It is a pleasure to be sending you this issue of the Newsletter after a long hiatus, and we hope you will find it of interest. People are pleased with what the stock market has done so far this year - in fact for much of the time since the spring of 2009. But the events of 2008 still invite caution and skepticism among investors. We address these concerns in various ways in the first two articles. The third major article reviews an important lesson that comes from the Madoff scandal. That is followed by comments on the retirement dilemma. We conclude, as always, with staff information and events regarding the two O&A offices. David W. Otto, Editor



In The Life Cycle Completed, the psychologist Eric Erikson states that the first and deepest issue that young children need to resolve, and the issue that all of us face more or less continually through life, is that of trust. Can "life" be trusted?

Does this seem like a strange way to begin a newsletter for a financial planning firm? Perhaps, but it is relevant because trusting that, among other things in our lives, we have sufficient financial resources is important to all of us and can become an increasing concern among those approaching retirement or actually retired.

Are you confident that you will have enough money to live out your days more or less as you wish and afford to give money to your children? Could your plans be derailed if there is another big loss in the stock market? In general, will there be sufficient money to do what you want to do and to avoid a severe compromise of your life, happiness or sense of fulfillment?

Several books in the financial planning arena suggest that "wants" can be an expansive category. More than one book is titled Enough, and each addresses the question of what is "enough." Wanting more is common for all of us, whether it's the fancier car, the larger house, or the luxury vacation.

Many years ago we had clients, both of whom were working, who, in one of our first meetings said, "We would like to have $1 million in our nest egg by the time we retire." Those clients came to us in 1994, a good period for the stock market. And they were saving quite a bit of money because both of them had good paying jobs and their children were on their own.

It was quite a surprise when several years later they told us how happy they were with their jobs and their savings and that they would be greatly relieved when they had a retirement nest egg of $2 million. If we had not written down their original statement, they would never have realized that their "wants" had doubled without their even knowing it.

The question of having sufficient money to avoid a catastrophe is easier to address. Most people who read this newsletter, unless spending gets truly out of hand, will not run out of money. The reason is that if client assets begin to dwindle in later years, we can help reduce spending to insure there will be sufficient money to at least meet basic needs.

Still, the most personal question remains. Do you trust the universe to meet your physical and emotional needs? Erikson identifies eight stages of development; "Trust vs. Mistrust" is the most basic. He does not suggest that a child or adult must achieve 100% trust, but rather that there must be a satisfactory balance between the two poles.

We conclude with comments by two authors, the first a warning, and the second a note of encouragement. "You may be deceived if you trust too much, but you will live in torment if you don't trust enough." (Frank Crane) "We must trust our own thinking. Trust where we're going. And get the job done." (Wilma Mankiller)



In 1949 the legendary financial figure Benjamin Graham wrote a book titled The Intelligent Investor. In it he introduced Mr. Market, whom he called a "manic-depressive investor," based on his habit of one day making exorbitant bids for stocks, and the next day offering to sell them at whatever lower prices another investor was willing to pay. Other writers have talked about the same phenomena by describing an investment process that moves between the emotional poles of greed and fear. Today volatile investment habits may be fueled both by technology and by our access to continually updated news programs.

But manic-depressive investing is not just an individual, short-term mechanism. It also happens over very long periods, and one way to view the current investment environment is to say that the stock market is coming out of a long-term depression but is still quite a ways away from hyper-mania.

Bob Veres, a national financial journalist, has been writing about investment matters since some time after graduating from high school in Somers, NY, during the time that David was the pastor of a church within 10 miles of Bob's home. He is also the writer who more consistently than any other journalist, has followed the fee-only financial planners for all of their 30 year history.

Veres recently reported on a market commentator who discussed a rarely heard theme. "[Today] the world at large gives inordinate attention to downside scenarios, and nobody is calling our attention to the much larger upside of our…investment landscape. The human brain amplifies [these downside scenarios] because it is hardwired to notice threats much more than opportunities." According to the commentator, the stock market is composed of something like 25% risk and 75% opportunity, pretty much the reverse of what one is likely to conclude in reading the popular press, or listening to the many of television programs that comment on the market.

Continuing with his own observations about current worries, Veres writes, "If we don't see disastrous consequences from the federal debt, [then] the inflation rate arising from dramatic increases in the monetary supply will surely [alarm us]. European sovereign debt crises will eventually contaminate the American banking system; global warming will cause our coastal cities to flood; and there is no way in the world that wind farms will take up the slack when we finally run out of oil. Taxes are still too high; the economy is a mess; Obamacare will wreck our nation's health and finances; Congress is too paralyzed to do anything except squabble and periodically raise its own salaries."

Veres concurs that the public is over-exposed to the potential risks in the stock market and under-informed about the opportunities. In this period where we are only too aware that between 2000 and 2009 the stock market had two periods of huge losses (a 50% loss each time), it is not surprising that investors are cautious. But historically two such periods of stock market losses are an anomaly. What is actually happening is that "scary stories get eyeballs."

Important facts that get little attention today bring Veres article to a close. Even with the big downturns after 2000, since 1950 the S&P 500 has gone up 9,650%. Instead of having run out of a supply of fossil fuels, as was predicted in 1970 to have happened around 1990, we have discovered vast quantities of gas which is more environmentally friendly. While the debt crisis needs our attention, in the 1990s (when interest rates were considerably higher), the annual debt payments the U.S. made was 19% of the total U.S. budget. Today it is 10%.

Veres does not intend to sound like a Pollyanna with the implication that the horizon is free of storm clouds. The message that often gets lost in all of this negativity is that there are also some significant breaks in the clouds.

This theme was addressed in another way by a presentation that Susan and David heard at the annual East Coast planning conference that NAPFA sponsors each fall, by Carl Richards who titled his speech, "Secret Society of Real Financial Planners."

We often hear "buy low and sell high." But according to Richards, getting useful market information to know if the market is "high" or "low" is not easy when most of it comes from the popular press which focuses on stories that people are interested in today. The press does not necessarily focus on thoughtful articles with a big picture perspective. Carl Richards offered his take on this matter:

Brace yourself: The U.K. is under attack. News reports indicate that the island nation is about to be overrun by the false widow spider. It's even reached the point that a school closed for fumigation out of fear that the building was infested with these dangerous creatures. After all, they can kill children with a single bite.

By now, I hope you're laughing at least a little bit about this ridiculous story. The U.K. is not under attack. The false widow spider can't kill people with a single bite. But that hasn't stopped some members of the U.K. media from stirring up people with the fiction that the false widow spider is dangerous and deadly.

When I first read about this nonsense in "Wired," this line made me pause. It's easy to write a story about spiders that will make lots of people share it. Many folks are afraid of spiders. Replace the word "spiders" with the words "investing," "money" or "retirement." It now makes a lot more sense why we see so many stories about these subjects. They're playing on our emotions, and if we aren't careful, it's easy to believe that they're always true.

For instance, consider the real facts about the false widow spider: " It's been in the U.K. for 100 years. " It's the most common house and garden spider in southern U.K. " Its bite is rarely harmful to people. These facts are easily available, but when compared to a headline like, "Mum's terror as FIFTY venomous False Widow spiders race towards her," which story is more compelling, [the facts or the headline]? The same thing happens in our own media when we see financial stories.

Because of the emotion involved, it can be incredibly difficult to not get sucked into assuming that everything we're reading is true. Maybe it's about an investment "guaranteed" to beat the market, or "experts" claiming that the world is ending and we need gold in our portfolios. Whatever the story, we need to recognize that our emotions can and will drive our actions if we aren't careful. The results won't be pretty if we've chosen a path that depends on fiction instead of fact. So how do we do that?

I'd suggest thinking like a journalist. We need to test the accuracy of the information. If we see something in one place, we need to be able to confirm it in a second place. In other words, if that investing newsletter has a hot tip that can't be confirmed anywhere else, we probably shouldn't invest our life savings based solely on the tip.

We also need to test the accuracy of what we think we know. The emotions we feel about financial topics can sometimes make us resistant to asking questions. It's easier to think that what we already know trumps whatever new information might appear….

We invite you to view a lively video of the Richards presentation, enhanced by his creating simple sketches as he talked, by copying the website address or clicking on our links page. You can also find him at

There is, however, a note of caution to be added to the Veres and Richards opinions. As we write this Newsletter at the end of November, the stock market has been up for eight weeks in a row, the first time that has happened in over 10 years; it has risen about 25% this year; and it rose 18% in 2012. There will be a time when the market reverses course. It would not surprise us if it lost 10% or more at some point in the next months. Even so, in the intermediate term (i.e. in the next two - five years) we think there is more opportunity than risk.

In such times as these, the focus of various news media sources can be useful. But when it comes to responsibly managing financial resources, the information they provide may be highly engaging but ultimately a distraction from long-term goals and big picture understandings that are crucial to success. Maintaining perspective is important.



We regularly get positive client feedback in the vein of "We appreciate what Otto & Associates has done in helping us to interpret retirement and tax planning and making decisions about Social Security benefits, not to mention good investment returns over a lot of years." But it appears from the continuing news reports that Bernie Madoff's clients felt equally positive about their financial advisor. How does one discern when a financial planner could be a Bernie Madoff?

Often the answer is simple. Madoff had an investment firm and also owned a brokerage business. While the Madoff brokerage was large by some standards, it was relatively unknown by comparison to Merrill Lynch or TD Ameritrade. With this arrangement, Madoff controlled statements from both the planning and brokerage firms. By contrast, Otto & Associates manages investments but uses a separate, independent custodian, TD Ameritrade. Clients of firms like O&A receive statements from two unrelated firms. The value of client accounts is provided on the various O&A reports as well as on the TD Ameritrade monthly statements. Since O&A has no control over what is reported by TD Ameritrade, clients can compare the independently reported values. The figures may be somewhat more difficult to integrate when there are also alternative investments in non-retirement accounts because those investments will not be listed on the TD Ameritrade statement. Still, there should be a logical explanation for any differences in the totals.

We learned recently of another Madoff type scandal which, although involving 1/100th of the amount of money Madoff reportedly lost, was much closer to home. In early November a former president of NAPFA (the fee only, national organization for financial planners) was found guilty of a $50 million fraud by a District court.

The Nov. 7, 2013 Investment News reported that "Mark Spangler, 58,…was convicted of 32 counts, including wire fraud, money laundering and investment advisor fraud," said U.S. Attorney Jenny Durkan. David and Mark Spangler had been acquainted in the mid-'90s, when Spangler was President of NAPFA. To those who knew him, it seems quite incredible that Spangler could have done this, although he dropped out of NAPFA shortly after his tenure as president.

How did Mark Spangler accomplish this fraud? According to a web article posted by the Financial Advisor Magazine, it was by "hiding where his clients' money was invested, and by providing them with false account statements." Although Spangler had a tiny brokerage firm, his scheme was apparently quite similar to that of Madoff.

The planners at O&A are particularly dismayed by the news of Mark Spangler's actions. NAPFA prides itself on its members being transparent and highly ethical. And even though Spangler had not been a member of NAPFA for over 10 years, it is still a painful reminder of the lengths people will go to make money. The Investment News article makes it clear that Spangler thought his clients would ultimately see very good returns, but whatever his hopes and intentions, he broke laws that are in place to keep investment managers from speculating with client money without their knowledge.



David attended a conference in NYC a number of months ago where Mitch Anthony, the founder of The Financial Life Planning Institute, spoke. His topic was working with clients who are anticipating retiring or have already retired. Anthony made the point that there is so much more than money involved in living our lives when we no longer go to our place of employment every day. He has found that many retirees are not as happy as they had anticipated being because prior to retirement, they had not developed a plan for finding fulfillment or considered how they would use their time. While he thinks easing into retirement could help, he acknowledges that some salaried jobs are almost impossible to do on a part-time basis. However, "we are not wired to spend all of our time in a life of leisure."

Most of us need some kind of work, which he defines as "productive time that is of value to others and meaningful for ourselves." That can easily include charitable efforts, helping out a friend or family member in need, and mentoring or coaching others. We are endlessly impressed with the creative work our "retired" clients find to do, like volunteering to transport those with medical needs many miles to a hospital for special treatment, including day surgery; serving as president of a historical society, a job which also includes being a handyman for the society's historic building; volunteering weekly at the circulation desk of the local library; and serving as the church treasurer.

George Bernard Shaw says it well. "I want to be thoroughly used up when I die, for the harder I work the more I live. I rejoice in life for its own sake. It is a sort of splendid torch which I have hold of for a moment and I want to make it burn as brightly as possible before handing it on to future generations."



Personnel As reported in an earlier O&A Newsletter, Judy LaPorta resigned in 2012 after more than 10 years at our Katonah location. Judy was knowledgeable about many aspects of the business and was a welcoming presence to people who came to the office.

With Judy's departure, Kathy Patton became the Office Manager. Kathy is well known to clients in Katonah, having been at O&A for more than six years in a different job. We are fortunate to have a person of her ability. Having worked for a number of years for Goldman Sachs in their Manhattan offices, Kathy brings both expertise and creativity to her position.

The second administrative post has been filled by Joan Poulin, whom a number of you have already met. Joan also worked in finance at the Royal Bank of Canada before she took some years off to raise her daughters. She was most recently employed by the Somers Central School District before joining O&A in May, 2012. In the year and a half she has been at O&A she has become a valuable support person to all of us in the two offices.

Susan Otto Goodell joined the VT office in 2003 doing secretarial work, but over time she decided she wanted to become a financial planner and began to pursue the Certified Financial Planner (CFP) designation, passing her comprehensive CFP exam in March, 2012. She has steadily increased her commitment to O&A and is now full-time. Susan works out of the VT office, although she also travels to the Katonah office every second or third month.

Conferences Staff members have attended many conferences this year. In January Deborah and David went to a three day TD Ameritrade conference in San Diego. There were a number of valuable workshops and addresses, including a panel discussion with Erskine Bowles and Alan Simpson.. Deborah went to several one-day conferences throughout the year, including the Baron Conference, a huge gathering that takes over all the venues at Lincoln Center. She also volunteered at two different, local financial education days where the general public could get their questions addressed.

In the fall Deborah and Susan particularly appreciated the Third Avenue Conference in NYC where they heard both Paul Volker, former Chairman of the Federal Reserve, and Marty Whitman, who founded the Third Avenue Company in 1986 and managed the first Third Avenue Mutual fund. In October Susan and David attended the three-day NAPFA Philadelphia Conference referred to in the second article. In addition to Carl Richards, they heard informative addresses by Mark Maurer of Low Load Insurance Services (a company to whom we refer people, particularly for life insurance policies) and Frank Murtha, who spoke about the emotional forces that drive investors - a theme addressed earlier in the Newsletter.

Visitor Pacific West Land, a Seattle firm that offers clients an opportunity to invest in real estate, sponsored dinners in both Norwich and Katonah in October. Martin Steever, one of the principles of the company, updated O&A clients involved with the two Pacific West projects and gave an overview of a fund that they will be offering in the near future. We are pleased with the performance of the offerings by Pacific West and appreciate Martin's sponsoring the dinners so clients could gain more firsthand knowledge.

Holidays The O&A Holiday Party for the staff and spouses occurs on Dec. 13, where we will again have a Yankee Swap during dinner. If you have never participated in such an event, ask members of the staff about their experience the next time you are in the office. It is always a great time.

Beginning on Dec. 23, the office will be staffed on a limited basis because of vacation schedules. Please allow sufficient lead time for any transactions that need to be done by the end of the year.

And to all, we wish you the happiest of Holiday Seasons.

David W. Otto, Editor