A Walk on the Bright Side

Pathways Advisory Group, Inc.
Dustin Smith, CFP®














Once there was a father of twins: Owen the optimist and Paul the pessimist. The father decided to conduct a Christmas experiment. He loaded Paul’s room with every imaginable toy and game. Owens’s room was piled high with horse manure.

That night the father passed by the pessimist's room and found him sitting amid his new gifts crying bitterly.

"Why are you crying?" the father asked.

"Because my friends will be jealous, I'll have to read all these instructions before I can do anything, I'll constantly need batteries, and my toys will eventually break." answered the pessimist twin.

Passing the optimist twin's room, the father found him dancing for joy in the pile of manure. "What are you so happy about?" he asked.

Owen replied, "There's got to be a pony in here somewhere!"

Which twin do you relate to? Hopefully - neither. Paul will enjoy his toys; Owen won’t find a pony. There is real damage from the past two years: smaller nest-eggs, job losses, a ridiculous national debt, moral hazard, fear and anxiety, inevitable over-regulation, and the Steelers Superbowl victory. However, there are silver linings. Two years ago, would you have used responsible and lending in the same sentence?

We have worked on a number of refinance decisions this past year. My first encounter with the phenomenon of “responsible lending” occurred in June. Months of discussion with the current lender and still no refinance approval. We were frustrated. The client had good credit. They had enough equity. What is the holdup? Could it be they are just being thorough? Since this encounter, similar stories have continued. It was not an anomaly. Irresponsible lending was a primary catalyst for the severity of this recession. There are signs of change for the good.

Just this week, a refinance discussion revealed another change. Each potential lender is requiring an appraisal through an independent third party appraiser. Why? To improve the odds of a successful loan and to limit the risk of a reckless broker. What a concept! Gone are the days of - ask for a value and you shall receive. Can it be frustrating? Yes. 9 times out of 10 an independent appraisal, in today’s market, will come in lower than you think. More conservative lending, however, is a step in the right direction. Two years ago irresponsible appraisers could not resist conflicts of interest. This ignited the fire of irresponsible lending and fueled the real estate bubble.

Is the consumer just as guilty? Yes. Will there be over-regulation? Yes. We will get plenty wrong. However, some change will be for the better. FDIC insurance, investment margin requirements, the SEC and mortgage call protection all came from the lessons of the Great Depression. Comparing this event to the Great Depression is an insult to those who lived through it. This recession, however, may be just the reminder we needed.

Timing the Market

Pathways Advisory Group, Inc.
Dustin Smith, CFP®














The past 24 months have been challenging. Investors who fled to safety missed out on significant gains. Investors who stuck to an asset allocation endured mounting losses and sleepless nights. It has not been easy - for anyone. Many investors are searching for a better way.

A typical conversation goes something like this:

Investor: Looking back on the past two years, what would you do differently?

Advisor: That’s easy - I would have cashed out in 2007 and bought Gold. I would have returned to equities in March and margined the account.

Investor: Does that mean you will suggest an exit strategy next time?

Advisor: Unfortunately, it doesn’t work that way. Market timing is like Monopoly - the traps are different every time you play. Landing on Park Place may be safe this time but next time it will cost you. Monopoly, however, isn’t real.

For me, the search for a better way stumbles on the same two issues each time. First, markets are unpredictable. Second, missing out on returns can ruin a financial plan.

1. Predictability: Every day we hear predictions from the experts. Some get it right. More get it wrong. Economist Paul Samuelson said it best: “The stock market has forecast nine of the last five recessions.” One piece of evidence published each year is the Standard and Poor’s Indices Verses Active Funds (SPIVA) report. The 2008 year-end report shows 72% underperformance of the S&P 500 Index by actively managed Large Cap funds and 85% underperformance of the S&P Small Cap Index by actively managed small cap funds for the five-year period ending in 2008 (www.spiva.standardandpoors.com). This is typical - the majority of “experts” do get it wrong. The past 11 months have also been particularly humbling. The S&P 500 is up more than 50% since March 9, 2009. The Vanguard REIT Index is up more than 80% during the same time period. Who predicted that? I did not. The experts did not.
2. Missing out on returns: Jumping in and out of the market can be very costly. The following simulation from our Investment Philosophy Statement (available under the investment philosophy section of our web page: www.pathwaysadvisorygroup.com) offers an extreme example of the risk of these timing decisions - market gains are concentrated in sharp upward bursts.

One dollar invested January 1, 1926 in the Standard & Poor’s 500 would have grown to $2,047 by December 31, 2008. This represents an average return of 9.6%. If you had simply not been invested the best month out of each calendar year, your one dollar investment in 1926 would have grown only to $2.46 over the following 83 years. That’s an average of less than 1.25% return. The results are even more dramatic with small company stocks. Investing a dollar in the small company index The Center for Research and Security Prices (CRSP 9-10 Index) in 1926 would have grown to $8,690 by the end of December 2008 - an average of 11.83%. If you had simply not been invested the best month out of each calendar year, your one dollar investment in 1926 would not have even grown over the 83 years. Your dollar would have reduced to just 10 cents.

This is an extreme example to make a point. Nobody could time it exactly wrong - although some people feel that unlucky. The point, however, is the majority of the returns the last 83 years came in less than 10% of the days invested. Returns come in sharp upward bursts - missing out can jeopardize a financial plan. It’s not just missing returns; it’s missing out on the future compounding of those returns. Thus, the penalty is hugely magnified.

Many are searching for a better way; I just don’t see one. Nick Murray, veteran advisor and columnist, said it best:

Churchill famously said that democracy is the worst form of government ever formulated by man, except for all the others. Buy-and-hold is, in exactly the same sense, the worst equity investment strategy ever devised by man. Except for all the others.

How to Make Your Head Spin

Pathways Advisory Group, Inc.

David L. Williamson, CFP®

Want to make your head spin like poor Linda Blair in the movie The Exorcist? Easy, simply watch the cable financial news stations for an hour or so. The latest hot, breaking news comes fast and furious. The Dow shot up. Gold just fell. Unemployment jumps. Oil slips. Now for the analyses. Here’s Fred’s reaction. Shirley’s opinion. By all means, let Charlie weigh in. Quick – before the next news bulletin. And, just for fun, let’s have them all talk at once, shouting, screaming, butting in ad nauseam…

But wait, there must be a way to profit from all of this. “Here’s Jane with today’s stock tips. Jane, based on the last 17 minutes of news, and your vast knowledge of the universe, what sectors do you like? Any stocks looking good?”

And Jane, speaking with quiet confidence, eyes peering into the future, and a slightly furrowed brow, proceeds to enlighten us that because of A and B and a little bit of C, we obviously should grab Greezle and drop Dreezle.

Boy, they sure can sound confident can’t they?? We lunge for the phone to call our broker. But then, of course, Charlie weighs in once again (he’s a big guy), and bursts our bubble. Ernie shouts “Because of D, E, F, and Z, Jane should be hung in effigy.” Politeness somehow eludes them.

But what sells? What keeps us glued to our seats? It’s a noisy boxing match, folks. Punch. Jab. Counterpunch. Duck. Circle each other. Notice they always have a referee. Throw in some rumor, some humor, some darts, some charts. And don’t forget the percentages. We love those percentages…

What does it all boil down to? Prediction. If we can gather enough facts and views, numbers and news, we can foretell the future. Nirvana. Problem solved.

But not so fast. It’s all just noise. Daily market moves – noise. Hunches, guesses – noise. News, numbers, opinions, furrowed brows – noise. Over time, markets digest it all, far better than you or I, or any expert. Markets deliver reasonable return over time. Always have, always will.

Will Rogers said this about predictions. “It’s dangerous to make predictions, especially about the future.”

Sorry, Charlie. It’s time for you to weigh out. Let’s see what’s on HGTV.

Pathways Holiday Hours

The Pathways Advisory Group, Inc. office will be closed for the following holidays:

Thursday, November 26, 2009
Friday, November 27, 2009

Thursday, December 24, 2009
Friday, December 25, 2009

Friday, January 1, 2010

Monday, January 18, 2010

Monday, February 15, 2010

Friday, April 2, 2010

Monday, May 31, 2010

Monday, July 5, 2010

In case of emergency, please contact Schwab directly at 1 (800) 515-2157. Happy Holidays!

Buy Gold?

These days we are bombarded with TV and radio ads urging us to buy gold. Why don’t we own gold in the portfolio? This is a common question during a recession, as gold is a store of value that gains popularity during times of fear and crisis. Since gold is volatile, speculative and offers little expected return – we feel it does not belong in your portfolio.

Portfolio design considers three primary measurements: return, volatility and correlation. The initial step is to diversify away the un-rewarded risk of individual stock, bond or REIT (Real Estate Investment Trust) selection. We do this by owning thousands of Stocks, Bonds and REITs through mutual funds. The next step is analyzing the return, volatility, and correlation of prospective asset classes. The primary asset classes in your portfolio (Stocks, Bonds and REITs) are justifiable ingredients. They offer expected return. They produce something to validate the expected return. The expected return is proportional to the risk and they offer correlation benefits (they do not move in tandem - when one is down, the other may go up).

Gold, however, does not meet these criteria. Gold does not produce anything. It has not delivered real returns (to the extent gold is a hedge against inflation, returns should keep pace - however it hasn’t really proven reliable as an inflation hedge). More importantly, gold prices are volatile and unpredictable. Gold carries volatility similar to stocks, without the payoff. Gold prices peeked in 1980 at $612 per ounce. For 26 years (until the end of 2006) Gold prices were well below the 1980 peak – that is a twenty-six year period with zero (or negative) return. Although it can offer negative correlation benefits, especially during times of crisis (a crisis hedge), the volatility is not rewarded with consistent return.
Buying gold is a speculative move. You buy hoping your “timing” is right. Now and then you “strike it rich” when the timing is perfect. Over the long haul, however, gold’s investment return has been dismal – not bright.

It's Picture Day!

Remember “Picture Day” back in school? Did you love it? Did you dread it? Well, one day we held “Picture Day” at work. Lucky you – the results will soon appear on our website. Here’s a preview…One of our more serious moments. Ain’t we cute??

Homeowners Insurance: Is your replacement cost still accurate?

In 2006, real estate prices were sky-rocketing, existing homes were selling quickly and new homes were popping up everywhere – at a rapid pace. Homebuilders attempted to keep up with skyrocketing demand. Model Home communities needed lotteries. Contractors, sub-contractors and manufacturers of building materials were trying to keep up. Home prices went up. Construction costs went up (although not as much). It was a booming industry and homeowner’s insurance policies were designed to keep up.

Imbedded in a homeowner’s insurance policy is replacement cost coverage. This covers the cost to re-construct your home in the event of a catastrophe (the amount is different than the market price of a home). Replacement costs in a 2006 policy were based on construction costs at the time and the primary concern (of homeowners) was insufficient coverage. Features alleviating these concerns included an annual increase in the replacement cost and in some cases, coverage up to 125% of replacement cost (in case the estimate turns out to be low). These were reasonable assumptions in 2006, but times have changed. Now, we have a new concern – excess coverage.

You know the story…

Fast forward to 2009. Home prices in our area have dropped 40% or more. New home construction is almost non-existent. Work for contractors and subcontractors is limited. There is less demand and less work for these industries. Would it cost less today to re-construct your home in the event of a catastrophe? You bet. How much less? It depends.

It’s always a good idea to review your policies. If you think this particular example may apply to you, take a look at your features and contact your agent. A good agent will run a replacement cost projection at your request. A comparison of those results against your current coverage level may reveal excess coverage. It may represent a modest reduction in premium, but every little bit helps.

If you run into difficulties pursuing this issue, please let us know.

First-time Home Buyer Tax Credit

Amid all the debate about the stimulus packages and the mounting federal deficit, we may be able to find a few good opportunities. Although the job market is saturated and zero down home loans are a thing of the past, homes are remarkably affordable. The recent waive of college graduates (apartment dwellers for the past five years) may be able to find a great deal on a new or existing home and the First Time Homebuyer Tax Credit of $8,000 can help pay for it.

Although an $8,000 credit is not a reason to buy a home, it could be a reason to accelerate your search if you are in the market. A deeper look at the tax credit reveals a surprisingly diverse group of people with an opportunity - those who have been in between homes long enough may qualify.

Here are the rules:
1) The deadline is December 1st 2009. The credit can be used to purchase a new or an existing home – but must be your principal residence.
2) There is an Adjusted Gross Income (AGI) phase-out for eligibility. Single taxpayers who exceed $95,000 AGI and Married filing Joint taxpayers who exceed $170,000 do not qualify.
3) The $8,000 tax credit is claimed on your 2009 tax return. It can, however, be claimed on your 2008 tax return to accelerate the benefit or to ensure AGI qualification.
4) It’s refundable. If your total tax for the year is zero, you will receive the $8,000 by check.
5) And the most surprising rule – they define a first time homebuyer as someone who has not owned a principal residence for the past three years.

As with any tax credit, we try to keep an eye out for opportunities that apply to specific clients. However, we would be happy to discuss it if you think this may apply to you (or, more likely, your children or grandchildren). As taxpayers, we all pay for programs like these, so why not take advantage. We know we would feel much better knowing that our tax dollars helped some of you.

Please check with your accountant for all specifics.

A Fascinating Profession

Pathways Advisory Group, Inc.
Dustin Smith, CFP®














I had a vision of Financial Planning when my career began seven years ago. Some aspects have gone as expected - some have not. When I began my CERTIFIED FINANCIAL PLANNER™ exam preparation in 2003, I knew that it would be quite an undertaking. I knew that less than 50% of the people in the exam room would pass. The process taught me a lot about myself and financial planning.

What I underestimated, however, is how much I would continue to learn from you.

Consider the following meetings:

On Monday, I met with a couple in the twilight of their lives. They’ve been married for 50 years. They are financially secure. We talked about their three adult children and 8 grandchildren. They have created a wonderful family that continues to grow and prosper. They are very proud. We talked about the world we live in today. We talked about the Great Depression. I love our meetings – I appreciate their perspective. They are wonderful and interesting people.

On Tuesday, I met with a couple in their 40s with three kids. We attempted to find some balance between retirement savings, college savings, insurance premiums and living month-to-month to support a family. Daycare, homework, soccer practice, music lessons – oh and we are supposed to meet with Dustin tomorrow. It is quite a balancing act. We can’t do it all and they have definitely taught me that. It’s a challenging time of prioritizing and patience. I enjoy helping them navigate these times. I am confident it will pay off – perhaps because of Monday’s meeting.

On Wednesday, I met with one of our youngest clients, the daughter of long-time clients. She is 21-years-old, very poised and bright, entering her final year of college. We covered many topics – careers, our tax system, the troubles in our economy. We discussed bull markets and bear markets. It was a great meeting. I was reminded of my journey since college. I look forward to helping her navigate the future – I will certainly draw on my experience from Monday and Tuesday.

I’ve learned to look at the world through the eyes of many people: young and not so young; married and single; widowed and divorced; big families; little families; employees and employers; farmers and firefighters; doctors and teachers; administrators and police officers; workaholics, spendaholics; saveaholics; travelers and campers; gardeners; artists; fisherman; golfers; sailors; cruisers; conservatives and liberals; Democrats and Republicans. What an education. What a profession. It is a blessing to know you all – thank you for allowing me the opportunity to be involved in your lives. You have certainly had an impact on mine.

Beach Balls

Pathways Advisory Group, Inc.

David L. Williamson, CFP®

Hey, it’s summer! Let’s go to the beach. Look at that beautiful ocean, blue skies, and sea gulls. I’ve got a couple of beach balls. The water’s warm. Let’s wade out and have fun.

Some of you know where I’m going with this. It’s my lame metaphor for the stock market. I trot this one out in client meetings now and then. I know I’ve mentioned it to a few clients more than once, but you are too polite to remind me.

So if you’ve heard it before – sorry.

Well, we each have a big, bright, multi-colored beach ball. If I gently push my ball just one inch below the surface and then release, what happens? It pops up nicely to the surface. If you push yours as far down as you can, using all your muscle, then release, what happens? It flies up and jumps out of the water.

This is what often happens to the stock market. Push stocks far down, they roar back. Since 1926, this has been true. Push down an “excessive” amount, they bounce back royally.

One client (not my favorite client) said “Hey, David, what if you push down right over a sea urchin & pop your damn beach ball? What then, huh?”

I told this wise guy I would kick sand in his face, steal his beach ball, and then run away as fast as I could…

That should teach him to mess with my metaphor.

Enjoy the summer (rally)!!

Waiting for 'Someday'



Pathways Advisory Group, Inc.

Michelle Carter, CFP®

 











After weeks of negotiations and political hoopla, California finally has a budget for the 2009 – 2010 fiscal year. However, if you read carefully, you will see that this budget was ‘balanced’ on the back of some grand expectations.

For example, state estimated tax payments will be increased for the first half of the fiscal year (July – December 2009). Although the total tax owed to the state has not increased with this budget deal, the estimated amounts paid will be accelerated.

Another example: The final paychecks for the 2009 – 2010 fiscal year will not be released on June 30, 2010, but rather July 1, 2010. This allows those salaries to count towards the 2010 – 2011 budget, instead of the current year.

A little tricky maneuvering on the part of our government, wouldn’t you say? The common theme is the hope that the economy will improve, and tax revenues will increase. If nothing changes, we have merely pushed our problems to a future date, with potentially devastating results.

As I shake my head at California’s situation, I guiltily remember times I have done the same thing in my own life: making financial decisions based on some anticipated, or even just hoped for, event. Do any of these statements sound familiar?

“Once I get my next raise, I’ll start contributing to my 401(k).”

“When I’m older and more settled, then I’ll contribute to a Roth.”

“After this vacation, I’ll buckle down and pay off debt.”

Life happens, and things change. After countless times watching my expected financial parachute fail, I have learned that there is no time like the present to save yourself.

Perhaps I can’t maximize my 401(k)? Well, I can contribute small monthly amounts instead. David always suggests trying out a higher contribution amount than first considered, and seeing whether you can make it work. Little tactics like this can help inch you closer to your objective.

So, my goal is to see what I can do today to improve my position tomorrow, no matter what the future brings. I may not be able to do it all, but any little bit is a start. Join me?

You pile up enough tomorrows, and you'll find you've collected a lot of empty yesterdays.
– Harold Hill (The Music Man)

Schwab Beneficiary Confirmations

Pathways Advisory Group, Inc.
Tiffany Domenici, Client Services Manager

Throughout the past year, we have added custodial attachments to many of your beneficiary designations. Following the addition of a custodial attachment to your accounts, Schwab mails a confirmation of the changes to you. Unfortunately, these confirmation letters are often confusing and erroneous.

Schwab tells me that an automatic system, over which they have little control, generates their confirmation letters. Due to the complex nature of the custodial attachments, Schwab’s database requires their representatives to give each attachment a “job ID.” Many times, the confirmation letter you receive will list this complex job ID as the primary or contingent beneficiary. Unless your beneficiaries happen to be named “Job ID,” you might be a tad confused!

Schwab is currently working to correct this issue; however, the representatives have assured me that when beneficiary changes are received, the originals are scanned into the computer database. Should the time come in which your designations are acted upon, Schwab will always refer to the original signed document and not their hand-typed record. If you receive a confirmation letter following your beneficiary changes, no matter how confusing it may be, it should bring peace of mind that Schwab has received your original signed document and has it stored in your file should the time come to act on it. The good news is that you need not rename all your children “Job ID.”

Compound Interest

Pathways Advisory Group, Inc.
Dustin Smith, CFP®














Insurance, Investments, Estate Planning, Retirement Planning and Income Taxation - I found each course interesting. However, sitting in Eugene LaHanier’s course (Financial Planning) at Fresno State 9 years ago, it was the power of investment compounding that first caught my attention.

He started with a fact pattern and then asked us to guess the results - nobody came close. The example used was something similar to our “Ben and Jerry” spreadsheet on the website. Beginning at the age of 22, investing $2,000 a year (compounding at 10%) until the age of 65 ($88,000 invested) results in what amount of wealth? The answer: 1.4 million dollars. I could not believe it. $2000 per year is only about $165/mo – just about anyone can do that. I was amazed by the concept.

Years later, I realize how much I did not know. I have learned how difficult it can be to spare that money each month. I have learned there are some things you cannot control. I have learned that spending money only begins with the purchase of a house. But the compounding concept remains powerful. Most importantly, I have learned how to apply it.

I enjoy the opportunity to meet with young people about these concepts. Often all that separates them from action is knowledge. Since it is not always feasible to meet with them, I created a link on our webpage dedicated to these issues. If you want to share some of these concepts with your children or grandchildren, click on the “young investors” link on the left hand margin of our webpage. There is some explanation, a roadmap to get started, and a few spreadsheets to help tell the story of investment compounding. Please provide us with any feedback you may have.

Young People

Pathways Advisory Group, Inc.

David L. Williamson, CFP®

Whoa, baby!! A few days back, Dustin met with one of our younger clients. We’ll call her Erica. She is 21 and the daughter of a couple who have been clients of the firm for over 20 years. I barged into the meeting to say hello. Hadn’t seen Erica in a few years.

We chatted a bit. As I left the room – it hit me! This young lady, a client, had not been born when I entered this business. Wow! I staggered back towards my office. I’m starting to feel older now. Around the corner pops Tiffany – our youngest employee. She was not born when I entered this business! Wow! I’m aging by the second now… Using the wall for support, I hobbled into my office, plopped into my chair and sat stunned. On the top of my head, exactly 489 hairs instantly turned gray.

Perhaps I exaggerate a bit. Only 241 hairs turned gray. But 72 fell out.

I began this career in 1984, at a fairly young age. Over these 25 years, I’ve seen a lot. During the first 15 years or so, I was intimately involved in all aspects of the business. I knew it all. And now I am part of a firm that has a life of its own. It is greater than any individual. So much happens that is independent of me. We hum along. They handle this. They attend to that.

And, boy, am I proud of them. These young folks learn so fast. They master their work. They care deeply about their work. Wow! I need to stay out of their way.

They are polite (to their elder). “David, perhaps I should take care of that, rather than you.” Translation: “Hey, Old Fart, you don’t have a clue. Out of my way, before you really gum it up.” (Lest you think they are totally in charge, I do dispense a pearl of wisdom now and then.)

What am I trying to say…..? We are in good hands. There is hope. They are an awesome generation. These young people take care of me. Most importantly, they take care of you.

I am so proud.

Independence Day

Pathways Advisory Group, Inc.

David L. Williamson, CFP®

Ah, yes. The 4th of July.

“Nothing important happened today.”

----Diary entry by King George III on July 4, 1776

Little did he know… Here we are just 233 years later. A very short time, indeed. Only three lifetimes. Those rebels risked it all for freedom. It seems it may be a never-ending battle for our freedoms. If we, in this great country, lose our freedom, olde King George will have been proven right after all.

On another front, we fight the battle of financial independence. We fight for our individual financial freedom. The grand enemies on the battlefield are: recession, negativity, crazy borrowing, market volatility, CNN, nationalization, inflation, frivolous spending. But our gallant defenders include: saving, diversification, patience, frugality, prudence, investing, self-reliance, the 200-year bull market.

We all want to declare “This is the day of my individual financial independence. This is the day work becomes optional.”

Keep up the good fight. On the battlefield, we stand shoulder to shoulder with you.

One day (if you have not already done so) you will make a diary entry something like this:

“Something vastly important happened today. I am now financially independent. The field is ours. The battle is won. Life is good.”
Happy 4th.

TWICE A MONTH???

Pathways Advisory Group, Inc.

David L. Williamson, CFP®

Here’s the deal. I commit to two blog entries per month. My due dates are the 1st and 3rd Fridays of each month. More frequently is okay, less often – not. Topics are of two sorts:

Thoughts relating directly to financial matters. Anything related to financial planning, investments, retirement, estate planning – the usual suspects. Could be hot news items, general principles, issues clients raise during meetings.

Anything else. Musings, reflections, experiences. If the fancy is stricken – go for it. This gives me full freedom. I do tend to muse and reflect. (My wife Sandra says, perhaps, a tad too much.) So here, under the guise of work, I may muse away. And I like to write, so it works out well for me.

From your perspective, all you have to do is read. Or not. Up to you. Feel free to comment if you like. It’s easy.

Here’s how:

Click on “Comments”, below the blog entry.
Read any comments of others.
Enter your comment.
Type in the special set of letters you see.
Click on one of the identity buttons:
Google Account – for those with a Blogger or Google username.
Open ID – for those with a LiveJournal, WordPress, TypePad, or AIM username.
Name/URL – for anyone who would like their name to show with their comment. (You do not have to enter anything in the URL box.)
Anonymous – for anyone not comfortable posting their identity.
After you submit, we review & then post.

One other thing – on the right, you see “Labels”. Labels refer to blog subject matter or identify all entries by a particular author. So, this can help you navigate.

Well, that’s the deal. Let’s have some fun.

The Dow Jones (not so) Industrial Average

Pathways Advisory Group, Inc.
Dustin Smith, CFP®














The Dow Jones Industrial Average is not as industrial as it once was. When most people think of Industry, they think of production – the manufacturing of goods. The Dow has experienced a transformation, of sorts, over the past 20 to 30 years. Today, the Dow is more of a “Blue Chip” Index than the traditional “Industrial” Index that it once was. A closer look at the history of the index and its 30 components reveals some fascinating insights about major industry in this country – where we have been and where we are going.

On June 8th General Motors was officially removed from the Dow Jones Industrial Average and replaced by Cisco Systems. Dow components have changed many times over the years; however, the removal of General Motors is of particular significance. General Motors was the only remaining automobile manufacturer in the Dow, ending an 85-year presence of the industry. It’s a sad day – as the automobile is as American as baseball and apple pie. The Dow used to be dominated by industries like steel, railroads, and automobile manufacturing - it is no longer.

However, it’s also fascinating to ponder the future of innovation. Nearly half of the Dow is comprised of the following industries: Telecommunications (Verizon and AT&T), Information Systems (IBM, Microsoft, Intel, Cisco Systems, and Hewlett-Packard), Aerospace (Boeing and United Technologies Corp.) and Pharmaceuticals (Pfizer, Merck and Johnson & Johnson). And what doesn’t General Electric do? The Dow is full of innovative companies and industries. Traditional manufacturing and production is this country is not lost, but it has certainly given way to innovation. We live in interesting times…

What will the Dow Jones Industrial Average look like in 2025?

For a complete history of the Dow Jones Industrial Average and a current component listing, click the link below.http://www.djindexes.com/mdsidx/downloads/DJIA_Hist_Comp.pdf

The "Other Risk"

Each of you has decided how much "bounce" you are willing to bear to achieve higher returns. This is an individual decision about principal risk (the risk of volatility in the market) versus potential reward. The other risk we touch on in meetings is purchasing power risk: Will my rate of return keep pace with increasing costs each year (inflation)? Purchasing power risk is often the forgotten cousin of principal risk.

When market volatility scares an investor out of the stock market, principal risk may decrease, but purchasing power risk may increase. Investors need to account for both of these risks when making investment decisions. This brief presentation addresses this issue, using real returns - defined as the amount by which returns exceed inflation.

http://www.dfaus.com/library/videos/retireme/

Perfecting the Image

Pathways Advisory Group, Inc.

David L. Williamson, CFP®

Recently, I attended a client’s funeral. This was a good lady. I liked her very much. I knew her fairly well. I will miss her. But funerals can give one pause, can’t they. They tend to induce a bit of reflection. Reflection about one’s own mortality, certainly. Thoughts and questions about living life – accomplishments, intentions, regrets.

Unfortunately, I have attended more than a few client funerals. Each time, I am struck by how little I knew about the person. During this service, people were invited to share memories – funny, sad, bittersweet. How many dimensions I didn’t know! How complex we can be!

We were treated to a slideshow. Here she was as a baby, a toddler, a schoolgirl. There she is at graduation, at her wedding, at a family picnic in the park. We see her with her parents, with her grandchildren, with her friends. There’s the last photo, taken just a week ago…

Just before the slideshow began we saw a test slide. Nothing special, quite nondescript – just a slide to adjust the focus. At the bottom right, in small print were the words: Perfect the Image. I shivered. Yes, I thought, the slideshow, the memories, and the funeral service itself all help us “perfect the image” of the person. To see this person more clearly, more fully, even if a bit late.

I take these words – Perfect the Image – as a caution to me to adjust my focus. To see the whole person, the complexity, the fullness. To look beyond the label, beyond the role - whether client, spouse, child, or friend – to see the person.

The funeral service is often called “a celebration of life”. This service held true. We had the slideshow, the stories, and a few tears. And, to top it off, pallbearers and family sported bright, wild, crazy, Hawaiian Aloha shirts!

Perfect The Image. Celebrate each other. Find joy in the slideshow of life. Aloha!

Tenets of Successful Investing

In case you felt the previous presentation (described in the April 16th blog posting) was too involved, we think the following presentation does a good job summarizing the basic tenets of successful investing. It always feels different when you live through a bear market and it is so difficult to maintain a disciplined investment approach. When times get tough, it is helpful to reinforce the foundation on which the philosophy is built. We hope you find the information helpful, as you continue to cope with a very trying time for investors.

http://dimensional.acrobat.com/tenetsofsuccessfulinvesting/

What Should Investors Do Now?

Coping with the volatility of the stock market is never easy, but it is easier with a solid foundation of knowledge. The past year and a half has confirmed this belief. Every long term investor (who is willing to admit it) has questioned a buy and hold strategy in some fashion during the past year and a half. Like anything in life, questioning your beliefs can make them stronger. We have been and will continue to be tested. Each time we question a buy and hold strategy, the unpredictability of markets re-confirms our beliefs. The market moves too fast and too unpredictably. We believe the most prudent investment approach remains a well-diversified portfolio, with the proper balance between risk and return. Time will take care of the rest. The following link does an excellent job answering the following questions - Is it different this time? Why didn't we see this coming and do something about it? Why don't we wait until the recession is over to invest? and What do I do know?

http://www.dfaus.com/share/whatshou/

If you have the time, it would be worth your while to review the slide show and audio linked above. Feel free to pick and choose the slides/topics you find of interest. We hope you find it helpful.

Interest Rates



Pathways Advisory Group, Inc.

Michelle Carter, CFP®

 











One can usually find bright spots in an otherwise dim economy. For those wishing to borrow money, one of these bright spots is low interest rates. Although the credit market may be tighter than before, there are great deals available for those with steady income and good credit.

Now may be a good time to check the interest rates on your home or vehicles. Home mortgage rates have been hovering around 5%. The Educational Employees Credit Union is currently offering 3.75% on the purchase or refinance of a vehicle with a model year of 2006 or later (this offer ends April 13th).

Of course, refinancing is a big decision with many variables. Please call us to discuss your options.

2009 IRS e-file Refund Cycle Chart

For those of you expecting a tax refund and have filed your taxes using e-file, the IRS has posted a chart showing when you can expect your refund to arrive. Click here to view this chart.

A Common Market Misconception

Pathways Advisory Group, Inc.
Dustin Smith, CFP®














David, Michelle and I are seeing some common trends across our discussions with clients about the economy. We have all encountered fears about markets (which are to be expected); however, some clients have expressed the fear that a portfolio can "go down to zero." I found my initial explanation - that it is not possible - simply wasn't good enough. So I took it a step further.

Our portfolios are diversified into domestic and international mutual funds, containing stocks, bonds and REITs (Real Estate Investment Trusts). In each case, we achieve ownership in thousands of assets. Altogether, clients own positions in:

· Approximately 16,000 stocks in nearly 40 countries worldwide
· Well over 20,000 properties in nearly 20 countries worldwide
· Numerous positions in domestic and international government and corporate bonds.

For the entire portfolio to drop to zero, we would have to see practically every company in the world go out of business, all property would have to be worthless and numerous governments (including our own) would have to default on all bonds. As David put it, "we would essentially return to hunting and gathering to survive."

I thought to share this because it is a common misconception. It is a good example of the kind of fear that is factoring into the current market drop. This is a very scary time. If some of our clients have these fears, how many investors without financial advice share these concerns? As I have heard David say many times, "It's times like these that stocks are returned to their rightful owners, long term investors like you and me."

Our Current Economy

Pathways Advisory Group, Inc.
Dustin Smith, CFP®














I’ve had many discussions with clients about the state of our economy and the direction of our country over the past few months.

Some people are confident about where our new president will take this country, but many are concerned about the scope of government intervention we are experiencing (in the “stimulus package”). These opinions are influenced by many things - political beliefs, personality, age, mood, etc.

I have my own opinions and I share some concerns; however, I argue that you don’t have to agree with everything in the “package” to be optimistic about the future. Hopefully, some of the concerns will subside as confidence is restored and our systems improve, allowing us to apply what we’ve learned through the mistakes of the past few years. (There is not enough room here to list them all, as there are quite a few.) In my opinion, the “package” simply has to be successful enough to restore confidence, allowing capitalism and private industry to restore prosperity.

I don’t know how long it will take, but there is reason to be optimistic about the future.

It's that time of year again...

Tax time is here! We recently mailed tax reports to assist you or your accountant in completing your taxes. In addition, Schwab has mailed out 1099s. Please be aware that in the past Schwab has sent corrected 1099 forms, so it is likely this will occur for 2008. Please give our office a call if you have any questions.

Good luck with your taxes!

It's a girl!

Pathways Advisory Group, Inc.
Dustin Smith, CFP®














We are proud to announce the birth of Emilie Rae Smith, born to Dustin and Teri Smith. She was born on January 22, 2009 at 4:23 PM; she weighed in at 7 pounds 5 ounces and was 20.5 inches long. She and her proud parents are home and doing well. Congratulations to them both on the birth of their baby girl!

Required Distribution Update

Good News! On December 23, 2008, President Bush signed the Worker, Retiree and Employer Recovery Act of 2008, giving a one year moratorium on Required Minimum Distributions (RMDs). This Act applies to both retirement plan participants over the age of 70 ½ and beneficiaries of inherited retirement accounts.

In the past, we have automatically taken the RMDs in November for many of our clients. This year, however, we will not be doing so. During your meetings throughout the course of the year, David, Dustin and Michelle will discuss this issue further and address any questions you may have.

You Found Us!

Welcome to our blog! We’re so glad you’ve found us. Please check here for updates and office happenings. We hope you’ll take some time to peruse our website and welcome your comments/suggestions.

Check in regularly for important news and interesting tid-bits!