The Investment Scientist

Archive for the ‘Life’ Category

images-83As 2014 draws to a close, my wife and I have sprung into action to save on our 2014 taxes. Here are a few things we do. We are no CPAs, so what we do is pretty easy to mimic.

Donate all the garbage. I couldn’t believe how many items in my household we literally didn’t touch, not even once, in the whole of 2014. Things like that are immediate candidates for donation. Things that fall into this category could be electronics, furniture, books, clothes, kitchenware, bedroom sets, used toothbrushes, etc. Ok, maybe not used toothbrushes, but just about anything you don’t use, you can find a better home for, and get a tax deduction for doing so. In some years, we’ve gotten $10,000 worth of deductions. Read the rest of this entry »

images-82Recently, a doctor nearing retirement age approached me with the question of how to maximize his social security income. He is 62, and his wife is 4 years his junior. He made substantially more money than his wife, and as a result, his PIA is $2400, and his wife’s PIA is only $1000.

PIA, or primary insured amount, is the monthly amount a retiree would get if he or she retires at the normal retirement age, currently 66. For every year earlier (or later) that one retires, one would get 8% less (or more). The youngest one may retire is 62 and the oldest is 70.

I’ve found over the years that many people give very little thought to maximizing their social security income, and they jump at the first opportunity when they turn 62 to claim their benefits. But in so doing, they could be leaving nearly half a million dollars on the table. Read the rest of this entry »

1398912_10152119934156756_1775782914_oSome of you may have already known that my hobby is improv comedy. Here is what happens during a performance. I go on stage with my fellow actors, we ask for a suggestion from the audience, and then we create a comedy play from scratch using that suggestion.

It just so turns out that many lessons I learn in improv are totally applicable to real life. Since after all, life is a just a big improv show. Nobody wakes up with a script in hand for how to live the day.

So allow me to summarize the top three lessons I’ve learned.

  1. First things first; be a great listener.

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images-65 A client of mine bought a fixed rate annuity a few years ago. She was told by the agent that it’s just like a savings account, only with a higher interest rate of 3%.

Recently, we took the money out in favor of a better investment, and boy was she in for a shock! There was a $17k surrender charge and nearly $3.6k in tax withholdings. All the interest she supposedly earned in the annuity went to the surrender charges, and now she has to pay income taxes on that interest!

Here is why a fixed rate annuity is nothing like a savings account.

1. A savings account is FDIC guaranteed, in other words, it has the full faith and credit of the US government behind it. A fixed rate annuity is NOT FDIC guaranteed, it only has the credit of the issuing company behind it. Think AIG! Read the rest of this entry »

ImageA few days ago, my wife came home telling me the story of a sweet old lady she had met at her army clinic.

She is a 75 year old lady from Thailand, married to an American veteran for 40 years. Her husband just passed away a few months ago at the age of 92.

She couldn’t stop telling my wife how much she missed her husband, that he had married her despite the fact that she was a divorced woman with kids and that she could barely speak English. She went on and on about how he had treated her like a queen, buying her all the pretty things women like and so on and so forth.

Now everytime she passes by her husband’s picture, she still cries; and yet the memory of her husband is all she’s got left, now that she has no income and the home she has lived in for 40 years is being foreclosed.

What happened?

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  1. ImageIn the past year, my business has grown by 40.7% as measured by the AUM. This comes from three sources: new clients, existing clients adding assets and client asset growth.

  2. My newsletter “The Investment Scientist” is read by over 4,500 people, representing a growth of 41.5%. This portends well for future growth of the AUM.

  3. I am grateful for the people who support my business, especially Nicole my assistant, Vanessa my editor, John my programer and the Fidelity support team.

  4. I am grateful for this year’s Nobel Economics Prize winners, especially Eugene Fama, upon whose theory I’ve built the investment approach that has served me and my clients so very well.

  5. I have started the process of ghostwriting a book on Physician Wealth Management, as well as redoing my website with a sharpened marketing message around the science of investing.

  6. I have won three storytelling contests in DC and Philly, and have failed to win at least the same number of contests.

  7. I have performed standup comedy to standing ovations as well as stoic reactions in corporate, charity and political events.

  8. I have found a new challenge and passion in improv comedy. I am thankful to my teachers Shawn Westfall and Anna Marie Trester, and my many classmates.

  9. My parents and in-laws stay with my wife and I for extended periods of time, helping us to take care of the kids, allowing me time to indulge in my passions.

  10. My kids are growing up strong, healthy, smart and caring, thanks to their mom who is also my wife. I couldn’t be more proud of them.


What are you thankful for in 2013? Share it with us in the comment section.

images-37Today I sat down with a bunch of professionals for our quarterly wealth management meeting. As the talks turned toward the implementation of the Affordable Care Act, I realized the mal-functioning website is the least of its problems.

In our group there is a professional, Andrea, who specializes in helping small to mid-sized businesses procure group health insurance. Andrea said insurance companies are cancelling old plans and giving their customers “upgraded” plans that cost more and provide less benefits.

This hasn’t just been happening in isolated cases, but is rather wide-spread. Why? For one, the ACA has many mandates, such as covering reproductive health. So if a man’s insurance plan does not cover a pap smear, he just lost his plan! OK, I made this up for comedy, but Andrea did mention a 55 year old woman losing her plan because it did not have maternity benefits.

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ImageAs far as investment philosophy is concerned, I am solidly in the camp of Nobel Prize winner Eugene Fama and Vanguard founder Jack Bogle. They both believe that the market is by and large efficient, and there is no point in picking stocks.

Most of my money is in broad-based passively managed asset class funds, but I do set aside 5% just to have some fun with and right now I only have three stocks in my fun account.

Safeway

I bought SWY last November after going to the Chicago Booth Entrepreneur Advisory Meeting. From the meeting, I learned that big retailers routinely write off their inventory at a huge loss. The reason being that they can not control demands as they have little information about the needs of the individual consumer, though they can usually make a rough guess on aggregate needs.

I noticed my wife had been shopping at Safeway more and more. After a little digging, I found out Safeway had set up a technology system to track each individual’s needs and price sensitivities. Then it can make targeted offers to shoppers like my wife that unfailingly brought her back over and over. I recalled my earlier meeting and realized they would save tons of money just from better inventory management.

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ImageI bet you didn’t know that this week, the third week of October, is … drum roll please … National Estate Planning Awareness Week!

Seriously! Congress established it in 2008 in House Resolution 1499.

I only know this after getting an email from my estate planning attorney friend. I think you should read it as well.

According to the resolution passed by Congress, “Many Americans are unaware that lack of estate planning and financial illiteracy may cause their assets to be disposed of to unintended parties by default through the complex process of probate.” The resolution goes on to state that “careful planning can greatly assist Americans in preserving assets built over a lifetime for the benefit of family, heirs, or charities.”

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ImageTwo days ago I went to listen to a geopolitical lecture given by Professor Mearsheimer of the University of Chicago.

Professor Mearsheimer is a geopolitical realist. He has an intriguing theory about global political order which states that there is a 75% chance that the US and China will come into conflict.

I care about this subject because, being a Chinese American, I know that my life would not be too pleasant should that come to pass.

Professor Mearsheimer’s theory is based on the assumption that the global order is anarchic, by that he means there is no higher authority above states, and that each state will fight for a better position in the order.

The US, now being number 1, is not going to willingly give up the top spot, and China, if given the opportunity, is not going to settle for second best.

Professor Mearsheimer explains how the US became #1 in the first place:

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Image

I jumped out of my chair in delight when I learned that Eugene Fama and Robert Shiller had won this year’s Nobel Prize in Economics. These are two economists that greatly influenced my investment philosophy and their works have been an integral part of how I help my clients build and preserve wealth.

Let me explain their contributions:

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ImageWhen I was in California, I had a very intelligent debate with a doctor. He mentioned that in 2012, the US took in $2.5T in revenue and spent $3.6T in government expenditures.

He accurately pointed out, “If I spent like that, I would be bankrupt in a few years.” He believes so strongly that the US is going the way of national bankruptcy that he has moved substantial amounts of his money overseas and has invested a great deal in gold.

I happen to believe that gold is the most unproductive of assets, since it does not generate dividends or interest and it actually costs money for upkeep in a safe in a Singapore bank.

On top of that, by throwing so much money into gold, one could over prepare for a disaster that is very unlikely to happen and thereby miss out on all the opportunities to grow wealth in this country.

But I still need to explain why the US won’t go bankrupt anytime soon. Here are two explanations:

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ImageMy wife came home very sad today.

A colleague of hers got a call from her son’s teacher. He had come up to her to complain about chest pain when he suddenly collapsed right there in front of her.

My wife’s colleague ran to the emergency room only to find that her son was already pronounced dead. Doctors there couldn’t figure out how this could have happened to a healthy ten year old.

The child’s mother had refused to give up and gave CPR to her lifeless son for an hour until his rib cage nearly cracked.

My wife and her colleague used to swap stories about their respective children regularly and this son was the one she talked about most often. Now he is gone.

I don’t know her, but my heart is overwhelmed by sadness and I am reminded yet again that money and material trappings mean nothing. Life alone is the real treasure.

ImageIf you are successful in your line of work, you are probably overwhelmed by tasks and find yourself wishing there were 25 hours in a day and 8 days in a week.

Well, that wish will not be granted, at least not by me. But there are ways to make those tasks less overwhelming. I call it ‘The Five Ds’: Delete, Do Now, Delay, Divide, Delegate. Let’s go through them one by one.

Delete

Tasks that add no value, just delete them. When I first started out in my career, I used to write a weekly investment column for a local Chinese newspaper. After a whole year of writing, I did not get a single decent client. That task has now been relegated to my delete bin.

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ImageMany middle aged Americans are caught between a rock and a hard place financially. They are the so-called sandwich generation, having to take care of both kids and parents at the same time.

This has recently been a subject of discussion with clients of mine. They are a self made millionaire couple. their parents however, are relatively poor. They have enough to live on by themselves, but if they ever got sick, they would be financially dependent on their children for care.

To that end, my clients have set aside $1m just in case.

I suggested they fork over a few hundred a year to pay for their parents’ gym memberships. If their parents actually use the memberships, my clients may never need to spend the million.

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ImageI visited Dr. Chu who is a family doctor with a solo practice. He told me EHR is killing him.

He is in his 60s, very comfortable with pen and paper, but now Medicare requires him to record all patients’ records electronically, or he will have to pay a stiff penalty.

So now, in addition to seeing patients for eight hours, he has to spend three hours inputting health records.

I sat down with him and we toyed around with a few potential solutions.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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