Fall 2011

"Willful Waste Makes Woeful Want?"

As many of you know, clients are generally asked to provide an estimate of their spending (otherwise known as a Cash Flow Statement, a Spending Plan, or Budget) in order for us to help with their overall financial planning. And when it comes to the “groceries” category, many will often note that this expense is high in part because they buy more food than they eat; that their refrigerator is crammed so they can’t see what is in there; and that there is plenty of waste. One of the dreaded Saturday morning tasks I would wake up to as a child – the note on the counter with the list of chores for my 4 siblings and me – was not “dust and vacuum” or “mow the lawn,” but “clean out the refrigerator”. This job didn’t appear on the list all that often, and for whatever reason my homemaker mother did not use leftovers, so just imagine what lingered behind the milk jug and mayonnaise jar. Back in those days before zip lock bags and Rubbermaid we used glass containers for food storage, so I had to wear a clothespin while scraping the moldy contents into the garbage! I am sure to this day the experience informed my own behaviors as an adult. I won’t leave things to rot; we strive to eat everything we buy and cook. Our daughter Liz, while visiting and hungry for a snack, lingers before the open refrigerator door (also a pet peeve of mine) and eventually declares: “there is nothing in here to eat”! Yes; our refrigerator is small and appears to be nearly empty, but with a little creativity, we can always come up with a meal. And that way we are sure to consume everything we spend our hard-earned dollars on. It has become a fun challenge for Vinnie and me to make meals long after we believed “there is nothing left to eat!” ~Susan

According to the EPA, the US generates more than 34 million tons of food waste each year and represents 14% of the municipal solid waste stream. (We generate more paper waste than other materials but also do a better job recycling in this category.) Food waste not only hits your purse, but also has significant environmental consequences. When food is disposed in a landfill it quickly rots and becomes a significant source of methane – a potent greenhouse gas with 21 times the global warming potential of carbon dioxide. For tips on ways to reduce and recycle food waste visit: http://www.epa.gov/osw/conserve/materials/organics/food/fd-house.htm

Debt is "Cool"

A recent study by Ohio State University found that many young adults think debt is a good thing. Surprisingly, they feel a boost to their self-esteem from carrying credit card and education debt. I found this to be quite alarming. Not all debt is bad, and there certainly is some benefit to carrying debt and managing it well – you can boost your credit score which results in lower interest rates on future loans, and debt is a way to leverage your money. But there are also dangers to carrying debt. Sound financial management entails managing your debt wisely. It seems that some young people may be enamored of their ability to acquire debt, as it makes them seem more adult. The study shows that these young adults feel more in control of their lives and better able to achieve their goals. What really struck me was that those in the bottom 25 percent in total family income got the biggest boost from holding debt. Yet they are likely to be the group that has the hardest time paying it off. I am concerned as a financial planner because such a misconception may lead these young people to acquire debt that could become burdensome in the future and impede them from reaching their financial goals. Learning to manage debt is similar to learning how to drive a car – you should start out slowly and carefully and learn to take control of the vehicle without it taking control of you. ~Jill

This Time is Different?

A study from The Mutual Fund Research Center indicates that on average from 1970 through 2009, the stock market was down 47% of all trading days (120 day a year), and on the other 133 days (53% of the time) the market closed higher. So in an average year the market has fewer down days than up days. Although recent experience might suggest otherwise, the last decade was not any different from the entire 40-year period quoted above: from 2000 through 2009, the market closed down 120 days on average. In terms of the depth of volatility it is true that the number of single-day gains and declines in excess of 2% over the last 20 years has indeed become more common. What is happening is that the markets are adjusting more quickly than they have in the past. This is explained by the fact that news comes to us more rapidly these days and market participants can trade with equal rapidity, all of which makes for a choppier ride.
Despite the frequency of down days the stock market has generated positive annual returns 75% of the time since 1970. In 3 out of 4 years the market ends positively. The perception that this time is different is not true; the market is not more volatile now than it has been over the last 40 years. Investing does require patience; please do not let the ups and downs derail your long term plan.

Words of Wisdom

...from Claude N. Rosenberg’s Stock Market Primer

• Do not make hasty, emotional decisions about buying and selling stocks
• Remember that stocks always look worst at the bottom of a bear market (when an air of gloom prevails) and always look best at the tip of a bull market (when everybody is optimistic).
• Remember the public is generally wrong. They are moved mainly by their emotions and history has proved them to be wrong consistently. Hint: buy what people are selling and sell what people are buying.

And finally, we know that our clients understand the philosophy of creating diversified portfolios and holding on to them through the good times and the bad, but it is still not unusual for one to wonder if selling and sitting on the sidelines for a while might be a good idea. The problem with this is figuring out when it is best to get back into the market. This might involve waiting until stocks have risen substantially so you can be “sure” it is okay to go back in; but by this time you have missed out on some positive returns. Vanguard founder John Bogle did a study in 2005 of the 200 mutual funds with the largest money flows (shareholders buying and selling) and found that while the 10-year average annual return of these funds was 8.85%, the average investor in these funds earned only 2.4%!

Cornerstone's Summer Happenings!

... Jill attended the annual conference of the Association of Divorce Financial Planners. Topics ranged from tax issues to retirement plans and other challenging issues in divorce financial planning. She also visited friends and family in Connecticut, rode her bike for the first time in years (!), ate lots of delicious local corn and watched the Thunderbirds fly over the back 40.
... Susan appeared in television interviews on 3 different occasions. She helped Vinnie build a deck at their place in Gray and had great fun measuring, calculating and cutting. They expect their first grandchild around Thanksgiving Day.
... Raylene enjoyed some time “up ta”camp in Sangerville. She and husband John are making ready to sell their house in Gorham. Son Reeve has begun the college hunt and loves UVM so far.
... We all enjoyed a company outing that included shopping at Leroux Kitchen, lunch at Dry Dock Restaurant and a trip to the Ogunquit Playhouse to see The Music Man.

To see the Summer Sky
Is Poetry, though never in a book it lie
True Poems flee. ~ E. Dickinson