November 2007

What Is Your Benchmark

How you invest your money should be closely aligned with your lifetime goals and circumstances.

We can all agree with that statement and its integrity, but we can't always pull it off. When investing, it is way too easy to get sucked into the Whirlpool of Outperformance.

There are many reasons for this:

Prudent long term investing can be boring.

The rates of return we see in charts and on TV about indexes such as the Standard and Poor's 500 or Dow Jones Industrial Average all assume a .buy and hold. approach: you buy into the fund on January 1st and keep it until December 31st of the period in question, five or ten or 20 or 30 years later.

But all around you are friends, strangers, family, magazines, TV shows, websites, newspapers and more, all telling you: You can outperform. This time it will be different. You don't have to save all that money if you get the portfolio to work harder for you. There are much better strategies than asset allocation, diversification and rebalancing. You should be trying to beat the market, to select the stocks or funds with the highest return, to time your entrances and exits from markets, to move from asset classes and sectors of the market in a very active way.

As Nick Murray (author of Simple Wealth, Inevitable Wealth), says:

This is madness, but it's a very seductive kind of madness. Because, like all systematic delusions, it has a certain very compelling internal logic to it . once you accept its totally false (and evil) premise. To wit, that the guiding principle of portfolio management is (and ought to be) 'outperformance.' ... The critical issue is that 'outperformance' isn't a financial goal. An income you don't outlive in a three-decade retirement full of dignity and independence: that's a financial goal.

The news gives us simplistic information.

Our managed clients have broadly diversified portfolios, none quite the same but most owning different types of domestic bond funds, large, small and international stock funds (both index and value), some kind of real estate, maybe some commodities and international bonds... so, from 5 to 16 asset classes or indexes. But on the daily news report, the financial media usually only reports on the performance of a couple of indexes, maybe the Dow Jones Industrial Average and the NASDAQ. Investors naturally want to compare their portfolio performance to others and to what they hear on the news. But since the stocks in those reported indexes would only be a small part of the diversified portfolio, they don't give a client the real information they need. And yet, even if they understand that point intellectually, they can still get caught up in the Whirlpool of Outperformance and say, "Why didn't my portfolio earn as much as the Dow Jones did?" The more accurate comparison is to look at just the large company U.S. stock portion of your mix and compare that to the Dow Jones.

The more important benchmark

Rather than being sucked into the Whirlpool of Outperformance, turn your attention to the really important benchmark: how much you are saving for the future. Finding the right balance between spending and saving will give you more confidence you will not outlive your money than chasing investment returns, and it is also more within your control.

New Client Orientation

We will be holding New Client Orientation workshops next year for any new retainer, management or blueprint client from the last 12 months. The agenda will cover investment terminology, the steps to designing a portfolio allocation, a review of account statements and performance reports, and a review of Silver Oak's investment philosophy.

We encourage all new clients to attend, and longer term clients are welcome as well. Upcoming dates will be:

Saturday, February 2, 2008 9:30-11:30 am
Wednesday April 30th, 4:00-6:00pm

New Workshop "Getting Started"

New to Silver Oak is a program specifically targeted at younger adults who are just starting out (financially). The presentation will be given by our younger planners Ben and Jessi and cover a wide variety of topics, including how to build and maintain a budget and emergency fund, appropriate credit card usage, basic types of investing, use of bank accounts, and promoting the benefits of starting early with a regular savings program. The Getting Started workshop will be:

Saturday, January 12, 2008 9:30-11:30 am

If you would like to encourage someone you know to attend the "Getting Started" workshop, we can provide a gift card.

All workshops are held at the Silver Oak office conference room so class size is limited. There is no charge. Please register online or call Jessi for more information.

Buried by Junk Mail?

With the holidays approaching, you may have already noticed an increase in catalogs and junk mail coming to your home and office. Here are three online services that will reduce the amount of junk mail you receive, for a small fee:

You can also call 1-888-567-8688 to get your name removed from mailing lists circulated by the main credit reporting agencies.

For those of you with Schwab accounts, you can opt to receive a lot of information electronically instead of by mail. Trade confirmations and prospectuses are now available by email, and monthly statements can be viewed on the Schwab website. Please contact Jessi if you have questions or want to activate this service.

Personal Update

Deborah was happily married September 22nd to John F. Riordan. John relocated to Portland from Bend, Oregon, and they now make their home in Raleigh Hills. In lieu of gifts, friends and family made donations to The Heifer Project, whose programs work to end world hunger and increase self-sufficiency.

Don't worry, she's still working!

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