Brian Hufford, CPA, CFP®
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I do not often review books in this column, but occasionally one comes along that is so full of wisdom and humor that I am compelled to recommend it.
Such a book is "The Little Book of Bulletproof Investing" by authors Ben Stein and Phil DeMuth. What drew me to the book was the audacity of investment-informed authors making a case for a bulletproof portfolio. Who are they kidding? The authors are careful to distinguish the characteristics of a bulletproof portfolio from one that is safe from "nuclear attack."
A bulletproof vest is of little protection in a nuclear war, which is the investment equivalent of what many investors fear may await us. A bulletproof vest gives courage when chasing bad guys. The threat of nuclear attack leads me to consume a five-gallon container of Häagen-Dazs butter pecan ice cream. Thus the importance of hope in financial and investment outcomes.
The best financial outcomes are supported with two important elements: They contain equal parts of high technical knowledge along with self-leadership. Technical knowledge is useless without supporting a high quotient of self-leadership to implement the desired change. It is great to perform an accurate retirement savings calculation, but useless if it is not accompanied by finding the savings annually to fund the goal. Most investment books are high on technical knowledge and low in supporting necessary leadership to realize the desired outcome.
The technical knowledge component is supported in the book with a reader-friendly (and humorous) overview of the necessary elements of successful portfolio construction. The authors take no prisoners in their beliefs of what does and does not work in constructing a successful investment portfolio for retirement.
The "bulletproof" part is the authors' unique twist to portfolio construction that attempts to lessen portfolio volatility by adding a significant component of four basic portfolio building blocks: energy, health care, utilities, and consumer staples. These "necessities" for human existence tend to be less volatile in bad times. In addition to a twist for constructing the overall stock allocation, the authors have their own recommended blend for fixed income investments that attempts to navigate an environment of possible inflation, a falling dollar, and increasing credit risk.
The leadership component to the book is administered in two ways: with a bracing slap in the face to jolt readers into navigating the present challenging economic reality, as well as a Web site designed to support "do-it-yourselfers" with implementing portfolio recommendations. The present economic reality calls for a highly frugal lifestyle and a high savings rate. Everyone knows this.
The authors solve the riddle of projecting a safe withdrawal rate from retirement savings. The age-old question has been, "Can I withdraw 4% from my retirement savings safely or is 5% okay?" The authors believe the only safe withdrawal rate from retirement savings is 0%. They believe the best retirement plan is income from working as long as possible. This is challenging for the highly physical profession of dentistry. As deflating as this reality is, it is much more elevating to face the truth, with a plan to save much more money.
For dentists, bling is typically not the saboteur of savings. It is the four saboteurs of large capital expenditures, expensive children, debt, and technology. Dentists do not save significant amounts because an enlightened financial plan must allow for the savings to happen while managing the four saboteurs. Saving what's left over doesn't work.
Getting out of debt is important but not at the expense of building significant savings. The problem with the current economic environment is that the moral incentive to save along with the energy to lead complex financial outcomes is gone. When investment losses are highly possible or perhaps even probable, the five-gallon container of Häagen-Dazs becomes hard to resist.
This is why it is crucial to arm oneself with a bullet-proof vest and charge ahead with courage. Is bulletproof investing possible? Probably not. But a plan that addresses the current economic climate and encourages wise financial behavior can overcome self-sabotage, perhaps the largest enemy of all.
Hufford Financial Advisors, LLC ("Hufford") is an SEC-registered investment advisor. This article has a limited purpose to provide educational information and a generalized discussion related to investing. To the extent any reader has questions regarding the applicability of any issue discussed in this article to an individual situation, the reader is encouraged to consult with the professionals at Hufford. Information pertaining to Hufford's advisory operations, services, and fees is set forth in our current disclosure statement, a copy of which is available upon request.
Brian Hufford, CPA, CFP®, is CEO of Hufford Financial Advisors, LLC, an independent, fee-only planning firm that helps dentists achieve financial peace of mind. Contact Hufford at (888) 470-3064 or [email protected].