January 2025 Best of the Web

Resources will prompt you to challenge your assumptions and how they impact how you manage investment portfolios. We explore whether financial advisors add value and the importance of relationships and how to create more and deeper connections in our lives.

Enjoy!

Los Angeles Fires

Let’s start with an ongoing tragic story, the massive fires in Los Angeles. Many financial planning aspects of this story are important to consider. However, I want to start with a reminder of the personal part of this story by sharing a touching conversation from an unexpected source.

The Conan O’Brien Needs a Friend podcast posted an episode titled Conan, Sona, and Matt Discuss the LA Fires. In the episode, Conan’s assistant Sona shared that her family lost their home in the fires and challenges they’ve faced in the aftermath. It provides a powerful reminder of these disasters’ impact, which goes far beyond financial, on thousands of individuals and families. If any blog readers or someone close to you have been impacted my heart goes out to you.

It is important to learn from this tragedy. These fires highlight a real and growing risk that many of us face as homeowners. This has been on my radar working with financial planning clients around the country. This particular risk also impacts me personally living in an area at risk for fires. 

As recently as last month, I addressed the recently increased risk of loss associated with home ownership in a blog post. In that post, I wrote:

“Traditionally, risks of property damage or loss were easy and relatively affordable to insure with casualty insurance. This is no longer the case. 

Extreme weather events have drastically driven up home insurance costs across the country in recent years. In some areas, insurance is becoming so expensive that some homeowners forego this cost and self-insure.”

That exact scenario sadly played out in real-time. Laurence Darmiento and Summer Lin write First, they lost their home insurance. Then, L.A. fires consumed their homes.

David Stein discusses potential options to address these risks as we move forward. Who Should Bear the Cost? Socialized vs. Market-Based Risk Management.

A New Administration

The other big news this month was the start of a new presidential administration. It is too early to know what policy changes will emerge and how they will impact our finances. 

However, we already know that there is a major vibe shift related to cryptocurrencies. Nick Maggiulli addresses this, writing The New Currency is Attention.

Another major vibe shift has occurred around the perception of America’s tech companies and the CEOs that run them. I had an interesting exchange with a planning client who was distressed about profiting off of these “oligarchs” and wanted to discuss changing their investment approach.

As part of our conversation, I shared a post I wrote in 2020 when Socially Responsible Investing was the rage. If you have misgivings about investing in certain “bad” companies, I encourage you to read it as well. I’m proud of how well that post stands up nearly 5 years after I wrote it to address the idea of socially responsible investment that was trending at a time when sentiment was at the opposite extreme.

My policy on the blog is generally to refrain from discussing proposed policy until it becomes actual policy because often the two don’t much resemble one another. However, with so many important policy items up in the air, Adam Grossman provides a guide to some of the most important areas to keep an eye on. He writes Whither Taxes?

One piece of policy that did change before the changing of administrations is the passage of a new law that positively impacts those who receive government pensions. Mike Piper explains this, writing Social Security Fairness Act of 2023 Passed (WEP and GPO Eliminated).

Adjusting Expectations

Mark Twain has a famous quote. “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

I’ve known for quite a while that high stock valuations and low interest rates are associated with lower future returns. I wrote Deciding to Retire With High Market Valuations and Low Interest Rates in 2018.

And since that time, the low anticipated stock returns “just ain’t been so.” Michael Batnick thinks this is because Stocks are More Expensive Than They Used To Be Because the Companies are So Much Better.

On the bond side, returns have been poor as anticipated. Now that bond yields have risen, investors struggle to figure out how to move forward. Ben Carlson asks Is It Time To Lock In 5% Yields? 

Financial Planning Is Hard

Over the years, I’ve seemingly done a complete 180 on financial advisors. I started writing as a harsh critic of the entire financial advice industry. Today, I practice as an advice-only financial planner.

Many of my original positions have not changed. A lot of the industry is rotten. The financial advice industry is loaded with conflicts of interest and misplaced incentives. 

However, the above topics demonstrate there is much more to financial planning than managing an investment portfolio. My Abundo colleague Jeremy Zuke covers key financial planning areas where we spend time with clients, writing Investments Are a Small Part of Financial Advice.

The Value of Connection

Lack of meaningful social connection in retirement is a real and long-standing concern. This is a problem that is becoming more widespread in society across generations.

Derek Thompson writes The Anti-Social Century. This is a long, but worthwhile read.

If you prefer audio to reading, Thompson covered key lessons from the article in this episode of The Plain English podcast.

Have a great month!

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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. After achieving financial independence, Chris began writing about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. Chris also does financial planning with individuals and couples at Abundo Wealth, a low-cost, advice-only financial planning firm with the mission of making quality financial advice available to populations for whom it was previously inaccessible. Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He has spoken at events including the Bogleheads and the American Institute of Certified Public Accountants annual conferences. Blog inquiries can be sent to chris@caniretireyet.com. Financial planning inquiries can be sent to chris@abundowealth.com]

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