Where Are We At? • Where Do We Want to Go? • How Do We Get There? • Are We on Course?

Where Are We At? • Where Do We Want to Go?  • How Do We Get There? • Are We on Course?

The above questions represent the sequential order of primary questions that I work with clients to help them solve when they become clients of Carrick Bend Advisors, LLC.

CBA LLC is a Registered Investment Advisory (RIA) firm. RIAs have more of a legal fiduciary responsibility towards clients than conventional brokers and brokerage firms where financial products are “sold” more than advised on.

I hold myself out as an Investment Advisor and a Financial Planner.  I have two of the most validated professional designations to help support that claim.  I hold both the Chartered Financial Analyst® designation and the CFP (CERTIFIED FINANCIAL PLANNER™) certificate.  Both designations require a fiduciary standard of care and acting in the client’s best interest.

Enough about me, what about you?  What I usually see is that people have some idea of all of their investment assets but they may not see how it all fits together.  I call this the “Where are we at?”  The first thing I do when a client has engaged me is to map out exactly where my client is financially at the present moment.

The next big question is “Where do we want to go?”  or, perhaps more to the point, “Where can we afford to go?” This involves an iterative process of bouncing ideas and goals back and forth and crunching lots of numbers while running sophisticated statistical forms of analysis to best estimate what is reasonable and prudent.

Only then can we collectively even start to answer the question “How do we get there?”  By now we have a firm understanding of the current and planned assets and resources in place.  I can start mapping out a bespoke investment strategy for the client to try on, which I can resize to best fit as needed.

The last question “Are we on course?” is the key one.  Yes, we have done a lot of work together.  We have dug into details.  I have come back for clarity and confirmation many times.  We have gotten to know each other quite well.  However, it is all worth it because the future is unknown.  We have prepared for that as well as we could.  In the interim we weather the storm, stay on course, make changes when necessary, and continue to monitor your overall progress in meeting your life goals.  I say life goals because our finances touch upon our lives in almost every way.

That is what I do.

Brian Berberet, CFA, CFP®
Carrick Bend Advisors LLC

Solid Financial News & Retirement Planning Information. Rule Number #1 Turn off the TV

In his book, The Black Swan Nassim Taleb recommends paying less attention to the news of the moment; rather reflect on more digested more journalized information.  I fully agree.  I do not watch or have on ever any television business news shows ever running in my office.  James Cramer gives me a huge headache.

Rather, I read the Wall Street Journal and the British newspaper Financial Times on a daily basis.  My weekends are television news free as well.  Rather I tend to catch up on the week by reading the Economist, which is delivered to my door by Thursday or Friday. I am not a complete Luddite, I bounce around from the print edition, to reading the Economist on my iPad, and listening to articles on the Economist audio edition on my iPhone, as it is blue toothed through my car’s stereo as I drive around on the weekend.

Beyond that, I tend to try to dig deeper into academic research when looking to hone my financial knowledge and skills, an effort I pursue incessantly.

For years, I have relied on the Center for Retirement Research at Boston College for substantive, yet approachable research regarding planning for retirement.  Research driven over profit driven, I recommend that folks looking for answers regarding financial issues surrounding retirement to check out CRR’s website at crr.bc.edu.  There you will find briefs, solid research and condensed pieces on Social Security, health/long-term care insurance, and financing retirement.  For those willing to dig even further, there are working papers on many salient retirement topics.




So, what I have learned and what would I like to share?  A common question in retirement is, “Do I have enough to live on and how much can I spend?” A reasonable and fair question that can set the heads of even the most intelligent financial professionals and academics incessantly spinning.  There are lots of variables involved, expected return, future inflation, and how long the money will need to last are some of the key issues.  Of course how big the whole pot you are pulling from is a huge issue as well.

Academic research has focused on trying to optimize how much funds can be withdrawn from a portfolio.  Interestingly, the optimal amount comes doggone close to what the IRS recommends for IRA required minimum distributions (RMDs).

RMDs are a function of two variables; (1) the balance of the IRA was at the end of last year and (2) one’s age.  In years when your balance is up, your RMD goes up.  In years when your balance is down, your RMD goes down.  This rule buffers pulling out money during down years a bit, which really helps in the end.  As for the age variable, first of all RMDs do not start until you are 70 ½ so you have deferred withdrawals for quite a while. Beyond that, the IRS RMD rule pretty much works out to be that the older you are, the more money you have to pull out of your IRA.  The IRS what’s you to pay taxes on those withdrawals before your die.  It also works out, that you are pretty safe to pull out more money as you get closer to St. Peter’s gate, which makes sense on a common sense level.

Using this two variables to determine how much money you withdrawal on an annual basis come quite close to the statistical actuarial optimum you will likely be able to withdraw over the remainder of your life.  What you give up in timing you make up for having more money to spend in the end.

On that note, I will close and reiterate that you should check out crr.bc.edu. The Center for Retirement Research at Boston College has a solid Facebook page as well.  Sure you can find it!

My Firm’s Approach to Investing

My firm’s investment policy focuses on using asset allocation and diversification as the primary means of achieving a client’s desired investment goals.  I recognize the preponderance of academic evidence that the capital markets are highly efficient.  Given this, I construct portfolios primarily using securities that are cost-efficient, diversified, and tax efficient.  My strategy seeks to maximize after-tax risk-adjusted total return for the client.

Allocation, Allocation, Allocation
Several academic studies indicate that investment policy and asset allocation explain that from 90% to 100% of a portfolio’s return.  Therefore, our policy focuses on the allocation of several asset classes as the determinant of investment results rather than individual security selection.  Money market funds, fixed income, domestic equities, real estate, and international equities are all integral components of a suitably balanced portfolio.

Stay Indexed & Passive, Avoid Active
Index-based securities and funds are well suited for asset allocation since they are more style specific in terms market capitalization and sector exposure than most actively managed mutual funds which are prone to “style drift”.  For example, a large cap value fund may buy growth stocks in order to improve performance.  Regardless of the correctness fund manager’s judgment call, the risk and return profile of the fund can change substantially from the time the investor initially invested in the fund.  Using indexed-based securities allows the investor to select the appropriate value/growth mix knowing that the underlying securities bought will be more stylistically consistent over the life of the investment.

Follow Academic Research
Based upon considerable academic evidence that value stocks and smaller capitalization stocks outperform over the long term, I seek to add value by judiciously increasing the value bias and smaller company bias in the weighting of the equity portfolio.  The most relevant academic research has been done by Eugene Fama and Kenneth French of the University of Chicago.  Fama received a Nobel prize in 2013 for his research.

I also seek to add value by including international equity investments, real estate investment trust and various alternative assets which offer broader capital market exposure and which have low correlations to the U.S. equity markets.

Municipal Bonds or Municipal Bond Funds? Don’t Ask WWSOD? (What Would Suze Orman Do?)

Municipal Bonds or Municipal Bond Funds?

 We read an article about Suze Orman in Costco’s magazine a while back.  The Costco mag rag has a few articles and lots of Costco products. In a sidebar to the article, Orman advises investors to buy individual bonds rather than bond funds. Orman’s primary argument is that individual bonds can be held to maturity and that interest income of individual bonds is more stable. We disagree with Orman for the most part. We think she is making a quick punchy magazine bullet point that does a disservice to most readers who take her comments at face value.

A Bit of a Drag

In her article, Orman did not differentiate between taxable and tax-free bonds.  We will focus specifically on municipal bonds where we think Orman’s broad brushed advice is particularly doing readers a disservice.  The primary municipal bond mutual fund that we use in client portfolios is the Vanguard California Intermediate Municipal Bond Fund (VCADX). The internal management fee charged by Vanguard is 0.09 percent annually. One would naturally think that if one were to buy individual municipal bonds, after paying the transaction costs of the original bond purchase, one could at least save 0.09 percent a year avoiding the annual expense ratio drag embedded in the bond mutual fund. This does not turn out to be the case.

A Bit of a Spread

The municipal bond market is more fragmented and less efficient than the stock market. Individual bond investors routinely pay from 1 percent to 4 percent more than what a mutual fund manager would pay for the same bond. The mutual fund companies have a scale and a frequency of buying municipal bonds that allow brokers to lower bond prices and still make money. The difference between what one investor can sell a bond for and the price she would pay for that same bond is called the “spread.” The wider spread that smaller municipal bond investors pay is effectively a fee embedded in the price of the bond and not really fully disclosed. Studies indicating simultaneous prices paid by retail investors versus institutional investors confirm these wide spreads.

(Unlike the bond market, the equities markets are pretty much priced the same for smaller investors and large institutional investors. This is due to a combination of free market competition and regulation. As bond trading platforms improve, we do expect smaller investors to eventually have access to more competitive pricing. We expect this process to take several years.)

Assume you pay 2 percent more than what Vanguard paid for the same bond. Roughly speaking, you would have to hold onto that bond about 22 years (2%/0.09% = 22.3 years) before the 2 percent higher price you paid for the bond starts being more attractive than the additional 0.09 percent in annual fees you pay to Vanguard.

Particularly if you are in the asset building mode, individual municipal bond investing is even more expensive, because the individual investor continues to pay a premium every time she buys more bonds to reinvest municipal bond interest income. Municipal bond funds, however, allow savers automatic monthly reinvestment into the bond fund without a transaction fee. Also, depending on the size of coupon interest, the individual investor may not even be able to find a municipal bond issue small enough to buy in order to stay fully invested.

Stability, Income, and Diversification

We think a common investor opinion that the income from individual bonds is more stable than the income from bond funds is incorrect. Let’s say an investor builds a laddered bond strategy and attempts to keep a fairly stable average weighted maturity (or duration, which is a metric used by institutional investors and is a little more complex) by buying longer, such as by buying bonds of rolling maturities. If the investor keeps buying a replacement bond of the longest desired maturity every time a bond matures, she faces the risk that the reinvested coupon interest may be less than the coupon paid by the last maturing bond.

Another common investor sentiment goes something like, “Well, if I hold on to the bond until maturity, I will always get my principal back.” Bond prices fluctuate daily, just like bond mutual funds. Every investment should be evaluated on a total return basis, which incorporates both the change in price from one period to the next and the cash flow earned from the investment. Factoring changes in interest rates, the time value of money, and inflation, a known nominal fixed dollar payment ten to twenty years out really is not much of an assurance of the value of your bond today. More importantly, that fixed dollar amount that will be paid off that far out in the future is not much of an assurance of what your real economic return will be from that investment.

Digging through the actual mechanics and going over the details confirms what we really think: Any comfort that comes from knowing exactly when your individual bonds will mature relative to the constant maturity of a bond fund is really a false sense of security.

Finally two more points on why municipal bond funds may be better for you than individual municipal bonds. The first one is fairly simple. Unless the client has a large dollar amount to be dedicated to municipal bonds, the amount of diversification achievable through a bond fund such as VCADX is difficult to replicate.

The second point is a little more conceptually difficult. Broadly speaking, a portfolio of individual bonds becomes a little shorter in maturity every day. That may lead to your bond allocation moving from its original specified risk tolerance. This can be adjusted when new money is invested in bonds and when a bond matures. Developing strategies using municipal bond funds that target specific maturity ranges (i.e., short-term, intermediate, and long-term) is likely a better way to customize a municipal fixed income allocation tailored specifically for an individual’s interest rate sensitivity and risk tolerance.

Waste Not Want Not

While my degree is in Finance and I have been working in the Investments Industry for years, I was a professional chef in a past life.  Do I miss it?  I will say it is much more fun to be cooking dinner with family and friends on a Saturday night than standing behind a restaurant’s kitchen cooking line with orders backing up, the wait staff going ballistic, and too many things on the stove.

Merging my cooking background with finance, this post will focus on the economic and ethical aspects of not wasting food.  First of all let’s start with two raw facts from the USDA –

  • American Families throw out approximately 25 percent of the food and beverages they buy.
  • The average cost of wasted food for a family of four is around $2,000 annually.

Given that food costs have been rising at a higher rate than inflation over the past several years (from 2012 – 2016 the all-food CPI rose 6.1% while the overall CPI rose 4.5% annually according to the USDA), diligence regarding eating all the food a household purchases is increasingly important.  More important to me, however, are the ethical, moral and environmental reasons for not wasting food.

My parents were children of the Depression and our family was in the commercial avocado growing business so food was always taken seriously and not wasted. Interestingly, the avocados we grew which could not be sold to grocers were sold to dog food companies, so waste of our product from firm to market was quite efficient. Also avocados store for a long time at cooler temperatures so a smart grocer can control inventory well. Ok, we have all gotten that bad avocado which I myself quickly donate to my compost bin after a swear word or two.  Below is a New Yorker editorial cartoon touching upon a “lost” avocado 🙂


Not wasting food  is something I have been really focusing on in my home, with increased diligence, for the past few years. I have made some major improvements. Big Picture —

  • Buy less. Shop off a list made of what you need. Don’t impulse buy.
  • Eat what is in the fridge .
  • Bring the fridge and freezer down before getting more. Be creative with what you’ve got.

I find myself sometimes thinking that there is nothing to eat when the reality is that nothing that I want at that moment is in the house.  If I really think about it, there is always something around.  Is there some celery that needs to be used up?  Find that can of tuna and make a union.


I focus on having all my meat, poultry  and seafood mostly stored frozen so that I can buy larger portions, while I always buy my produce fresh and in smaller portions so that my veggies and fruit will be eaten quickly and not sit in the fridge too long.

I sincerely let very little food waste in my kitchen.  That might mean I end up with a large salad for both lunch and dinner to get rid of all the lettuce before it gets limp.  I may have to cook the too many tomatoes I bought into a sauce.  Keep sliced bread in the freezer, it toasts up splendidly straight from the freezer. I guesstimate that my food waste well below 5%. I try to push that even further by not having any garbage disposal and taking all my food waste, peelings and scraps to my compost bin in my back yard so that nothing ultimately gets wasted.

Below is a sequence of roasting two whole organic chickens, separating the meat for later use and then making, stock and chicken soup.  No food was wasted.  All scraps, bones, onion skins, leafy celery, and carrot tops went into the stock.  Later the bones and veggies leftover from the stock were grinded in my Vitamix and fed to my worms in my backyard in-law compost pit…

Yes, the worms in my compost are pretty jacked up on coffee grounds I also dump into the compost pit as well. So be it!

Taxes Do Matter

Key points I want you to take away from this post are:

• In a low return and increasing tax rate world, the tax drag is increasingly important

• Tax efficiency starts with initial portfolio design

• An effective tax strategy carries on for the life of the portfolio.

Where We Are At
Many respected experts think long-term returns for several asset classes will be lower going forward than historical norms. Given that so much is unknown regarding the future performance of a particular investment strategy, not taking advantage of what is known, i.e. the tax impact, is leaving valuable information on the table. If future investment returns are lower than historical norms, working on maintaining a tax efficient process will help contribute to a larger portion of the real net return. Compounding this circumstance are the likely increases in tax rates at some point in time in the future which will be necessary to address Federal and State budget and debt needs.

Upon Inception
Tax efficiency starts upon portfolio inception. While it is difficult to predict future tax rates, steps can be taken at the point of starting a portfolio strategy which can help insulate against current and future taxes. For example most equity mutual funds are inherently tax inefficient and should be avoided for the most part in taxable accounts. (We do make an exception for a few tax managed equity funds we use in taxable accounts.) We prefer to use more tax efficient exchange traded funds (ETFs) in taxable accounts. If you have a Roth IRA, we should take advantage of the tax free aspect of that account to stock up on your highest expected return assets or perhaps some inherently tax inefficient assets which can be sheltered by the completely tax free nature of a Roth. We generally prefer to hold a larger portion of income producing bonds and high dividend paying REITs in tax deferred accounts like a traditional IRA or 401k plan. Once an asset allocation is determined, working on “asset location” or which investments go into which type of account, is the next logical step.

Carry On
Keeping a portfolio focused on providing suitable after-tax returns takes ongoing discipline. We work on rebalancing portfolios as tax efficiently as possible, often rebalancing the entire portfolio by trading assets within the tax sheltered accounts to avoid creating taxable capital gains. We are inclined to realize losses in taxable accounts in order use these captured losses at a later time to eliminate the tax burden of realized gains. We use specific tax lot identification in all taxable accounts which allows us to clearly identify the tax impact of any investment security sale in client taxable accounts and to seek the most tax efficient combination of tax lots when we do sell.

While I did start by saying taxes do matter and that they are an integral part of the investment decision making process, I do think there are examples when the tax tail should not wag the investment dog. One clear example is when an investor has a concentrated holding with large embedded unrealized taxable capital gains. While the investment industry has offered some (usually commission laden) strategies, most often selling a reasonable portion of the asset to reduce risk is the logical and prudent choice. Also, if a portfolio’s riskier assets have increased appreciably; taxable capital gains may have to be realized to keep a portfolio within acceptable risk tolerance levels.