Wealth Planning and Baby Boomers

John is one of the sharpest guys I follow, so we listen to his words carefully.

Some Thoughts on Getting Older

(Source: John Mauldin)

I turn 62 on October 4 while in Geneva. I don’t feel that old, and hope I don’t look it, but the birth certificate verifies the age. I should note that my mother turned 94 last week and is still quite active. I was talking with a Rice University classmate (of ’72) and old friend, John Benzon, who has recently retired from Price Waterhouse and is trying to figure out what “Act 2” will be. I realized that when we graduated, we had barely lived 1/3 of the lives we now have.

So with that on my mind, two items hit my inbox today. The first was from Lance Roberts of Streettalk Advisors. The San Francisco Fed did a report recently that suggested that we aging Boomers will be a drag on the stock market as we sell to support our retirement (shades of Harry Dent!). From the report: 

“The baby boom generation born between 1946 and 1964 has had a large impact on the U.S. economy and will continue to do so as baby boomers gradually phase from work into retirement over the next two decades. To finance retirement, they are likely to sell off acquired assets, especially risky equities. A looming concern is that this massive sell-off might depress equity values.” 

You can read his short piece and the link to the Fed piece at http://www.streettalklive.com/ financial-blog/253-boomers- are-going-to-be-a-real-drag. html.

I am not so sure, though. I think the Boomer generation is a little different from previous generations. I remember going to my grandmother’s in my early years, when my aunts and uncles were the age I am now. Even though active – and most lived well into their 90s – they had a far more sedentary lifestyle than many Boomers do today. Boomers are more active and, whether for financial reasons or simply because they don’t want to retire (that would be me!), they are going to work longer than previous generations. In fact, the only cohort that has seen their employment rates rise is workers over the age of 55! Good for them (although tough on my young kids, who need those jobs).

Then I got this picture from Jon Sundt, the president of Altegris, a close friend, and my business partner. He is 50, at the tail end of the Boomer Generation. 

This is a wave he caught at the Mentawai Island Chain, 80 miles off the coast of Sumatra, Indonesia. He goes there every summer. They go into the middle of the Indian Ocean to find these large waves. And it is mostly Boomer surfers. (I’m not sure how much I like the guy who’s responsible for a large part of my monthly cash flow taking these risks, but that’s another story!)

Go to a gym or running trail: it is not just kids out there any more. There are lots of people my age where I work out. Some of the trainers are over 50! We all have friends who are pushing the envelope – climbing mountains, biking, etc.

And the new biotech that will come out within the next five years is going to offer cures for many of the things that kill us sooner than we simply wear out. Cancer, Alzheimer’s, sclerosis of the liver, viruses are all on the short target list. I was talking about this with Scott Burns, noted author and long-time newspaper columnist (and a long-time friend). He calls it “catastrophic success” in his next book, as living longer is a “success,” but it makes our collective pension, Social Security, and Medicare problems even worse. Maybe MUCH worse. I smiled and told him there are worse problems than living longer. I intend to be writing and traveling for a few more decades.

And as my Dad used to say (he made it to 86), “God willing and the creek don’t rise” I intend to do 62 pushups on October 4^th, which will be a personal best. I can’t do much about getting older (I will be very disappointed if I do not get a whole lot older!), but I don’t have to go quietly into that dark night. And neither do you, gentle reader. So, make sure you are around to read my musings a whole lot longer, as well. If you hang around long enough, you will even see me turn bullish! It won’t be that long, I promise. It will seem like just a few weeks from now.

And while I was having lunch with Scott, he asked me the question, “How many years of US corn production would the dollar reserves of China buy?” I mused, maybe 40. Wrong. It is only 12. And that is just corn. Not soybeans, wheat or rice or cattle, hogs or chickens. Think about that and stand back in awe at the productivity of the American farmer.

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Saverio Manzo

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Seven Life Lessons from the Ultra Wealthy

Money won’t buy happiness, but it will pay the salaries of a large research staff to study the problem.
Bill Vaughan
Please excuse the very wealthy for feeling a bit under siege lately.

Taxes for the top 2 percent are very likely to go higher. Uncle Sam’s share of capital gains and dividend income might rise, and means-testing for Social Security and Medicare is probable. In the United States, the very rich hold most of that wealth in dollars, which are worth increasingly less. As income inequality has grown dramatically in the nation, the very wealthy are blamed for all manner of social ills.
Rather than pile on the wealthy, this week I’d like to approach the subject of money a little more philosophically. There are surprising insights to be gleaned from the experiences of the very wealthy regarding their investments and experience with wealth.

Some context: In my day job, I come into contact with very high-net-worth individuals. These include young technologists with modest portfolios to families that measure their wealth in nine and 10 figures. For the math-averse, that’s hundreds of millions to billions of dollars.

Over the years, I have had some fascinating conversations with people who have hospitals and graduate schools named after them. I’d like to share some of the things I have learned from these folks.

1. Having money is better than not having money.
Sure, this may be obvious, but let’s get it out of the way upfront. Money may not buy you happiness, but it buys many other important things. Like financial security, excellent health care, education, travel and a comfortable retirement. In a word: freedom.

2. Don’t become “cash rich” and “time poor.”
Devoting all of your waking hours to making money is a problem, especially in professions with a partnership fast track. Lawyers, doctors, bankers and accountants can get so caught up in the competitive nature of their jobs that they lose touch with their family. Any semblance of a normal personal life disappears, and a very unhealthy balance between work and home can develop.
Work is the process of exchanging your time for money. Remember: What you do with your time is far more meaningful than the goods you accumulate with your money. If you are working so much to become rich but you ignore your spouse and miss seeing your kids grow up, you are actually poorer than you realize.

3. Memories are better than material objects.
You may be surprised to learn that among the monied set, expensive cars, yachts, houses, jewelry and watches come at the end of the list.
Their priorities? Memories and accomplishments. This was especially true when it came to family. Toys matter less than good times.

The rule of diminishing returns is a harsh mistress with luxury goods. Do you really think $100,000 audio speakers sound 20 times better than a pair of $5,000 speakers? (They don’t). Is a $250,000 sports car five times faster than a $50,000? (It is not). These days, you can buy quite a lovely home for $1,000,000 (and much less in the country’s interior). Those $10,000,000 manses are not 10 times roomier. Anyone who has owned a $10,000 Rolex will tell you that a $39 Casio keeps better time.

When discussing the benefits of wealth, I have heard again and again about amazing experiences, family get-togethers, vacations, shows, sporting events, weddings and other events as these people’s most important life experiences. While these things cost money, nearly every family can afford reasonable versions of them.

4. Watch your “lifestyle leverage,” especially early in your career.
Those partnership-track careers? The dirty little secret: Those firms love to get their young employees leveraged up. They will even help you get that way, co-signing mortgages for big houses or even directly lending you the cash on favorable terms.
They encourage up-and-comers to spend extravagantly; they extend lines of credit to their rising stars. You need a big house with a jumbo mortgage; you cannot pull up to a business meeting in anything less than the best luxury car. It is part of their corporate culture.

Isn’t that nice of them?

Not really. The big banks, investment shops, law firms and accountants have learned how profitable it is to have “golden handcuffs” on their best employees. These highly-leveraged, debt-laden wage slaves will work harder, put in longer hours and stay with the firm longer than those debt-free workers.
Besides, overleveraged employees do not leave to work at a new start-up or a smaller, more family friendly competitor.
You recent graduates: Remember this when you are offered credit on generous terms. Your leverage is your detriment.

5. Having goals is incredibly important.
I have a friend who is a serial entrepreneur. He was a board member in a household-name dot-com from the 1990s. He sold his stock — too early, I warned at the time — for $30 million. (It would have been worth $90 million a few months later.)
But that didn’t matter to him — he planned to use that money for his next company, which he promptly built and sold for $250 million. He rolled that l into his third venture, which he cashed out of for a cool $1 billion. His long-term goal, and the ability to execute that vision, are what led him to incredible success.

He once said something that has stayed with me: “I am always surprised at how many people have no goals. They simply let life’s river flow them downstream.”
There is a Latin phrase associated with military actions: “Amat victoria curam.“ It translates as “Victory loves careful preparation.” You would be amazed at what you can accomplish with planning.

6. You must live in the here and now.
Goals are important, but don’t miss out on what is happening today.
This is especially true among entrepreneurs, corporate execs and Type A personalities. Do not let dreams of that mansion on a hill prevent you from enjoying the home you live in.
This is an area that can easily veer into cliche. Rather than risk that, I’ll simply remind you of what John Lennon sang in “Beautiful Boy”: “Life is what happens to you while you’re busy making other plans.”

7. It helps to be incredibly lucky.
I am struck by how many very wealthy people I know — especially tech entrepreneurs – have expressed being grateful for their good luck. Again and again, I have heard the phrase: “Being smart is good, but being lucky is better.”
Rather than leave you with the impression that success is simply a roll of the dice, I am compelled to remind you what the Roman philosopher Seneca the Younger was reputed to have said: “Luck is where preparation meets opportunity.”
I don’t know whether it’s better to be smart or lucky, but I would suggest that making the most of the opportunities takes more than just dumb luck.

By Barry Ritholtz, Published: June 18

Saverio Manzo

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The mood of the high-wealth

The economy continues to bounce back, and while wealthy investors aren’t exactly taking the bull fully by the horns, experts say they certainly appear willing to chase after it.

Top Canadian investment advisors suggest greater recent investor activity, particularly within high-risk investments, shows the market is feeling positive and optimistic.


Despite the downturn, Canada had more than 550,000 high net worth (HNW) households at the end of 2009, and 2010 has been a relatively positive year, says Investor Economics director Keith Sjögren. Total assets under management belonging to HNW individuals across the country totalled $1.68 trillion in 2007, and held at $1.7 trillion in 2009, showing that the shift from growth strategies to capital preservation strategies after the crash worked.


Sjögren observes that investors are moving into the broader market again in noticeably greater numbers. “I think high-net-worth investors remain cautiously optimistic. There has been a change—it seems as though the wealth has been recovered and so they’re willing to assume some more risk. It appears the worst is over,” he said.
Andrew Marsh, president and CEO of Richardson GMP, says the panic of 2008 has been replaced with a sense of realism and positive ambition among investors, particularly when it comes to higher-risk investments previously left abandoned.

“There’s a mood of optimism mixed with cynicism. I think high-net-worth families have gone from extremely risk averse to being more comfortable with equities as an asset class because they see some positive movement in our economy. Since 2008 we’ve really learned what risk means,” Marsh said.
He says investors appear to be more open to stretching themselves now that they’ve seen some stability and are feeling underwhelmed by safe returns.


“People reacted to the meltdown by bailing from equities and they went to fixed income products. As confidence comes back, people are starting to feel the guaranteed rates they wanted so badly three years ago are disappointing after they see the returns. As a result they’re starting to see the potential value of stocks again,” Marsh said.
Sam Sivarajan, head of private wealth management at UBS, says the first quarter of 2011 has been a good indicator that people are getting active in the market again. But many are hedging their exposure to the U.S. dollar and looking at emerging markets more closely, particularly since many of those markets—like Turkey and Indonesia—did better than the larger markets over the past 24 months.


“Generally people are tired of the low yields, tired of sitting on the sidelines in cash, especially as they’re now seeing the economic recovery. People are looking to get back into the market in a protected way. There’s an interest in investing globally and looking outside the big economies for growth and stability,” Sivarajan said.


Even as the market recovers and high-net-worth investors restart their engines, there is still a profound sense of caution among investors that cannot be understated, says Mike Newton, senior vice president of Macquarie Private Wealth Canada.
“These are low-conviction optimists, they’re optimistic but not overly so. People have very strong memories of what happened in 2008. Despite what’s happened in the last 18 to 29 months in stocks, I still think most high-net-worth investors are reluctant to take on more risk. I don’t think that with dips in the market, investors are looking at it as a buying opportunity yet,” Newton said.
He points to the shuffling and uncertainty in the U.S. economy as a prime factor in keeping investors meek, and suggests perceptions of a recent surge in investor courage could simply be a sign that traditionally high-risk investors are dusting off their boots to get back into the rodeo.


“Some people who had very concentrated portfolios really got hurt—these types of people have an appetite for risk. They were sick to their stomachs for about a year but many of them are back, and they’re even more trigger-happy now. When they have a win they take their profits earlier and when they lose they take that loss and move on quicker, too,” Newton said.


Still, the effects of the meltdown are likely to be felt for a long time and the real challenge is just beginning for high-net-worth advisors, who will have to rebuild trust with clients and should expect tougher questions and more footwork going forward, Sjögren says.


“The damage that was done was not just done to portfolios but people’s comfort levels as well, both with their comfort with the market and with their advisors. It’s getting harder to please a high-net-worth investor,” he explains.
Newton warns high-net-worth investors against feeling too comfortable with the economic rebound and instead suggests now is the right time to think about their next contingency plan.


“The most interesting thing to me is the people I met in December of 2008, whose portfolios dropped 40%. Now that we’ve had a good rally and their portfolios have recovered to where they were, they feel like they got away with something, but I don’t feel they learned anything. I think people need to develop a contingency plan for when this happens again,” Newton said.

Raf Brusilow is a freelance journalist and writer living in Toronto.

About me: I give Economic, Social and Global trend briefings from some of the world's brightest minds at my blog http://saveriomanzo.com/ and http://saveriomanzo.blogspot.com/. I also provide true and tested financial planning and wealth advice. Most recently, over the past few years, I have become socially conscious and have been attempting to practise ways in which I can live my life more environmentally friendly.   Along with some truly exceptional friends, we provide consulting and business development for small-medium sized businesses.  In addition, I truly believe in being philanthropic, giving and doing unto other as we would have them do unto us. Some of my fondest resources are from Barry Ritholtz of The Big Picture, David Rosenberg and what Warren Buffett of Berkshire Hathaway is up to behind the scenes, as an example. saverio manzo

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