June 2007 Newsletter

Keeping Up with Change

A common refrain among our clients and friends is: "How can we make long term plans when everything keeps changing?" It's true, it seems like every year there is a new tax bill or regulation, and the number of mutual funds, insurance products and investment options grows daily. Even something like an increase in the postal rates can put a person over the top.

As your financial advisors, we work hard to stay current by attending continuing education programs in Portland and across the country, by subscribing to educational journals and websites, and being involved in study groups with other professionals. We also learn from our clients and their other advisors, as we work as a team to solve new planning issues.

Sometimes a change can be made easier with practice. For clients who are going to retire soon and plan to reduce their spending level, we often suggest they "live like a retiree" for six months before the actual retirement date to see if the budget estimates are realistic. If you are considering a major relocation such as downsizing from the big house to a small condo, you may want to rent both places for a year to try it out. Those who are burned out on their work may be able to take six months or a year's sabbatical to refresh themselves instead of quitting completely.

Change can be challenging and it is also what keeps life interesting. We can get stuck in routines and not realize the benefits that may come with a new outlook. Some of our clients postponed their move into a retirement community because the change felt overwhelming, and then after the move realized their lifestyle had improved.

In the investment world, not being willing to change can impact your bottom line. A recent study by Jonathan B. Berk and Ian Tonks, professors of finance at the University of California Berkeley and University of Exeter in Britain, respectively, caught our eye when it was reported in Mark Hulbert's New York Times column. Called "Return Persistence and Fund Flows in the Worst Performing Mutual Funds," it explores how money flows among mutual funds affect their subsequent returns.
The theory found that one reason so few actively managed mutual funds beat the market over the long term is that investors shift too much money into the successful ones, swamping the managers with more money than they can invest profitably, causing performance to suffer. So the probability is very low that a top-ranked fund will remain top-ranked for very long.

However, the theory seems to be less successful when applied to the worst-performing mutual funds: a low - ranking performer has a significantly greater chance of continuing to be low-ranking. The professors determined the source of the theory's failure: many investors just won't sell their funds, regardless of how badly they are performing. As Hulbert writes, "By not selling, this loyal group prevents poor performers from becoming small enough that their managers can become competitive again."

The study concludes with advice on how investors in actively managed funds need to pay more attention to monitoring fund rankings on at least a quarterly basis, and transfer money away from the losers and into the winners. This task can take much time and energy, Berk said. If that sounds like too much work, he recommends that you stick with index funds.

At Silver Oak, we believe that investing in a broadly diversified portfolio of index and asset class funds is both a prudent investment approach and a beneficial investment philosophy. By indexing, you can save your time and energy for other areas of change in your life that will benefit from your attention — like learning to speak Italian!

In-House Updates

Deborah has been elected to a second term as President of the Portland Women's Foundation, an endowment that gives grants to non-profits in the tri-county area focusing on housing and education for self-sufficiency for women.

Jessi has finished the fourth part of her coursework towards a Certified Financial Planner® designation. She is now studying Estate Planning and plans to take the CFP® test in November.

Steve continues to sing with the Satori Men's Chorus and will be speaking on investing and retirement planning at the Foundation for Medical Excellence Physician Well Being Conference this fall.

Ben will be attending the NexGen Conference sponsored by the Financial Planning Association, an educational retreat for the new generation of financial planners.

We launched a new internal software tool to help us manage and improve our customer service. You may be contacted in the next few months to update some of your personal information for our files.

"Forever Stamps"

With the recent postage increase to 41 cents for a first class letter, the US Postal Service also introduced its new “forever” stamp. These stamps effectively lock in the 41 cent rate for eternity. We now join other countries in this practice, including Canada, Finland, Israel, the United Kingdom, France, Norway, Sweden, and others.
The stamps are proving popular with consumers. In the first week, the USPS sold more than $82 million worth of the stamps, including one man in Pennsylvania who purchased $8,000 worth. Should we all be stocking up?

Nathaniel Rich, a columnist with Slate, says “absolutely not.” He calculated that despite the numerous rate hikes over the last 36 years, on an inflation-adjusted basis, stamps have actually gotten cheaper. The 20-cent stamp from 1981 would be equivalent to 45 cents in today’s dollars.

Should this historical pattern hold, you’d be paying more for today’s forever stamps than you would for any stamp in the future. And the odds are good that the pattern will hold, because President Bush signed the Postal Accountability and Enhancement Act in December. This law ensures that future price increases will be kept below an inflation-based ceiling. [The USPS announced the introduction of the forever stamp less than two months after Bush signed the act into law.]

Summer Schedules

We will be closing the office for the weeks of July 30 and August 6 and working a short week during the rest of August. Should you need help or an appointment on an “off” day, we will be checking messages regularly.

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