Tarheel Advisor Blog and Education Center

Our Book: Preparing for retirement


Tarheel Advisors, LLC has produced an educational text on financial planning available at Amazon and Barnes & Noble. In order to have a successful retirement, you must have a plan that allows you to identify risks, reduce taxes, find good investments, understand insurance, save for education, and manage your estate planning. 

Preparing for Retirement: A Comprehensive Guide To Financial Planning  
does this with a 160 page guide that is full of easy to read charts, examples, and an appendix of commonly used financial planning forms. Whether you have managed your money for decades or you're new to financial planning, this 2015 edition of Preparing for Retirement provides the information and techniques needed to successfully create and maintain a financial plan. 

Q4 2016 Newsletter: The Value of an Investment "Fee"duciary


I started my career in 2002 working at Scottrade: The home of the $7 stock trade. Scottrade and many other discount online brokers make their living providing do-it-yourself investors a platform to manage their own money and do so at a reasonable cost. For my first couple of years in the business I wondered why any investor would pay money to a financial advisor when it was so easy to do-it-yourself online.

Then, after a while I figured it out…. You see, when you work  at a discount brokerage you get to see just about every investment strategy you could imagine. I saw investors try day-trading, long-term investing, penny stocks, and options just to name a few, and I’d estimate about 80% of the clients we had made significant portfolio mistakes, and about 50% of them implemented strategies that most likely lost them money over the long term. It was a frustrating thing to see, but because I wasn’t working in a fiduciary capacity I was disallowed from ever helping clients fix their mistakes.

Most people agree there is value to a financial advisor (otherwise our business wouldn’t exist), but what exactly is that value? I wondered this over the summer as well, so we examined around 50 of the largest independent registered investment advisors in the state to see what they were charging clients at different asset levels. We have posted the findings on our website (www.tarheeladvisors.com/fees.html).  For $250k accounts the average fee was 1%. That fee dropped to 0.84% for $1M accounts, 0.75% for 2.5M accounts, and 0.64% at the $5M threshold. 

We’ve seen fee compression in our industry for the past decade or so, and I’d estimate advisory fees have come down around 30-50% over the last ten years. So, where do investment advisory fees go from here?

There is probably a bit more room for fee compression in the industry, but in my opinion advisory fees are now getting to a point where they are fair and reasonable. Vanguard (the Mecca of do-it-yourself investors) recently did a study that highlighted the value of professional investment advice. They concluded a value of as much as 3.0% annually in increased performance. Below are the highlights of their study:

Being an effective behavioral coach. Helping clients maintain a long-term perspective and a disciplined approach is arguably one of the most important elements of financial advice. (Potential value add: up to 1.50%.)

Applying an asset location strategy. The allocation of assets between taxable and tax-advantaged accounts is one tool an advisor can employ that can add value each year. (Potential value add: from 0% to 0.75%.)

Employing cost-effective investments. This critical component of every advisor’s tool kit is based on simple math: Gross return less costs equals net return. (Potential value add: up to 0.45%.)

Maintaining the proper allocation through rebalancing. Over time, as its investments produce various returns, a portfolio will likely drift from its target allocation. An advisor can add value by ensuring the portfolio’s risk/return characteristics stay consistent with a client’s preferences. (Potential value add: up to 0.35%.)

Implementing a spending strategy. As the retiree population grows, an advisor can help clients make important decisions about how to spend from their portfolios. (Potential value add: up to 0.70%.)

You’ll notice that none of the reasons for hiring a financial advisor include “beating the markets”. Interestingly enough, this is what most people think is our primary job function, but for most financial professionals this isn’t the primary way we create value for the client.

When it comes to your own money and investments, probably the hardest thing of all is to be objective and unemotional. A great financial advisor earns their money by being an objective resource for the client. 

-Ryan Glover, CFP®  

Q3 2016 Newsletter: run for the brexit!


Do you want the good news or the bad news first?  Being an eternal pessimist, I always start with the bad news, so here it goes...

Once promising investment results for the end of the second quarter went down the drain as the United Kingdom held and passed a referendum to leave the European Union. The DOW dropped 600 points the day following the vote, and that was modest compared to the panicked selling overseas. This fire sale was exacerbated by the fact that most market and political pundits had set expectations that this referendum would fail. Market volatility and uncertainty is back, and in the short term investment results may suffer.

Now for the good news, and its really good in my mind - Democracy still works! Despite the immediate market losses, as I turn on my TV I’ve yet to see a single news story of London burning to the ground, or German foot soldiers storming British Parliament. We are seeing historical change in Europe, but thankfully it is coming from citizens staring down a ballot box instead of a bayonet. 

While the markets are currently quite hectic, I suspect this story will mostly be a political one as we look back upon it in a few years. While there is certainly potential for economic fallout from Brexit, I personally consider this move to be a long-term positive for markets across the globe.

I’ve written about this subject several times at this point, but the fact of the matter is that the EU, and more specifically the Euro currency, was never built on a proper foundation. It is extremely difficult to foster a strong monetary union without also having a strong federal system aligning nations/states. The EU has tried to force a stronger federalized system over the past decade, and this loss of sovereignty was a core reason for Brits wanting to head for the exit.

Greece has been the prime example of the problems in the EU over the past several years. Their irresponsibility with their debt management has raised the specter of them being booted from the EU around this time every summer.  Were a large country like Italy, France, or Spain to exit the EU via an economic collapse and debt crisis, then an economic panic would be a very appropriate response. However, the EU being forced into change via orderly elections may possibly be the best case scenario.

So, where do things go from here? This is the first country to ever leave the EU, so we’ll be seeing a lot of precedent set over the coming months and years. From an economic standpoint, one of the biggest hurdles with the dissolution of the Euro will be in contract law. Many contracts in Europe have been based off the Euro, so as countries start to leave the union it could create some pretty wild fluctuations in currency valuations. Case in point, the British Pound dropped to 30 year lows after the Brexit vote.

We expect further political fall out over the next two years as the Brexit story starts to play out.  It is plausible, but not highly likely for another half dozen or so countries to leave the union. While it is possible this leads to the entire dissolution of the EU, it is probably more likely that this actually leads the strengthening of the remaining EU partner countries under Germany’s lead.

As investors, there is one very valuable lesson to take away from the Brexit story.  For the most part, it is prudent to segregate your political views away from your investment views. I’m certain many investors in Europe who were against Brexit took the opportunity to liquidate their stock holdings after the vote, hence the broad sell off. However, after just a week most of the markets have recovered from the initial panic.

In just four short months US investors will be in a similar situation. At least 49% of people are going to wake up November 9th and be upset with the political outcome (given our choices it may be more...). No matter how upset or happy you are come November, try to remember that most likely it isn’t a reason to make a drastic change in your investment philosophy and strategy. We’ve seen too many Republicans underperform their Democrat peers over the last 8 years due to political pessimism. Regardless of your emotional state, don’t let politics steer your outlook for the next four years.             

 -Ryan Glover, CFP®                                

Q2 2016 Newsletter: Bracket Buster?


Much like this year’s NCAA basketball tournament, global markets have experienced a chaotic roller coaster in the 1Q of 2016. We’ve seen some unpredictable economic and political outcomes that have shifted the investment landscape and made for a very interesting start of the year. So, for the 4th year in a row, let’s take a look at the top investment themes thus far and see if any bracket busters lie in wait.

Coming out of the East region, we have a showdown between two newcomers: the Shanghai Stock Exchange (SSE) and the CBOE’s Volatility Index (VIX). Right from the beginning of the year, the SSE has put up some major bricks. With China’s economy continuing to slow down, the SSE’s near 30% dip in January sent ripple effects throughout the globe, resulting in a massive devaluation of equities. One of those areas most affected were U.S. stocks, which saw a huge spike in volatility. The VIX, which quantitatively measures these fluctuations, jumped 61% in the first 41 days of 2016. Thankfully the teams have recovered from a poor shooting spell, and the VIX is now down 23% from where it was January 1st, leaving the SSE to move on to the next round after recovering only half of its losses.

In the West region, we’ve seen two commodities square off and take completely different paths. For the first time in years, precious metals have shown signs of life. Talk of negative interest rates by world central banks has both gold and silver taking long range jumpers for a heat check as they are off to their best start in nearly 30 years, up 16.4% and 11.5%, respectively. Meanwhile, global demand worries continued to plague oil prices early in the year. After a precipitous fall down below $30 per barrel, the price has stabilized a bit closer to $40 and could continue back to top form.  With oil, gas, iron ore, steel, etc. once again proving to be a leading indicator for global stocks, look for the fossil fuel to avoid a Michigan State-style upset in the first round and stick around for the Final Four.

Out of the South bracket we see a mid-major team that only makes the tournament once every four years making a lot of noise. Unlike in past Presidential election cycles, it seems that the coaching style of the presumptive party nominees is a bit unorthodox.  This makes for entertaining matchups, but often ends with a lot of key players fouling out. The opponent in the South, “FANG” is one of last season’s darlings. For those unfamiliar with the new investing acronym, it stands for “Facebook, Amazon, NetFlix, and Google.” These Tech heavyweights had their Air Jordans on last year (up on average 82.7%) when all the other teams seemed to have cement in their shoes.  But, those who bet on last season’s high flyers have been disappointed in a more challenging 2016 (down 3.9% YTD, but was down 15% in mid-February), as expectations and valuations have normalized. We expect the trend for value to outperform growth to continue as investors starving for yield seek out dividend payers first. Look for the presidential news cycle to prevail as November approaches and the outcomes become more certain.

Finally, in the Midwest we have a perennial powerhouse, the Federal Reserve, once again getting a top seed. Coach Yellen may have made a poor offensive substitution in December by raising interest rates for the first time in 7 years, but she has returned to form thus far in 2016 living by the mantra that defense wins championships.  Meanwhile, her opponents from the other side of the pond are a bit of a Cinderella story this year.  Many pundits didn’t really expect them to even make the tourney, but ECB Chair Draghi and others have dialed up a very unique full court printing press and a negative interest rate zone coverage that has given opponents a tough time. While it may set an interesting historical precedent for such a low seed to make it this far, we expect their run in the headlines to be short-lived as the Fed and coach Yellen attack the zone with a strong dollar.

Which investment theme will ultimately prevail this year is yet to be determined.  Let’s just hope the officials stay out of it for once and let the outcome be determined by the players instead of more free throws.       

 -Walter Hinson, CFP®         

Q1 2016 Newsletter: Stock Wars


Much like this year’s NCAA basketball tournament, global markets have experienced a chaotic roller coaster in the 1Q of 2016. We’ve seen some unpredictable economic and political outcomes that have shifted the investment landscape and made for a very interesting start of the year. So, for the 4th year in a row, let’s take a look at the top investment themes thus far and see if any bracket busters lie in wait.

In a time not very far far away (2015), stock markets across the galaxy were in a deep slumber.   A dark energy sapped returns from nearly all asset classes, leaving investors with little to show for their entire year. Now that a new year is upon us, will the markets awaken with the force necessary to forge positive returns in 2016?

Year In Review—Before looking forward, any good Jedi Master takes the time to review the prophecies from the past year. In 2015, Tarheel Advisors  foretold of a collapse in commodities prices that could lead to a world recession of the first order. While global GDP didn’t technically hit recession levels, many countries saw significant slow downs in economic activity making it certainly feel like a global recession. 

In 2015 we also predicted a disturbance in the force would lead to a 10% or greater market sell-off.  While we expected this pullback in the first half of the year, it didn’t materialize until the end of the summer as a bear market gripped China and the fears spread abroad. Thankfully, the pain felt from this sell-off was short lived, and markets fought back to end 2015 mostly flat.
One powerful force, the Darkside...I mean Federal Reserve, which had been slumbering for nearly a decade, did awaken, and in their December meeting, announced a rate increase of 0.25% which was the first since 2006. 

2015 Score Card

2016 Predictions—The opening day of 2016 saw a loss in the DOW of nearly 300 points — the worst opening day in 15 years. Many would expect an auspicious start like this would set a negative tone for the year.  But, historically speaking, the first trading day of the year has very little predictive power.  According to the data, the indexes end the year in the same direction as the opening trading day only 50.6% of the time. The first month of the year has been way more telling, providing confirmation for the direction that year 72.4% of the time. While we still do believe most domestic indexes will finish the year in positive territory, our expectations are for increased volatility for the entirety of 2016. Perhaps more than any year in recent history there are a lot of clouds of uncertainty shrouding the view of the endpoint. 

One of those likely disruptive forces may be in the political future of the United States. As the 2016 presidential race heats up later this year, so will the speculation it will bring to the markets. Look for a stark contrast between the eventual primary winners, much more so than we have seen in decades, and the resulting speculation on policy decisions to cause sector shifts to those areas perceived more favorably under the new regime.

Another source of resistance lies with the direction or lack thereof in interest rates. Most pundits prognosticate that the Supreme Leader...I mean Janet Yellen, will orchestrate between one to four quarter point rate increases over the course of 2016. Our prediction is for a much more hawkish Fed that will be painted into a corner by global lack of demand and will raise rates no more than once during 2016. With many central banks around the world dropping their rates into negative territory and engaging in further monetary stimulus, it will be very difficult for the Fed to fight that force as the resulting battle will create its own problem of a further strengthening dollar. 

Finally, we expect that commodities will bottom out and end their multi-year free fall during 2016. Low prices tend to beget higher prices as supply comes offline, and with heightened tensions in the Middle East, commodities like oil may end their nose dive. We expect oil to climb back over $50/barrel before year’s end. However, it very well may fall below $30 before that occurs. 
While we wouldn’t expect stocks to enter hyperspace, we do feel that once the uncertainty has lifted later in the year, the markets have a strong chance of reaching their historical norms of around a 10% return. In the meantime, the name of the game is diversity and patience  until the force awakens.             

-Ryan Glover, CFP®