An Orgy of Value Destruction

This is how University of Minnesota economist Joel Waldfogel describes the holiday season. I put it in the title because I figured the word “orgy” would capture your attention. If you blundered into this blog from a Google search, you’re probably going to be sorely disappointed. Since this is our last blog entry before Christmas, I thought it would be fun to share some statistics I found regarding holiday gift-giving.

I have never been a big proponent of spending money I don’t have on stuff that nobody wants just because it’s what everybody else is doing. Of course, everyone loves a gift card, but after a few years of exchanging gift cards with our adult relatives (explain the point of this, please) my husband and I decided that we would only buy gifts for the younger children and my in-laws (because if we didn’t do the latter…well, you know). Now we are free to celebrate the season without incurring massive amounts of debt. As a result, I tend to weather the month of December with much more holiday cheer and far less stress than would otherwise be the case.

Clearly, this practice is not very common. Waldfogel has found that Americans spend about $65 billion on holiday gifts every year, with the average person giving 23 gifts. And all that time and money is largely a waste, because – surprise! – most people don’t like what they get.  Apparently, the typical value of a gift to its recipient is 20% lower than its cost, hence the “orgy of value destruction.” But if you’re one of the poor souls trapped in a vicious cycle of obligatory gifting, what do you do?

In this Bloomberg article, two tips were proffered based on the findings of behavioral economics. The first is to beware an “egocentric bias” – you may pine for pastured pork, but your vegan aunt probably won’t appreciate a cured pork gift basket from a local farm. The second is to manage your expectations. Chances are, the recipient of what you think is a fabulous, expensive gift will either, a) forget about it 2 seconds later, or b) be just as happy with something more personal and less costly. One way to avoid this whole predicament, Waldfogel suggests, is to make a donation to charity in the recipient’s name. My husband and I have repeatedly suggested this to my mother-in-law, but for some reason it hasn’t been well-received – I think she views it as too impersonal. So I’m going with #11 on Dave Barry’s Annual Gift Guide – an emergency underpants dispenser for $6.95. It’s economical, and it’s definitely personal. And if she values it at $5.56, I can live with that.

Happy Holidays!

Sarah DerGarabedian, CFA
Director of Research

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Keep Calm and Carry On

While reading an article about the Nobel Prize award to two American economists, I spotted a headline to the right.  It featured a link to a story CNN wrote in honor of International Day of the Girl.  Titled “To my 15-Year Old Self:  Things I Wish I’d Known,” the writer posed that question to notable women in a variety of fields.  The link showed a picture of Oprah, because you always have to ask her those sorts of questions.

I find her rather annoying, so, naturally, I clicked the link.  The problem I have with her is she seems out of touch.  It is easy to talk about “living your truth” and “risking everything to pursue your passion” when you are a multi-billionaire for whom the risks brought great reward.  Do you think the person who just lost everything when his/her business collapsed feels happy and fulfilled because they “followed their dream?”  Doubtful.

Anyway, as I read the quotes from these highly successful ladies, it occurred to me that living in the past can be a dangerous thing.  Sure, it is good to look back and say, “Oh, I really wish I had not done that.”  On the other hand, you can become so paralyzed by fear of making the same mistake that you take no action at all.  The key is to learn from the mistake and get on with your life.

We can do that in our portfolios too.  There was a time when I was reluctant to invest excess cash in my portfolio because of current market conditions.  As a result, I missed out on some of the upticks in the market.  The lesson I learned is emotion has no place in investing. 

You may have similar feelings now with the upcoming election.  What happens if Obama is re-elected?  What would Romney do if he becomes President?  Will this country fall into a Great Depression or have a huge economic boom?  No one knows.  However, I would bet that, if you looked at previous elections, similar comments were said about the president and candidate then.  It happens with every election.  Work the crowd into a frenzy so they will watch the news.

We cannot change the past.  We cannot predict the future.  Let’s focus on what we can control (our behavior), keep calm, and carry on.

Cristy Freeman, AAMS
Senior Operations Associate

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When Things are Going Well, Watch Out!!!

 

Before you cross the street,
take my hand.

Life is what happens to you
while you’re busy making other plans.

 -John Lennon, “Beautiful Boy”

When I built my house, there were certain things I really wanted.  Unfortunately, I did not discover a money tree on the property.  I had to face reality and eliminate some “wants.”  Lately, I have been thinking about tweaking the kitchen a bit.  I would like a new countertop and maybe a tile backsplash. 

Of course, life has a way of altering your plans.  One of my cats fell ill.  In six days, I racked up a sizable bill at the vet’s office.  Sadly, she did not survive.  As devastating as the event was, it would have been even worse if I had not squirreled away some cash in an emergency fund.  Knowing that I was financially able (to a point) to do as much as I could to save her was a relief. 

We have talked many times in this blog about saving for the inevitable rainy day.  It is one of the best financial decisions you can make.  You never know when your car might need repair, when one of your kids (human or furry) might be sick, or when you may lose your job.  These events are stressful.  Not having the funds to pay for them compounds the stress.

Automatically transferring funds to an emergency account is a great way to save.  Banks and brokerage firms will allow you to sweep a pre-determined amount from one account to another.  You determine when you want to transfer to take place. 

Conventional wisdom says to save 6 to 9 months of expenses.  I found it easier to first calculate the large, recurring bills – insurance, property taxes, et cetera.  I then added a certain amount for routine savings and overall maintenance items – upkeep of house and car; vet visits; and so on.  I took that figure and divided it by 12 months.  At every payday, my bank sweeps that sum from my checking account into my savings account.  I cannot access my savings account unless I visit the bank, so I avoid the temptation of withdrawing funds for something silly.

The automatic deduction has been wonderful.  I do not “feel the loss” because the money never stays in my checking account.  My emergency fund has saved me on so many occasions. 

You can setup automatic deductions with your investment accounts too.  I also have a sweep in place for a Roth IRA contribution.  We would be happy to assist you with setting up automatic deductions into your brokerage or other investment accounts.  Please contact your advisor if you are interested.

Cristy Freeman, AAMS
Senior Operations Associate

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Angry, Party of One?

On Wednesday, an executive for Goldman Sachs posted an op-ed piece in the New York Times detailing why he was leaving the firm after 12 years of service.  In case you missed it, here is a link: 

http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html

His post certainly reinforces the negative impression everyone has of the financial industry.  Stories of such avarice seem to be the norm rather than the exception in large Wall Street firms.

As I read the article, I thought about my own career here at Parsec.  In May, I celebrate my 20th anniversary.  (Yes, I joined the firm when I was twelve.)  When I look back over those years, would I say that the culture at Parsec was like Goldman’s?

I cannot say that Mr. Smith’s comments would apply here.  Beyond the usual revenue discussions every business has, I have not heard anyone make comments like those Mr. Smith mentions in his post.  We do not earn commissions from any trade we recommend.  No advisor scores a monster bonus because he/she recommended a high-performing security.  That sort of unbiased advice breeds a culture that is more client-focused than revenue-focused. 

We continue to tweak our processes and procedures so that we can provide better service.  For example, each client has two advisors – a primary and secondary.  This provides continuity of service in the event an advisor is out of the office or retires. 

This year, our clients will see changes to the quarterly report package they receive.  We are in the midst of a major software upgrade that will provide us with greater reporting capabilities and better access to client information.  These improvements should give our clients greater insights into their portfolio holdings and performance.

We are also continuing our commitment of giving back to our communities in Asheville and Charlotte.  Our firm gives at least 1 percent of its annual revenue to charity.  Employee donations are also matched to a certain amount.  Several employees volunteer with these charities.  By the way, we kept this commitment even during the Great Recession.  That meant a lot to the charities – and it meant a lot to us too.  Of all the things we do, I personally think the commitment to charity is the coolest.

So, when I read Mr. Smith’s article, I cannot say I feel the same sense of disillusionment.  Sure, there have been – and always will be – times when I have an argument with my co-workers or long to win the lottery so I can stop working.  Thankfully, the culture we have here at Parsec remains client-focused.  I wish Mr. Smith well in his search for new employment and hope his next job does not leave him with the same feelings of dissatisfaction and moral conflict. 

Cristy Freeman, AAMS
Senior Operations Associate

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Where Does The Time Go?

When I was a little kid, it seemed to take FOREVER for Christmas to get here.  The tree would be up for ages, the presents underneath teasing me.  When my parents were at work, I would shake the presents and try to determine the contents.  I confess I sometimes lifted the corner on some of the packages.  It’s a great way of learning whether or not you are getting that Barbie you wanted.  It worked well until my little sister tattled.  No one likes a snitch, Amanda.

In my adult life, time flies by.  It seems like only yesterday we were celebrating a new year; now Thanksgiving is almost here, and the holiday madness is about to begin.  Everything kicks into overdrive as we rush from holiday party to family event.  We spend hours in the kitchen, preparing dishes that will be engulfed in minutes and forgotten almost as quickly.  It seems that chaos reigns during the holiday season.

In the midst of all this activity, let’s not forget our financial lives.  If you plan to donate appreciated stock to charity or give it to relatives, take care of it now.  Do not wait until late December.  Go ahead, and cross it off your list.  The later you wait, the more difficult it becomes to process the transaction before December 31.

It is also important to take a look at your portfolio.  Do you have any gains that could be offset by losses?  Do you anticipate any big financial events next year (i.e. your child will be starting college; you plan to remodel your home; et cetera)?  A quick conversation with your financial advisor sets up for a smooth start to 2012.

Take a deep breath.  It will be okay.  The holidays will be over before you know it!  I hope you and your family have a happy, healthy, and peaceful holiday season.

Cristy Freeman, AAMS
Senior Operations Associate

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And Now For Something Completely Different

Are you as fatigued as I am with the constant barrage of bad news?  Every time you turn on the TV, someone is yelling about the stock market.  You see images of devastation, famine, and war on every channel.  We need some positive news! 

Well, I have something positive to share.  Parsec is sponsoring its first Parsec Prize 5K race on October 15, 2011.  We believe in promoting wellness.  What better way to do that than to have a race?  

We also believe in supporting local charities.  As you have probably read many times, we are committed to donating up to 2 percent of gross revenues each year.  We have a Parsec Prize through which we make large donations to four select charities.  This year’s recipients are: 

  • Appalachian Sustainable Agriculture Project (ASAP),
  • Asheville Symphony,
  • the Salvation Army Boys and Girls Club of Buncombe County, and
  • Industries for the Blind

Each recipient has an opportunity to raise even more money through the Parsec Prize 5K.  All of the $25 race entry fee will be given to one of the four charities; the runner selects the charity.  Runners and their sponsors can also donate more money if they choose.

It is not too late to register for the race.  For more information, please visit our special Parsec Prize 5K page at http://www.parsecfinancial.com/parsecprize5k.html

Sure, the race is not going to cause the markets to soar (upward).  It just gives us all an opportunity to enjoy a nice fall day and forget about our problems for a few minutes.  Believe me, when you see the last hill of the race, you will not be thinking about the stock market!  We hope to see you on Saturday, October 15.

Cristy Freeman, AAMS
Senior Operations Associate

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An Ounce of Prevention

You are sitting at your desk.  You need to share information with a colleague one floor up from your office.  Do you pick up the phone, or do you send an e-mail?  Most likely, you send an e-mail.  What would we do without this super convenient form of communication?  It is hard to remember how we functioned without it. 

Use of e-mail is so common that it is easy to forget how unsecure it is.  Sure, it is fine to use e-mail for conversations about your dog’s latest antics.  Should you send confidential information, though?  Not unless the e-mail is secure.

A few months ago, we implemented an encrypted e-mail system, smarshEncrypt.  Some of you may have received encrypted e-mails from us and setup logins through Smarsh. 

We use the encrypted system to transmit personal information such as account statements.  If you have a login setup with Smarsh, you can view the e-mail and reply to us in a secure forum.  This is extremely helpful whenever you need to send us copies of statements or other sensitive data. 

Unfortunately, you cannot use this service to send e-mails to other individuals.  We encourage you to be extra careful in your e-mail communications.  Never e-mail someone data that you would not want the whole world to see, unless you know for certain the e-mail is encrypted.  As Benjamin Franklin said, an ounce of prevention is worth a pound of cure!

Cristy Freeman, AAMS
Senior Operations Associate

P.S. Here’s a suggestion if you have difficulties receiving encrypted messages: Check your spam or junk folder. A few clients found messages sitting in those types of folders.

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George, I Can Lie About My Age!!

This year, I celebrate a milestone birthday. Let’s just say I am now officially too old to be George Clooney’s girlfriend.

As often happens with milestone birthdays, you reflect about how you imagined your life would be at this stage. Perhaps you had envisioned retiring at an early age. Maybe you wanted to start your own business. Or save tons of money, quit your job, and travel around the world for a couple of years. (Hey, you can dream.)

Then, life happened. You devoted yourself to a career. You bought a home. You got married and started a family. The years go by. You wake up one day and realize you’re that age.

When you first began your journey with Parsec, your goals were just rough ideas of where you thought you wanted to be in 10, 15, 20 years. Now that time has passed, are those goals still the same? Have you been affected by any of these events:

• Started a family
• Sent a child to college
• Lost your job
• Dealt with aging parents

We would also be remiss if we overlooked the extraordinary market volatility of the last two years.  All of the above events can significantly alter your financial plan.

Do you still have the same goals now that you did before these events occurred? Has your “deadline” for achieving those goals shifted? It is very easy in the day-to-day rush to not think about these things. However, it is important to evaluate your financial situation and goals periodically so you can stay on track.

Your financial advisor is here to help you. Together, he or she can review your financial plan and work to keep it in line with your changing life. Just call him or her anytime.

Cristy Freeman, AAMS
Senior Operations Associate

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