Our Blog

DWM is committed to learning for its team, clients and friends. In this changing world, it’s extremely important to stay current in all areas impacting your financial future.

We encourage all of team members to “drill down” on current topics important to you and contribute to our weekly blogs.  Questions from our clients and their families are often featured in our blogs.  

Financial literacy for clients and their families is very important to us.  We generally hold an annual wealth management seminar for all of our clients.  We encourage regular, at least semi-annual, meetings in person with our clients to review family updates, progress on financial goals, asset allocation and performance of investments.  We’re happy to assist younger members of the family as part of our total wealth management program.

Here’s our latest blog:

 

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“The Markets are going to Fluctuate”

Written by Les Detterbeck.

markets stock-indices 930x694Last Thursday, August 17, the equity markets took a hit of 1-1.5%.  In overall terms, it wasn’t a pullback (5% drop) or a correction (10%) yet some were concerned this might be the “start of the end” of the long-term bull market.  Yes, stock valuations have been high for some time, but many people wondered “Why now?” Various reasons were given to “explain” the causes of Thursday’s decline.  Let’s take a look at some of these:

“Terrorism.”  The first reports of the attack in Barcelona were posted in New York around noon last Thursday.  The markets were already in a decline and gold and bonds were moving higher.  Though the attack was dreadful and disgusting, it likely didn’t move the markets.

“Corporate America abandons the White House.”  Kenneth Frazier, CEO of Merck, resigned Monday, August 14.  Others followed and the major business councils disbanded on Wednesday, August 16.  However, participation on President Trump’s councils is voluntary and the first priority of each of the CEOs is their “day job,” which involves working with their customers, employees, suppliers and investors.  Their departure shouldn’t have been a surprise.

“All Donald Trump all the time has worn out people’s patience.”   Certainly, many may be exhausted by the almost singular focus of the news being the White House for the last seven months.  However, impatience is unlikely to cause the markets to move lower.  It was only two weeks ago that we all were worried about the possibility of a nuclear war starting in the Korean peninsula. And, that scare didn’t move the markets.  Therefore, it’s hard to believe the daily White House news would be a source of concern for the markets.

“The White House Economic Team is Leaving.”  Early last Thursday, a rumor floated through Wall Street that Gary Cohn, the Director of the National Economic Council, was resigning.  Mr. Cohn, along with Treasury Secretary Steven Mnuchin are leading the all-important tax reform and infrastructure initiatives.  The S&P 500 began a sharp move down around 10 am last Thursday exactly the time the false tweet came out.  Fortunately, the rumor was squelched almost immediately but the markets, nevertheless, continued to fall.   Hence, the rumor seems not to have been the catalyst for the sale, though the loss of either Mr. Cohn or Mr. Mnuchin would, in fact, be a major concern.

In short, these “explanations” given after last Thursday’s market drop really don’t identify why it happened.  Even so, story lines will continue.  We humans want them.  We are wired to try to understand why and how things happen and use that information to guide our future.

Legend has it that about a century ago, an alert young man found himself in the presence of John Pierpont Morgan, one of the most successful investors of all time.  Hoping to improve his fortune, the young man asked Mr. Morgan’s opinion as to the future course of the stock market.  The alleged reply has become a classic:  “Young man, I believe the market is going to fluctuate.”

Yes, there are many things we cannot control and, fortunately, some we can.  At DWM, we focus on helping you to create and maintain an investment portfolio that is designed to participate in good times and protect in bad times by:

  • Identifying and implementing a customized asset allocation based on your goals and risk tolerance
  • Diversifying the holdings by asset class and asset style
  • Using the lowest cost investments wherever possible
  • Striving to make the portfolio tax efficient
  • Rebalancing regularly
  • Staying fully invested
  • Providing discipline to keep you on track and, for example, making sure you are not trying to time the markets or chase performance

Yes, the markets are going to fluctuate.  We can’t control that.  But, at DWM we can help you control those key metrics that, over the long run, can produce higher expected returns with lower risk.

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Total Eclipse of the Sun

Written by Ginny Wilson.

SolarEclipse-1200x800We all spend a lot of time thinking about our Sun.  In the summer, we want to know if clouds or rain will obscure the Sun’s heat and brilliance and perhaps impact our plan for outdoor activities.  We must think about the Sun’s intensity by protecting our skin and our eyes from the powerful UV rays with sunscreen, protective clothing and eyewear.  Sunrise and sunset mark the ebb and flow in our days with beautiful atmospheric displays.  The Sun, as we all know, keeps us alive on this planet!

On August 21st, our moon will pass between the earth and the Sun, throwing shade across a wide path of the United States that includes Charleston, SC.  Temperatures will drop, the sky will darken and animals will be confused about what to do. The Great American Eclipse of 2017 will begin in the Charleston area with the first phase at 1:17 pm, will hit the peak or “totality “ period at 2:46 pm and will finally end around 4:10 pm.  This is the first total solar eclipse to occur in the US since 1979 and is the biggest astronomical event that America has seen in years.

There are five stages to a solar eclipse and there are some interesting features to look for during each phase, for those of you getting ready to participate.  Here are the 5 phases:

1. Partial eclipse begins (1st contact): The Moon starts becoming visible over the Sun's disk. The Sun looks as if a bite has been taken from it.

2. Total eclipse begins (2nd contact): The entire disk of the Sun is covered by the Moon. Observers in the path of the Moon's umbra, or shadow, may be able to see Baily's beads and the diamond ring effect, just before totality.  Baily’s beads are the outer edges of the Sun’s corona peeking out from behind the moon and the diamond ring effect occurs when one last spot of the Sun shines like a diamond on a ring before being obscured.

3. Totality and maximum eclipse: The Moon completely covers the disk of the Sun. Only the Sun's corona, or outer ring, is visible. This is the most dramatic stage of a total solar eclipse. At this time, the sky goes dark, temperatures can fall, and birds and animals often go quiet. The midpoint of time of totality is known as the maximum point of the eclipse. Observers in the path of the Moon's umbra may be able to see Baily's beads and the diamond ring effect, just after totality ends.

4. Total eclipse ends (3rd contact): The Moon starts moving away, and the Sun reappears.

5. Partial eclipse ends (4th contact): The Moon stops overlapping the Sun's disk. The eclipse ends at this stage in this location.

Historically, solar eclipses have been significant events and have been recorded dating back to 5,000 BC.  There are writings of mathematical predictions of eclipses from ancient Greece, Babylon and China.  Rulers and leaders often used the predictions of astronomical events to gain power or to offer reassurance to a fearful population.  George Washington was grateful for a heads up about a coming solar eclipse prior to a battle in 1777 so he could alleviate any superstitions that his troops may have.  And scientists have used the opportunity of an eclipse to study the Sun, measure distances and features in the universe and learn about the Earth’s atmosphere.  The discovery of hydrogen can be credited to a solar eclipse and a solar eclipse in 1919 provided observational data for Einstein’s theory of general relativity.  This year, NASA has set up many sites within the path of the eclipse to monitor, measure and capture data to further their knowledge.  There is much to be learned from studying these phenomena. 

As we have seen throughout history, the science of astronomy can be used to predict and measure certain events and occurrences with regularity.  Wouldn’t it be nice if there could be more certainty in predicting the ups and downs of the stock market?  One study found that stocks around the world rise on sunnier days!  However, no one can predict the future.  We need to focus on what we can control, including an appropriate asset allocation, diversification and keeping costs low.  That is why actively managed funds underperform the benchmarks and why even the geniuses like Warren Buffet recommend using passive index funds.  At DWM, we think you should stick with your investing plan and not look for the latest fads or trends or even astronomical events to impact your strategy.

We hope that NASA and other scientists learn some spectacular new things from this years’ eclipse.  Here in Charleston, we will be avid, yet passive spectators to the historical occurrence and will use our ISO certified eclipse glasses to watch the once-in-a-lifetime event unfold.   Happy eclipse watching!

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Let’s All Work to Grow Human Capital!

Written by Les Detterbeck.

lets grow human capitalYour biggest financial asset may be your human capital.  Yes, perhaps even more important than your investment portfolio, house, real estate and other assets.  Simply put, human capital refers to the abilities and qualities of people that make them productive.  There are many factors that contribute to human capital.  Knowledge is the most important, but discipline, punctuality, willingness to work hard, personal values and the state of one’s health are among the other factors.

Generally, younger people will have more human capital than financial capital.  In an economic sense, their human capital is the net present value of their lifetime earnings.  In a larger sense, human capital is our ability to add value to others and improve their lives and, by doing so, improve our own.  Decisions young people make early on regarding their education, their careers, their job choices, life partner choice, etc. will all have huge impacts on their eventual financial capital and human capital. Key questions they should answer include “What is your passion?” “When are you at your best?” and “What allows you to engage your human capital at the highest level?”   

Historically, the cross-over point where financial capital starts to exceed human capital occurs when one is in their 50s.  However, with people living longer or pursuing “encore” careers, human capital may remain a significant personal asset for octogenarians and beyond.  A perfect example is 86 year old Warren Buffet who is committed to growing human capital:  “Investing in yourself is the best thing you can do.  Anything that improves your own talents cannot be taxed or taken away from you.”  Regardless of your age, human capital is like a garden, you need to continually give it your time and effort in order for it to grow.

For decades after WWII, the G.I. bill and the American economy pushed workers to build skills and maximize their economic potential.  This was arguably the greatest period of shared prosperity in the history of capitalism.  Last week’s Economist featured an article about University of Chicago Nobel Prize winner Gary Becker’s concept of human capital. Dr. Becker found that 25% of the rise in per-person incomes from 1929 to 1982 in the U.S. was because of increases in schooling.  Other components included on-the-job training and better health.  Dr. Becker was fond of pointing to Asian economics, such as South Korea and Taiwan, with few natural resources, who have invested in human capital by building up their education systems.  There is no debate that well-educated populations have greater incomes and broader social gains. There is a debate over whether the government should supply the education or students should bear the cost; yet both will receive the rewards.

Dr. Becker also wrote about “good inequality” and “bad inequality.”  Higher earnings for doctors, scientists and computer programmers, for example, help motivate students to push harder and achieve top paying jobs.  On the other hand, Dr. Becker wrote, when inequality becomes too extreme, the schooling and even the health of children from poor families suffers, with parents unable to adequately provide for them.  Inequality of this sort “depresses human capital, leaving society worse off.”

Certainly, many, if not most, of our DWM blog readers are committed to increasing and using their human capital to benefit themselves and others.  But, there are many Americans who do not or cannot.  Some are in occupations that have been hit hard by technological changes, others are in declining industries, others have limited education, and others have little opportunity.  As a result, there are lots of unhappy people due to this huge current gap between full human capital and employed human capital.  Can you imagine our country where the vast majority of our 323 million people were increasing their human capital and using it to benefit themselves and society?  Can you imagine an annual economic growth rate of GDP of 5-10%, like it was in the 60s and 70s, compared to the 2% it is currently?  Can you imagine hundreds of millions of Americans happy with their shared prosperity and with optimism for the future? 

Let’s make growing human capital a lifetime commitment. And, let’s also commit to using our human capital to help others grow theirs.  It’s up to each of us. Mahatma Gandhi put it so well: “You must be the change you wish to see in the world.”

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