General Interest | Portnoff Financial LLC- Blog

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General Interest

Certified Investment Management Analyst® (CIMA®)

It has been 10 years since I earned my CFP® (Certified Financial Planner™) credential. Since then I have completed a number of education/credential programs to continue my life long pursuit for knowledge, to be an accomplished and trusted advisor whose education and training exceeds that of the average advisor. I decided it was time to work towards an advanced investments certification, something that would really challenge me, and so I decided to embark on a journey to earn the Certified Investment Management Analyst® (CIMA®) program offered through the Investment Management Consultants Association® (IMCA).

From IMCA: "CIMA professionals integrate a complex body of investment knowledge, ethically contributing to prudent investment decisions by providing objective advice and guidance to individual investors and institutional investors. The CIMA certification program is the only credential designed specifically for financial professionals who want to attain a level of competency as an advanced investment consultant."

CIMA Certification is a rigorous multi-step process that typically takes about 9 months to complete. Once you submit the application and pass a background check you are eligible to take the 2-hour, 50 question multiple-choice Qualification Exam (QE) proctored at an AMP testing center, which typically takes approximately 100 hours of study time. The pass rate for the most recent quarter of first-time takers of the QE was 54% and 61% over the past two years; for re-testers it is only 44%. For the Core Topics list see below.

One you have passed the Qualification exam, then you are eligible to enroll in the education component; a graduate-level executive education course (packed into one grueling week) taught at The University of Pennsylvania's Wharton School of Business Executive Education Program. Successful completion of the course requires passing a 4-hour 25-question essay exam at the end of the program. From there you are then eligible to take the final Certification Exam which is a 4-hour 100 question multiple-choice exam held at the testing center during 4 testing windows each year. The pass rate in the most recent quarter for first-time takers of the CE was 69% and 63% over the past two years; for re-testers it is only 48%. There is no doubt this is a challenging program; According to IMCA, only 1 in 3 who start the program successfully finish!

I began seriously studying in April and passed the Qualification Exam on my first try on June 9th. Since then I've been preparing for Wharton which starts Monday 10/3/2016. If all goes well then I expect to take the final Certification Exam sometime in November. No doubt the next two months will be challenging so I appreciate your understanding and support. I look forward to sharing will all of my client the many things I have and expect to learn through the completion of this program.

CIMA Core Topics

  • Governance
    • IMCA Code of Professional Responsibility and Standards of Practice
    • Regulatory Considerations
  • Fundamentals
    • Statistics and Methods
    • Applied Finance and Economics
    • Global Capital Markets History and Valuation
  • Portfolio Performance and Risk Measurements
    • Attributes of Risk
    • Risk Measurements
    • Performance Measurement and Attribution
  • Traditional and Alternative Investments
    • Traditional Global Investments (Equity and Fixed Income)
    • Fixed-Income Vehicles
    • Foreign Exchange Market
    • Alternative Investment
    • Options, Futures, and Other Derivatives
    • Tools and Strategies Based on Technical Analysis
  • Portfolio Theory and Behavioral Finance
    • Portfolio Theories and Models
    • Behavioral Finance Theory
  • Investment Consulting Process
    • Client Discovery
    • Investment Policy Statement (IPS)
    • Portfolio Risk Management Strategies
    • Manager Search, Selection, and Monitoring
    • Perform Portfolio Review and Revisions Process

For detailed information on the CIMA certification process, go to https://www.imca.org/cima

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Dave Ramsey and the proposed Fiduciary rule by the Department of Labor

Dave Ramsey the financial author, radio host, television personality, and motivational speaker, recently  publicly criticized the proposed Fiduciary rule by the Department of Labor (DOL). Ramsey posted on Twitter “This Obama rule will kill the middle class and below['s] ability to access personal advice.”

To read the article from Investment News go to http://www.investmentnews.com/article/20160223/FREE/160229982/adviser-twitter-fight-erupts-when-dave-ramsey-bashes-dol-fiduciary.  

I think it is simply ridiculous to suggest that if all “financial advisors” were fiduciaries and required to act in the best interests of their clients and disclose all conflicts of interest that would somehow hurt middle class access to financial advice. While I am a fee-only advisor and prefer the model of full disclosure of compensation I do not think commissions are inherently bad. I don’t see anything wrong with selling financial products as long as all compensation, direct and indirect, are fully disclosed so that the client can make an informed decision. Therefore I see no reason why a commission based advisor could not put their clients interest first.

To suggest a fiduciary standard for all advisors would hurt access for middle class investors is like saying doctors who take the Hippocratic Oath (“…With regard to healing the sick, I will devise and order for them the best diet, according to my judgment and means; and I will take care that they suffer no hurt or damage…”) would reduce access to doctors by the middle class and the poor. Absolutely Not! This would be akin to doctors who do serve middle class and the poor not having to act in the best interests of their patients based on their judgement, etc. The idea is simply nonsense and I agree with (probably) most who have criticized Dave Ramsey in that those who are against this are so because they have a vested interest in not being required to put their clients’ interests first.

My view might be different in that I don’t think all “financial advisors” should be held to a fiduciary standard, rather that all advisors of any kind should be required to disclose all compensation, direct and indirect, as well as all conflicts of interest so that if the client wants to work with that broker/salesperson and buy their products they can at least make an informed decision. I personally might still choose to purchase a commission based product from a salesperson if they disclosed that they are not required to act in my best interest because I may feel that purchase is in my best interest and as long as I’m aware of that I can make a fully informed decision. For example if I go to buy a car the salesperson is not required to act in my best interest but as long as I have all the information I need (research on the car, truth in lending, etc) I can make a fully informed decision.

So I don’t think applying a fiduciary standard to all “advisors” will fix the problems in the industry nor do I think getting rid of all commission products will either. Rather if we had simple common sense regulations that require the full and clear disclosure on compensation, direct and indirect, as well as conflicts of interest in a manner that is understandable to the clients then we’d make some progress towards protecting the public and people could then choose who they want to work with.

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Fatherhood

It is amazing how life changes with a new baby! Fatherhood has given me many new perspectives on life. As a financial planner and one who has written much about demographics and spending cycles as one's family grows, I now have first hand experience on how a baby changes your spending priorities.

Noah

Clearly we are spending much more on baby related items and I expect this to increase substantially over the years. Despite the financial impact of starting a family, the rewards of being a father are simply amazing and well, I just don't think about the money when my son looks up at me smiles and laughs!

He is an amazing baby and my wife Heather and I are blessed to have him in our lives! It seems he's always smiling and laughing, that is when he's not crying of course. Now that he is 6 months old he is much more interactive and I love to watch him grow and change on a daily basis. He loves his toys, especially the Mickey Mouse I brought him back from my trip to Orlando last week for Ed Slott's Master Elite IRA Advisor Workshop. Normally I look forward to these workshops and conferences however this time It was difficult to be away for only 2 and a half days because I missed him so much!

The Ed Slott workshop was an incredible learning experience as always. Look out for my next update which I will highlight what I learned, in particular about Advanced Social Security claiming strategies. I plan to use the new information about Social Security and do a few seminars and webinars on the topics so look out for those invitations as well.

Many of my clients have been asking how Noah is doing and want to see pictures so here is a recent one:

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Driving Your Taxes Ever Higher

Driving Your Taxes Ever Higher

I really don’t care for Flo. She is that all-too-cheerful lady that wants to sell you a particular brand of car insurance, one that she claims will save you lots of money. She would also like you to know that you have the option to plug a small device into your vehicle. This device monitors your every move for what is called usage-based insurance. If this device shows the company that you are a safe driver, then the insurance company will offer you a discount. Sounds like a good deal, right?

Unfortunately, Flo’s little device has other, less beneficial uses. A similar device, no longer optional, may one day help the government tax you based on how, when and where you drive your vehicle. Even George Orwell would have been shocked by this level of Big Brother-ness.

The Great Recession has led to many structural changes in our economy and how we behave. One of those changes has been in how we drive.

According to a recent study from the University of Michigan, Americans’ driving habits have changed dramatically in recent decades. The average driver travels 1,200 fewer miles per year than he did in 2005. We also use less gasoline per person than we have in nearly 30 years. The decline in miles driven and fuel consumption has meant a serious loss in revenue for local, state and federal governments.

The United States Highway Trust Fund was created in 1956 and is used for the construction and maintenance of the Interstate Highway System. The Trust Fund receives its money from the federal fuel tax. The tax on a gallon of fuel has been raised over the decades and is now over 18 cents per gallon of gasoline.

But the tax is not enough. The Congressional Budget Office estimates that the Trust Fund will be insolvent this year and will continue to be so for the foreseeable future. By 2023, the Trust Fund is expected to have a shortfall of nearly $100 billion.

The current mechanisms for funding transportation services are already failing. With Americans driving less miles and consuming less fuel the situation will only get worse. This means governments must find ways to gather more tax revenue from drivers.

The most straightforward solution is to increase the fuel tax. The problem with this idea is that the tax will be chasing ever-more fuel efficient vehicles that are being driven less. As a result, a tax hike is unlikely to meet funding needs. This is where the number crunchers will start getting creative.

Luckily for them, and unluckily for us, our friend Flo’s usage-based insurance device can be converted to a usage-based tax calculator. Currently, most use-based vehicle taxes operate as a type of sales tax. With more data, governments will be able to tax our vehicle usage in a multitude of different ways that would get around decreasing vehicle usage and increasing fuel efficiency. Heavy commuters might feel the tax pinch on how many miles they drive, whether they drive in cities or what time of day they drive. On the other hand, those with short commutes will not be able to escape taxes on vehicle speed, condition of the roads used, driving in high-volume areas, driving during harsh weather, etc.

By taxing a variety of usage patterns that are independent of miles driven and fuel efficiency, governments can supplement revenue from the fuel tax. The only way to avoid these taxes will be to turn in your keys.

Our change in driving habits is emblematic of how our behavior has shifted since the economic downturn. Traditional funding pathways for government services are falling behind. This means that we can expect our government to look for more creative and intrusive ways of taking our wealth to fund their services.


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Demographics Are in Good Spirits

Demographics Are in Good Spirits

The world seems to be running dry. Vintners are ramping up wine production, trying to keep pace with ever increasing demand. This means the bottles you are buying today could be significantly more expensive in the next couple of years. But before you run out to the store to load up on your favorite vino, take a minute to consider what caused the casks to run dry…and what might lie ahead.

Global wine production has slackened over the last decade as the industry tried to recover from a glut of supply in the mid 2000s. Some farmers, such as in California, turned their soil over to more profitable crops, with almonds and walnuts paying more per acre.

Meanwhile, demand has been growing at a healthy clip. The increase in consumption has come primarily from two nations: China and the United States. China's rapid economic expansion has given millions of consumers the access to the global wine market in a way that was absent just a decade ago.

It is somewhat excusable for the wine industry to have missed the rise in affluence of China's upper and middle class. It far less understood how the industry failed to anticipate the growth of wine consumption in the United States. Since 2000, U.S. wine consumption has doubled on a per capita basis, and the trend was right there for everyone to see.

The reason for America's growing thirst for wine is, unsurprisingly, demographics.

Based on data from the Bureau of Labor Statistics’ Consumer Expenditure Survey, spending on alcoholic beverages hits a secondary peak during a person’s early-to-mid-20s, and then hits a primary peak during a person’s early 50s. One may not think of 20-somethings drinking wine, but data from the Wine Market Counsel confirms that millennials, along with baby boomers make up the core wine-drinking generations. It also turns out that when you divide the U.S. population into five-year age groups the two largest categories in our economy are those aged 20 to 24 and those aged 50 to 54. Is it any mystery that U.S. demand for wine would grow to its current levels?

Demographics are a powerful force on our economy. Companies and industries that understand their consumers will do well. Harley Davidson smartly reorganized its business model, knowing that its prime consumer base was shrinking. The diaper industry is increasing production of adult products to serve aging populations.

On the other hand, those who ignore demographics do so at their own peril. The wine industry may have just missed a huge opportunity to sell their goods to two very large audiences. As millennials and boomers move past their mid-20s and mid-50s, respectively, they will develop a thirst for something else.


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Uncertainty Is the Only Certain Thing

Uncertainty Is the Only Certain Thing

Each morning we wake up with a set of assumptions: the sun will rise, our light switches will work and water will flow from our faucets. We expect roads to be passable and our government to keep our systems of law and commerce operating. While some things seem beyond question (the sun really will rise in the east), others are up for debate. What happens when the systems on which we rely become unpredictable?

As we head into October we’re facing increasing uncertainty on a number of fronts. In Europe there’s talk of yet another Greek bailout. The nation is now in its sixth year of recession, still struggling with debt repayment, high unemployment and a lack of growth. If that isn't bad enough, there are now calls for a Special Forces Reserve Union military coup. Meanwhile, the International Monetary Fund (IMF) expects Spanish unemployment to remain above 25% for at least the next five years. Spain’s real estate market is in free-fall, refusing to find a bottom. Today, the situation in southern Europe is no more certain than it was at the onset of the global financial crisis.

Back home we have our own worries. For months the members of the Federal Reserve Open Market Committee (FOMC) hinted that they would start to wind down the quantitative easing (QE) program. Then in late September, just when everyone thought the Fed would announce a start to the long-anticipated taper, chairman Ben Bernanke said the economy was not yet strong enough to stand on its own and QE would continue indefinitely. Naturally, this confused almost everyone. It was as if the Fed, which had been signaling a slowdown for months, came out and said: "Just kidding!" It appears the Fed has no idea how it will smoothly wind down QE. In its attempt to create more open communication and guidance with investors, it created more uncertainty, not less.

If market confusion isn't enough, the U.S. federal government decided to pile on at just the wrong time. We face yet another debt ceiling deadline in mid-October. Rather than attempting to agree on a sustainable and workable framework for government spending, our elected representatives instead have decided to play a game of political chicken. At stake is a shutdown of the federal government. While our expectations of government performance may be low, we at least expect it to remain open.

One of the bones of contention in the debt ceiling debate is funding for the Affordable Care Act (ACA). On October 1 the ACA goes live and it appears few people know what that means. In fact, a recent USA Today/Pew poll found that only 25% of the respondents claimed to understand the new health care law very well. Others don’t know how they will get insurance, much less pay for it. Given that obtaining insurance is now mandatory, this qualifies as a level of chaos.

Each of these trends and situations is weighing on capital markets around the world, causing volatility and a lack of direction. We expect the smoke to clear on some of these issues, like the debt ceiling and budget debates in the U.S. While this would likely give some relief to equities, such relief would only be fleeting, as there is always another worry right around the corner. That’s why we develop, maintain and consistently reassess our financial plans to make sure we’re taking the best direction possible given the facts on the ground today.


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Why Labor Day Matters

For many Americans, Labor Day represents the unofficial end of summer. It’s a day for last trips to the beach, and for firing up our grills to cook some burgers and hot dogs. The holiday represents a break between the craziness of summer and the beginning of fall, when we all take work seriously again. For whatever reason, we need a day off to make the switch.

But Labor Day wasn’t always just a day off at the end of summer. In the late 19thcentury, organized labor was gaining strength across the country. Unhappy with wages and working conditions, they staged protests and strikes that would often end in violence. As a way of easing tensions, local governments and a handful of states passed laws to recognize what unions were calling "labor day." In 1894, President Grover Cleveland signed the law that made Labor Day a national holiday as a way to honor the American worker.

Over the years, our workforce landscape has changed, and with it, the meaning of Labor Day. Just over 11% of workers are members of organized labor, roughly half the level of 20 years ago. Most of us are so detached from organized labor, and the origins of the national holiday, that we simply enjoy having the day off work.

Now, as our workforce changes, this is a three-day weekend that fewer of us are able to enjoy.

Chances are that if someone got a new job in 2013 he won’t be celebrating a day off on September 2. With part-time workers making up 77% of new hires in 2013, it’s just another Monday on the job. 

These jobs typically don’t provide paid leave for holidays, like Labor Day. In fact, many retailers have sales promotions to draw in customers that may have the day off. Big-box retailers and department stores will be scheduling extra workers to meet anticipated demand.

This shift to more part-time work is indicative of greater changes to our labor force. It means workers have to accept lower levels of take-home pay than they’re accustomed to. So they’ll have less to contribute to payroll and income taxes. And they’ll have less money left over to grow the economy with their discretionary spending. 

People drive our economy. Personal consumption expenditures account for nearly 70% of the nation’s gross domestic product, by far the biggest share of its components.

We follow predictable spending patterns, which are largely dictated by our age and stage of life. Even so, there are limits. We can only spend what we have and borrow as much as our income allows.

With more and more people having to settle for part-time work and lower pay, consumers will choose the necessities over the luxuries. They will also delay making the big life purchases of a home or a new car. These workers will have less money to save and invest in the stock market.

It may sound bleak, but it isn't. By spotting the movements in the labor market, we can anticipate how it affects the broader economy. We can look out over the horizon to spot the risks and target the opportunities in the market. This puts us in a stronger position to maintain and grow your savings and investments.

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Putting On Your Diapers One Leg at a Time

Diapers instinctively make us squeamish. We don’t want to smell them, see them or be around them. But what if they were the next big opportunity!?

In Japan, more than 20% of the nation’s nearly 130 million people are over age 65, and the market for adult diapers is growing at 6% to 10% per year.

Adult diapers are more profitable than their baby counterparts because adults will pay a higher price and can potentially be using them for many years. Even better, there is a technological innovation coming in the world of diapers.

Diaper maker Pixie Scientific is launching a diaper for babies that contain urine testing strips positioned on the outside of the diaper. Parents can scan the results via a Smartphone with the company’s Smart Diaper app. The app will notify the user of the test results and send an alert if the wearer needs medical attention.

Seeing the potential for a product that could serve both the incontinence and at-home health monitoring needs of the elderly, our friends at Dent Research reached out to Pixie Scientific to see if they had the same idea. Dixie reported they initially made the diaper for children, but after being inundated with questions about adult sizes, the company is now focusing on developing the Smart Diaper for all ages. We aren’t surprised.

Whether Pixie Scientific is a good company or a bad company is not the point. The issue here is the changing nature of demand as our country ages. Japan has the oldest population of all the developed countries, but the rest of us – the U.S. and Europe – are not far behind. If Japan is waist-deep in the adult diaper industry, then the rest of us are just putting our first foot in.

We watch consumer habits because we believe people, and how they spend money, drive the economy. Consumer spending patterns move the ebbs and flows of industries and sectors. We can spot these trends by watching how people shift their buying habits as they age.

As the mass of Baby Boomers moves into old age, industries that cater to this group will grow and expand. This will provide new investment opportunities for the makers of products like adult diapers. You have the advantage of being part of a team that has been tracking these changes for years so we can spot the opportunities as they arise… even if they come in a diaper.


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Birth Announcement

With all the joy, pride, amazement and relief, I would like to introduce our beautiful baby boy, Noah Monte Portnoff born Thursday 10/24/2013 at 9:00 pm at 8.5 lbs and 19.75 inches long.

Heather's original due date of October 13th was approaching with much anticipation. However the 13th came and went with no signs of labor. After one week past due, the induction was scheduled.

We arrived at the hospital on Wednesday 10/23 at 5:00 pm to begin the induction procedure. At 10:30 pm the induction began which caused labor to start. Heather labored for nearly 22 hours however she did not progress enough and so she was taken to the OR for a cesarean section.

Noah was born at 9:00 pm on 10/24, 11 days past due. I was there in the OR and I got to see him come out and heard his first cries. The medical staff completed their tests and placed him in my arms. The feeling was one that words simply cannot describe. 

We stayed in the hospital from Wednesday and arrived home late Sunday October 27th. We are so happy to be home with Noah and to look forward all the firsts we'll get to experience with him. 

So far he is an amazing little guy and within a week he is only waking up once per night allowing Mom and Dad to get good sleep and for that I am extraordinarily grateful. Heather is recovering well and enjoying motherhood.

I'd like to extend a heartfelt thank you to my clients for allowing me to have the time off to be with Heather for the last few weeks of her pregnancy and time to bond with Baby Noah after his birth.

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Will Free Trade Boost the Economy?

"Free trade” is a surprisingly controversial topic across the political spectrum, though it shouldn't be. On the political left, free trade is viewed as being hostile to American workers, something that depresses wages, particularly of the unskilled. On the political right, the argument is less about trade and more about the fine print of the agreement itself, which is seen as crimping U.S. sovereignty.

But what none of the special interest groups seem to appreciate is the way that free trade has massively enriched our lives and improved our standard of living. Sure, we see the unemployed former factory worker, but what we don’t see — or don’t realize — are the "what ifs.” If we hadn't benefited from the economics of free trade, the prices of everything we buy would be significantly higher, meaning we would be doing a lot less shopping. 

I bring this up because you are about to see a lot more about free trade in the news in the months ahead. President Obama has two very ambitious goals for his second term — he wants a Trans Pacific Partnership trade agreement between the U.S. and our major trading partners, along the Pacific Rim in Asia, South American and Australia; and an as-yet-to-be-named trade agreement between the U.S. and the E.U.

While he hasn’t always been the friendliest toward trade and business, we should wish our president the best in these endeavors. In an era of slow growth and failed government stimulus measures, we need the durable, legitimate growth that free trade can bring. 

But before we get too excited, we need to be realistic. Yes, free trade will give our economy a much-needed shot in the arm, and it will lay the foundations for a healthier economy in the decades ahead. But free trade will do nothing — and I mean nothing — to address our single biggest challenge: the aging of the Baby Boomers.

As a generation, the Baby Boomers — which are the biggest and richest generation in history — have passed their peak spending years and are now focused more heavily on paying down their debts and saving for a retirement that is coming faster than many would like. 

There is really nothing we can do about this. What they are doing makes sense; they are at a stage of life where large purchases made with credit are rare. They already own the largest home they will ever own and have already furnished it. 

Their children — the Echo Boomers — are on the upward spending slope and will spend more as a generation every year for multiple decades. But they are simply not earning and spending enough at this point to compensate for their retrenching parents.

So, we have good news and bad news. I’ll hit the bad news first: Baby-Boomer retrenchment is an economic problem that has no solution, other than time. It’s something we simply have to wait through.

But the good news is that the Echo Boomers will really start to make a difference toward the beginning of the next decade. In the meantime, our leaders look to be inching towards better long-term free trade and growth policies. Every little bit helps!

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