Financial Planning Dentist
You may have heard some of these eye catching sales promotions where a guy buys a new car and puts a giant bow on it to surprise his wife. First, under no circumstances should you buy a $50k car without the verbal and emotional consent of your spouse. Second, you should immediately review the glossary of basic sales techniques these commercials employ: 
  • 0% APR for the first 12 months
  • Only $2,999 down and $399 a month
  • Free charging for one year on new Tesla Model 3 or Model Y if you buy before the year’s end!
  • Financing for as low as $50 a month for 24 months
  • Enroll in our Rewards Program with our Credit Card and save $200 today on qualified purchases
It’s the “buy now, pay later” sales technique that’s been working for decades. Since we live in a consumer world, large corporations know how to make us purchase goods and services we don’t need and can’t afford with creative financing options. If you’re guilty of falling for it, don’t worry we’ve all been there or at least been very tempted by it. Here’s how to not fall victim to sales promotions that seem like a great deal.  Point of sale finance or lending is a way to appeal to all consumers. Those that know what they want now, those that are on the fence, those who didn’t even know they “wanted or needed” something, and those that like flexibility and options instead of traditional purchasing options.  For Dental Practices, offering third party financing for elective procedures or even non-elective expensive procedures where insurance only covers a portion, is what we’ve typically seen from Point of Sale (POS) financing. But now that big banks offer credit cards that are globally accepted pretty much everywhere instead of private label (like a Best Buy) credit card, we’re seeing it pop up pretty much everywhere. For example, I was asked to either pay for or finance a $499 TV? It’s called instant financing. No approval needed. So why are retailers doing this and why should you care? Let’s say you’re looking like I was to buy a new T.V. You go into the store and you were planning on spending no more than $500. You’ve been saving and your old TVs is really small and outdated so it’s time for an upgrade. You go in and you start seeing huge TVs with big red sales signs! Your eyes light up as you go right to the TVs you can afford. You somehow aren’t nearly as excited because guess what? Right next to your $499 TV there is a huge 75 inch brand new 4k, ultrathin, curved TV for $899! The sales representative approaches, you dodge him like he’s trying to sell you girl scout cookies when you just started a diet Ten minutes go by and you are suddenly underwhelmed with a lack of excitement due to your 55inch TV that is in your budget being all of a sudden so small and boring. You go back to the huge TV that’s seemed to get louder and brighter. Planet Earth is playing some beautiful scene and you cannot get your mind off of it. All of a sudden the sales representative comes back and somehow this time you’re suddenly almost ready to give up on your “diet”, or budget, as this just looks too good right now. The representative asks you what you’re looking for and before you know it you’re dreaming about this 75in TV being in your family room. He then says what are you looking to spend? You softly say around $500. The representative says well if you buy this TV you’d be saving $300 as there is a big sale right now and on top of that if you sign up for the store’s credit card you’ll get 10% back for future in store purchases. They then tell you that you can finance it at just $30 a month for 30 months.  All of a sudden, you’re sold. $40 a month for 30 months is nothing! But you think to yourself well I need a sound bar if you get this huge TV because the representative just told you that if you buy this TV you get $100 off a new sound bar. He turns up the soundbar and you’re immediately sold. You grab your cart, load the TV and the sound bar and go to the checkout. They offer you the credit card and you say no as if you’ve just saved yourself from a bad decision and then the little cashier machine says $1,185. You then tell the cashier that you’re doing the finance deal and they tell you how great of a deal it is and you feel a little bit better about what you know is a bad decision. Let’s recap. You had a $500 budget and you spent nearly $1,200 in the blink of an eye. This is POS financing at it’s best. You increased your budget 2.5x by just walking into the store but this happens whether you’re online or in person unfortunately.  Now, on top of your new TV you have your mortgage, Netflix, utilities, new furniture, financed computer, car, new coffee machine and all of a sudden your monthly income is being withered away quickly. Well if we look back into our Savings 101, what is rule #1? Income – Savings = Expenses. What are you doing? Income – Expenses = Savings. Now unfortunately, instead of saving $250 a month you’re saving $210 a month. What did we learn in investing 101? The difference of $50 a month can mean hundreds of thousands of dollars later in life.  Don’t let convenience or monthly costs drive your financial decisions. Make saving your priority and what is left is your disposable income. Understand what is truly valuable and what you need vs. what the store/ media makes you think you want.  Guess what? If you think you’re beating the system because something has 0% interest, think again. Companies aren’t in business to lose money, they’ve baked the interest they would’ve received into the cost of your new purchase.  The newest marketing techniques are there to make you spend more. You’re much more likely to spend more when there is a “deal” and you can finance it. So before you make your next purchase think about whether you want it or the store wants you to want it. Also, using a credit card to finance is easy but is a slippery slope that most people don’t get out of. Short term thinking creates long term pain. 

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Investment Bias: Information

Information bias is the tendency to evaluate useless or the wrong information when determining value. It’s the belief that certain commonly held data points are helpful in understanding the value of an investment, when they may not be. The key in investing is not seeing the forest for the trees, but rather the price of lumber. There is so much information that seems valuable. That is the root of this bias. Similar to the logical fallacy “appeal to authority” the source of information can create its own gravitas and feel like a value. This feeling of value, because of the source of information is the bias. Investors are bombarded with largely useless information every day. Financial talking heads, newspapers, and stockbrokers, and it is difficult to filter through the collective biases and focus on information that is most relevant. This bias is the “value of valuable information.” One great example is the daily share price or market movements of a stock. This feels like valuable information, but usually contains no information that is relevant to an investor who is concerned about the value of a company. True fundamental valuation should be done without knowing today’s stock price. It honestly shouldn’t matter. Yet there are entire news shows and financial columns dedicated to evaluating movements in share prices on a moment-by-moment basis. In many instances, investors will make investment decisions to buy or sell an investment on the basis of short-term movements in the share price. This can cause investors to sell wonderful investments due to the fact that the share price has fallen and to buy into bad investments on the basis that the share price has risen. Little about the near term price movements of a stock, commodity, or bond has to do with the value of its cash flow. Ideally, investors would determine the price they are willing to pay for an investment without knowing its current price. Then when confronted with the price it is selling for, only decide if it is above, or below, its value. Investors would make superior investment decisions if they ignored daily share-price movements and focused on their own willingness to pay for income. Additionally, the Information bias tends to view pieces of information as digital, when it should be analoge. All information is not equally valuable, all the time. Likewise, information is not equally valuable across investments. An example, while the “costs of capital” metric is universally important to value investors, the output from the cost will range from business to business. So while this data point might be a leading indicator of the success of an investment in banks, it’s less valuable for technology companies. Considering all information as quantitative over qualitative is the equivalent to saying “I’ve listened to ten medical podcasts so why would I listen to my doctor.” This Information bias exists in the belief that all “information is good” and that “all information is equally valuable” causes us to have conclusions that are false or investments that don’t reflect our intentions. Essentially, we are borrowing other people’s biases and creating a consensus of bias.

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Account Types: Self Directed IRA

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Obituary: the 60/40 Portfolio

The 60/40 portfolio was born in 1952 in Chicago, IL to Harry Markowitz. It received widespread adoption in the investment community and Nobel Prize accolades. The practice of balancing the correlation between stocks and bonds has died; on March 23rd, 2020. It is survived by a whirlwind of speculation, hedging, and general uncertainty. In lieu of flowers, please send condolences to the risk adverse. If you are familiar with the 60% stock/40% bond portfolio, you know it is largely a relic of the past. For most investors, alternatives and derivatives are likely to become a bigger portion of investors’ portfolios over the next decade. But for decades, investors would reliably count on exposure to 60% stock market equities and 40% bonds to create predictability and smooth out the stock market’s volatility. All with the hope they could still meet retirement goals. This is no longer the case. 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Nothing is more emblematic of this then the current bond markets – in the high yield space debt is priced with almost no accounting for default risks – meaning more money is chasing falling yields and leaving discerning investors to question the urgency. Simultaneously, the negative and near zero rates on treasuries are punishing the most conservative investors. This means the entire bond structure is distorted by the seemingly endless printing of money. Purpose: The 60/40 portfolio was supposed to insulate investors when markets turned sour. Providing a reduction in overall volatility and replacing it with a predictable and stable trajectory. As investors are demanding more and more internal rate of return to meet their investment objective they are either assuming more and more risk without compensation.  Or they’re seeking alternatives that require private equity, hedging, real estate, and complexity to fabricate a stable return and lowered risk. Regarding the risk return balance, investors have been seeking more and more risk for their returns by either pushing dollars into the higher risk bond (as noted above) or out of bonds entirely. Many are finding that to secure their retirement expectations they are going to simply abandon the 60/40 for a higher admixture or equities. And with little or no negative impact for taking on that risk they are seemingly fine running their portfolio hot. In comes alternatives, which has been described as one of the next big trends to cultivate the desired returns for investors. Even Vanguard, a company rooted in the success of the everyday investor, began exploring alternatives, launching a private-equity fund in 2019. This will pose new challenges for mainstream investors who are categorically poor at pricing this unconventional asset class. This could mean that returns will be impacted by fund flows. 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Investors are now, possibly more than they were historically, hypnotized by the returns of the capital markets. So when confronted with a low risk low return asset class like the bond market as a whole they will simply take their money into equities, causing them to invest their bond money with the same reactionary mindset that they invest their equity money. This is causing the both stock and bond markets to become sensitive to emotion and the news cycle like never before. Distortion of risk and “bailouts”: As we have seen and continue to see governments around the world are ready and willing to bail out capital markets. Nowhere is this more apparent than in the United States. There the practice of supporting financial markets with added liquidity is having a two fold effect that erodes correlation. It is rewarding the riskiest investments like equities; and by printing money it’s adding more supply to bonds while driving yields lower. 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