To Your Fiscal Good Health in 2018

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Resolve to Maintain Your Fiscal Good Health in 2018

It’s that time of year again when most of us start thinking about New Year’s Resolutions. Year after year, polls show that the most popular resolutions involve losing weight and/or exercising; in other words, improving our health. That’s smart, but don’t forget that physical and mental health go hand in hand, and stress and worry can undermine anyone’s efforts to achieve overall good health through diet and exercise alone.

I believe achieving—or at least working toward—fiscal good health can contribute greatly toward improving one’s health in general. That’s a pretty logical idea when you consider that studies consistently show the number one cause of stress for most Americans is worrying about money. That worry can increase significantly as retirement approaches—but it doesn’t have to.

The Right Mindset

For much of this year, as the financial markets have entered new realms of irrationality, I have focused on the importance of adopting the right mindset for good fiscal health. The right financial tools and strategies are essential, of course, but odds are, you aren’t going to end up using them unless you make the necessary shift in the way you think about saving and investing within 10 or 15 years of retirement.

If you’ve kept up with my monthly newsletters, you already know all this, but just as you must work to maintain good physical health once you achieve it, you must make the same efforts with your fiscal health. It’s never a good idea to put any part of your financial plan on autopilot, and that includes the psychology behind it. It can be especially tempting in this day and age, with so much hype around the overinflated stock market, to fall back into outmoded ways of thinking and start thinking of “growth” as the be-all and end-all of financial success.

Not only is that potentially dangerous, it’s just plain wrong. I pointed this out in a recent newsletter in which I explained that when most people say they want “growth,” what they really mean is they want a good, competitive return. Total return, remember, is the sum of both growth (in the form of capital appreciation) and income (in the form of interest and dividends). In my experience, staying focused on the latter more so than the former near and during retirement is the key to reducing risk, thus reducing stress and maintaining good fiscal health.

Remember, too, that this can be done without necessarily sacrificing return, as income-based investors have proven since the turn of the century. As I pointed out recently, although the stock market has soared by over 60 percent since 2000 (and over 20 percent since just last October), the actual average annualized return for buy-and-hold investors has been about 5 percent with dividends factored in. Plus, they had to endure the stress and uncertainty of two major market plunges—from 2000 to 2003 and 2007 to 2009.

By comparison, many income-based investors whose portfolios have been properly managed during this same period have achieved close to 5 percent income annually and greater than a 5 percent average annualized return! More importantly, they’ve done it with far less risk of a major loss during those two huge market drops, and without the continued risk of a third major stock market drop. To put that all in a simple formula that summarizes my point: comparable return plus less risk equals less stress and improved fiscal good health!

Get Healthy, Stay Healthy

So, by that logic, the first financial resolution on your list should be to make that shift if you haven’t yet done so. You should reexamine your way of thinking to ensure you still have the right mindset for saving and investing after age 50—a mindset in which protection and income are your top priorities. Some additional resolutions that might accompany and help you achieve the first one include the following:

Revisit Your Goals – I recommended doing this as part of your year-end financial planning checklist in last month’s newsletter, but if you don’t get to it before the end of the year, make it a top priority after January 1. Again, goals can change, and sometimes they must be adjusted in response to new developments and circumstances in our lives. At the same time, your financial strategy may periodically need to be adjusted to make sure it is still aligned with your goals—and not potentially jeopardizing them.

Reexamine Your Risk – This is another one I recommended for your year-end checklist, but there is never a bad time to schedule a meeting with your advisor to better ensure that no new potential “weak spots” have developed in your financial plan. Again, long-term fiscal good health is, just like physical health, a matter of maintenance. That includes working with your advisor to maintain the appropriate strategies in accordance with the appropriate mindset.

Help Someone Else “Get Healthy” – Study after study has shown that doing good for others is also good for you! So, when taking steps to improve your own fiscal health, include regular efforts to also improve the fiscal health of people you know and care about. That effort could mean making a commitment to invite someone to an educational workshop. It could mean striking up a conversation with one person each month about growth versus return and opening their eyes to the fact that increasing one’s retirement income actually involves reducing financial risk, not increasing it. Or, you could simply recommend a book geared toward educating investors near retirement about how to achieve fiscal good health by reducing risk and focusing on income. There are several such books on the market now, and I would be happy to recommend or even provide you with one. It would make a great Christmas gift!

Happy New Year!

Rosa Shala


Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. Shala Financial and Sound Income Strategies, LLC are not associated entities.





Meeting Your Income Needs Begins with Identifying Them

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Whether it’s pulling out of the Paris Agreement on climate change, a testimony given by the former FBI Director, or the ongoing investigation into Russia’s interference in the 2016 election, Donald Trump’s presidency has been a tumultuous one so far. Yet, for whatever reason, the stock market has remained largely oblivious to all the turmoil. Although upward momentum from the November election ended in late March when Trump’s healthcare bill stalled, the markets have mostly continued to hover around their peak highs—despite one controversy after another coming out of the White House. Instead, it seems that big investors have focused on things like an encouraging jobs report, a slight first-quarter GDP increase over the fourth quarter of 2016, and their continued hope for the success of Trump’s economic agenda.

As for how long Wall Street will remain patient and hopeful—that’s anyone’s guess.But, as I also noted in another recent newsletter, an increasing number of analysts are now forecasting that a major directional change in the markets is likely no matter what happens with Trump. Legendary investor Jim Rogers told Business Insider recently that he believes a market crash is coming in the near future that will “rival anything he has seen in his lifetime.”

Another telling and potentially ominous detail I’ve discussed before has also remained consistent: big investors haven’t been fleeing the bond market in favor of stocks. They have remained committed to both, which is a possible indication that their optimism isn’t as great as it might seem. In fact, the 10-Year Treasury rate actually dropped from 2.29 at the beginning of May to 2.19 as of early June. 3 To me, this suggests that big investors are still “hedging their bets” just in case.

Income Starts with Defense

Of course, you already know I believe that if you’re retired or near retirement, you shouldn’t really be making bets with your portfolio at all, never mind hedging them. You should, instead, be focusing on overprotection and strategies designed to generate the income you need to achieve your retirement goals regardless of market conditions.

But, how exactly do you know how much income that is? Well, you probably don’t until you sit down and figure it out—ideally with the help of a qualified financial advisor who specializes in income-based strategies. Not making this effort is a common and sometimes very costly mistake among retirees and near-retirees because it causes them to stick with risky growth strategies with a mindset of: “I better get all I can just in case.” To use a sports analogy, these people are focusing on offense even after they have more than enough points to win the game, and well after they should have shifted their focus to defense. They continue to unnecessarily invest for growth, forgetting—until it’s too late—that growth can quickly turn to shrinkage.

As you may already know, once you do shift your focus to income instead of growth, you quickly realize that financial defense is a natural byproduct of investing for income. That’s important because your principal needs to be secure to reliably generate the interest and dividends you need to achieve your goals. In my experience, an ideal asset allocation for most people heading into retirement is one in which no more than 30 to 40 percent of your portfolio is in riskier options like stocks or stock mutual funds (even those, I believe, should be dividend-paying stocks), and the rest is in alternative strategies specifically designed for protection and income.

That kind of allocation allows you to utilize the four percent cash flow rule, meaning your investments are reliably generating at least four percent annual income through interest and dividends. For example, ideally, if you have one million dollars in invested assets, you should be able to generate approximately $40,000 a year in income because of the way your assets are allocated. Whatever the amount, the trick is to then add it to your Social Security benefits and any other sources of retirement income (such as a pension). Then, you should measure the total against your specific retirement goals, living expenses, and expected length of retirement.

Of course, these are all just examples based on rules of thumb. The point is that whether you’re already retired or just in the planning process, knowing your specific goals and determining your income needs are good steps toward helping you recognize the strategic value of overprotection and the importance of satisfying your retirement needs and goals from income instead of principal.

Have Questions on Income Based Portfolios

If you have questions please let me know. [You can reach me via my contact form here]I know doing research on income generating vehicles can be quite complex and confusing that perhaps is why many advisors do not recommend these types of strategies.

If you know anyone who has similar concerns, please share this post with them. I know a lot of people are getting very conflicting information and my goal in writing this is provide some clarity.

I hope you found this beneficial.

Rosa Shala

Changing Lives Financially

Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. Shala Financial and Sound Income Strategies, LLC are not associated entities.




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       Shifting your focus to protection and income doesn’t mean completely sacrificing growth: it just means no longer making it your top priority, as it likely was in your 30s and 40s. At that age, most people have what I call a “401(k) mindset,” or a lump-sum way of thinking. That’s where you look at your statement, and if your lump-sum value went up, you’ll be in a good mood, but if it went down, you’ll be in a bad mood. But after age 50, you no longer have to think solely in terms of your lump-sum—nor should you. I believe you’re better off thinking first in terms of income.
Unfortunately, the reason many people fail to make this shift is that they are uninformed or have been misinformed about the world of fixed-income strategies. They may view them as only slightly less risky, but significantly less rewarding, so their attitude is: “It’s not worth it.” That’s especially true in a low-interest-rate environment like the one we’re in now because most people believe that when interest rates are low, they must go up, and that when that happens, the value of bonds and other fixed-income securities goes down. While that’s basically true, there are two important points these investors should understand. First, with a fixed-income investment like an individual bond, the loss of value is typically only a paper loss because your principal investment is insured by the issuer if you hold the bond to maturity. And second, your income shouldn’t change; it is set to be paid through interest or dividends at a fixed amount for the life of the bond, regardless of whether rates overall go up or down. Typically, when I tell people that it’s possible to earn 5% interest or dividends annually without the risk of common stock or stock mutual funds, they’re shocked. Their own advisor has never told them this, often because he has a stock market-based business model and deals in fixed-income strategies as an afterthought, meaning he’s more likely to put his clients in a “murky pool” of mutual funds lacking transparency or a managed portfolio of bond funds.

REAL ESTATE ON STEROIDS                                                                                              
A good analogy for understanding fixed income is to think about investing in speculative real estate versus rental property. With the first, the only way to make money is if the property value goes up and you sell it at the right time—as with a non-dividend stock. With rental property, you’re less concerned about the fluctuating value because you have a consistent cash flow from your tenants. The only risk is if someone doesn’t renew their lease and the property sits unrented. But, imagine if you could find a tenant who agrees to lease the property for 10 years and then buy it outright at a fixed price after the ten years. That’s like a rental property on steroids—and that’s basically what an individual bond does! A folksier analogy I like to use is: think of an individual bond like having a chicken. You could eat it, but why would you if it’s reliably providing you with eggs? The chicken is your secure principal; the eggs are your income.

One reason people may lack this kind of information about fixed-income strategies is that the financial media and some advisors like to focus only on the more “exciting” and, in many ways, simpler world of stocks and mutual funds. They may even try to scare investors with phrases like “the bursting of the bond bubble.” I would argue that anyone using that term today doesn’t really understand fixed income. Yes, long-term interest rates have risen recently, impacting bond values, but, like many analysts, I believe low rates overall are now “the new norm.” Additionally, even when rates do rise, the bond market never fluctuates as dramatically as the stock market—which is why actively managed fixed-income strategies can potentially strengthen a portfolio against loss, even in a rising interest rate (or “bursting bubble”) environment.

So, think about that, and then think once more about how a 30 to 70 percent real loss in the stock market might impact your retirement goals if you should get caught in the next major plunge. Then, ask yourself again (and ask your friends) if making that shift from a growth mindset to a protection and income mindset sounds like it might be “worth it!”

For a frank and informative discussion on managing the risk in your portfolio , contact the office of Shala Financial at
352-207-7920 or
or register for their next workshop.Changing Lives Financially


Will Your Money Be Safe When the “Trump Bump” Finally Slumps?

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First, let’s look at the rally. Since Election Day, all three major market indices have hit new record highs several times.

The Dow Jones Industrial Average rose from 18,332 on November 8 to 20,812 on February 28. In that same span of time, the S&P 500 climbed from 2,139 to 2,363, while the Nasdaq went from 5,193 to 5,825. Those are some “yuge” gains, as Trump might say, but remember that the size of a rally isn’t always indicative of its strength.

For example, the markets spiked again in response to Trump’s address to Congress on February 28, with the Dow surpassing 21,000. This happened despite his speech offering few new details about his budget or tax plan. That’s significant because from the start, this rally has been based more on emotion than reality. It’s been based mainly on optimism that Trump will be able to make good on his promise to grow the economy by 4 percent a year. Of course, no real impact from his policies has occurred so far, and most of the details of his plan remain unknown.

Already Priced In

In other words, the positive impact of Trump’s policies has already been priced into the market. That means that if and when we do start seeing signs that his promises are coming to fruition and positively effecting the economy, the markets might not climb much higher. They have to let actual growth catch up to the lofty heights they’ve already reached. For now, the markets are overinflated and out of whack with current corporate growth rates, and Wall Street is simply waiting for its optimism to be vindicated.

But what if isn’t? What if we start seeing signs that Trump’s plan isn’t viable, or it just takes too long to implement? Could the optimism that has fueled record highs turn into an equally potent level of pessimism that triggers the next major market collapse? If so, the price for buy-and-hold investors is likely to be far more significant than the potential reward. As I’ve discussed many times, historical evidence suggests that the next major plunge could be as steep as 70 percent, but should be at least 35 percent. How does that compare to the potential 5 to 10 percent additional gain the markets might achieve if Trump delivers? Does it make sense to hang in there for a gain that small if it means risking a loss that big? I’ve posed that question before, of course, and illustrated it with this analogy: would you ever play a casino game that paid $10 if you won but cost $35 to $70 if you lost? Probably not.

And, there are other signs that the “Trump Bump” is deceiving. Hard economic data since the election has been hit and miss, at best. At the same time, the 10-Year Treasury yield has stabilized at just under 2.5. That means investors aren’t fleeing the bond market and betting only on stocks—which is a clear sign that their optimism is actually cautious despite the hyped-up record highs.

Speaking of those records, consider these facts related to two of the most recent milestones: In the days leading up to Trump’s address, the Dow rose for 12 straight days, tying a record last reached in January of 1987. What people remember most about that year, however, is the fact that on October 19, the stock market experienced its biggest one-day crash ever. And, when the Dow surpassed 21,000 on March 1, it tied a record for the fastest 1,000-point run-up since 1999.  What people remember most about that year, though, is that it ended with the bursting of the dot-com bubble, and the start of what I believe was the first major crash of our current long-term bear market cycle.

Aligning Your Income-Based Goals

As I pointed out last month, all these questions surrounding the “Trump Bump” should be largely irrelevant to investors over 50—provided they have rightly shifted their priorities from growth to protection and income. The truth is, everyone wants the same thing from their investments: maximum return with minimum risk. But, maximum return for what purpose? Achieving the right balance depends on investors knowing their retirement goals and understanding which of the following they are investing for: a lump-sum expenditure, maximizing their legacy, or supplemental retirement income. The answer should align with the goals they’ve identified. For instance, most people say their goals include things like traveling, dining out more, hobbies, and visiting grandkids. Most people also agree those aren’t things they’d want to pay for by selling investments; they would want to achieve those goals with a reliable income stream. So, doesn’t it make sense that they’d be trying to maximize returns in the form of income?

I often find that people unknowingly have retirement goals that are in conflict with their financial strategies. It’s because they haven’t yet taken the time to really think about their goals or the most sensible options for achieving them. They don’t realize that by continuing to invest primarily for capital appreciation, they’re not only carrying unnecessary risk, but they’re actually investing for the wrong purpose. They’re investing as though they believe they’ll have sufficient income without their investments and can put the investments toward an inheritance or a major purchase. Even if they do actually believe that, they usually haven’t considered that with lifespans now longer than ever before, they need to plan for retirement income of 30 years or more, or that if the inflation rate reached 5 percent, they would end up needing four times as much income at the end of their retirement as they needed at the start. At 7 percent inflation, they’d need eight times as much income!

As clients, you already know that there is an entire universe of investment options that align more practically with income-based investment goals than do risky stock-based strategies geared toward capital appreciation. If you have friends or family members who are nearing retirement and don’t know much about these options, take it upon yourself to help educate them. Exposing investors who are close to retirement to this kind of helpful information is especially important as media hype surrounding the deceptive and potentially dangerous “Trump Bump” continues.

Written by: Rosa Shala



Today’s Record Market Highs Offer More Cause for Concern than Comfort

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Changing Lives Financially

Before you get too excited about the stock market hitting record highs recently, keep in mind the term, “irrational exuberance.” It was coined by former Federal Reserve Chairman, Alan Greenspan, and it is used to characterize a market that appears overvalued in relation to economic fundamentals.
I believe the market has actually been “irrational” and largely out of whack with economic realities for years now. While the Federal Reserve’s reckless use of artificial stimulus after the financial crisis did help spur an asset recovery, the actual economic recovery has lagged far behind. Although quantitative easing ended in late 2014, that deceptive disconnect between the financial markets and the economy remains firmly in place – as this latest bull rally clearly demonstrates.
As far as the economy goes, many domestic reports over the past year have been unimpressive, if not downright gloomy. Corporate profits have continued to decline, jobs figures have been a mixed bag, and GDP growth has been miniscule throughout 2016. Globally, the picture is even worse, with China and many other major markets still struggling, and the already unstable European Union now reeling from the shocking departure of Britain.Changing Lives Financially
The bottom line for everyday investors is that “irrational exuberance” – whatever the forces behind it may be – is generally considered a warning sign that the market is overvalued and potentially due for a drop. In light of the fact that the current market is, historically speaking, overdue for another major sustained drop (which would be the third such drop since 2000), I suggest that investors anywhere near retirement look closely at their market exposure. After all, even though sheer momentum could keep the rally going for a little while, when the bubble finally bursts, everyday investors – not
big traders – are the ones most likely to get caught in that next big downturn.
For a frank and informative discussion on managing the risk in your portfolio, contact the office of Shala Financial at