

Evaluate your insurance coverage

You will probably lose your employer health plan, although you should be able to continue coverage under COBRA. But COBRA is expensive, so you should evaluate your options. If you have a disability policy, you need to consider how it is affected also. And, you may lose your group life insurance, so it is important to make sure your family is still protected.

Changing jobs/careers may affect your retirement nest egg

Depending upon how long you have been with your employer, you may or may not be vested in their contributions to your retirement plan. If not, you will only receive a portion, or possibly none, of the employer contributions. Secondly, you will need to decide how to handle your retirement account. Upon separation, you will be able to access the funds, and if you do not have a new job, it can be tempting. But you should only access the money in your retirement account as a last resort. Any amount withdrawn from the plan will be taxable, and if you are under 59 ½, you may also pay a 10% penalty. If you plan to rollover the account into your own IRA, make sure you do so properly and in a timely manner. Not doing so can result in the 10% penalty and 20% in tax withholding.

Everyone is different

Each person affected by the end of the shuttle program will have a unique set of circumstances. You will have different issues than your neighbor or co-worker. And there will be a lot of things to consider…I have only scratched the surface in this article. Good decisions come from being prepared and educated about the choices.

It's A Matter Of Trust

Bob Rall — Fri, 14 May 2010 13:34:00 GMT

I had lunch with a colleague the other day. Although we are competitors in the advisory business, we are friends, and we get together every so often to compare notes about what is going on in our business…the financial services industry. It was the day after the now-infamous 30-minute market meltdown. And, it was just a week after the executives at Goldman Sachs were on Capitol Hill, getting grilled by a Senate Subcommittee about their role in the financial meltdown of 2008. So, we had plenty of things to talk about over our lunch plates.

As our meeting went on, it became clear to both of us that our views on our industry have changed over the last 18 months. We have both been in the financial industry for a long time and spent a lot of that time in and around the brokerage world. I have written before about how much I disdain the culture in the major brokerage firms. While they try to create an image that they are working in the best interests of their clients, more often than not, they are not. They are sales organizations that make money for their shareholders by creating and selling the latest financial products to their clients.

My friend verbalized it first, although we were both thinking it. “I don’t trust our system any longer,” he said. “I don’t trust the firms on Wall Street. I don’t trust the government regulators that are supposed to be watching them. I don’t trust any of it.” And, unfortunately, I had to agree with him.

As I write this, the Wall Street Journal is reporting that federal prosecutors are working with securities regulators on a criminal probe into whether several of the major Wall Street banks misled investors about their roles in the mortgage mess. We already knew that Goldman Sachs and Morgan Stanley have been under scrutiny. Today, we learned that JP Morgan Chase, Citigroup, Deutsche Bank and UBS are also being investigated. That pretty much covers the major players on the Street, and there may be more to come.

The issue at hand is whether the firms made proper representations to investors while marketing, selling and trading the pools of mortgages called collateralized debt obligations, or CDOs. Most of the major banks created these CDOs for other clients who made bets against them, and sometimes even the banks themselves made bets against them while imploring their brokers to sell them to their clients. The bets against the CDOs paid off when the mortgage market collapsed. But the clients who bought them lost millions.

This is just the latest example of how the deck is stacked against the individual investor. In past articles, I have written about the dreaded “F-word” in the financial industry. In this case, the “F” stands for fiduciary. As an independent Registered Investment Advisor, my firm is subject to the rules set forth in the Investment Advisors Act of 1940 which says that an advisor must act as a fiduciary for their clients. That means that we must always act in the best interest of the client.

Brokers and their firms are subject to the rules of the Securities Act of 1934, which regulates the exchanges and the broker-dealers while trying to protect the investing public. They live by a different standard. A broker only needs to make sure that an investment is “suitable” for a client. Suitability provides a much wider latitude than Fiduciary. It’s easy for an investment to be suitable, but still not be in your best interest. For example, a broker can sell you an S&P 500 Index fund with a sales commission and a 1.2% management fee even though you can easily find a no-load S&P500 fund with a .10% management fee. Suitable? Yes, but clearly not in your best interest.

When the Goldman Sachs executives were questioned by Senators about their role in the meltdown, they danced around questions relating to their duty to clients and the ethics of betting against the same securities they were selling. They couldn’t even answer the questions! And now we learn that it wasn’t just Goldman…it was Wall Street.

There is some movement towards change for the better. The Chairwoman of the SEC has said she favors expanding the fiduciary requirements to all advisors and brokers as part of the financial reform legislation that is currently being debated in Congress. But I don’t give it much of a chance to be a part of the final bill. Wall Street has some very rich and powerful supporters who donate heavily to political campaigns.

So, what’s an investor to do? Be skeptical. When you entrust your nest egg to an advisor, ask questions. How are they getting paid? How much are they getting paid? Do they have a duty to act in your best interest, or their company’s? Make sure you understand the investments they are presenting. One of your first rules in investing should be, “If you don’t understand it, don’t buy it.”

My firm advocates spreading your investment risk by diversifying your portfolio across several different asset classes. We use institutional index funds to keep expenses as low as possible and we don’t try to outsmart ourselves by trying to time the market, or a specific sector or security. Following these simple time-tested rules greatly increases your odd of success as an investor.

Unfortunately, if we are investing, we have to “swim with the sharks” sometimes. We have to deal with the exchanges and broker-dealers to buy and sell our investment holdings. But, if we pay attention, we can avoid being attacked.

Was the May 6th Selloff a Panic…or an Accident?

Bob Rall — Fri, 07 May 2010 19:40:00 GMT

It was like a car wreck. It happened fast. It was very scary. And, while not fatal, it left those involved injured and dazed. So what happened? The stock market plunged Thursday in a wild five-minute selloff that left experts trying to figure out what caused it.

The Dow Jones Industrial Average experienced its largest-ever point decline in intraday trading, falling almost 1000 points before it recovered to close down 348 points, or a little more than 3%. After 8 weeks in a row of gains, the last week has brought back some of the negative volatility that reminds many of the drama that we saw in late 2008 and early 2009.

There are fears about the spread of the European debt crisis which have rattled investors both here and abroad. The riots taking place in Greece as their government tries to implement some austerity programs have not helped. Some fear that what is going on in Europe is a preview of what could happen here in the U.S. with our government spending and deficits.

However, the ferocity of yesterday’s selloff seemed to be caused by a breakdown of the market’s trading systems. Many are blaming an erroneous trade that caused some of the market’s most stable blue-chip stocks, like Proctor and Gamble, to fall 35% in two minutes.

One theory is that one trading error triggered a piling-on effect from some computerized trading programs that kick in when the market moves lower. And then, some pre-set orders from traders and investors to sell on declines, were most likely triggered.

After the huge move downward, the markets recovered (mostly) and now the regulators and market officials will try to get to the bottom of the problem. It’s hard to fathom that one trader’s fat fingers, simply hitting the wrong key on a trade entry, could lead to a day like we experienced.

The good news is that, while it was difficult for anyone to avoid losses for the day, those with a well-planned portfolio suffered less. Once again, the benefit of diversifying across several asset classes was clear to see. How? In the panic and fear-driven selloff, traders and investors fled to the relative safety of U.S. Treasuries and other fixed-income securities. All of the fixed-income funds that we use for our clients showed small gains on the day.

A day like May 6^th can rattle even the most seasoned investor. If you have questions or concerns about your portfolio and whether you are properly positioned to accomplish your goals without unnecessary additional risk, give me a call.

A Layman’s View of President Obama’s Space Plan—The Good, The Bad and The Ugly

Bob Rall — Mon, 19 Apr 2010 14:38:00 GMT

The President came to town this week. That’s a pretty big deal. Whether you support his policies or not, it’s not often that we get to have the leader of the free world in our own backyard. He was here to lay out his vision for the future of space exploration in America. That’s another pretty big deal…especially since we are the Space Coast.

While I am not directly involved in the wondrous work that takes place just a few miles from my front door that puts astronauts and satellites into space, I am very concerned. Many of my friends, family members and clients earn their living by doing this work. As a long-time resident of Brevard County and a property owner, I am concerned for our future. I’m worried that people I know and care for may soon lose their jobs and may have to leave our area. I’m afraid that our property values, which have fallen dramatically over the last few years, will take yet another major hit.

It is frustrating to me that in today’s political environment, the reaction to the President’s plan seems to be, like everything else, determined by which side of the political fence you fall on. While trying to learn more about what the plan may actually mean to our area, I mostly learned that Democrats think the President’s plan is a positive step for the country. Republicans think it’s a terrible idea. So, what follows is a layman’s interpretation of what I heard the President say in his brief visit:

The Good

The President’s plan called for an extended life for the International Space Station. Under President Bush’s plan, the US was scheduled to start withdrawing from the ISS this year. The new plan extends the life of the station to 2020, or later. I believe that after the billions of dollars spent, and the international cooperation that has occurred, we should stay involved.

The plan also called for a revival of the program to build the Orion crew capsule. Originally part of Project Constellation (along with Ares I and Ares V) which was going to get us back to the moon, Orion was completely withdrawn from the first version of the President’s budget proposal in February. Although we won’t see the two Ares vehicles, at least Orion is back in the picture…albeit a downsized version. It is expected to create anywhere from 400 to 1000 jobs…right here at KSC.

The Space Coast would remain the Space Coast. The President’s plan makes Kennedy Space Center the program headquarters for the $6 Billion Commercial Crew Development program. I think this provision provides a two-fer benefit. First, our area would benefit from the jobs needed to create a viable commercial space program. And two, I believe that, in the long-term, it will be better for private industry to provide the transportation systems needed for future space exploration.

We could become the “Silicon Valley of Space.” Instead of just providing launch services, the plan broadens KSC’s role into research and development. This will hopefully lead to the creation of new and better jobs.

The Bad

The time frame of the plan leaves a lot to be desired. While calling for the development of a heavy-lift rocket, there will be no decision on design until 2015. Also, I was a bit surprised to learn that our next stop in space may be an asteroid. After that, Mars. But the plan is to reach the asteroid in the 2020s and we won’t get to Mars until the 2030s.

As usual, politics muddy up the picture. Even if President Obama serves a second term, the decision on the heavy-lift rocket will not come until near the end of his administration. And we certainly know that things can, and I’m sure will, change between now and then.

I know that unfulfilled campaign promises probably don’t surprise anyone any longer, but the President doesn’t seem to be living up to the ones he made while visiting our area prior to his election. He said that we “cannot cede our leadership in space.” He derided the previous administration for not giving NASA the support it needed to reach its stated goals and said that by not providing the support “that after the Space Shuttle shuts down in 2010, we’re going to have to rely on Russian spacecraft to keep us in orbit.” Additionally, he offered to extend the shuttle program, speed up the development of its successor, and make sure that our space industry workers would not lose their jobs because “we cannot afford to lose their expertise.” It appears that those statements may have won votes, but will fall into the category of unfulfilled promises.

The Ugly

The most obvious is that we did not get the extension of the shuttle program that we were all hoping for. After three more missions, the program that has done so much over the last 30 years will come to a halt. That means that at least 8000 space shuttle workers will be in danger of losing their jobs. That’s ugly.

It’s true that the plan calls for a $40 million initiative, led by the White House and several other agencies, to develop a plan for “regional economic growth and job creation.” Call me a skeptic, but with the bureaucracy of many different agencies involved, I’m not sure $40 million will have much of a positive impact for our workers. And the worst part is that the President asked for the plan to be on his desk by August 15^th. That doesn’t leave us much time or wiggle room. The last shuttle launch is scheduled for September 16^th.

And finally, this is just the President’s plan. Congress has control of the purse strings. What finally materializes after it goes through the legislative process could, and probably will, look a lot different than what the President proposed to us.

But…could that be a good thing?

Rates Are Going Higher...Or Maybe Not

Bob Rall — Sun, 11 Apr 2010 23:05:00 GMT

The headline in the business section of the NY Times on Sunday declared that “Consumers in the US Face the End of an Era of Cheap Credit.” The article says that just as we are starting to see some bright spots in the economy, we are about to face a new financial burden…”a sustained period of rising interest rates.” It even goes as far as saying that the rise is “inevitable” because of our country’s ballooning debt and the possibility of inflation as the economy recovers.

Higher rates may shock consumers whose spending habits have been shaped by a 30-year decline in the cost of borrowing. In 1981 the yield on the 10-year Treasury note was almost 16%. Steadily decreasing rates over the next 30 years fueled a surge in consumer borrowing and spending. In the turmoil of the recent financial crisis, the yield spent most of the last two years in the 2-3% range. Last week, it crossed back above the 4% level for a brief period of time before settling just below that level. So, while rates may move higher, they are coming off historic lows.

If rates do move higher, it means that it will cost more to finance that new car or put that new flat-screen TV on the credit card. That certainly won’t help the economy. But, the main impact of higher rates will probably be felt first in the housing market, which is just starting to show some signs of recovery. The rates on a 30-year fixed mortgage have risen recently, hitting their highest levels since last summer. And the Fed has put an end to its emergency program to buy mortgage debt, which is putting even more upward pressure on rates.

How should you position your portfolio to prepare for the coming change? Don’t expect much help from the “best and the brightest” on Wall Street. The two best economic forecasting teams of the last two years couldn’t disagree more about where the yields on the Treasury note will go. Morgan Stanley says that they believe the 10-year will rise to 5.5% this year. Goldman Sachs expects them to fall back to 3.35%. If the Morgan Stanley prediction comes true, mortgage rates would be somewhere north of 7%. If Goldman Sachs is correct, it would mean mortgages around 5%. That’s a huge gap and it illustrates how much the smartest minds in finance and economics can differ.

And that brings us to the main point of this article. This is just the latest in a long list of reasons why I believe that a passive approach to managing your portfolio is the best way to go. If the best and the brightest disagree by this much on something as basic as the yield on the 10-year Treasury, what are the rest of us supposed to do?

A passive approach to portfolio management means that you don’t try to play the guessing games about the markets and the economy. You build your portfolio based upon your own risk tolerance and return needs. You should be allocated across several asset classes (as many as 16 different asset categories) using an academic and non-emotional approach to investing. You can gain exposure to these asset classes using extremely low-cost institutional mutual funds. Then, you only buy and sell when moves in the market require you to rebalance to keep the mix of assets in line. In effect, you are building a portfolio of indexes which will result in a low cost, globally diversified, tax-efficient portfolio providing the highest return for a given level of risk.

And you eliminate the need to place your “bets” on which one of the best and the brightest is going to be right…this time.

It's Not Rocket Science

Bob Rall — Tue, 30 Mar 2010 21:06:00 GMT

Living on Florida’s Space Coast, I am surrounded by real live rocket scientists, engineers and technicians who make up our country’s space program. They are very smart people. In fact, they do their jobs so well that those of us not directly involved in the space industry can sometimes take the success of a particular mission for granted.

As a layperson, it’s hard to fathom the knowledge and skill sets that are necessary to carry out a successful mission. First you have the complexities and dangers of the launch itself. Then you have the many teams that are involved in deploying satellites, building a space station, or carrying out a variety of scientific experiments and exploration of our solar system. Pretty heady stuff.

I started thinking about this recently, when I began to read the latest book by William J. Bernstein, “The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between.” Having previously written two books suggesting that anyone, given the right tools, can successfully manage their own investments, he now admits to being wrong. In fact, he says that he has come to the sad conclusion that only a tiny minority of people will succeed in managing their money “even tolerably well.”

As an investment manager, you can imagine that I was pleased with his new conclusions. I make my living by helping my clients execute a successful investment plan. Granted, investment management is not rocket science or brain surgery, but it’s not something that should be left to amateurs either…especially amateurs trying to manage their own portfolios.

In the foreword of his book, Mr. Bernstein says that successful investing requires a skill set that very few people possess. He concludes that successful investors need four abilities.

First, they must have an interest in the process of investing. If a person does not have an interest, or I would say a passion, towards investing, they will not do a good job. Just like carpentry, playing a musical instrument or parenting, if managing your investments is not enjoyable, your results will suffer. And most people don’t enjoy finance.

Second, successful investors must have a good bit of what he calls “math horsepower.” Mastering the laws of investment theory goes way beyond basic arithmetic or knowing how to work a spreadsheet. A successful investor must understand the laws of probability and have a working knowledge of statistics. Unfortunately, with the exception of our aforementioned rocket scientists, just dealing with fractions is a challenge for a large part of our population.

Next, Mr. Bernstein suggests that investors need a firm grasp of financial history. The Dutch tulip bubble of 1637, the great stock market crash in 1929, and the more recent dot com and real estate busts all provide valuable lessons for the learned investor. But even many investment pros have trouble with this ability.

Finally, he says that even if an investor has all three of these abilities, they aren’t enough unless they have the last ability…the emotional discipline to execute their strategy…no matter what. It’s easy to stick with your strategy when things are going well. But when the financial world goes into turmoil, as it often does, it takes real discipline to stick with your plan. The events of the last 18 months in our markets drive this point home very well. And I have written recently on this very subject. Please see: http://blog.rallcapital.com/2009/11/30/it-takes-discipline.aspx

Mr. Bernstein estimates that only 10% of the population passes muster on each of the four skills, which means that only 1 in 10,000 (10% to the 4^th power) has the skill set to successfully manage a portfolio. But even a more optimistic estimate suggests that only a small percentage of people are qualified to manage their own money.

But that is exactly what is happening. Not that long ago, individuals didn’t have to worry about managing a portfolio. In many cases, they didn’t have enough money to invest, and in others, they had a company pension plan, which was professionally managed for them. The old pension plans are mostly gone and now most of us have a 401(k), 403(b), or a similar plan which puts us in the position of portfolio manager.

Unless you are trained to do so, you wouldn’t try to fly your own jet, or perform surgery on yourself or a loved one. So, why would you manage your own portfolio? Many people say it’s because it’s too expensive to hire a professional. That always brings up one of my favorite expressions…”If you think it’s expensive to hire a professional, wait until you hire an amateur.”

Plan Ahead for Changes at KSC

Bob Rall — Sun, 28 Feb 2010 18:20:00 GMT

My house is 3 miles south of Kennedy Space Center. My family and I have enjoyed watching many launches from our backyard. We are even close enough to feel the power of the launch. If the flight path is right and the winds are calm, the windows in our house will rattle from the powerful sound blast that follows lift off.

I have seen almost every Space Shuttle launch over the years. At each one I am awed by the beauty and the incomprehensible technology that our space industry has harnessed. Unfortunately, that experience seems to be coming to a close. The shuttle fleet is being retired and the recently proposed budget from Washington does not include manned space flight in the near future.

While my wife and I are not directly involved in the space industry, we are directly affected. Many of our friends, family members and clients work for NASA or one of the contractors involved in space operations. Many, if not most of them face layoffs in the very near future. The expectations are that 7000 Space Center employees will lose their jobs. A lot of our friends and neighbors will be facing difficult financial decisions, and many will face some hardship.

Recent estimates say that another 15-20,000 jobs will be lost from area businesses that provide services to the space employees.

Many of our best and the brightest workers may need to relocate. Some already have. Our local economy will be hurt badly. All of our property values will suffer.

It will be more important than ever for those affected by the coming changes to make smart financial decisions. Over the next few months, I will publish a series of articles that will try to help them do so. This is the first article of that series.

There are three keys to surviving a job loss financially: planning ahead; taking stock of your income; and cutting your expenses.

Plan ahead

If you are still working, now is the time to start planning for the possibility of being laid off. Although it will be difficult to determine how long you may be out of work, you should plan on at least six months. If you are prepared to go for six months, you won't be forced to take the first opportunity that comes along if it is unsuitable. You want to be able to make decisions from a position of strength, which comes from being prepared.

You should develop a financial plan for unemployment. Make the plan flexible enough to allow for some adjustments if your situation changes. One of the first parts of that plan should be a survival budget. Make a list of all your income and expenses. You may already have a budget, but this version should be a bare-bones version. Only include expenses that are absolutely necessary. This version of your budget should give you an idea of what income you actually need to survive.

Make sure your plan includes an emergency fund that is equal to six months of your living expenses. If you haven't been laid off yet, it's very important to build this emergency fund now. Once you have been laid off, it's hard, if not impossible, to get it funded.

In the follow up articles of this series, I will try to give you some ideas on taking stock of your income and cutting your expenses. You will also have to make decisions on employee benefits like health, life and disability insurance. There will be decisions to make on what to do about your 401k or Thrift Savings Plan. And there will be many other things for you to consider. I will try to cover many of them, but if you have specific questions, feel free to contact me.

Losing your job is not the end of the world, although it may feel like it for awhile. Taking some time to prepare now can make the pain a bit more bearable. If you have a good financial strategy in place, you will be better able to make smart decisions when, and if, that time comes.

Do As I Say, Not As I Do Doesn't Work

Bob Rall — Tue, 23 Feb 2010 15:59:00 GMT

"Do as I say, not as I do." We've all heard the expression. We usually hear it when someone who is supposed to know better is doing something that they don't what us to do. Parents are especially guilty of saying it. Politicians may not actually verbalize it, but might be the worst offenders. The same rings true for many investment advisors and mutual fund managers. And that could cost you money.

To start, let's address the mutual fund managers. Until recently, there was no way to know if your fund manager had any of their own "skin in the game." But new regulations that have been put in place in the wake of the fund industry's market-timing scandals make it easier to find out if your fund manager is investing in their own fund. And, the data shows that there is a strong correlation between manager ownership and fund performance. If a manager invests in their own fund, performance is better.

It makes sense. If a manager has their own money at stake, they have a different perspective. It's the same reason that people treat a car they own differently than a rental. So, the lesson for investors is that you should look for funds that are managed by someone willing to invest their own money. It seems to give you a significant edge.

Now let's talk about investment advisors. Does your broker, or advisor, invest the same way that they advise you to invest? Do they have skin in the game? When your advisor suggests an investment, have you asked them if they invest in the same vehicle? Don’t you think you have a right to know?

Granted, there will be, and should be, some differences. Your advisor may be in a different stage of life than you…which would call for a different portfolio mix. You will have different goals, time horizons, cash flow needs and risk tolerances. But all of these can be addressed through differences in allocation.

But what about the underlying investments…the nuts and bolts of the portfolio? Do they invest in the same funds they are suggesting for you? If they are recommending an annuity, do they own one?

There is no data available that would allow us to determine whether investor performance can be linked to whether an advisor "eats their own cooking." And, unlike the new disclosure rules in the mutual fund industry, there are none at the advisor level. So you have to ask. It's YOUR money! You should know.

At my advisory firm, we invest our personal funds using the same vehicles that we recommend for our clients. We want our clients to know that we believe the investment strategy we follow, and the investment vehicles we use to accomplish that strategy, are the best for both of us. It just seems right.

This Investing Stuff is Really Pretty Easy

Bob Rall — Mon, 15 Feb 2010 11:36:00 GMT

After almost two decades in the financial advisory business and a lot of time spent trying to determine the direction of the financial markets, I have finally figured it out. To my clients, this may seem like seem like an abrupt change in my investment philosophy. But when you find something that works, you have to run with it.

You see, I spent several years as a wirehouse broker. Early in my career, I believed that working for one of the Wall Street giants, and having access to their top-tier research and analysis would be all that I needed to provide money-making ideas to my clients. And I knew that if my clients made buckets of money, then I would make a good living.

As you might have guessed, and in hindsight, I should have known, it didn't work out that way. Oh sure, overall my clients made money because the markets were healthy…most of the time. And while I didn't get rich, I made a decent living. But that "top-tier" research didn't seem to help much…and often seemed to hurt. It surprised me that the best and the brightest minds in the financial world could be so wrong so often on the direction of the markets.

So, I left the brokerage world and went to work as an independent Registered Investment Advisor. I adopted a fee-only business model to eliminate the potential conflicts of interest that commissions can create. I also altered my investment strategy. Having become convinced that no one, not even the best and brightest, could consistently predict the movements of the markets, I became an advocate of the passive investment style.

A passive investment manager doesn't try to outsmart the markets. We create portfolios for our clients that are diversified across several asset classes and we take what the markets give us. We rebalance the portfolio when market movements create an imbalance. The strategy forces us to buy low and sell high, which is the way the investing game is supposed to be played.

This strategy has worked well for me and my clients for years.

But I have finally found something even better! I have found an indicator that successfully predicts how the markets will perform. Well, the US markets at least. And, I've carefully studied this indicator for years. But until recently, I didn't realize the predictive powers it possesses.

You see, the Sports Illustrated Swimsuit issue came out this week. Please note that, being a happily-married man, I only studied the issue for the market insight it would provide. But sometimes that can take hours!

It turns out that the swimsuit issue is a very good predictor of the annual performance of the S&P 500 stock index. First introduced by the Bespoke Investment Group, the indicator suggests that when the cover model is from the U.S., the index will generate a higher return than its historical rate. A non-American on the cover leads to an underperforming year.

The good news? This year it's an American on the cover! So, forget about all those other so-called market indicators. There's the Super Bowl indicator, the Billboard Top 100 indicator, the Big Mac index and the lipstick indicator. None of them can hold a candle, or is nearly as much fun, as the Swimsuit indicator. Although, I think I could become a fan of the hemline indicator. I'll study that one more closely for a future article.

WLBT's coverage of Bob Rall running the Mississippi Blues Marathon in honor of "Chopper" Bob Rall

Bob Rall — Thu, 28 Jan 2010 18:39:00 GMT

WLBT's coverage of Bob Rall running the Mississippi Blues Marathon in honor of "Chopper" Bob Rall.

Bob Rall, Meet Bob Rall Part 2

Bob Rall — Wed, 27 Jan 2010 19:57:00 GMT

Note: If you have not read Part 1, you can do so at http://blog.rallcapital.com/2010/01/20/bob-rall-meet-bob-rall.aspx

So, the great coincidence continued. Or is it coincidence? I've found someone who shares my name. That's kind of interesting, but probably not all that unusual. What about the fact that he lives in the city where, before we connected, I had just made plans to run my next marathon? That made the coincidence even more interesting. But when I learned his parents shared the same name as my parents, and that they were all originally from the Pittsburgh area, the story went beyond interesting. Now it was getting bizarre.

The New Year's weekend came and went. Gina and I started to prepare for our trip to Jackson. I had been keeping my friends and family up to speed on the story and many of them seemed almost as anxious for Bob and me to meet as I was. Several of them made Gina and I promise to call right after we got together with Bob and his wife, Elizabeth.

Gina and I were running the Mississippi Blues Marathon on Saturday morning, January 9th. Our plans were to fly in on Friday, check in at our hotel, and then go to the race expo. We thought we would try to meet up with Bob and Elizabeth for our pre-race carb-loading dinner on Friday evening. The plan gave us a built-in excuse for cutting the evening short if it didn't go well. We needed our rest before the race. After all, even though I shared a name with Bob, we didn't know him.

On Monday evening, January 4^th, I got a message from Bob. He gave me his cell phone number and told me to call when Gina and I got into town. The plan was for him and Elizabeth to pick us up at our hotel on Friday and take us to his favorite Italian restaurant for dinner. We were just 4 days from "Bob Rall, meet Bob Rall."

Tuesday morning, January 5^th was another typical morning for me. I was up early. I had my coffee and was at my computer checking email and Facebook and getting ready for my workday. Just before I started to get ready for my morning run, I received a message that rocked me. The story had taken yet another incredible turn.

The message was from Carlann, Bob's sister. It said simply, "This is Bob's sister. I just got a call from Bob's son. He died in his sleep last night. I don't know what else to say."

I was stunned. I slumped back in my chair and shouted, "Oh my God!" Gina was getting ready to leave for work. She came into the office to see what was wrong. I shared the sad news with her.

It didn't seem real. I was surprised by my emotions. I felt like I had lost a close friend. After all of the buildup and the strange coincidences of the last few weeks, I was not going to get to meet the other Bob Rall.

Carlann had given me her phone number, so I called to express our condolences. She told me that she was flying to Jackson the next day to prepare for the funeral. She also said that she would like to meet Gina and me when we came into town. Bob's son, Rob also contacted me about getting together. I told them that we would like that very much. We had to close the loop on this story.

Bob was quite the celebrity in Jackson. He was known as "Chopper" Bob for the traffic reports he broadcast for one of the local television stations and several of the radio stations. I learned from the online obituary that he was part of the first ever radio talk show in Jackson. The television station did several on-air memorial messages that we were able to view online.

These memorials gave me a chance to actually see Bob. Through them, I found another twist to the story. Bob and I shared some physical characteristics. As we say in my family, "he has the Rall nose!" After seeing his pictures, several of my friends and family members commented on the resemblance. So, are we related?

Bob's funeral was Friday morning. Gina and I landed in Jackson about the same time the service was ending. After getting to the hotel, we contacted Rob and Carlann. We told them that we would certainly understand if they decided they would rather not go out on such a sad day for them. But they insisted on meeting. Apparently they wanted to close the loop too.

Rob and his wife, Crystal picked us up at our hotel. They took us to "Bravo!", Bob's favorite Italian restaurant. The rest of the family had also decided to join us. We met Bob's other son, Mike, who was in from Austin, TX. Carlann and her husband Dave were there from North Carolina. And Carlann's daughter, Satasha was there from Virginia. Even Bob's wife, Elizabeth came to join us.

The connection between Gina and I and Bob's family was immediate and strong. The evening turned into a celebration of his life. They shared some of their favorite stories about Bob. There were several of his friends at the restaurant as well. They stopped by to pay their condolences to the family and to meet the "other" Bob Rall. Carlann shared some pictures of their parents and I shared some of mine. There is definitely a connection somewhere in our family.

Gina and I ran the marathon the next morning, despite the 17 degree temperatures. We each wore a picture of Bob with a message that said we were running in his honor. Although it was extremely cold, and those hills that Bob described to me as "moderate" were a lot more than that for us Floridians, it was a great event. WLBT, the television station Bob worked for, came out and interviewed me on the course. They had been following the story about Bob Rall meeting Bob Rall and wanted to share it with their viewers and Bob's fans. The report ran that night and the next morning on their news shows. (It will be posted on my website)

Carlann, Dave and Satasha picked us up after the race to take us for our traditional celebratory burger and beer. That evening, we went over to Rob and Crystal's home and spent some more time with our new "family." We had homemade chili, fresh goose sausage, good wine and a lot of fun. We truly enjoyed meeting Bob's family and have started making plans for future visits. Rob and Crystal are coming to visit us soon to watch one of the last space shuttle launches.

So, is it coincidence that Bob and I met online, but didn't get a chance to meet? Or, was it something else? Something bigger that brought us together? Maybe something bringing together two distant branches on a family tree? I'm still trying to answer that question myself. I'd love to hear your opinion.

Bob Rall, meet Bob Rall

Bob Rall — Wed, 20 Jan 2010 14:07:00 GMT

As an investment manager and a marathon runner, most of my writings touch on one, or both, of those subjects. This story is different, although it does have a bit of a running theme. If my wife and I were not marathon runners, there wouldn't be a story. But we are. And there is. It has become one of the more remarkable stories of my life…one that has sent a bit of a tremor through my core belief system. Is there such thing as a coincidence? Or, does everything happen for a reason?

First, I'll give some background to the story. I have a personal running goal to run a marathon (26.2 miles) in each of our 50 states. While I still have a long way to go (pun intended), I am a member of the 50 States Marathon Club and am working towards my goal. My wife, Gina has the same goal…I think. Well, she's never publicly said that. Or privately either. But, we travel and run together. It's a great way for us to see the country and try to stay in shape.

Our last races were in November. Gina ran the New York City Marathon on the 1^st and I ran the Indianapolis Monument Marathon on the 7^th. On Thanksgiving weekend, after our big holiday dinner(s), we were going through the marathon calendar to find our next race. We wanted one in January that we could run together. We found one that sounded good…The Mississippi Blues Marathon in Jackson, on January 7^th. We registered for the race, booked our airfare and our hotel, and started our training plan.

One more piece of background information: To monitor online references of my investment management business, I have a Google alert set up for "Rall." Each morning, I get an email from Google showing any links that reference my name. A few of my blogs have made it in the past, but it's hardly ever about me or my firm.

Ok. Now I can get to the story.

It was early-December and a fairly typical morning. I stumbled out of bed around 5:30, grabbed a cup of coffee, and was at my computer by 5:40, logged on. While going through my morning emails, I came across my Google alert email. One of the links in the message read, "Bob Rall now has a page on Facebook." I've had a Facebook page for several months, so I was curious why it just now made it to a Google-alert. And of course I clicked on it.

It was Bob Rall's Facebook page, but it wasn't MY Facebook page. Now, if my name was John Smith, this kind of stuff would probably happen all the time. But I'm not John Smith and I've never run into another Bob Rall. So, this was cool. I took a look at the other Bob Rall's Facebook wall and was pretty surprised to learn that he lived in Jackson, Mississippi. Gina and I had just scheduled our next marathon trip, and I find a Bob Rall that lives there!

I sent Bob a friend request. In my message, I told him that I had never met another Bob Rall, other than my Dad, and that Gina and I would be traveling to his town in early January. Keep in mind that it was still before 6am that morning. That means it was just before 5am in Mississippi. Within five minutes of sending my friend request, I received a message back from Bob. We obviously share an early morning coffee and computer ritual.

Bob's message to me read, "When I woke up this morning and saw that I tried to friend myself, I figured I needed to take some time off." I knew I liked him right away. He warned me of some "moderate" hills in Jackson and we made preliminary plans to close the loop and meet when we visited Jackson.

Through the holiday weeks, my new friend Bob and I followed each other's posts and exchanged holiday wishes. We were both looking forward to the first weekend of January and our chance to meet the other Bob Rall. I was telling all of my friends and family about our plans to meet, and so was he. Several Facebook friends, on both sides, were following the story with some degree of amusement.

Through the course of our posts, we learned more about each other…and the story continued to become more interesting. First, I noticed that his wife was named Elizabeth. My mom's name was Elizabeth. So, there are two sets of Bob and Elizabeth Rall…my mom and dad, and my new friends from Jackson.

Bob traveled to NC over the holiday to visit his sister Carlann. He told her about the other Bob Rall he was meeting in a week or so. She became intrigued and started messaging with me too. It was through Carlann that I learned that, not only was Bob married to an Elizabeth, but their mom and dad were Bob and Elizabeth, but their mom went by the name of Betty. What I didn't mention earlier was…my mom went by Betty!

So, we have Bob Rall of Florida, son of Bob and Betty Rall, and Bob Rall of Jackson, MS, son of Bob and Betty Rall. Want another twist? Both sets of Bob and Bettys were originally from the Pittsburgh area!

Could the story take any more turns? Are we related? Is all of this just a coincidence? Or, is there another, bigger reason we've been drawn together?

TO BE CONTINUED…

New Year's Resolutions

Bob Rall — Tue, 29 Dec 2009 19:38:00 GMT

Listen to the latest episode of 1300AM WMEL's financial talk show, Investing for the Long Run.

What a Year!

Bob Rall — Tue, 29 Dec 2009 19:13:00 GMT

It's hard to believe that 2009 is already coming to an end. As we look back over the year in the financial world, it truly has been a year to remember. We started the year in the midst of a global financial crisis. The markets were in a freefall and more than once I wondered whether our financial system was going to come crashing down around us.

It was a year that tested our faith in that financial system. As a financial advisor trying to help guide my clients through a very difficult time period, I admit to questioning whether the advice I was giving was proper. It was a very emotional period, especially in February and March, when the little bit of stability we saw in January disappeared and the markets hit fresh lows.

For my entire career I have advised clients not to give in to the emotions of the markets. Making investment decisions based upon fear or greed can wreck an otherwise solid long-term investment plan.

But this time it felt different. There were many days when I wondered whether I should advise clients to stop the bleeding, cut their losses, and retreat into the relative safety of cash…or their mattresses. It was a very difficult time.

It became even more difficult when I reviewed the monthly reports that I use to keep portfolios in balance with their target allocation. The reports indicated that, in order to get the portfolios back to the proper allocation, we needed to buy some stocks and sell some of the safer, fixed-income holdings. Nobody wanted to buy stocks early this year. And everybody wanted to buy the safety of short-term government securities. It was just the opposite of what our strategy was telling us to do.

There were many client meetings and phone conversations. We needed to confirm that long-term goals had not changed. We also needed to confirm that, despite the losses we were experiencing, that lifestyles were not dramatically affected. If the losses would affect upcoming cash needs, we would need to make some changes to our plans.

Those meetings also presented a good opportunity to confirm whether our asset allocation mix was appropriate, based on the risk tolerance of each client. It's easy to say that you are comfortable with risk when things are going well. It can be a different story when things aren't going so well.

As hard as it was, we stayed with our plan. And so far it has worked out very well. The markets have recovered dramatically since hitting multi-year lows in March. However, I can't say that we are out of the woods yet.

We approach 2010 with a little more confidence than we had a year ago. The economy seems to be recovering and the housing market has shown signs of stabilization. Consumers are a bit more confident and we have seen an increase in our savings rate. But unemployment is still a problem and troubled mortgages in both the residential and commercial real estate markets continue to be a concern.

This is the time of year when you will hear all kinds of predictions from all types of prognosticators. My advice is to either avoid them completely or to use them for entertainment purposes only. The financial markets are, and will continue to be, very unpredictable.

Don't risk your financial future by making investment decisions based on predictions or emotions. Have a plan and stick to it. It is not always easy, and at times can be very difficult. 2009 proved that in a very dramatic fashion.

Happy New Year!