2019: Typically Atypical

This is not normal. With the capital markets, it almost never is.

Over the long haul, looking backward, stocks have returned a bit over 10% per year and bonds have returned a bit over 5% per year. That said, past performance does not predict future results, as the investing cliché goes. Economists and soothsayers will give their guesstimates for next year's stock market return. For a long-term forecast for financial planning purposes, though, it is fairly common to reduce the backward-looking numbers by a conservative margin. If you have a financial plan where you will have more than enough for the rest of your life, even if future markets are significantly worse than past markets, then perhaps you will be able to see past the noise and focus on your time with your grandchildren.

But, let's talk about the noise for a few minutes.

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Dining at the Cafe 401(k)

As with all jobs, being an investment manager comes with some unofficial duties, including free guidance for family members regarding retirement savings. In fact, Olivia was recently helping a family member with investment choices in their employer sponsored 401(k) when she was provided a glaring reminder as to why people choose to hire professionals like us to manage it for them. Her beloved family member had chosen funds that made no sense for their goals, had high management fees, and were redundant at times. When probed about why they’d chosen these funds, Olivia was told that they had performed best in recent years, to which she firmly responded, “let me stop you there, dearest kin.”

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Don't Pay for Investment Advice!


Fiduciary: An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit. thefreedictionary

I am a fiduciary. As are my colleagues at Exchange Capital Management. What does that mean? It means a lot of things, but mostly it requires that I place the needs of clients ahead of myself. Shocking isn’t it? That in a business designed to serve the financial planning needs of others we somehow need to be reminded that our clients come first. While proud to say that the fiduciary commitment at Exchange Capital Management is imbedded in the DNA of our firm, this isn’t always the case elsewhere. But I’ll save that conversation for another day. Today I’d like to show you how you can save money by not hiring an investment advisor…an exercise that’s clearly not in my best interest.

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The Hidden Cost of a Free Fund

For years now, there has been a war in the investment industry, driving down fees as fund companies compete for business. At first glance, lower fees may seem like the answer to investors’ prayers. After all, keeping costs as low as possible is an important pillar to maximizing one’s invested wealth, as it is one of the few things you can control in an uncertain market. While our firm’s investment thesis agrees with this idea, we constantly remind ourselves and our clients that there’s no such thing as a free lunch.

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Women, It's Time to Get Off the Fence

Gender income and leadership inequality continue to receive a lot of attention. The good news is that changes that work to level these imbalances seem to be happening. Companies are beginning to recognize that adding women to leadership roles and management teams makes the organizations better. More women are being invited to the table, are "leaning in" and becoming a more powerful demographic. However, the pay gap is not the only financial challenge that women face. Not only do we earn less, we also live longer and tend to take more career breaks. Therefore, in terms of managing our money, we can’t be content to do as well as men, we must do better. Smart investing is crucial to financial security and independence. It also provides freedom to pursue opportunities and can prepare us for life events. Unfortunately, when it comes to investing, women are coming up short. 

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Does the Yield Curve Forecast a Recession?

If you follow financial news, you have probably noticed pundits warning of the flattening yield curve recently. In fact, they say, someday soon it will invert and part of it has already! Furthermore, when the yield curve inverts, these pundits claim, it predicts a recession almost perfectly!!! If you are like many people watching these shows, your anxiety spiked on the word "recession" and you forgot to ask what the yield curve even was. Our team is fairly level headed and analytical, and as a firm we reject market timing, so we think this kind of hyperbolic commentary should be analyzed rather than taken as simple fact.

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Shark Tank: Playing the Home Game Edition


With few exceptions, devotees of the business reality show Shark Tank almost always harbor a secret desire to sit side by side doing deals with the likes of Mark Cuban, Daymond John, Barbara Corcoran, and Kevin O'Leary (aka Mr. Wonderful). These guys make it look so easy; cherry picking the best of the best all the while lounging comfortably in a studio set made to resemble your typical living room.

What most of us fail to appreciate however, is the show's producers have already sifted through thousands of truly awful pitches before curating the 3 or 4 worthy of making their way into each episode. While the end result makes for compelling TV, the practiced observer sees there's also a bit of financial slight of hand that cleverly obscures a textbook case of survivor bias. That is, the tendency to overestimate the odds of investment success by drawing a circle around a pre-selected subset of the original data pool and then declaring whatever happens to fall inside the lines as the intended "bullseye".

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Low Cost Investing Is a Thing, Passive Investing Is Not


Someone has to choose what you own. Back in the day, it was your broker, calling during dinner, suggesting that you sell your Texaco and buy IBM instead. Later, you bought a mutual fund, which allowed you to save money on transaction costs, better diversify your portfolio, and limit your dinner time interruptions to political pollsters. Over the past few decades, indexed mutual funds and ETFs have made great strides in lowering investing costs by extraordinary amounts, but make no mistake, indexing is not passive.
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Why The S&P 500 Isn't What You Think It Is



  • The S&P 500 index is size-weighted. A $100 billion company enjoys 10 times the influence over the index as a company whose market capitalization is $10 billion.
  • The top 5 companies consume more than 14 percent of the index, equivalent to that of the bottom 265.
  • The companies in the index are added and removed by real live people.
  • The historical turnover is 4.4 percent, or approximately 22 changes each year.
  • While it feels like today’s top 5 companies can do no wrong, history suggests this dominance is unsustainable.
  • The biggest gains will come while on the journey to the top, not after arrival.
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2018 Isn't That Volatile: Studying the Black Swan of 2017

We can’t help but contemplate unlikely events, both good and bad. When you buy a lottery ticket, you know you will almost certainly not win, but you enjoy the minute-long fantasy of what you would do if you did win. The Tigers could get something going this season and win the World Series, says a hopeful sports analyst on the radio. The medical website shows that your symptoms indicate seasonal allergies, but it could be the rare disease that killed a man last year. There are many books in the world of investing, but many of the bestsellers are about the huge losses that most people thought were impossible. We call these unlikely scenarios extreme tail events or black swans.

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