Adams Financial Concepts LLC
President and Principal
Alexander Michael Adams (“Mike”) founded Adams Financial Concepts as a Registered Investment Advisor. He believes that the fiduciary status of always putting his clients’ interests first is superior to the philosophy of big brokerage firms.
Formerly a Senior Vice President and Senior Portfolio Manager at Wachovia Securities, LLC, he has been a securities portfolio manager since 1990. Mike began his career in the financial industry at Paine Webber in 1986, where he was a retail stockbroker. In 1990, Mike moved to Dain Rauscher to transition his business from the traditional transaction-based stock and bond trading to fee-based portfolio management. From the inception of his career, Mike has been recognized as a leader in the industry, earning distinction as a rookie by being named to the "Eagle's Nest" and in subsequent years at Dain Rauscher, being recognized as part of the President's or Chairman's Counsel.
Mike's prescient instincts and desire to "do it his way" led him to develop his own portfolio philosophy and strategies. Earlier training as a mathematician enabled him to interpret portfolio dynamics in "game theory" terms. Mike Adams began his professional life with eleven years in the aluminum industry in 1967, after gaining a masters degree in industrial administration from Carnegie Mellon University and a bachelor’s degree from Oregon State University. He started as a management trainee, including one and a half years in France and worked up the corporate ladder to spend five years as plant superintendent managing several hundred people.
Mike believes in giving back to the community. He serves on the Board of Directors of Music Aid Northwest and is a Rotarian. He formerly served as Chairman of the Board of Directors of Seattle Theatre Group (a not-for-profit corporation), operator of The Paramount and The Moore Theatres. He has served on a number of other boards including the Seattle Symphony. He was involved with a number of youth programs while his children were at home. Mike is married to his wife Pamela. They have two children and three grandchildren with a fourth on the way.
MBA, Business, Carnegie Mellon University
BS, Mathematics, Oregon State University
Assets Under Management:
Very interesting question. It depends on what time period is used. For example, the average annual return from August 1982 to March 2000 was 12.2%. That was a long secular bull market. From March 2000 July 2016 the return is less than 3%. If you look at the secular bull markets since 1900 to the end of 2000, it seems like the average return has increased for each successive secular bull, but the time has been shorter. Take for example the 1941 to 1966 time the S&P increased approximately 10 fold in 25 years. The secular bull from 1982 to 2000 was an increase of 10 fold in 18 years. The question is whether we entered a new long-term secular bull market in 2010 or 2011 and how long will it last. I believe we did and the duration will be less than 18 years.
By the way, 10% will double in 7 years, not 10.
There is one other factor to consider in all this. Things are changing ever more rapidly. The companies that made up the S&P 500 in 1920 had an average life of 70 years before they died (think Eastman Kodak, Woolworth, Union Carbide, etc.). Today the average life of a company in the S&P 500 is less than 20 years and is approaching 15 years.
Let me ask you a question. If you started with a penny and each time you received twice what you had the day before, how much money would you have at the end of 30 days? Take a guess before you read further.
You would have over $10 million at the end of 30 days. But, 1/2 of that came the last day. 75% came the last two days. 90% came the last 4 days. The curve in the beginning looked like a flat line. It is only when the curve turns sharply upward that you realize it is exponential.
Is the S&P going to look like an exponentially increasing curve? I think an argument can be made it is showing that characteristic. And the speed of turnover seems to validate that.
While many market pundits are publicizing a view that returns are going to be significantly lower than history, I believe they are going to be shocked with what the returns will actually be. The danger is investors who buy into the view of lower returns. Instead of firing their advisor for lousy results they will keep the advisor because the so-called experts said to expect low returns.
$700K seems like a lot of money. Sadly it is not. Most financial advisors will use 4% as a sustainable return over the remainder of your lifetimes. Even if your retirement accounts were to double in 5 years (unlikely), using a 4% rule of thumb means that $1.4 million will give you $56K as retirement income. Add to that social security of perhaps $5K per month ($60K annually) and you will have $116K as retirement income as opposed to a current income of $230K. To further complicate your situation, you have an adjustable mortgage that in 5 years will probably jump to 4 to 6% increasing your monthly outgo. If you both plan to retire in 5 years, you will probably have to live on 40% of what you have today.
I don't believe you can count on a healthy financial retirement income. I believe the others who answered with "congratulations" are misleading and not giving the honest answers you need right now. I don't believe you will be able to both retire in 5 years. I also believe you need a non-traditional financial plan or one of you will never be able to financially retire with a healthy financial income.
And do not convert your 401(k) to an IRA. Check the fees. Check the returns. IRA fees are generally significantly higher than 401(k) fees and will for the same investments simply enrich the financial advisor to your disadvantage.
I am sorry to deliver such bad news. Right now you have 5 to 8 years to get a plan set. You will need to begin to make rounds of financial advisors and let them give you a financial plan. Make sure the financial advisor is a "fiduciary" so every decision has to be make in your best interest. That means they either have a Series 65 license or Series 7 and 66. Do not go to any large firm - they are broker-dealers. For each financial advisor ask for a published and regulator reviewed composite on all their client returns. Make sure it is at least 10 years.
Good luck and I sincerely hope you find an advisor who can get you to a healthy financial income. There are, in my opinion, very few, but they do exist. I wish you the very best.
Adam Smith wrote a book in the 1960s called “The Money Game.” The 1960s were a time when there were a lot of young mutual fund managers who had never experienced a bear market. Smith created a fictional character called The Great Winfield, who exploited kids’ markets by only hiring investment managers who were not yet 30 years of age: “The strength of my kids is that they are too young to remember anything bad, and they are making so much money that they feel invincible. Now, you know, and I know, that one day the orchestra will stop playing and the wind will rattle through the broken window panes…”
Today mutual funds and ETFs own over half the stocks and over half the mutual funds are managed by young men and women who are under the age of 31. They started managing when the market was roaring upward from the great recession. When that happens, as a money manager you begin to feel invincible and begin to feel like a “Master of the Universe.” Now those of us who have been around long enough recognize those feelings are temporary and false. But the young managers seem to be experiencing times about which they have only read. The wind is blowing through the window panes and it seems like a panic.
There is an old saying: the markets are driven by fear and greed. I sense right now there is a third factor: The fear of looking stupid. Young managers were taken by surprise when oil prices sank. They were taken by surprise when emerging markets dived. They were taken by surprise when China stumbled. They were taken by surprise when junk bonds toppled. They were taken by surprise when private equity and hedge funds sank in value. They seem to fear the next surprise; the next shoe to drop. The numbers support this view. Cash levels in mutual funds are the highest they have been in decades. The total of shorted stocks (those who investors feel will go down in price) has topped $ 1 trillion for the first time ever!
Cash in mutual funds eventually has to be invested by buying stocks. Stocks that are shorted have to be purchased. There is what we call a significant amount of buying power standing on the side lines. I have never known a time when situations similar to this did not result in managers eventually realizing that certain stocks were undervalued. When they finally realize and if the values remain as good or better than they are, and I believe that is going to be the case, the stocks will finally trade at their value. Is that 2016 or 2017 or 2018? It is hard to say, but it seems like it could well be 2016.
The question you ask is a good one and the answer is complex. A CD is essentially a bond - with a maturity date (the date you get your money back), and a rate of interest (coupon). Total bond returns consist of three factors:
1- The coupon interest paid
2- The reinvestment of that coupon interest
3- Capital appreciation (the value of the bond when sold).
Held to maturity the bond (or CD) will have no capital appreciation and with negative interest the first two factors will be zero.
The only way to achieve more than the 1.6% annually for the 5 year CD is to buy and sell bonds that will appreciate in value.
During the 1970s in the United States there were a number of bond brokers (as opposed to stock brokers) who understood the types of bonds that could be bought and sold for capital appreciation. Bond yields on treasuries went from 5% to 17%+, and yet some bond brokers were able to find those bonds that achieved capital appreciation.
I am not sure there are many of those bond brokers around. For the last 35 or so years the bond yields have been falling and capital appreciation was achieved in a very different way.
Today's bond specialists are building bond ladders or bond portfolios and I believe they will tell you they do not expect capital appreciation if interest rates rise.
I do believe the time is coming when interest rates will begin to rise and continue to rise for a long time - a secular bear market that will make bond ladders and most bond portfolios do poorly.
You will have to find a bond specialist who understands how to achieve capital appreciation in a rising rate environment.
Having spent this time to answer I feel I did a most inadequate job of telling you the best way to guarantee you will have somewhere to put your savings.
Are you more interested in the returns on your money or the fees you pay. You can find financial advisors who charge as little as 0.25% if your only interest is the fees paid. From what I have seen, the returns reflect the low fees. If you are interested in returns, then check the published track records of financial advisors. Make sure the track record is actual and not a "back-tested" record. Also make sure the track record includes all accounts, not just the current accounts. If an advisor does not have a published track record compared to the S&P 500, then find another advisor. But if fees are all you care about, then pick the lowest fees you can find.