Friday, July 29, 2016

Investing is a lot like Gambling…

Pathways Advisory Group, Inc.
Dustin J. Smith, CFP®

Entering a casino, most people feel a sense of excitement about what might happen.  It’s an electric feeling.  Whether it’s craps, blackjack, poker or slot machines, everyone has a chance to win big.  Once the winning starts, it seems contagious.  The crowds grow quickly.  On any given day, luck can get the better of the casino.  I imagine they lose big certain days, months, maybe even particular years.  At the end of the day, investing is a lot like gambling, but not in the way you think.

Investment results on a daily, monthly or annual basis are anybody’s guess.  Returns are unpredictable and, at times, fickle.  Markets will test your resolve.  But, like the casino (not like the gambler), the odds play out in your favor over time.  Investors, like the casino, have to accept the risk of short term losses.  Investors, like the casino, accept this risk because of the odds.  Investors, like the casino, have reason to remain calm.  The house, like the patient investor, always wins!

The investor’s odds are driven by capital markets.  Equity markets rise more often than they don’t.  In most years, stocks outperform bonds.  Value stocks typically outperform growth stocks.  Highly profitable companies tend to outperform similar less profitable companies.  And, when small stocks outperform large stocks, it’s not close.  Good small company returns come in bulk.  With a portfolio designed to capitalize on these factors of expected returns, the deck is stacked heavily in the investor’s favor.  Daily, monthly and annual results will be noisy, just like casino profits, but the rewards will come with time.  All it takes is (lots of) patience!

Speculation (trying to predict the market and capitalize on that prediction) is a lot like gambling.  You may win big on occasion, but it’s only a matter of time until the odds catch up with you.  Investing, with the kind of discipline and factor-based diversification described above, is a lot more like running a casino.  For both the casino operator and the long-term investor, it’s only a matter of time until the profits pile up!    

Find Dustin on

Friday, July 15, 2016

The Dow just ain’t what it used to be…

Pathways Advisory Group, Inc.
Dustin J. Smith, CFP®

There has been lots of talk lately about the June 23rd “Brexit” vote (the UK’s decision to leave the European Union) and the possible repercussions.  Michelle touched on it with a blog post and this month’s newsletter article.  It’s a major geopolitical event that will take a while to play out.  What caught my eye, after the dust settled from that day, was something a bit more subtle.  Let me explain.

On October 6th 1987, the Dow dropped 92 points from 2,640 to 2,548.

On August 4th 1998, the Dow lost 300 points from 8,787 to 8,487.

On September 22nd 2011, the Dow declined 391 points from 11,125 to 10,734.

And finally, on June 24th 2016, on news of the historic “Brexit” vote, the Dow dropped 610 points from 18,011 to 17,401.

What do these four dates have in common?  They look different but represent very similar 3.4% to 3.5% single day declines.  A 3.4% or greater decline isn’t as newsworthy as you might think.  It’s happened fifty-nine times with the Dow since October of 1987.  What’s more newsworthy, to the long-term investor, is that a Dow of 17,401 (a Dow of 18,506 as of the date of this post) was a Dow of 2,548 just 29 years ago (and that doesn’t include dividends). Not a bad return for all of your troubles!

The Dow just ain’t what it used to be… it’s actually quite a bit more valuable now.  Wonder what it’s going to be like to stomach a 3.4% decline of 1,200 points with a Dow of 35,000?!

Despite all the breathless headlines…

Disciplined investors are rewarded….

Find Dustin on


Data exported from historical DJIA prices. All references to the “Dow” above are to the Dow Jones Industrial Average (DJIA).  Past performance is no guarantee of future results.

Friday, June 24, 2016

Brexit and a Steady Course

Pathways Advisory Group. Inc.
Michelle Carter, CFP®
Last night, in a historic move, Britain voted to exit the European Union. This decision was followed by a tumultuous day in the markets.

As the United Kingdom sets sail into unchartered political waters, we take comfort that our course is steady and certain. With all of the unknowns swirling around, we rely on the same truths we always do...

- The market doesn't like change. It doesn't like surprises. Many thought this vote would turn out differently, thus the unexpected news moved the market, as it often does.

- This is not the first time upheaval in one area of the world caused market movement worldwide, and it won't be the last. You don't have to remember too far in the past to find an example of this. Think China (January 2016) or Greece (Summer 2015).

- This is not the time to make a move in allocation, and we are fortunate we don't have to. Instead, we take comfort in everything we've done to prepare ourselves. All those market discussions during meetings, looking at historical rates of return, demonstrations of various Portfolio allocations during down markets, adjusting when life changes necessitate it, diversification, working to find that sweet spot that allows you long-term growth with as much peace of mind as possible... all that hard work has been done (and is ongoing). We don't have to react to what happened last night. We are prepared.

Withdrawing from the European Union will be a long process for the UK. It will be interesting to see what happens from here. How long the ramifications of this will be felt in the market is uncertain. What is certain are the rewards given to patient investors, the ones whose course is steady even in rough waters, and whose eye stays firmly on the horizon.

Find Michelle on

10 Reasons to Be Cheerful

Jim Parker
Outside the Flags
Vice President

Do you ever listen to the news and find yourself thinking that the world has gone to the dogs? The roll call of depressing headlines seems endless. But look beyond what the media calls news, and there also are a lot of things going right.

It’s true the world faces challenges in maintaining stable and well-functioning social, environmental, and economic systems. The legacy of the financial crisis is still with us, and concerns about climate change and sustainability are widespread.

Europe is grappling with a refugee crisis; China faces a difficult transition from an export and industrial-led economy to one driven by domestic demand; and the US is preoccupied with a sometimes rancorous election campaign.

But it’s also easy to overlook significant advances in raising the living standards of millions, increasing global cooperation on sustainability, and efforts to build greater transparency and trust in financial institutions.

Many of the 10 developments cited below don’t tend to make the front pages of daily newspapers or the lead items in the TV news, but they’re worth keeping in mind on those occasions when you feel overwhelmed by all the grim headlines.

So here’s an alternative news bulletin:

  1. Over the last 25 years, 2 billion people globally have moved out of extreme poverty, according to the latest United Nations Human Development Report.1
  2. Over the same period, mortality rates among children under the age of 5 have fallen by 53%, from 91 deaths per 1000 to 43 deaths per 1000.
  3. In September 2015, all members of the UN set 17 sustainable development goals for 2030, including targets for eliminating poverty and hunger and lifting standards in health, education, water, energy and infrastructure.
  4. Global trade has expanded as a proportion of GDP from 20% in 1995 to 30% by 2014, signaling greater global integration.2
  5. Global bank regulators recently announced that since the financial crisis they have implemented reforms to reduce leverage, address systemic risk and build capital buffers into the banking system.3
  6. The world’s biggest economy, the US, has been recovering. Unemployment has halved in six years from 10% to 5%.4
  7. Global oil prices, while about 80% up from January’s 13-year lows, are still 50% below where they were two years ago. While bad news for the oil sector, lower prices also raise real incomes for consumers, increase profits outside energy and decrease costs of production.
  8. While fossil fuels still play a major role in the economy, renewable energy sources—such as solar and wind—accounted for nearly 22% of global electricity generation in 2013 and are seen rising to at least 26% by 2020.5
  9. We live in an era of rapid innovation. One report estimates the digital economy now accounts for 22.5% of global economic output, and projects digital technologies could generate $2 trillion of additional output by 2020.6
  10. The growing speed and scale of data are increasing global connectedness and transforming industries as new discoveries are made in such areas as engineering, medicine, food, energy, and sustainability.

No doubt many of these advances will lead to new business and investment opportunities. Of course, not all will succeed. But the important point is that science and innovation are evolving in ways that can help mankind.

The world is far from perfect. The human race faces major challenges. But just as it is important to be realistic and aware of the downside of our condition, we must also recognize the major advances that we are making.

Just as there is reason for caution, there is always room for hope. And keeping those good things in mind can help when you feel overwhelmed by all the bad news.

1.”Human Development Report 2015: Work for Human Development,” United Nations.
2.”International Trade Statistics 2015,” World Trade Organization.
3.”Finalising Post-Crisis Reforms: An Update,” Bank for International Settlements, November 2015.
4. Bureau of Labor Statistics, May 26, 2016.
5. “Renewable Energy Statistics,” International Energy Agency, March 2016.
6. “Digital Disruption: The Growth Multiplier,” Accenture and Oxford Economics, February 2016.


Dimensional Fund Advisors LP ("Dimensional") is an investment advisor registered with the Securities and Exchange Commission.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. This content is provided for informational purposes, and it is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services.

Friday, May 13, 2016

Credit Protection

Pathways Advisory Group, Inc.
Jeff Karst, CFP®

In case you missed it from the June 2015 Newsletter...

It seems that every other week there is a story about data breach at a major company.  Perhaps you’ve already been affected by it.  With so much of our lives online, it’s easier than ever for hackers to steal our information.  How do you protect yourself?  There are credit monitoring services such as LifeLock (which I’m sure you’ve heard of).  You can place a Fraud Alert on your credit report to have them contact you if anyone (including you) attempts to open credit in your name.  However, those alerts only last 90 days.

There is an alternative to these methods and that is a credit freeze.  A credit freeze puts your credit on “lockdown” and the credit agency will not release your information to anyone.  Without a credit report, thieves cannot open credit in your name even if they have your Social Security number.  The freeze does not impact your ability to access the credit you already have open (credit cards, line-of-credit, etc.) – it prevents new credit.

How do you do it?  You must contact each agency to place a freeze on your credit.  When you place a freeze on your account they will provide you with a Personal Identification Number (PIN).  You will need to write this number down and keep in a safe place.  It will be required if you need to temporarily or permanently lift the freeze.  The freeze can be temporarily lifted for specific dates or specific parties when you need to obtain new credit.

A credit freeze is not for everyone.  There are fees to put the freeze on and fees to lift the freeze.  If you access credit frequently those fees can add up.  Also, you will need to plan ahead.  In some cases it takes 3-5 business days for a temporary lift to be established.  While the fees vary by State, the following is a list of fees for California residents:

All of these services are free if you’ve been the victim of identity theft.  You must provide the credit agency with a copy of the Law Enforcement Identity Theft Report.

If you don’t access new credit very often, a freeze may be the simplest and least costly method to protect yourself.

Find Jeff on

Friday, May 6, 2016

Tax Form 5498

Have you received a tax form in the mail recently? If not, then disregard this post. If, however, you did receive a 2015 IRS Tax Form 5498 recently, do not panic. Form 5498 is generated by investment custodians every May for Traditional IRAs, Roth IRAs or Educational Savings Accounts with activity during the previous tax year and usually does not lead to an amended tax filing.

Tax Form 5498 is informational. The IRS reconciles this activity with your Tax Return. If you received this form, ask yourself: Did I contribute to a Roth or Traditional IRA last year? Did I roll money into an IRA last year? Did I contribute or initiate activity out of an Educational Savings Account last year? Did I convert IRA money to a Roth IRA last year? If any of this activity applies to you, you received Form 5498.

Contribution information is typically requested on an accountant's questionnaire. IRA rollovers and conversions generate a 1099-R. Either way, your accountant should already be aware of the activity. Then what should I do with my copy? In most cases, simply add it to your freshly started tax folder for 2016. As your accountant reviews next year's tax file, he or she can confirm that the activity was addressed.

The above explanation is summarized and generic. Please consult your tax professional with any specific questions.

Find Pathways on

Friday, April 22, 2016


Pathways Advisory Group, Inc.
Dustin J. Smith, CFP®

What role does money play in your life?  Is money a source of stress in your household?  Are you living paycheck to paycheck?  And my favorite, if your money could talk, what would it say to you?  Money plays an important role in our lives but it’s not always a clear one.

Our financial beliefs and habits develop in early childhood and evolve with life experiences.  Some of us end up living paycheck to paycheck wondering where it all goes.  Others save habitually and monitor faithfully.  Regardless, understanding your beliefs, habits and hang-ups certainly helps clarify financial goals and what it will take to achieve them. 

If you would you like to learn more about the role of money in your life, I just finished a book by Denise Hughes (Earn, Save, Spend, Give) that might be helpful.  It’s a quick read with lots of credibility (she is a financial counselor who became one through her own struggles with money).  Denise, who spoke at a conference I attended in 2015, walks you through an exploration of money and her approach to better financial health.  It certainly gets you thinking.

Let Katie know at if you are interested in a copy.   

Find Dustin on