At long last, early in April the U.S. Department of Labor (DOL) published a new fiduciary rule that requires all retirement advisers to act in the best interests of their clients when providing investment advice. While many changes have been discussed in the past few months, the final version of the rule is officially set in place. It is a voluminous document with notification and implementation dates that stretch out as far as January 1, 2018. We believe the most compelling part of the new rule is the part that affects retirement advisers.
Before this rule change, registered representatives of broker-dealers merely had to show their recommendations were "not unsuitable." Now, they are required to show that their recommendations are in the best interest of their client. Barnes Investment Advisory, Inc is an SEC-registered investment advisory, and we have long been held to a higher fiduciary standard of always putting the interests of our clients above our own.
In our opinion, the new rule is not perfect. There are loopholes through which broker-dealers can avoid the fiduciary requirement and retain many of the conflicts of interest with limited disclosure. However, the new rule is a good start. If you are interested in knowing more about this topic, please feel free to call us, or discuss it with us during our next meeting with you.
The loss of a loved one is never easy. At our firm, we have witnessed the pain of picking up the pieces of lost life with many of our clients, some young and some not so young. We have learned that there are many questions that must be answered before those that are left behind are able to move forward. We have also learned that it is much easier if those critical questions are answered long before a loved one is gone.
Below is a link to a document that we have created to guide you in providing, "Answers for Those You Love." This compact and simple document collects information on your heirs, your medical and financial advisors, and the location of important documents and assets. Please consider completing this important document and then sharing the answers with your loved ones on a regular basis.
This document is not a substitute, but a supplement to the important work that your estate attorney does for you. We hope that it helps to give you peace of mind.
Running Deep with Strangers
A novel by Rev. Dr. Buzz Stevens
“There is no hope of joy except in human relations.”
- Antoine de Saint–Exupéry, Wind, Sand, and Stars, 1939
We humans have a hard time running deep with strangers. Most everyone probably wishes to be able to reveal their honest feelings, whether they are doubts, fears, or love needs. I learned how to run deep sitting next to a pushy stranger.
A pleasant middle-aged woman seated next to me on a fifty-minute flight commented on the weather and then she suddenly looked at me and said excitedly “Guess what, I’m going to be a photographer. My dear parents and husband poo-pooed the idea but they’ve passed away, so here I go.” She opened up on her life.
After a rapid-fire, intimate, soul-baring sharing she stopped suddenly and looked at her watch, as if to say, “OK, it’s your turn, you just got 25 minutes of me now let’s have 25 minutes of you before we touch down. Tell me about yourself. What do you do for a living?”
When I tell an unfamiliar soul I’m a pastor they will often confess they are only going to have that one glass of wine. So I told her I was in theology. She explained eagerly “Oh my, I have a rock collection!” We talked rocks for the rest of the flight.
When we stood up to disembark she held my arm gently and said “You missed out on revealing who you are.” She smiled and said “It was your loss. Next time try not to shut down. It won’t hurt.”
While serving as a campus minister I urged my first-year students to spend three hours attempting to run deep with a total stranger. They thought I was joking but they finally accepted to try it. Several came back and admitted they were able to cause someone to open up but they didn’t reciprocate.
A fairly reserved student returned elated. She shouted “I did it, I did it!” Karen admitted she was terrified but waited outside a barber shop until the patrons had left. “She barged right in and spurted out nervously “I’m participating in a unique assignment. My leader asked us to try to run deep with a total stranger. I’m nervous but I’ll go first and if you don’t want to do this that’s ok. That’s ok.
“I’m a first year student and my parents were excited when I was accepted at my university. They paid the entire tuition so I don’t have to work. I am petrified I may not make my grades and they would be devastated. I have not told anyone about it and I’m losing sleep over it. That’s it, that’s all I’ve got.”
The barber countered “I am retiring in a month and I love this work and I have not told even my wife how terrified I am about it. Is that what your leader had in mind?”
“Yes,” Karen blurted out “and I think I am going to get an A-plus on this assignment!
“You better get an A-plus young lady, you deserve it!”
Bonding with a stranger can be an exciting and frightening endeavor. Ah, but there is hope of joy awaiting us out there.
Running Deep with Strangers: A Must for Human Survival is available now on Amazon.com.
A Message from Stephen and Kathie Barnes
Unless you have somehow managed to arrange your life so you are blissfully unaware of the non-stop media barrage, you are probably worried about your investments right now. You might be wondering whether we are going to suffer a replay of the 2008/2009 waterfall of equity prices.
The truth is, we don’t know. Neither does anyone else, no matter how strongly they state their case on CNBC. But we are writing to assure you that your portfolio has been structured to defend your capital vigorously. More on that below. First, let’s talk about how little help the mainstream media is to investors right now.
We will admit that there has been the odd column here and there suggesting you should not panic. Kudos to those authors. But that is significantly outweighed by the hyperbole about “massive” market declines and “meltdowns”. Allow us to share one example. The crashing of China’s Shanghai Stock Exchange (SSE) has been well-covered in the media. Too well. You probably are familiar with the fact that the SSE is down -43% since June 12 of this year (as of the date this is written, 8/26/15). Yes, a harrowing -43% decline in less than 11 weeks.
Care to guess what the world’s best-performing stock market is for the past 12 months?
Right, the Shanghai Stock Exchange has gained +33% since 8/26/14, *despite* hitting a terrifying 43% air pocket. If you have seen that reported anywhere in the media, please forward to us. We haven’t been able to find it. To get to the point, we believe it is important to bear two facts in mind as you suffer the angst of media reports:
1. You are not invested 100% in the stock market.
2. The story assaulting you at that moment could be biased to the negative.
On to a more important topic – diversification. We have been in conversations with clients over the past few years about how narrow returns have been – i.e. good returns limited to a single asset class. It is in these kind of conditions that diversification can disappoint, particularly if the outperforming asset class is the ‘home’ market, as has been the case lately in the US. That can challenge an investor’s conviction in diversification.
Let’s step back and look at the big picture. Decades of academic literature and our own 30-years of experience have persuaded us that combining a variety of asset classes that are not highly correlated creates a portfolio that, on balance and over time, is likely to provide better risk-adjusted returns than any single asset class.
We further believe that the financial markets work – again, on balance and over time. This means investors derive returns from bearing risk. “Risk” includes the usual things we worry about: market corrections, crashes, company bankruptcies and the like. But risk also includes periods of frustratingly mundane underperformance. Over the long-term, risk pays off. That is called the “risk premium.” But the returns and drawdowns are unpredictable. To realize that payoff – the “risk premium” - the investor must stay invested.
Which brings us back to our primary goal - mentioned above - which is to vigorously defend your capital. We do that through diversification. Proper diversification requires a combination of asset classes that are uncorrelated – meaning they have their ‘bad’ returns at different times. The classic asset for this role is US Treasuries, which are normally the ‘flight to quality’ asset when investors get scared – often providing positive returns during stock market panics. Unfortunately, most other strategies that could fill this role have historically been limited to private funds that charge extraordinary fees and are extremely illiquid. That has finally changed.
We have recently added three funds to client portfolios that pursue non-traditional (uncorrelated) returns, or pursue traditional returns in a non-traditional (uncorrelated) manner. These funds have served us well in this latest stock market decline. For example, as the world’s stock markets declined -14.1% (Vanguard Total World Stock (VT), 5/21/15 – 8/25/15), these three funds all gained between +1.6% to +3.5% over the same period.
Finally, this is a good time for us to break out Warren Buffet’s great line, which serves as a key to success for all investors:
“You want to be greedy when others are fearful. You want to be fearful when others are greedy. It’s that simple.”
We want to thank you again for your confidence in us. We are grateful you have allowed us to be in this fight with you and want to reassure you that we remain confident in our ability to achieve the objective of risk-adjusted outperformance of your benchmark over the complete market cycle, with an emphasis on defending your capital over the course of that cycle.
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