4695 Chabot Road
What does it mean to be independent?
Since Carr Wealth Management, LLC is providing a service instead of a product, the added value to a client, other than lower costs can be more difficult to measure. There is no immediate tangible benefit provided. Instead, there are other elements to adding value that are less transparent. And one of the most important aspects of the financial services industry is to assure clients that their adviser is always working in their best interests. I believe the best way of accomplishing this is to remain free of any ties and obligations, which include being employed by, any company which sells proprietary products.
What are the fees the company charges?
Carr Wealth Management’s only compensation is the management fee (billed quarterly) received directly from clients. We are not paid by commissions, sales or transaction charges, revenue sharing, or other compensation schemes by any other entity. The annual fee for investment management is based on the assets we manage. The fee-only structure provides a working incentive for both the adviser and client to invest in the most efficient manner. Services include the selection and ongoing management of investments, preparation of a financial plan, annual meetings to review investments and financial plans, and ongoing education on a variety of investment and financial topics. We also help with the coordination, if needed, between tax-preparers, estate planning attorneys, and insurance providers.
What’s the difference between a wealth manager and a financial planner?
Although both provide financial services, some believe the area of wealth management should indicate a higher level of knowledge in a greater number of financial areas. Their level of expertise should include not only all areas of asset management, but they should also be skilled in developing, implementing, and monitoring well-designed financial plans tailored toward the unique needs of each client. Unfortunately, the financial planning profession has yet to designate any particular credential/license that represents the highest standard of competence, like what the CPA is to the accounting industry.
What is the process used to help clients with their financial planning needs?
We begin with a no-charge initial consultation that will reveal which areas the client is looking to get help with and what are the client’s financial objectives and goals? Then specific information is gathered to 1) help identify which phase the client is currently in – accumulation, distribution, or preservation, and 2) create a cash flow and net worth analysis to determine client liquidity needs, investment time horizon, and the level of client risk tolerance. Once we know where the client is now financially (balance sheet), and we quantify the goals (forecast), then we develop a plan to help guide them to their desired destination. If Investment advice is needed, we will help with allocating investments based on client objectives and their risk tolerance. Once a plan is implemented, monitoring the plan requires regular “check-ups” to determine if any major changes have been made to client financial circumstances, and if so, what degree if any should adjustments be made to their investment allocation. Since our investment strategy will be built upon producing long-term favorable investment results, any adjustments made solely on short- term results is generally a practice we don’t recommend or follow.
Who is your typical client? What type of clients do you help?
Anyone who has set financial goals for themselves and would like help reaching those goals can qualify as a client. Those who are in, or close to, retirement, usually require more help since they face more issues in more areas. Younger individuals tend to be more interested in the growth and protection of their assets while those in retirement may also need help with their income distribution and family transfer issues as well.
What type of issues do new retirees face?
They face a balancing act between essentially all the main areas of asset management – the growth, distribution, preservation, and protection of their assets. They are nearing or at the end of the accumulation phase where higher risk tolerances and greater potential returns could be afforded due to longer time horizons and lower liquidity concerns. Now that they’ve reached or will soon be reaching retirement, their risk factors begin changing – their income may be reduced, sometimes significantly; the sources of income may have varying tax consequences; time horizons grow shorter, and inflation and liquidity concerns become greater. Meanwhile, they keep an eye on the importance of asset preservation as family transfer goals become increasingly important along with ensuring they have sufficient assets in the event they live beyond their life expectancies.
Which companies do you work with?
The brokerage company that Carr Wealth Management, LLC uses to process transactions with and the custodian of client funds is with the institutional side of TD Ameritrade. TD Ameritrade neither sells products nor offer services to the general public. TD Ameritrade is a member of the Securities Investor Protection Corporation (SIPC). Securities in your account are protected up to $500,000. For details, please visit sipc.org. TD Ameritrade also provides $149.5 million worth of protection for each client through supplemental coverage provided by London insurers. The supplemental insurance provides coverage following brokerage insolvency and does not protect against loss in market value of the securities. TD Ameritrade offers Innovative technology, outstanding client service, seamless account integration, and a breadth of products and services.
Carr Wealth Management primarily uses only two investment or mutual fund companies for client investments - Vanguard and Dimensional Fund Advisors. Both companies have an investment philosophy that specialized in providing low-cost, well-diversified, and tax-efficient mutual funds, which are designed to achieve long-term capital appreciation.
What type of investments does Carr Wealth Management use?
The investments the company predominantly uses are publicly traded investments that are listed on all major exchanges; they’re considered liquid investments that can be converted into cash within days if needed. The investments are predominately low-cost, institutional, and well-diversified mutual funds, the same type of funds that some major pension plans and endowment funds use; they’re constructed using risk and return principles rather than employing timing strategies or speculation. The company doesn’t participate in private equity investments, hedge funds, variable or index annuities, or any other type of investments that are considered too costly and too complicated to understand. An important principle the company adheres to is that “the more complicated an investment is, the less it probably benefits the investor.”
What is the Company’s investment philosophy?
Carr Wealth Management, LLC advocates long-term discipline because it’s the best chance somebody has of achieving positive investment results. I avoid speculative or short-term transaction-oriented strategies that essentially render only a 50/50 chance of being right, and because of the additional costs of each transaction, there’s less than a 50/50 chance of actually making a profit.
Why is discipline so hard to follow?
Separating emotions from sound investment decisions is what I believe to be the primary reason discipline is so difficult to maintain, but the investment environment we live in today makes it increasingly difficult to stay disciplined. There’s a multi-billion dollar industry which has vested interests in promoting more active strategies. Financial magazines, newspapers, so-called experts on television shows, and the constant news updates on various media outlets are all geared to invoke actions based on investor emotions, which I feel can cause investors to engage in ineffective, counter-productive strategies.
What is meant by “letting the market working for you?”
We’ve been conditioned to believe that through hard work and effort, most anything can be accomplished. That may be true, but trying to outsmart the market isn’t one of those things. Because of the size of the market and the number of highly skilled investment professionals competing in the market, it’s impractical to think it’s possible to outsmart the market. And there’s overwhelming evidence to support that it’s not only impractical, but also counter-productive. Instead, by harnessing the market’s power, we put its collective knowledge to work for us, instead of against us.
What is the difference between investing and speculating?
Investments are an outlay of money in hopes of achieving future returns, whereas speculation is an outlay of money in hopes of achieving short-term or immediate returns. Speculation is a zero-sum game, meaning the amount of somebody’s gains will equal someone else’s losses. Success with this strategy depends on the 50/50 chance of being on the correct side of the transaction and overcoming the additional costs and possible taxes of each transaction. Disciplined investing takes advantage of the markets historical and logical process of rewarding investors with returns that match their level of risk tolerance. Typically, the longer the time horizon is, the greater the potential for favorable investment returns as investors with long time horizons are more likely able to withstand short-term market volatility.
How do you explain Warren Buffet?
He identifies companies which he feels he can directly impact the value of. At his disposal of course is the means to place himself among the major decision makers about what direction the company is headed. We as individual investors don’t have that luxury. Mr. Buffet is actually an ardent supporter of a more discipline approach for individual investors.
What are target funds?
Target funds can help investors identify an appropriate time horizon for their investments through funds with pre-determined asset allocations, but there are other factors to consider in determining an appropriate investment allocation. Many people may have the same time horizon for their investments, but their financial goals, liquidity needs, and their personal views about risk are usually different from everybody else’s. The consideration of all the factors may result in discovering that the investment composition in the target fund may not be suitable for a client’s own unique situation.
What is Dollar cost averaging?
Instead of making a lump sum investment, DCA is investing only a portion of the amount at periodic time intervals. The benefits of DCA are the protection against an immediate short-term loss on a lump sum investment, and it provides the ability to purchase more of an investment during a prolonged market decline. However, the longer the investment time horizon, the less critical it is to protect against immediate short-term losses, and because of the additional transaction costs of multiple purchases, the strategy could become counter-productive.
What is rebalancing?
Rebalancing is the process of reverting investments in a portfolio back to their original allocation percentages. As long as the client’s risk tolerance remains unchanged, rebalancing is necessary to maintain the risk levels initially agreed upon. The value added for rebalancing is evident by its adherence to a basic necessity of successful investing – which is to buy low and sell high. You’re selling investments whose values have increased relative to the rest of the portfolio and buying investments whose values have decreased relative to the rest of the portfolio.
Isn’t the company advocating a “buy and hold” strategy?
No, being committed to holding on to an investment come rain or shine may be an effective method to lowering transaction costs, but it’s possible to expand and improve upon that cost advantage. A client’s investment strategies will be tied to their objectives, so unless factors affecting their objectives change, and thus create a need to change their investment allocations, we try and remain disciplined for the long-term, rebalance when necessary, and let the markets work for us rather than against us.
What alternative investments does the company use?
Deciding which alternatives to stocks and bonds that would make sense to own in a portfolio requires evaluating the investment not just by itself, but rather how the inclusion of the investment impacts an overall portfolio. Ideally, we’re trying to utilize the power of diversification by adding investments which can increase overall returns without significantly increasing overall risk, or reduce overall risk without sacrificing total returns. There are several alternative investments available but ultimately it’s the client’s unique financial situation which will dictate what’s best for them. However, there are a few investments which I feel make sense for most situations, including publicly owned real estate, inflation protected securities, international equities, and traditional fixed annuities, which basically act like long-term CD’s with the added feature of tax-deferral.
How can we be sure the market will produce long-term returns? This time it’s different!
Think about the last 20 years, we’ve had the dotcom boom and bust, the horrific events of 9/11, the middle-east conflicts, and the real estate and credit crisis which brought the global economy to its knees. But through all those events, the twenty-year annualized return for the total US stock market ending December 31, 2015, was 8.3%. Let’s go back an additional thirty-years that includes the Vietnam War, the oil embargo of the 70’s, the Iran hostage crisis, and the double digit interest rates and inflation in the 80’s. The annualized return for the past fifty-years was also 9.8%.
How is academic research used?
The use of scientific or academic evidence has been evolving in the financial world since the 1950’s. Since then, academic research has contributed greatly to help investors identify a more efficient way to invest. It’s given us evidence identifying what type of risks that investor are compensated for, and which investments contain those risks. Research has also shown us the powerful diversification effects of combining riskier assets with less risky assets in a portfolio – which can result in achieving higher returns without significantly increasing risk. Academic research has shown us that the markets are so much larger, efficient, and smarter than anyone of us is individually, and it’s proved that active management, or the practice of trying to outsmart the market, is a counterproductive strategy.
What is up with all these Robot investment alternatives?
Staying away from high fees and excessive trading are definitely steps in the right direction for investors using automated strategies. However, I believe a qualified advisor can more efficiently consolidate the many areas of financial planning that people need the most help in - including the growth, distribution, preservation, and the protection of their assets. Then creating, implementing, and monitoring a well-designed plan tailored to the unique needs of each client requires skills that I feel are not adequately accessible with automated strategies. But the biggest problem investors will probably face with automated systems is the same problem they face with non-automated systems, and that is the lack of discipline to stay the course during inevitable market declines.
How does the company select fund managers?
I don’t utilize investments which have fund managers – it’s a counterproductive strategy because of the additional costs incurred. The investment strategy the company advocates involves purchasing low-cost, institutional mutual funds that are each grouped together by similar risk characteristics. For instance, large-cap and small-cap are examples of two different investments with their own unique risks. Then we apply risk and return principles to help construct portfolios that match client risk levels and objectives. The markets have historically rewarded long-term investors for the level of risk they accept, not for the fund managers they select.
Why are risk-adjusted returns so important to know?
It’s important for an investor to identify the level of risk they're exposed to since they’ll know what type of long-term returns to expect. Most investors, unfortunately, will only realize their risk exposure during a down market, but it may be too late, especially if they initially desired a more conservative portfolio. During an upmarket, investors will pay less attention to their risk exposure since they’re making positive returns – but they may not realize that their risk-adjusted returns should be higher. A better understanding of the risk/return relationship may compel investors to ask more questions about the fees they’re paying and the strategies they’re utilizing in the event they don’t achieve their expected results.