Welcome to another edition of Wisdom & Wealth. Thank you for joining me. This week I want to address a few questions that come up during moments of volatility like the one we are experiencing today.

First, moments like this tend to have a lot in common with the grade school playground in that the most salacious rumors and half-truths make the rounds. Even if you are disciplined enough to verify every data point, talking point and rumor you hear, their net effect is to do what the communists used to call “flood the zone”. You are so overrun with bad information that you are more shaped by the fear of falsehood than by what you know to be true. I’m going to spend the rest of our time today arguing against this. I beg of you, please don’t let the “flood the zone” macro mentality affect your personal financial planning. The entertainment industry has been selling us end of the World cataclysmic stories since we were young and though that was entertaining for a couple of hours, I can’t help but worry about the negative effects those couple hours had on our forward sense of optimism.

If you are reading this, you’ve probably had someone within your sphere send you a YouTube video about how the “end of the World as we know it is nigh.” In fact, it is so “nigh” that the Youtuber is probably recommending that you stop what you are doing and buy their book, subscription etc. Once you are enlightened like them, you will be a part of a select group of people who will see all the pieces fall into place five minutes before the rest of your neighbors. Now hopefully you know that I’m poking some fun here, but the point remains: Conspiracy makes for great entertainment but a poor asset allocator and advisor. You’ve also heard me say that when I was growing up, you had to go the carnival if you wanted your palm read. And you knew it was all make believe. Today the carnival comes to the palm of your hand and tries to convince you it’s real. Most of what you will see that is out there is trying to convince you that this big, broad trend is out there and is trying to conspire against you and therefore you should make a change of some sort.

The other thing that you’ll see is someone “selling the secret”. In fact, this secret is so financially lucrative that it will solve all your problems, and you’ll never have to worry ever again. When I see this, it reminds me of what my Dad and Grandpa used to say about the opportunity of a lifetime being ignored because it was disguised in boots and blue jeans and looked a lot more like “work” than it did a fairy tale or daydream. I’ll spare you what could be an extended commentary of things that further come to mind, but the list is long…rest assured.

With this in mind, I want to focus the remainder of our time on a type of tendency I’ve witnessed in the past. You find a version of this in the advisory world if you pay attention long enough. It goes something like the following.

* You have a review meeting with your advisor

* Your financial plan isn’t referenced

* You review the largely passive investments you own

* You review your YTD total return or rolling one year return (Whichever looks better)

* You never review your “rate of return since inception”

* Advisor advocates for changing the portfolio in some small way based off of a macro trend that he or she recommends.

My issue with this template is that rarely have I seen this done prior to a bear market. Rather, it is done in response to market volatility and in a way, it becomes type of “market timing lite”. Put bluntly it can play into our human desire to try to chase returns. If I’ve just described your life since the great financial crisis, no doubt you’ve heard from that same advisor that the “old buy and hold” strategy doesn’t work anymore because you have to be “nimble and take advantage of new trends.” I get what is trying to be communicated, but even if it were possible to see the wave and get in front of it, I can’t help but wonder if that advisor has replaced “buy and hold” with “buy and pray.” If this is getting uncomfortable for you reading this, I’m not trying to be divisive, but I am trying to shine a light on something that I think is less than genuine and frankly can be harmful. I’m not saying you can’t be successful in the model or that it will not outperform my own planning and investment philosophy. But what I am asking is:

* What are the first principles driving the decisions being made? You can’t call the above a passive allocation when you are actively trying to make changes.

* The second question would be how do these changes affect the income your plan needs?

* How are you resisting the urge to make changes based on feeling rather than data?

At The Bahnsen Group I'm sure you are aware that we are active managers and that we believe in investing based upon income. We invest in well-run companies who earn a profit, grow that profit and share it with our clients in the form of a growing dividend. This philosophy applies to both public and private markets. We allocate based upon income need, time horizon and utilize the yield or cashflow coming from those well-run companies to meet the needs of clients.

The passive allocation I’ve previously described is like buying a puzzle where every company is supposed to represent a piece of the picture on the box, but you have no idea what is all inside the box or how they fit together in your overall financial wellbeing. Our active approach stands in contrast with this because we believe we should know where every last puzzle piece belongs and how it should fit together to meet the needs of clients. This discipline allows you the ability to have cashflow through market volatility and also allows you to stay disciplined based upon measurable data of well-run companies.

I’ll bring us to a close for today. Thank you for reading. Please continue to reach out with questions or suggestions and know that I’m wishing you and your family continued Truth, Beauty and Goodness ahead.

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