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Tag: Financial Planning

Aesop on Finance: A Dog and His Reflection

As you know, this is a time of year when many people make New Year’s resolutions.  Lose weight, stop smoking, save more, learn a new skill, get more sleep, visit a new place, get finances in order, etc.  You name it, chances are, someone has resolved to do it.

As financial advisors, people often come to us for help with any financial resolutions they have – or resolutions that require some change in their financial situation to achieve.  But often, people come onlyafter they have tried and failed to keep those same resolutions on their own.  

This got us thinking: Why are New Year’s resolutions so hard to keep?  In most cases, our resolutions are good for us.  We want to do them.  So why aren’t they easier?

There are many reasons for this, but one of the most important can be best explained by Aesop’s classic fable about…

A Dog and His Reflection

It happened that a Dog, after much hunger and long labor, had finally procured for himself a chunk of meat, and was carrying it home in his mouth to eat in peace.  On his way home, the Dog had to cross a fallen tree trunk lying across a running brook.  As he crossed, he looked down and saw his own reflection in the water beneath.  Thinking it was another dog with an equally large piece of meat, he made up his mind to have that also.  So, he snapped at the reflection in the water.  But as he opened his mouth, his own meat slipped out, fell into the brook, and was never seen by the Dog again.      

While some have interpreted this fable to be a warning against greed, we look at it a little differently.  Despite being halfway to his goal – enjoying a nice meal – the Dog became distracted by a different goal, and in pursuing that, lost sight of his own.  

In our experience, this happens to most of us every year.  We set a goal we want to achieve, something we truly care about.  But it takes time to accomplish our resolutions, and it’s very easy to get distracted by the newest, shiniest things.  For example, imagine someone resolves to save $200 per week, so that they can finally take that trip to the Caribbean they’ve always dreamed of.  But after doing this for three months, they see another person enjoying the latest iPhone that came out, so they decide to go for that instead.  After all, the Caribbean will always be there.  So, they spend all the money they’ve saved – and suddenly, they’ve sabotaged their own resolution.  

This happens on a larger scale, too.  We’ve seen people who dream of a retirement spent in the sun…only to go chasing shadows instead.  We’ve seen people with grand plans to start their own business one day…only to spend their time watching television.  

Of course, there’s nothing wrong with buying a new iPhone or relaxing in front of the TV.  But to truly change our lives for the better, we must learn discipline.  We must hold ourselves accountable.  We must keep our eye on what’s truly important, and not be distracted by reflections. 

There are several ways we can do that.  Here are a few we’ve found to be especially helpful:

  1. Be specific with your resolutions. People who set specific goals are more likely to achieve them.  For example, instead of resolving to save money, resolve to save $200 per week.  
  2. Put it in writing.  Write down your resolutions and post them in a place where you will see them every day.  This will help remind you of what you’re working towards, so you won’t end up like the Dog in the fable.  
  3. Set realistic goals.  Set goals that are within your reach, and don’t try to take on too much at once.  Be mindful of your finances and schedule.  Account for the fact that sometimes, you need to kick back and relax or spend money on a whim.  In addition, take your time.  There’s no prize for finishing first, and anyway, to quote another one of Aesop’s fables, slow and steady wins the race.  
  4. Develop a plan.  This is so important.  Create a timeline with steps toward your goal.  Set deadlines for each and cross them off as you go.  This will help you generate both the momentum and themotivation you need to continue.
  5. Ask for help.  Whether it’s with a financial professional or a life coach, if you find yourself struggling to reach your goals, don’t think you need to do it alone!  Find someone who can help keep you focused and accountable.
  6. Reward yourself.  Acknowledge even the smallest of achievements. Keeping resolutions is hard work, and you should be proud of everything you accomplish!  

Regardless of what you do, always remember The Dog and His Reflection.  It can make all the difference.  

Good luck and have a wonderful year!  

401k Rollover for Orphaned Accounts – Is it Worth It?

Orphaned Accounts – Is a 401k Rollover Worth It?

On average, Americans change jobs every five years. Over the course of a 35- to 40-year career, that’s a fair number of business cards and, more than likely, a lot of straggling retirement accounts left behind in the wake. Commonly referred to as “orphan accounts,” these accounts tend to garner a couple of typical responses from their owners. Often it comes down to a choice of leaving it at your previous employer, bringing it over to your new employer or putting it in an IRA account – commonly called a 401k rollover.

401k Rollover

The first one I refer to as the “Hannigan” approach. Like the character in Annie, this approach involves doing nothing to change the state of affairs for the orphan. The other, and polar opposite approach, is the “Warbucks.” This involves finding a new and, presumably, good home for it as fast possible. But unlike adorable, musically gifted orphans, orphan retirement accounts may not always need saving.

Here’s why:


While this leave-it-be approach may seem a bit cold, neglectful, it may not actually be so bad. If the company you worked for offered a very competitive plan it could be a good idea just to leave it as is. Competitive plans typically offer a wide assortment of fund choices, some sort of investment advice, and, a total cost of ownership less than 1 percent. You may also want to look at things like how much education is provided and what tools are available to assist you in saving for retirement. If your old job was with a very large corporation there is a good chance they’ve negotiated lower fees than smaller companies might be able to offer.


A common approach, but one I strongly discourage, is to take all the money out of your retirement account. While some might perceive this approach as ‘saving’ their account, it does come with consequence. By taking the money out before retirement there is usually a 10 percent penalty imposed by the IRS. In addition, the money gets included and taxed as ordinary income which can take another 30 percent plus. Add it all up and the 40 percent or so you lose is near impossible to be made up and what was supposed to be savings for retirement is long gone before you get close to that magical age.

A variation on the Warbucks, is to move your retirement account into the plan your new employer is offering. This is a great option if your new plan is more competitive (i.e. lower fees, more options, investment advice). The benefit is even greater if consolidating your old accounts into one leads you to actively monitoring and managing your account(s) more frequently.

Alternatively, you might look to roll your money into an IRA account. This option will most likely give you the most investment options and control over how to direct the money, which investments to make, and the option to work with or without an advisor.

Regardless of which approach you choose, the most important thing is really the fact that you’re making a choice. Simply ignoring your money with no regard to the consequences is more likely to lead to a hard-knock lesson than it is a happy ending.

Plan for the worst, hope for the best

By any historical standard, 2013 was a great year for the U.S. stock markets. The Dow Jones Industrial Average and S&P 500 each rose more than 25 percent and the majority of investors enjoyed a profitable year. In addition to great gains, 2013 was marked by historically low volatility. In most years, the markets experience a decline of 10 percent or more at some point. But not in 2013 when the single biggest dip was a relatively minor 7 percent drawdown.

And as if that wasn’t enough to get investors feeling good, there’s a historical precedent for one positive year to be followed by another. Data from the independent investment research group BCA Research shows that since 1870, there have been 30 years in which the U.S. stock markets increased by at least 25 percent. Out of those 30 years, 23 were followed by another year of positive return. That’s a 77 percent success ratio.

But before you get too excited and carefree with your money, there’s another bit of research to consider.

According to the Stock Trader’s Almanac, 35 of the past 41 Januaries in which positive gains were experienced during the first five days of trading were followed by full-year gains. Unfortunately, the first five trading days of 2014 saw a small cumulative loss.

So what’s an investor to do with contradicting indicators?

My advice: plan for the worst, hope for the best.

Now, while all is well, is the time to review your risk tolerance and financial objectives and to develop a sell-discipline. That is, determine now what will be the triggers or specific points at which you will sell your investment(s). Establishing those points now, rather than when things are looking bleak, will make it easier to follow through with your decision. A well-thought out plan for the worst will actually help you get through the worst.

And because every storm eventually passes, you also need to develop a plan for how and when you’ll respond to positive market changes. Like your plan for the worst, establish what it will take to get you back in the game. Do it now while you’re not feeling gun shy from a few losses.

While nobody knows for certain if the markets will soar or suffer in 2014, disciplined buy and sell strategies that plan for the worst and hope for the best will help you brave the year with confidence. And in a world of volatile investing, that very often is the best for which you can hope.