Your Headlines | Too Good to Be True & Business Briefing

The Headlines vs. Your Headlines

By Josh Manifold | Principal | Advisor

If you’ve seen the headlines recently, it would almost seem (almost…) that their goal was to generate a sense of overwhelm and anxiety. The problem? Overwhelm and anxiety tend to produce really poor decisions.

While most agree that being generally informed is important, we want to encourage our clients to be intentional about where they spend their focus.

One way to say this: are you more focused on The Headlines or Your Headlines?

Think about what your headlines would be recently, both individually and as a family. Maybe they’re celebrations? Maybe there are major life changes? Maybe there are emergencies your family needs to rally around.

In many cases, we find that our own personal headlines are rarely quite so frantic, at least compared to what the Financial Entertainment Complex is pumping out 24/7.

So, as a matter of focus, where should you spend your financial attention?

Here are my top 3:

• Family Mission Statements: Are you doing (or pursuing) the things that matter most to your marriage and your family?
• Financial Summaries: Check in on your net worth, assets, liabilities, and savings rate 2-3 times a year. How’s your progress?
• Core Values: Is our spending aligned with our core values like stewardship and generosity?
  We have a limited amount of focus when it comes to money. Let’s make sure we’re spending it in the right places.

When It’s Too Good to be True: Within the last 2 weeks, the SEC charged an Atlanta-based financial planning firm for misappropriating investors’ funds in a $300 million Ponzi scheme. Impacting more than 2,000 investors, the SEC alleges the defendants used the misappropriated funds to fund the CEO’s lavish lifestyle and make Ponzi-like payments.

Ponzi schemes are named after Charles Ponzi.  In the 1920s, he promised investors 50%+ returns and claimed that investors were making investments in international mail coupons.  Ponzi used funds from new investors to pay fake returns to earlier investors.

With the recent Ponzi scheme, investors were offered 10% per quarter returns (40%+ a year).

Another investor shared a story about a real estate syndication deal with projected 20%+ annualized returns because the sponsors were pulling 30% of investor capital straight off the top. When asked for their spreadsheet, the investor learned they hadn’t accounted for property management fees. The company claimed it was in the client’s best interest, and the math worked out. But it didn’t, really.

These are red flags. There was a huge misalignment of interest between the sponsor and the investor. The fee arrangement was not disclosed upfront or anywhere. If things went south, the sponsors had no incentive to stick around and work things out. They already got paid, and very well.

These headlines should provide a reminder for all investors. Ponzi schemes are alive and well today. Be skeptical. If it sounds too good to be true, it probably is. Due diligence is always a good step: check for SEC registration, examine their background, and investigate their custodian.

Business Briefing

• Median House Prices: It’s a strong indicator of the state of the economy and has also been in headlines regularly—housing prices and mortgage rates. It is the most difficult housing market in decades. Home-buying affordability dropped last fall to the lowest level since September 1985 and fell near that level again in June. Mortgage rates sit just below 6.5%. Median existing home prices, which are adjusted for inflation, kept rising on an annual basis, according to NAR.

• Job Market Slowed:

Numbers and Stories: As you consider headlines, consider this perspective from financial commentator Morgan Housel. He writes, “Forecasters get in trouble when the number we know from today gives an impression that you’re being objective and data-driven when the story about tomorrow is so subject to opinion.” Give it a read, and let us know what you think.

*The views expressed are those of the author as of the date noted, are subject to change based on market and other various conditions. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Keep in mind that current and historical facts may not be indicative of future results.