The balloons are gracing the skies in Albuquerque, and finally it is getting cooler and fall is on its way. I am generally not a winter person, but after our hot dry summer, I am ready for fall and winter. The recent rains have been very welcome for our parched desert landscape!

The Market, News & What to do about it
The last quarter has treated stock investors badly. I believe most of the negative returns are due to the financial news’ efforts to push the fear factor and increase viewership to get you to watch their advertising. Most of what we watch is thinly disguised entertainment that is short on facts and mostly sound bites! If the news concerns you, turn off the TV!

Don’t worry about what you cannot control. If your portfolio is not adequately diversified, you can take action to fix that problem. Do not let your feelings get the better of you and make wholesale changes based on the “news”. You can control your spending, keep saving before retirement and possibly adjust your retirement date if your savings are behind schedule. If you are retired, postpone that long awaited round the world trip till your portfolio recovers. Housing is generally not an investment – you have to live somewhere. Unless you cannot afford your mortgage, don’t let the market value of your home worry you. Take advantage of the ultra-low interest rates and refinance, preferably to a 20, 15 or even a 10 year mortgage. Try not to lock yourselves into another 30 year mortgage unless you have a while to go before retirement.

35 Years of Indexing
In 1976, John Bogle created the world’s first index fund, the Vanguard 500 – the fund celebrates its 35th birthday, even though early detractors nicknamed it Bogle’s Folly. Today there are over a thousand index funds and exchange traded funds (ETF’s) with nearly $2.3 trillion dollars in assets. Despite predictions to the contrary, index funds have led to above-average returns – more than half of U.S. domiciled index funds performed in the top 2 quartiles over the last 1, 3, 5, 10 and 15 years ended July 31, 20111. Even though the number of index ETF’s now exceeds mutual funds, they are essentially the same type of investment vehicle – keeping investment costs down to very low levels and not trying to second guess the direction of the market.

Old Age & Outliving your Portfolio
It is not easy to work for about 40 years and accumulate a large enough portfolio to support you for 30 years or more without earnings. With retirement planning, the temptation is to use a shorter life expectancy, in effect, planning to die sooner rather than work longer or live on less. A new study indicates that 10% of all 65 year olds will live into their 90’s:2

Oct 2011 Table

Cost Basis Changes Coming for Mutual Funds
Beginning in 2012, regulatory changes will affect custodians reporting of cost bases and gains or losses for taxable (non-retirement) accounts. Starting next year, your account custodian will have to send the IRS and you, cost basis information on all mutual funds purchased after January 1, 2012. How does this affect you, as most brokerage houses have been reporting cost basis information on statements for years now? They have been supplying you with the Average Cost of the shares you own. But starting next year, two other types of cost basis information will be available, namely: • First In, First Out, or commonly called FIFO • Specific Share Identification. At the time of sale you choose the shares to sell, which will determine your gain or loss. This will add to the complexity of trading, so please let me know if you have any questions about the new basis reporting and trading requirements?

Personal Notes
Our trip to Alaska was fun. We got to do some sea kayaking in Seward, seeing Bald Eagles, seals and otters. The highlight was flying to the Katmai Peninsula to see the grizzly bears up close fishing for spawning salmon. My tennis team enjoyed the USTA regional’s in Tucson – we did not get to Nationals, but had the satisfaction of beating the winners of the event. A couple of weeks ago, Roberta and I scraped home to win the TCA mixed doubles finals in a 3rd set tiebreaker. My fee-only practice management group meeting in Chicago was very productive, and they are holding my feet to the fire with a do-do list to be accomplished by next year (I am more than half way through it already!) Roberta completed her 2nd Eagle in the Sun Triathlon in El Paso over the Labor Day weekend, and I am committed to joining her in this fun event next year. Now, the difficult part, training to swim 400m without drowning!

Please contact me for a review meeting if needed. As I continue to welcome new clients, please feel free to pass this newsletter on as seems appropriate. My website at has information for those interested in my financial planning services.


1A Brief History of Indexing, Dan Culloton, 8/9/2011,
2Actuarial Consultants Inc., using IRS projections based on July 2000 tables from Society of Actuaries.