Illumination Wealth March 2014: Financial Lessons From the California Drought

March 3, 2014
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Yes, the weather is still a hot topic of conversation across the country. California (my current home) is finally getting some much needed rainfall after a severe winter drought…Minnesota (my birthplace) is still experiencing below zero temperatures in March and the winter storm Titan is on it’s way to Wall Street and the East Coast.

People spend endless time talking about the weather. Yet the weather is only important to the extent that we actually prepare for it and adjust with it. I mean who in Minnesota or New York is going to be wearing snow pants when it’s 85 degrees outside or even 50 degrees for that matter? The financial markets and the weather both go through cycles, for better or for worse.

Everyone would be better served by spending more time creating a planning process that can adapt to your ever changing financial life  (and the ever changing financial markets and economy) just as you do with your outfits when the weather pattern changes. That begs the question, do you spend more time picking out your clothes than you do on your financial future?

These newsletters are here to help build your foundation through all types of financial weather – here’s what we cover this month:

· The Market Scoreboard for February 2014

· Illuminating Insights: Financial Lessons From the California Draught

· Articles of Illumination: Curated Articles for Your Enlightenment


Market Scoreboard

Here is the market scoreboard for February 28th,  2014:

Data as of February 2014


Feb  %

Standard & Poor’s 500 (Domestic Stocks)



MSCI World Index ex US (Foreign Stocks)



10-year Treasury Note (Yield Only)


Gold (per ounce)



Reuters/Jefferies Commodity Index (CRB)



Dow Jones REIT Index



Notes: S&P 500, MSCI World Index ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.  Sources: Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Another month gone by and another all-time high for the S&P 500. After January’s mini-correction of 3.5%, February ended up as the best month in the market since July 2013 with the S&P 500 finishing the month up 4.3% at 1859.

In early February, the economic undertones were some what shaky. Manufacturing activity slowed significantly, service business cooled off and the market sold off along with it. It was around that same time when stock market bears began circulating a chart that implied the current market profile paralleled the 1929 stock market top. Despite the spooky parallel, looking a bit deeper at the two charts showed a 1929 market that increased at a much more rapid pace than the current run up – making the implication of what was to come a lot less sound. Predictions and forecasts like this create a fear and sure enough the market found it’s footing at that time – throwing egg on the face of the bears.

It wasn’t just a U.S. party as international stocks tacked on gains in excess of 4.5% for the month. Strong gains were realized from countries as diverse as Greece, Egypt, Israel and Germany. Emerging market stocks too rallied but less so than their developed peers. Over the past two years, emerging market stocks have underperformed the U.S. stock market by 60%. Does that mean you should run from them after the move lower? If you read Warren Buffett’s 2013 Annual Letter to Shareholders, his general investing insights would have you second that notion.

Gold and agricultural commodities had a very good month, rising approximately 7% and 11% respectively. Both of these asset classes, like emerging markets, have suffered over the past several years while U.S. stocks rallied sharply. Does that reason alone mean that anything other than U.S. stocks don’t deserve a place in a portfolio. The whole point of including different asset classes into a portfolio is to have some that, at any given time, are doing well while others do poorly. Diversification not only within an asset class, but also among asset classes serves investors well. We urge you to read Buffett’s letter and you will get an understanding of his portfolio diversification – he owns U.S. stocks, Foreign Companies, Farmland, Private Businesses, Real Estate in New York City, Insurance Companies and Utility companies amongst others.

Despite the scoreboard above and to provide you insight into what’s going on into the financial world Buffett says this about investors: “Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet, important to consider acting upon their comments.” Do yourself a favor, create a written investment plan that allows you to invest unemotionally. Doing so will allow you to continue to put points on your own scoreboard in a rational and long-term manner.


Illumination’s Insights: Financial Lessons From the California Draught

As I pen these words, Southern California is experiencing a much needed rainfall – some of the heaviest in years. This comes as California faces it’s worst draught in 165 years.  I never would have thought these past few months of incredible weather could have any financial relevance to me or my clients – yet it does in so many respects. Here is what I learned:

Plan For Them: Many of my clients and people that I speak with have careers and incomes that can fluctuate significantly from period  to period. Some years (months) are plentiful, others years ( months) are draught like. As you develop your financial base and career, it’s extremely important to base your lifestyle on the lean times instead of your fat times. Draughts are common in many regions – including California and even New York. The same can be said for many people whose income is commission only or tied to a very cyclical industry. To not plan for them would be a huge disservice to your financial security.

Stockpile In Advance: California is becoming a hot bed of craft beer. Several of the local breweries depend on river water to provide the great taste in the brewing operations. With the current draught, their production has been jeopardized. One of the biggest things you can do to protect yourself from an income draught is to have a solid emergency fund in place. This applies to both business owners and W-2 wage earners. Preparing for an emergency needs to happen during the good times, not the lean times and you should be making preparations for an adequate reserve of up to 6 months of expenses from the start of your career. An adequate reserve is equally applicable to retirees who should have at least one years worth of expenses on hand at all times. Stockpiling an emergency fund in advance will will allow you to weather a financial or career draught without having to take drastic and costly measures.

Conserve: We have automatic sprinklers at our house that are set to a specific schedule. Without much thought, they go on and off as we go about our daily business. From what the previous owner of my house taught me about the lawn, my initial assumption was that perhaps our lawn needed more water. After giving it some more thought, I began to really question our lawn’s need for more water. So I did some homework and learned that in reality, our lawn could survive and thrive on even less water than the original plan. This slight change to our watering regimen is not only better on the environment, it is better on our bank account as well. I figured that this small monthly change could add up to $60,000 come retirement. Are their any areas of your financial life where less is really more? I challenge you to find some ways to conserve or as I like to call it proserve.

Be Resourceful: During challenging times in ones financial life, it’s very important to be resourceful. A married couple friend of mine, who both lost their jobs in 2008, found creative ways to generate an income for their family. They spent their days scouring for free things, would pick them up, clean them up and resell them. With nothing more than sweat equity, they were generating over $5,000 per month in income from their endeavors. As it relates to your career, continue to improve your skill-set while you are working. If you are business owner  you should consistently develop plans for additional revenue streams. That way, if one suffers during a draught, you have an additional base of monthly income to support your.  Furthermore, everyone should work to develop relationships with people. Deepen your relationships with those you already know and continually get out there to meet new people. You never know when an opportunity will knock.

If you are interested in learning about ways to create a sunnier weather forecast for your financial life, let us know and we are happy to sit down.


Articles of Illumination

Here’s our monthly compilation of interesting articles and videos designed to keep you informed and engaged in the areas of personal finance, the economy and life. We hope you enjoy this month’s edition. Please send us your thoughts on this month’s articles and suggestions for future posts.

Personal Finances

The New York Times: A Farm’s Lessons in Long-Term Planning

The New York Times: With Engagement Rings, Love Meets Budget

Economy & Business

New York Times: Life Coaches for the Entrepreneurial Set

USA Today: Despite recovery, entrepreneurs are still gun-shy


Star Tribune: Exercise your body to exercise your brain

Los Angeles Times: New baby, new money worries

Interesting TED Talks & Videos

Maya Penn: Meet a young entrepreneur, cartoonist, designer, activist

Michael Metcalfe: We Need Money for Aid. So Le’s Print It.


“Wherever you go, no matter what the weather, always bring your own sunshine.” – Anthony J. D’Angelo

We hope this month’s edition gave you some insights to help your financial life shine. Turning the light on your financial life means you’ve taken a positive step. With enough exposure, this will allow you to gain the much needed clarity that you need to make the best decisions for your financial future. Get you sunglasses ready, Spring is almost here.

All the Best,

Matt & The Illumination Wealth Team

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The opinions and forecasts expressed are those of Matt Rinkey, President of Illumination Wealth Management (IWM) and may not actually come to pass. Mr. Rinkey’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Illumination Wealth services. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of IWM’s services. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Rinkey or Illumination Wealth nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Entities including, but not limited to IWM, its officers, directors, employees, customers and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. The analysis contained is based on both technical and fundamental research. Although the information contain is derived from sources which are believed to be reliable, they cannot be guaranteed. Past performance is never a guarantee of future results.