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Tim and Carolyn's Mash-Up

November 2011

In This Letter:

What's Happening at LPP


Planning with the End in Mind


Why Passive Investing Rocks


Quick Links

Life Planning Partners, Inc.


Carolyn's Blog:

"The Quest for Simplicity" 



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Another year is almost in the history books, and my what a year it has been.  Our goal is to help people live in a place of financial peace so they can do other great things in the world.  With the craziness of the year, we are grateful that all of you seem to be on the path you have chosen and appreciate you letting us help you along the way.

We know planning is important to all of you, and investing is important to most of you, so our goal with each newsletter is a little of both, hence, the "mash-up" of seemingly disconnected topics.  Please share your thoughts with us and let us know what topics you would like to see discussed.

What's Happening at LPP


Carolyn has been invited by Forbes to be a regular contributor to their web site.  The title of her blog is "The Quest for Simplicity" and will discuss all things regarding money and medicine.  She is grateful to Forbes for allowing to share her experiences and insights on the crossroads of her two professions.  Please share your thoughts, comments and unbridled feedback with Carolyn. To visit her blog "Click here"


In case you didn't catch it in the news, Carolyn was lucky enough to share some time with the Presidential candidate, Mitt Romney.  See her experience recounted with Chris Matthews on Hardball: "Click here"


Carolyn and Tim will be attending the NAPFA Connections conference in Dallas this week.  Staying up with the latest and greatest is very important, and NAPFA conferences are a wonderful educational resource for fee only financial planners.



Planning with the End in Mind 


Some years are better than others. This year for me brought the sadness of loss from the death of a few wonderful people. I was honored and humbled as these friends and their families reached out to me for help with many of their end of life issues, including medical, financial, and emotional topics.

Being a planner in all aspects, I realized that although we may think we plan everything as close to perfectly as possible, some things can still fall through the cracks. Most of our clients have done a great job completing their wills, living wills, and designating health care surrogates. What I find though is that we forget to document the little things.

Items often not discussed, or discussed but not documented, include end of life care, life celebration wishes, and what to do with personal belongings or mementos. These little things all matter, and my observation is the family is much more at peace when these issues are clearly spelled out.

Although many of us don't really like talking about illness or death, we should all take a short time to talk about and document the little things. Consider making an "ethical will" in addition to your legal will. Write out your hopes and dreams for your family, what is important to you, how you want to be remembered, and anything else that comes to mind. A video would be great too. Tell everyone how much you love them, share family stories, and even talk about the family things no one talks about. After all, no one has to see the video until you are gone.

Consider writing out how you want your life celebrated - also known as your funeral. Too many ceremonies are a standardized "this is what we are supposed to do" affair. The heart of the person who left us is nowhere to be felt. I've seen beautiful, well thought out affairs where it feels like the person is talking to me from the great beyond one last time, and providing me with peace. Other times I came away empty and aching for one more experience with the soul that will be gone forever. Make it a time that fills the souls you are leaving behind.

In the next year, I would like to help you all document the little things. We can store it all in your client vault, and start creating memories for your family that will direct them, comfort them in a time of need, and leave a legacy that honors your time on earth. I understand that not everyone is up for this type of planning, and please let me know if this is something that will interest you.

Warm regards,



Why Passive Investing Rocks

by Tim Utecht, CFA

People familiar with our investment approach know that after determining the appropriate allocation, we implement our client's investment strategy with "passive" investments. It's good to review what that means and why we take that path.

Passive investing is designed to replicate a market (or market segment) rather than beat it. In essence, this involves owning most or all of the target market, which makes it a broadly diversified, low cost and tax-efficient approach.  

On the other hand, active investing is the attempt to do better than the market by picking "winners," selecting stocks or bonds (or paying a manager to do so) that will perform best in the future. Most people find this quite appealing - who doesn't want to win?

The first problem with the active approach is arithmetic. As a group, the active approach can't win. The basic arithmetic behind this truth was demonstrated two decades ago by Nobel prize-winning economist William Sharpe. Since the market is made up of all participants (active and passive) and the costs of active management are much higher, active returns as a whole must be lower after expenses. It's that simple. In the words of Sharpe, "Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement."

We know that some active managers do win, however. They are the minority, but why not try to find them?

Finding past winners is easy. Finding future winners can be like finding a needle in a haystack. Plenty of research has shown that historical returns don't offer much guidance. Good performance might be evidence of manager ability, or it might simply be a bad manager that got lucky. A 2009 academic study analyzing mutual funds over more than two decades found no more than 3% of the funds showed some evidence of skill. Many other studies have come to a similar conclusion: many top performing funds seem to get there by pure chance.

And finally, even if we should happen upon a good fund, the rewards for doing so are underwhelming. A 2006 Kiplinger's magazine article touted a list of "25 Best Mutual Funds" - handpicked funds expected to be market-beaters. Of 16 U.S. stock funds on that list, only seven finished in the top half of their category over the five-years ending October 2011 (i.e. worse than a coin flip). One out of four was in the bottom 5% of its category! The average winner beat a simple market index by 0.58% annually, while the losers trailed by an average of nearly 5% per year. The best fund beat the index by 1.76% per year, while the worst fund trailed by 12.7% per year. A strikeout was much more painful than a homerun.

The spoils of the uncommon victory for active management just don't come close to matching the high cost of defeat. Passive investing is a much more consistent way to capture investment returns and put the odds in your favor. Our goal is for our clients to reach their goals, and as "exciting" as it may sound, passive investing is one of the best ways to get there.


As always, thank you for allowing us to have wonderful jobs and letting us help you find financial peace so you can make a great life.


Carolyn, Tim & Krissy
Life Planning Partners