Category Archives: CapWealth Blog

5 Things Millennials Want (and Need) in a Financial Advisor

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on April 27, 2017. Read it at The Tennessean here.

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Some of you may remember an advertising slogan from the late 1980s: “Not Your Father’s Oldsmobile.” Some of you won’t remember it, which is understandable. It’s an old commercial for a car brand that’s been defunct for 13 years, after all. That aside, the line became a pop culture catchphrase. I’ll demonstrate: “Not Your Father’s Financial Adviser.” That aptly describes the millennials’ preference when it comes to finding professional financial assistance.

Millennials aren’t looking for their parents’ adviser — if they’re looking for one at all.

For starters, many millennials simply don’t have extra assets to invest right now.

They’re significantly indebted with student loans, they’ve faced a tough job market for years, and wages have been stagnant much or even the entirety of their lives.

Although a basic challenge, a dearth of capital isn’t the only hurdle. Besides the state of the millennial wallet, there’s the state of the millennial mind.

Having lived through the dot-com bubble of the late ’90s and early ’00s, the Financial Crisis of 2008 and the subsequent Great Recession, they’re skeptical of Wall Street.

There’s more. The Internet, smartphones and social media is the air millennials have breathed since birth. Startup founders such as Marc Zuckerberg and Elon Musk are more likely to be a millennial’s hero than traditional industrialists, and consequently millennials are very entrepreneurial. They’d rather invest in talent and creativity — often their own — than in stocks and bonds.

Add to that the millennials’ commitment to causes, be it environmental sustainability, tolerance and diversity, or fair wages, and convincing them to invest in profit-first corporations is an even harder sell.

If they are interested in investing, many would rather do what comes naturally: Get online, do some research and purchase cheap, passive products such as ETFs, skipping the inconveniences of finding and paying an adviser.

What millennials want

Fortunately for my profession, but also fortunately for their own financial futures, there are millennials who recognize the value in an experienced adviser. Still, from my experience with millennial clients, they don’t want just any adviser. Here’s what they’re looking for:

  1. Service. Millennials don’t want to be another warm body in a chair. They want you to care. Besides investment guidance, they want to be counseled on their debt, budgeting, financing the experiences they value and their careers. Now, most advisers don’t have all that expertise in-house. Forward-thinking, service-oriented advisers, however, can recommend people that they trust and know will do excellent work for their client.
  2. Reputation and trustworthiness. Trust me when I say that millennials are going to do their research on financial advisers. Because a few sleaze balls have tarnished the financial profession, millennials want assurance their adviser isn’t going to do the same.
  3. Accessibility. The days of meeting face to face for every meeting are fading away. The adviser needs to have the flexibility to meet at nontraditional times, at a coffee shop, and over the phone and internet-enabled videoconferencing platforms.
  4. Fair fees. They want crystal-clear transparency on how much they’ll pay and why. They don’t want to be nickel-and-dimed for every service provided.
  5. Feeling valued. Just because they don’t walk in the door with half a million dollars doesn’t mean that they aren’t future high-income earners. They know that and you’d better too. Millennials want to feel valued now and appreciated for what they will bring to the table in the future.

Most of these traits would well serve any adviser, regardless of their clientele. Don’t go the way of the Oldsmobile. Make sure you’re worth millennials’ time, trust and money.

Jennifer Pagliara is a financial adviser with CapWealth advisers. Her column appears every other week in The Tennessean. 

Have Straight Talk With Children About Your Wealth

The following column from Phoebe Venable, CapWealth Advisors President & COO, appeared in The Tennessean on April 21, 2017.

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Whether your family has a lot of wealth, some wealth or just a little wealth, there comes a time when you have to talk to your children about it. Most parents dread this conversation as much as they dreaded having the “the birds and the bees” conversation with their children. Being open with your children about money and wealth is similar.

Children are forming ideas about your wealth regardless

When you had the big talk with your children about where babies come from, were you surprised by how much they already knew? Once again, it’s the same with money. Kids know more than we think they know. They hear things from their friends. They can use Google. They also draw conclusions based upon the family’s lifestyle. Kids are resourceful and smart, but they need their parents to paint a full and appropriate picture for them. Otherwise, their imaginations and their expectations could run wild.

This talk could be difficult and you will need to prep for it. Depending on your financial situation and your plans for your children, there could be as many risks to telling them about the family wealth as there is to not telling them. You’ll have to determine the amount of information to share, and when, depending on your child’s maturity level and ability to understand.

It’s all about setting expectations

Let’s say your family earns a high income that supports living in beautiful home, driving expensive cars, taking fabulous vacations, enjoying the privileges of a country club, sending your children to private school — but you aren’t saving much money. Or perhaps you intend for your child to be responsible for their own education. Either way, that’s fine — so long as your child knows this. Otherwise, it’s safe to assume your child will expect mom and dad’s abundance to extend to college tuition, living expenses, graduate school, etc.

Let’s say your family is of much more modest means. Your lifestyle isn’t luxurious and you follow a strict budget — yet you are saving some money for your child’s college education and desire that he or she go. Your child needs to know the extent of support that you can provide and needs encouragement that the rest can be managed through low-interest loans and working through college. Otherwise, your child may have inaccurate expectations, perhaps of the too-low variety.

There’s no shame in being honest — in fact, there’s more risk in avoidance

Can you pay for college? Any college? Graduate school? Any graduate school? A dorm, an off-campus apartment, a car, other living expenses, spending money? Very few families have an unlimited budget for the education of their children, so there is absolutely no shame in telling your children exactly what your financial commitment can be to their education. Moreover, it is the only way for your child to make informed decisions not only about where to go to college but what career path to pursue. The difference between four years at an in-state public school versus five years at a private school followed by graduate school could easily be hundreds of thousands of dollars. That’s a difference that could devastate a family’s ability to maintain a lifestyle or fund retirement.

I’m reminded of a family that lived very modestly whose daughter developed a love for art at an early age. But as she grew up, she knew that an art career wasn’t practical, so she turned to finance instead. She eventually became a very successful investment banker on Wall Street, although it was never her passion. By 55, both her parents had passed away. Two weeks after her father’s funeral, she learned she’d been left $25 million. Her father had never wanted her to know lest it deter her from being a productive person. The next time she visited her father’s grave, she found herself screaming and demanding of the headstone “Why?”

Conversations with your children about money might be uncomfortable, but it is one of the best gifts you can give them regardless of how much they ultimately receive or inherit. This isn’t a “one-and-done” conversation but something that should be discussed repeatedly. If you’d like help on how to have these conversations with your children, talk to your financial adviser.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors, LLC. Her column on women, families and building wealth appears every other Saturday in The Tennessean.

Unless Your Money Is Beating Inflation, You’re Losing

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on April 14, 2017. Read it at The Tennessean here.

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Many millennials have known nothing but recession and recession recovery. They’ve never seen wage growth. They’ve never known big life decisions — such as marriage, buying a house or having kids — that weren’t delayed due to insufficient savings. Those who are older have experienced this, too, of course, but they can at least remember better times of economic optimism.

About the only economic curse millennials haven’t endured is inflation. But even that could change now as inflation appears to be rearing its ugly head.

Diminished purchasing power

Inflation is the rate at which the price of goods and services rises. With inflation, the purchasing power of money declines. Many factors contribute to inflation, but one of the basic causes is the economic principle of supply and demand.

There are currently many trends at work that could potentially spell inflation. Many expect a fiscal stimulus to the economy thanks to Trump’s promises on infrastructure spending and tax cuts. Investors certainly believe an economic jolt is coming, as evidenced by the double-digit lift to the S&P 500 since Election Day. Another commonly watched inflation indicator, wages, are also creeping up. Energy prices, which bottomed out last year, have turned around, yet another inflation indicator.

In fact, inflation has already begun. The most widely followed barometer of inflation in the U.S., the Bureau of Labor Statistics’ Consumer Price Index (CPI), reported a +2.7 percent year-over-year rise in overall inflation in February (the latest data available at this article’s deadline), the highest increase in nearly five years. The CPI has now posted +2 percent or higher for 16 consecutive months.

Real-world examples

At 2 percent annual inflation, a candy bar that costs a buck today will cost $1.02 this time next year. While a two-cent increase in the price of a candy bar sounds trivial, inflation affects the price of potentially everything: groceries, utilities, gas, clothing, eating out, a new car, home repairs, rent, travel costs, you name it. It adds up fast.
Inflation even affects what you don’t buy — it affects what you save. At 2 percent inflation, a savings account earning no interest that’s worth $1,000 today will be worth $903.92 in five years. In 10 years, that’s down to $817.07. While inflation doesn’t make the money disappear, it lessens the amount of stuff that you can buy with that amount of money — which is a whole lot like cash evaporating.

At 3 percent inflation, it gets much worse. According to the Bureau of Labor Statistics, thanks to an average annual inflation rate of 2.97 percent, $100 in 1980 is equivalent to $295.63 in 2017. That doesn’t mean your money is worth more: It’s precisely the opposite. What a Benjamin could buy 37 years ago now costs triple. So, had you put that $100 into that savings account in 1980 at the age of 30 years old, you’d now be 67, what many people consider retirement age. That $100 would still be $100 nominally and officially, but now it buys only a third of what it did before — its real-world value has shrunk by two-thirds!

Inflation vs. interest

Inflation is one of the reasons investors invest. Because unless you grow your money ahead of the inflation rate, its value is falling.

I’ve noted in my column before that millennials haven’t sought the services of financial advisers like the generations before them. That’s to be expected, given that they’ve had less investable assets and grown up with the financial crisis and a tepid recovery. But financing long-term goals such as marriage, home ownership, children and a comfortable retirement require knowledge, planning and discipline. The specter of inflation now makes a difficult task even harder. It may be time to get advice from an experienced, trustworthy adviser.

Jennifer Pagliara is a financial adviser with CapWealth Advisors. Her column appears every other week in The Tennessean.

Infowars: Senator Corker Caught Shorting Stocks He Demonized

Tennessee Republican Sen. Bob Corker, in his dogged determination to see Fannie Mae and Freddie Mac shut down, has frequently criticized hedge funds in their attempt to make money from the two Government Sponsored Entities (GSEs). Read the online article here.

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Corker’s critics have criticized him for his hypocrisy, producing evidence Corker himself profited from a strategy to short Fannie and Freddie in 2007 and 2008, while maintaining an investment portfolio that has invested as much as $50 million in the same hedge funds Corker attacks as “vultures” corrupting Washington.”

As has previously reported, in 2006, Henry Luken, a long-time Corker business associate and political backer, acquired from the then-Chattanooga mayor Bob Corker tens of millions of dollars in risky real estate holdings that were headed underwater, providing Corker the capital he needed to complete his successful run for the Senate.

After lending his campaign $4.2 million from the Luken transaction into his Senate campaign, giving Corker virtually all the money he spent in the final weeks of the campaign, Corker narrowly defeated his Democratic challenger Harold E. Ford, Jr., 51 percent to 48 percent, outspending Ford by $18.6 million to $15.6 million.

According to his Senate financial disclosures, upon his arrival in the Senate, Corker began using the proceeds from the Luken transaction to shift tens of millions of dollars to a series of hedge funds, including Chattanooga-based Pointer Management Company, whose founder, Thorpe McKenzie, was a political supporter of Corker and an investor in Luken’s companies. has obtained a copy of a compliance “Adherence Letter” authored by Pointer Management, LLC, dated September 30, 2008, making it clear Pointer was taking a short position on Fannie Mae and Freddie Mac by buying derivatives, specifically credit default swaps, that would generate for Pointer a handsome profit, provided the share prices of the two GSEs went down.

This was the same period when investor Bill Ackman, the CEO of the now multi-billion-dollar Pershing Square Capital Management hedge fund, was also shorting Fannie and Freddie by purchasing credit default swaps, as evidenced by a letter dated Oct. 2, 2008. has possession of two emails obtained by FOIA requests that document Sen. Corker had meetings with Jim Lockhart, then the director of the Office of Federal Housing Enterprise Oversight (OFHEO), the precursor to the Federal Housing Finance Agency FHFA, in April 2008 and again in July 2008, prior to the Pointer purchase of Fannie/Freddie credit default swaps.

In the first email, dated April 8, 2008, Courtney Geduldig in Corker’s Senate office, emailed to Joanne Hanley, Congressional Affairs, OFHEA, with a copy to Peter Brereton, External Affairs, OFHEA, asking how best to “follow-up on a meeting with the Senator (Corker) and the Director (Lockhart).

The second email, dated July 10, 2008, was again from Courtney Geduldig to Joanne Hanley, with a copy to Peter Brereton, stating: “Obviously, there’s a lot going on in your world.  The senator (Corker) wanted to see if someone could come in and talk to us about the new accounting proposals as well as the gse’s current situation.  Let me know what might work.”

It seems highly likely that material, non-public information was exchanged during these two meetings that took place 5 months and 2 months respectively before the GSEs were put into conservatorship.

Corker’s Senate financial disclosures indicate that after his successful 2006 Senate campaign, Corker invested between $8.5 million into hedge funds, including between $5 million and $25 million that he invested in Pointer.  Corker’s Pointer investment profited him a total of between 3.9 million and $15.5 million over the next nine years.

Corker’s own investments in hedge funds betting on Fannie and Freddie’s failure provide a damning context for his crusade against the GSEs and their investors.  Corker appears to have even enlisted members of the press in his campaign against the GSEs.

On Aug. 10, 2015, the Business Insider published an article noting that in a conference call with investors, Bill Ackman, an investor in Fannie and Freddie, attacked John Carney, a reporter at that time writing for the Wall Street Journal, for writing the “most factually inaccurate” and “frankly embarrassing articles about Freddie and Fannie, calling Carney’s coverage of Fannie and Freddie in the newspaper’s “Heard on the Street” column a “disaster.”

Ackman’s frustration was that Carney had argued the shares of Fannie and Freddie were not “living up to hopes,” without understanding the reason for that underperformance was the Net Wort Sweep, in which Treasury since August 2012 had begun stripping from Fannie and Freddie all earnings, without allowing either GSE to recapitalize or to pay dividends.

In the various jobs he has held in his writing career, Carney has consistently supported Corker by attacking investors that invested in Fannie and Freddie while supporting legislation Corker introduced with Virginia Democratic Sen. Mark Warner in 2013 aimed at shutting Fannie and Freddie down. Corker’s legislation favored a “bank-centric” mortgage finance model, where banks that have financed Corker, including Wells Fargo, could be expected to be dominant players in the future housing finance industry.

Before starting his latest assignment with, Corker media stooge John Carney even took pains to disguise his years of publishing articles bashing Donald Trump, going so far as to erase from his Twitter archive dozens of tweets he had published critical of Trump’s 2016 presidential campaign.

In an article he wrote for DealBreaker, dated April 10, 2006, Carney ridiculed Trump’s performance at a press conference held at Trump Tower in New York City at which Trump announced the creation of Trump Mortgage.

Commenting that Trump seemed “confused by the crowds and media” as he assumed the podium, Carney asked Trump, “Will the homes bought with Trump mortgages have to be adorned with giant gold letters reading Trump?” – a question that got no response, as Trump turned away, with Carney reporting Trump’s hair scowled back at him.

In his most recent article, written for on April 7, 2017, Carney continued his attack on “hedge funds and other big investors, including Perry Capital LLC and Fairholme Funds” for not understanding Fannie and Freddie were, in Carney’s opinion, “the primary cause of the financial crisis” in 2008 – an argument Carney asserted without considering the role played by major bank players in the crisis caused securitizing sub-prime mortgages.

The truth is that the crisis began when mortgage loan originators like Countrywide Financial and financial institutions like Washington Mutual began marketing sub-prime mortgage loans aggressively well before Fannie and Freddie got in trouble.

By the time Fannie and Freddie were seized in the fall of 2008, more than 311 major lenders more than 311 major lenders in the sub-prime mortgage market had failed, including financial institutions that provided warehouse lines of credit to independent lenders with the goal of originating increasing lower quality mortgage loans in the sub-prime market.

The widely read financial blog on Feb. 2, 2010, took Corker to task for his “bank-centric” view that no commercial bank had failed while performing proprietary trading, arguing that Corker “must have received his information from the banking lobby, and did not do his own homework.”

An article published in Time Magazine on Feb. 5, 2010, made clear that Lehman Brothers had lost more than $32 billion from proprietary trading and principal transactions in the mortgage market in the year and a half up to the crash that occurred in the fall of 2008 – a sum nearly double the $18 billion in common equity Lehman Brothers had in late 2006, just before mortgage bonds began going south – a sum Time called “more than enough to wipe the firm out.”

The Time article further pointed out Merrill Lynch lost nearly $20 billion on investments in collateralized debt obligations in the mortgage market, while Morgan Stanly experienced nearly a $4 billion loss in proprietary mortgage-securities related trading in the fourth quarter of 2007 alone.

Time went on to note Goldman Sachs spent $3 billion to bail out one of its hedge funds, and Citicorp poured out more than $3 billion into fixing its problems with structured investment vehicles that it had set up with its own capital.

“Like Merrill, Citibank lost big — as much as $15 billion, on the CDOs [Collateralized Debt Obligations] it decided to hold rather than sell off,” Time concluded. “In fact, nearly every large financial firm that stumbled during the financial crisis had billions of dollars in proprietary-trading or hedge-fund losses.” referenced an article published by the Wall Street Journal on Sept. 26, 2008, noting Washington Mutual was seized by the FDIC and sold off to J.P. Morgan Chase in the largest failure in U.S. banking history, resulting from the bank’s extensive involvement aggressively originating mortgages in the sub-prime mortgage market, as well as buying sub-prime loans from outside mortgage lenders, and participating as a major player in the secondary securitized CMO, or collateralized mortgage obligation, market.

Joshua Rosner, a managing director of the New York-based independent research firm Graham Fisher & Co., an expert in mortgage financing, in an exclusive email exchange with, commented on Corker’s apparent hypocrisy investing heavily in hedge funds, including one known to have shorted Fannie and Freddie in 2008, while demonizing hedge funds for wanting to make a profit on their GSE stock.

“The hedge fund attacks are a sideshow to avoid scrutiny of Corker’s own proposals, which would turn over the U.S. housing market to Wells Fargo,” Rosner said.

“Corker has this amazing way of creating false villains to avoid the substance of real mortgage market reform,” Rosner continued.

“Making the argument all about ‘evil hedge funds’ captures the public attention and may sound right to those less knowledgeable about the importance of capital investment to the growth and development of the mortgage market in the United States,” he insisted.

“But the truth is that demonizing hedge funds is nothing more than a disingenuous and cynical claim by Corker – a legislator with a long history of too-close ties to too-big-to-fail (TBTF) institutions,” Rosner said in conclusion.

Housing Costs Leave Millennials Hurting

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on April 4, 2017.

Interest rates are finally rising and it’s more expensive to borrow money now to buy a house. But living in Middle Tennessee — surrounded as we are by cranes, homes under construction and ever-denser traffic thanks to all the newcomers — may skew our ideas on the housing market. You may have heard about the rule that says housing should account for no more than 30 percent of your income. Is that rule of thumb still valid?

Where 30 percent came from

The ratio traces its beginning back to Massachusetts Senator Edward Brooke, who was the first African-American to be popularly elected to the Senate since the Civil War. The Brooke Amendment capped rent in public housing at 25 percent of residents’ income. Congress increased that rent ceiling to 30 percent in 1981 when they were faced with a budget crisis. That number has stayed the same since then, thus the 30 percent rule of thumb.

What millennials pay for housing

Last year the National Endowment on Financial Education partnered with Parents magazine to conduct a survey on the financial struggles of millennial-age parents. They found that 40 percent of millennial parents’ monthly incomes were going toward housing. Astonishingly, one-fifth of those were paying between 50 percent and 59 percent, and 8 percent were paying 60 percent to 74 percent. The vast majority of those in their early 30s and younger are paying rent, not a mortgage. Rental rates have soared since 2005, making it harder for renters to build a down payment for a home.


Housing market continues to lag

There are reasons to believe that the situation could get worse. Although housing starts and building permits are up this year, thanks to the upward ticking of the economy, housing continues to lag the business cycle and longer-term data suggests that there are not enough homes to satisfy the demand of millennials — driving up prices. As the Global Wealth and Investment Management division of Bank of America Merrill Lynch reported in its March 24 letter from the CIO, many undocumented construction workers left during the recession and may not return due to immigration reform. Given that labor represents 25 percent of a home’s sales price, a labor shortage could further drive up housing costs.

A pricey proposition

We’re all aware of, and perhaps exhausted hearing about, today’s staggering student debt. However, I bring up that $1.3 trillion figure to make a point. If 40 percent or more of your monthly income is earmarked for housing and you’ve also got $300 to $500 in monthly student loan bills, a huge chunk of your budget could be servicing debt alone. That leaves precious little for food, transportation and childcare, let alone saving and investing.

Recalculating the housing math

Here are some tips if you want a home but are at your financial limits:

  • Get smaller and further away. If too much of your budget is going toward housing, whether you rent or own, consider decreasing your square footage and lengthening your commute. If you’re looking to purchase, you don’t have to buy as much house as you’re approved for. In fact, that could turn out disastrously.
  • Refinance. Rates are going up, but they may be lower than your current rate. If you’re paying 5 percent or more in interest on your mortgage, have good credit and plan to live in your home five years or longer, it might make sense to refinance. Get a quote and crunch the numbers.
  • Stick to a budget and a financial plan. Be disciplined, but accept that you will make mistakes. Learn from them and stay the course. If you need help, talk to a financial planner.
  • See long, not short. As shocking as it may be to hear it, a person can in fact live without Starbucks, eating out, designer clothes, cable television and many other non-essentials. These things might make you happy in the moment, but years of it could add up to financial agony. As a financial adviser, I’ve never met a client who regretted tightening his or her belt earlier in life. I’ve met plenty who sorely regretted not doing it.

Jennifer Pagliara is a financial adviser with CapWealth Advisors. Her column appears every other week in The Tennessean. 

Are Diamonds a Millennial’s Best Friend?

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on March 17, 2017.

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We’ve all heard how millennials love to break with tradition. But much of their subversion — marrying later, buying homes later, opting for alternate modes of transportation, valuing experiences over material belongings — has as much to do with finance as philosophy. For instance, plenty of millennials do in fact get married eventually, as my own busy schedule attending my friends’ weddings will attest.

According to a RBC Capital Markets research paper published last year, “diamond jewelry appears to be low on the buying lists among so-called millennials.” Some analysts believe the global slowdown in diamond sales will pick up as millennials’ finances do so. Others cite much different reasons for millennials falling out of love with diamonds.

De rigueur for marriage proposals nearly worldwide, could the diamond ring one day become passé?

A little history on that big rock

There are conflicting sources about how the engagement ring got started. The ancient Egyptians are often credited with inventing the engagement ring, a circular shape to symbolize an eternal cycle, and it’s believed the ancient Greeks too gave a “betrothal ring” in advance of marriage. But what really cemented the diamond ring tradition isn’t all that romantic. It’s recent and it’s pure (though admittedly brilliant) salesmanship.

In 1947, U.S. diamond sales, always an extravagance of the wealthy, had been declining for two decades. So the De Beers diamond company hired the N.W. Ayer advertising agency to create campaign. The phrase “A diamond is forever” was born and by 1951, 80 percent of brides in America had one.

Today, 8 out of 10 married American women still have one on their finger, believing that this super-hard, super-rare, sparkling bauble requiring one to three billion years to form is the perfect emblem of their love. And we’re not the only ones. De Beers advertises globally.

Are the diamond’s fortunes shifting?   

Who came up with the rule of thumb that an engagement ring should cost two or three months’ salary? Do you really have to ask? That helpful recommendation also comes from years of De Beers advertising.

In 2016, the average spend on a ring was $6,163, according to the wedding-planning website The Knot. That’s a lot of moola for a cash-strapped millennial. Or a cash-strapped anybody. After all, once you remove the storytelling and the symbolism, a diamond could be viewed chemically: a three-dimensional cubic lattice of carbon atoms.

Already the diamond’s allure has been somewhat spoiled by the news of “blood diamonds” or “conflict diamonds.” These interchangeable terms point to the fact that many diamonds have been mined in Africa since the 1970s to finance bloody civil wars, insurgencies and invasions. That’s a problem of ethics and image.

Now, technology is presenting a problem of exclusivity and rarity. Laboratories are getting better and better at manufacturing so-called “synthetic” or “artificial” diamonds, which are virtually indistinguishable from their natural counterparts. As a result, the price of diamonds could start to decrease.

A Veblen good              

Diamonds are not a commodity like oil or gold — or nearly any other economic good, for that matter. They are a Veblen good. This is a good for which demand increases as the price increases because of its exclusive nature and appeal as a status symbol. That’s contrary to the normal economic laws in which demand has an inverse relationship to price. As the price of diamonds decreases, will demand plummet as well? Will that further erode their mystique?

The growing Chinese middle class will probably prop up diamond demand for a while. But after that, will a new tradition take its place?

Jennifer Pagliara is a financial adviser with CapWealth Advisors. Her column appears every other week in The Tennessean. 

Don’t Wonder If You Have Enough for Retirement, Find Out

The following column from Phoebe Venable, CapWealth Advisors President & COO, appeared in The Tennessean on March 10, 2017.

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The most important long-term financial goal for everyone is to save for retirement. Or it should be. As a financial adviser, the single question that I hear more than any other is “do I have enough?”

The answer isn’t always simple. It depends on age, income, the performance of investments, life expectancy, location, lifestyle and the legacy we may want to leave others. You fold all of those into the equation and develop a plan. The younger we are when we start, of course, the better the odds are of achieving our retirement goals. But all too often, people don’t really start planning for retirement until they begin to see it looming on the horizon. Better late than never, but far from ideal.

Do you have enough?

Let’s say you’re 55 and Monday morning your employer offers you an early retirement package (a strategy companies sometimes use to trim their payroll costs without firing anyone). I advise you take a deep breath and consider carefully.

The average life expectancy, according to data compiled by the Social Security Administration, is 84 for men and 86 for women. But those are averages. About one out of every four 65-year-olds today will live past 90 and one out of 10 will live past 95. If you retired at 65, would your retirement savings support you for 30 years? Retiring at 55 adds another decade.

Two key components: spending and earning

Retirement planning hinges on two key components — how much you spend and how much your savings earn during retirement. Financial advisers use financial-planning software programs to map out your financial future but any financial plan is only as good as the information used to create it. One common mistake is to underestimate how much you’ll spend when you retire. The younger you are at retirement, the more you’re likely to spend. When asked, most people would say they expect their living expenses to go down in retirement, but that isn’t always the case. The Employee Benefit Research Institute (EBRI) found that 46 percent of households spent more money, not less, during their first two years of retirement.

Have a good financial plan

In my personal experience as a financial adviser, no one accurately estimates what they will spend in retirement when they retire early. Young retirees with newfound time on their hands are far more likely to travel, undertake larger home projects, begin new hobbies, etc. At age 55, you could have 10 years of health insurance expenses until you are eligible for Medicare. Social security benefits can begin at age 62 but you won’t receive your full benefits until age 66, 11 years after early retirement at age 55. A good financial plan will provide the budgeting framework you need to stay on track — regardless of your retirement age.

A financial plan is not a static document. It’s not an exercise that you complete once and put on the shelf. Every financial plan needs to be updated annually, especially during the first few years of retirement as you settle into your new phase of life. If you spend more than you expect in any given year, you make adjustments.

If you are considering retirement, don’t just wonder if you have enough. Find out. There are essentially two ways to improve the results of a financial plan: earn more or spend less. A good financial adviser will help you find the right balance between the two.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors, LLC. Her column on women, families and building wealth appears every other Saturday in The Tennessean.

Did Obama Rob Fannie, Freddie to Fund Obamacare?

The fact that the Obama Administration unilaterally changed the terms of the GSE conservatorship to sweep all their profits is irrefutable. It’s also clear that the administration did so just as the GSEs were becoming fantastically profitable again. This, too, is a matter of public record, thanks to ongoing litigation in more than one courtroom. What’s not always plain is what the administration did with those coffers swelling with ill-begotten riches.

The article below (click here to read the original publication) compellingly alleges that one of the ways the GSE profits–our profits, by rights–were used was by illegally funding Obama’s signature work as President, the Affordable Care Act. I encourage Fannie and Freddie shareholders, as well as anyone interested in citizens’ rights and the rule of law, to read it.

Obama Illegally Robbed Fannie, Freddie to Fund Obamacare

Obama diverted money from low-income housing to keep Obamacare alive

Jerome R. Corsi | – February 27, 2017

WASHINGTON, D.C. – Will this be the final nail in the coffin for the Affordable Care Act, commonly known as “Obamacare?”

Federal court litigation provides evidence the Obama administration illegally diverted taxpayer funds that had not been appropriated by Congress in an unconstitutional scheme to keep Obamacare from imploding.

In 2016, a U.S. District judge caught the Obama administration’s Health and Human Services Department acting unconstitutionally and therefore put an end to the illegal diversion of taxpayer funds, but the Obama administration didn’t stop there.

The Obama administration instead turned to the nation’s two government-sponsored mortgage giants – the Federal National Mortgage Association, commonly known as “Fannie Mae,” and the Federal Home Loan Mortgage Corporation, commonly known as “Freddie Mac” – to invent a new diversion of funds in a desperate attempt to keep Obamacare from collapsing.

A key date is May 12, 2016. That was the day when U.S. District Judge Rosemary Collyer, in the case U.S. House of Representatives v. Burwell, (130 F. Supp. 3d 53, U.S. District Court for the District of Columbia), ruled against Health and Human Services Secretary Sylvia Matthews Burwell.

Judge Collyer decided HHS Secretary Burwell had no constitutional authority to divert funds Congress appropriated to one section of the ACA to fund Obamacare subsidy payments to insurers under another section of the ACA, Section 1402 – the clause defining the insurer subsidies – when Congress specifically declined to appropriate any funds to Section 1402 for paying the insurance subsidy.

“Paying out Section 1402 reimbursements without an appropriation thus violates the Constitution,” Judge Collyer concluded. “Congress authorized reduced cost sharing but did not appropriate monies for it, in the Fiscal Year 2014 budget or since.”

“Congress is the only source for such an appropriation, and no public money can be spent without one.”

The U.S. District court in this ruling entered judgment in favor of the House of Representatives, barring HHS from using unappropriated money to pay insurers under Section 1402.

What was at issue in Section 1402 was the Obamacare provision that capped the amount of federal subsidies under Section 1402 that lower-income families could use to pay for insurance purchased on state insurance exchanges, particularly the difference between the capped maximum based on a person or family’s income in relation to the federal poverty level.

Congress had refused to pass an appropriation to fund Section 1402 – the section of the ACA that called for making the insurance subsidy payments.

In a report issued in March 2016, the Congressional Budget Office estimated the cost for providing Section 1402 subsidies over the next ten years (2016-2026) was estimated to be $130 billion.

Forbidden by Judge Collyer’s decision from diverting money Congress appropriated for other ACA provisions to pay Section 1402 subsidies, the Obama administration faced the prospect that the government could not pay subsidies to permit lower-income persons and families to buy the amount of health insurance Obamacare was written to provide them.

Either this, or insurers would be forced to charge middle and high income-persons and families such outrageous amounts for their insurance coverage (to subsidize the poor under ACA) that only the wealthiest could afford to buy health insurance.

In other words, Obamacare was dead in the water if the Obama administration could not find a way to circumvent the District Court’s decision U.S. House of Representatives v. Burwell to fund Section 1402 despite the fact Congress had refused to do so.

Determined to keep Obamacare alive, the Obama administration decided to find a way around Judge Collyer’s ruling.

The fix involved the Obama administration redefining the terms of the 2008 conservatorship agreements which advanced funds to Fannie Mae and Freddie Mac from a 10% dividend on moneys borrowed to the federal government’s confiscation of 100% of the future and imminent profits of these Government Sponsored Entities, or GSEs.

Miraculously, the Freddie and Fannie “pot of gold” turned out to be almost exactly the amount the Obama administration needed to meet the anticipated insurance company subsidies required to keep Section 1402 in business.

So, how did Fannie and Freddie get this pot of gold, given that only a few years earlier both GSEs were bankrupt?

In 2008, in the midst of the financial crisis caused in part by the collapse of the subprime mortgage market, the federal government decided to seize Fannie Mae and Freddie Mac, which at the time were two shareholder-owned companies.

In passing the Housing and Economic Recovery Act of 2008 (HERA), the U.S. Congress had fixed the regulatory issues at Fannie Mae and Freddie Mac, creating a mechanism for them to be placed into conservatorship at federal government’s discretion AND providing up to $187.5 billion in funds that could be advanced to the GSEs through a purchase of senior preferred stock paying a ten percent dividend.

In deciding to bail them out, the federal government took control of the two giant mortgage GSEs, with Fannie and Freddie effectively put into government “conservatorship.”

As part of the conservatorship, the federal government effectively acquired warrants, convertible at a nominal price, which allowed the federal government to acquire 79% of the GSE’s common stock.

This resulted in causing dilution in the percentage of Fannie and Freddie common stock ownership that was left in the hands of private and institutional investors.

Congress’ intent was that Fannie Mae and Freddie Mac would pay back the Treasury as the mortgage giants returned to profitability.

But after the Treasury was paid back, the terms of HERA anticipated Fannie Mae and Freddie Mac would pay appropriate dividends to stockholders, including the federal government, leaving enough funds within Freddie and Fannie to “conserve and preserve” the assets of the two GSEs, anticipating their eventual return to a “safe and solvent” operating condition.

In 2012, the Obama administration unilaterally decided to change the terms of HERA by sweeping all the profits of Fannie and Freddie into the Treasury’s general fund.

The Obama administration took this action, the so-called “Net Worth Sweep,” without any Congressional authority to do so.

The result was that the U.S. Treasury “found” a way to sweep 100% of Fannie and Freddie profits into the Treasury’s “general fund,” leaving the giant mortgage GSEs vulnerable to the need for another government bailout should another disruption occur in the nation’s economy.

Because of this decision, the Obama administration on its own authority simply decided to discontinue paying dividends to private and institutional owners of Fannie and Freddie common and preferred stock.

Congress, in passing HERA, never anticipated the Obama administration would take over Fannie and Freddie and strip the agencies of all profits – a move that left private and institutional shareholders in the cold.

Leading up to the decision to sweep Fannie and Freddie’s profits, the GSEs return to imminent profitability was known only by a few government officials and their consultants.

Their own internal forecasts, uncovered in unsealed court documents, showed that Fannie and Freddie’s profitability would soon dramatically outperform the amount of the allowable 10% dividend that the Treasury would receive under the existing Senior Preferred Stock Purchase Agreements.

On August 17, 2012, these same officials and consultants succeeded in engineering with the Federal Housing Financial Agency, FHFA, and the Department of Treasury an amendment to the Senior Preferred Stock Purchase Agreements that allowed the U.S. Treasury to grab ALL Fannie and Freddie profits – regardless how large Fannie and Freddie’s earnings might be.

Between 2012, when the Obama administration began its policy of confiscating all Fannie and Freddie profits and now, Fannie and Freddie have paid the U.S. Treasury general fund more than $240 billion in dividends.

The point is that after May 12, 2016, when U.S. District Judge Rosemary Collyer ruled that HHS had to stop diverting ACA funds to pay Obamacare subsidies, the Obama administration realized that HHS somehow had to fund the estimated $130 billion the HHS would need in un‐appropriated monies to pay health insurers the ACA subsidies required to keep Obamacare alive in Fiscal Year 2013.

Plaintiffs litigating against the Obama administration’s confiscation of Freddie and Fannie earnings have challenged in court whether the Obama administration’s decision to amend the Preferred Stock Purchase Agreement in August 2012 and sweep GSE profits of $130 billion in 2013 ($82.4 billion from Fannie Mae, and $47.6 billion from Freddie Mac) was an attempt to circumvent Congress on the single most important policy priority of the White House.

The timing was particularly interesting given that September 2012 marked the beginning of the sequestration discussions.

Government documents leave little doubt profits from Fannie and Freddie confiscated by the U.S. Treasury have been used by the Obama administration to pay Obamacare subsidies and other items not appropriated by Congress, in complete and illegal circumvention of the District Court’s ruling and the Constitution’s determination that only the Congress shall have the power to tax and spend.

For instance, Chapter 3 of the Congressional Budget Office publication “The Budget and Economic Outlook: 2015 to 2025” notes on page 63 that the major contributors to mandatory U.S. government spending include “… outlays for Medicaid, subsidies for health insurance purchases through exchanges, and the government’s transactions with Fannie Mae and Freddie Mac.”

Why Fannie and Freddie are specified in this context, when Fannie and Freddie have had sufficient earnings to operate without government subsidies since 2008 is made clear a few pages later.

On page 65, in Table 3-2, the CBO report notes “mandatory outlays projected in CBO’s baseline” from Fannie Mae and Freddie Mac for 2014 is -$74 billion and for 2015 a total of -$26 billion.

The figures are “negative dollar amounts” because instead of paying out to Freddie and Fannie, the U.S. Treasury is collecting from Freddie and Fannie, with the proceeds going into the U.S. Treasury general fund to pay “mandatory outlays,” including evidently continued subsidies to insurers, as specified by ACA Section 1402.

In footnote 14 on page 8 of that CBO report lets the cat out of the bag, noting the Obama administration considers payments from Freddie and Fannie “to be outside of the federal government for budgetary purposes,” recording cash payments from Freddie and Fannie to the Treasury as “federal receipts.”

The Obama administration evidently considered this all-too-convenient redefinition of terms allowed the government to argue the use of Fannie and Freddie profits to pay Obamacare Section 1402 subsidies was not in violation of the District Court ruling.

Why? Evidently because Fannie and Freddie profits were not taxpayer-generated, but were profit payments generated by Government Sponsored Entities that still had some common and preferred stock private and institutional shareholder ownership.

In the same footnote, the CBO takes exception with the Obama administration, commenting the CBO considers profit payments to the Treasury made by Fannie and Freddie to be “intragovernmental” receipts going into the same Treasury general fund pot, to be mixed indistinguishably with taxpayer revenue, not distinct public/private GSE “receipts” separately accounted for in the Treasury general fund as distinguishable from taxpayer revenue.

If the federal courts conclude Fannie and Freddie GSE “receipts” to Treasury still need Congressional appropriation to be spent legitimately by the executive branch of government, the Obama administration will have been exposed as having operated outside the Constitution in its desperate attempt to keep the ACA from imploding.

What should be outrageous to progressives understanding the Obama administration subterfuge to keep the ACA alive is that by confiscating Fannie/Freddie profits to keep Obamacare alive, Obama ignored core members of the Democratic Party’s core constituency – affordable housing advocates and minority groups – with little explanation.

Tax Time Tips: 6 Ways to Minimize Your Odds of an Audit

The following column from Phoebe Venable, CapWealth Advisors President & COO, appeared in The Tennessean on February 24, 2017.

Getty Images/iStockPhoto

While tax audits are rare, nobody wants the distinction of experiencing one. Unfortunately, they’re not completely avoidable for any of us. That’s because, among other considerations, the IRS also uses random selection and computer screening — meaning some returns are picked for audit based purely on a statistical formula! But understanding how the IRS selects returns for audit might help you minimize your odds of being chosen.

If your return is selected for an audit, the IRS will notify you by traditional mail. Not by phone, not by email, not by text. Nor will they ever call you to demand payment — if you receive such a call, it’s a scam. The IRS is old-school and advises taxpayers of audits and owed taxes in writing only.

How far back can the IRS go with an audit?

The majority of audits conducted by the IRS are of returns filed within the last two years. The IRS states that they want to audit tax returns as soon as possible after they are filed. If the IRS finds substantial errors, they can go back six years or more, so it’s a good idea to hang on to your returns for the last seven years along with all your documentation.

The IRS will compare your return against “norms” for similar returns. If your return is significantly different from the statistical norms for your area, level of income, household size and other factors, your odds of an audit go up. If you are entitled to a deduction, you should claim it. But be sure to have documentation in case the IRS inquires.

6 ways to minimize your odds of an audit

  1. Check and double-check your return. Electronic filing will greatly reduce simple mathematical errors on your return because the computer software will add and subtract correctly. Be careful if you are completing your return by hand and be sure to check the math.
  2. Make sure you include everything. The IRS receives a copy of every Form W-2 and Form 1099 that you receive. If your return doesn’t match their records, you are almost guaranteed to receive a computer-generated audit letter.
  3. If you are a sole proprietor who files Schedule C detailing the expenses and profits of your business, reporting a net loss for three years or more in a row is likely to result in the IRS questioning the legitimacy of your business.
  4. Don’t include political contributions as charitable contributions. You may have an eloquent argument for how you’re helping society with donations to your favorite politicians, but the IRS isn’t listening. Political donations are not tax-deductible and the IRS’s computers will catch this, thereby increasing your chance of an audit.
  5. Make sure you qualify for the deductions you are claiming. Unusual or unrealistic deductions will increase your odds of being selected for an audit. Giving away 40 percent of your income to charity is highly unusual, so be sure you have proper documentation.
  6. Use a reputable tax preparer. The IRS automatically flags returns prepared by tax preparers who’ve been criminally charged with tax fraud. If your preparer is on the list, you are more likely to be selected for an audit. Additionally, a good tax preparer will provide advice on how to minimize your total tax liability and what you can do differently in future years to lower your tax burden. The money you spend on a tax professional is likely to save you money.

Being selected for an IRS audit doesn’t mean you’ve done something wrong. It simply means the IRS has questions about your return. Fear of an audit shouldn’t keep you from noting legitimate expenses and deductions. Just be sure to keep accurate records and proper documentation. If you aren’t sure what is a legitimate expense or deduction, I suggest you talk to a reputable, professional tax preparer.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors, LLC. Her column on women, families and building wealth appears every other Saturday in The Tennessean.

What Johnny Depp’s Financial Woes and Your Retirement Might Have in Common

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on February 17, 2017.

Johnny Depp plays with his band, The Hollywood Vampires, at the 58th Grammy Awards on Feb. 15, 2016. (Photo: Matt Sayles/Invision/AP)

In case you haven’t heard, Johnny Depp is in deep. Deep financial trouble, this is.

As reported in The New York Times, despite lifetime earnings of nearly $650 million, Depp has not paid his taxes on time, has had to cough up nearly $6 million in interest to Uncle Sam, has made bad loans and bad investments, and is having trouble covering his recent divorce costs. And by the way, he also owns 14 houses around the world and an island in the Bahamas. For now, anyway.

Back taxes and Bahamian islands

Depp blames his money woes on his financial advisers at the Management Group, whom he’s suing. Depp claims they “engaged in years of gross mismanagement, self-dealing and at times, actual fraud” and all the while he trusted them “as a loyal fiduciary and prudent steward of his funds and finances.” The Management Group has countersued, claiming they “did everything to protect Depp from his own irresponsible and profligate spending.” How irresponsible and profligate? Two million dollars a month, or so they say.

Putting another’s interests above your own

That word “fiduciary” is our focus here. A fiduciary is someone to whom property or power has been entrusted for the benefit of another. In 1974, Congress enacted the Employment Retirement Income Security Act (ERISA), which established that employers and their employee benefit plans’ investment managers have a fiduciary responsibility to their participants. The participants’ interests must come before their own.

Pretty straightforward, right? As a matter of course, anyone involved in providing me any kind of investment advice is putting my interests above their own, right?

Uh, no. Not necessarily.

Fiduciary vs. suitability standard

Brokers, also known as broker-dealers, are primarily in the business of buying and selling securities, transactions upon which they make a commission, though they also provide financial advice. They’re legally bound to a lower standard in their client relationships, that of suitability. They must prove a product is suitable for a client, though it might not be the best product for them.

Fee-based advisers and Registered Investment Advisers (RIA), such as my firm, are under the fiduciary standard. They offer advice with their client’s best interests in mind at all times and are paid for that advice — not for conducting transactions.

The new law of the land — maybe

Doesn’t sit well with you? It didn’t sit well with former President Obama either. In 1974, there were no 401(k) plans and IRAs had just been created, both of which are for retirement, and there’s been no law providing a consistent standard of conduct for all the many professionals giving advice on all these accounts. So in 2015, Obama proposed a major overhaul to the financial industry. In 2016, the Department of Labor issued the new Fiduciary Rule. All financial professionals working with retirement plans or providing retirement planning advice will be ethically and legally bound to the fiduciary standard beginning April 10, 2017.

However, President Trump issued an order on Feb. 3 to delay the rule’s implementation. He’s instructed the Department of Labor to carry out an economic and legal analysis of the rule’s potential impact. As of now, the new Fiduciary Rule is in limbo.

But your retirement doesn’t have to be. Make sure you trust whomever is giving you advice. If you don’t easily trust others — a good habit to have when it comes to your money — find an adviser who is under a fiduciary obligation to you and take an active role in understanding the advice you’re getting.

Jennifer Pagliara is a financial adviser with CapWealth Advisors. Her column appears every other week in The Tennessean. 

CapWealth Senior Advisor Jennifer Pagliara Selected to Nashville’s Young Leaders Council

We’re pleased to announce that Senior Advisor Jennifer Pagliara has been accepted into the Young Leaders Council (YLC)/Massey Graduate School Alumni Class 2017, an organization committed to broadening and strengthening Nashville’s volunteer leadership base!

Founded in 1985 by the Council of Community Services in conjunction with the Frist Foundation (formerly the HCA Foundation) and the United Way, the YLC selects participants between 25 and 40 years of age from a broad range of corporate, civic and volunteer backgrounds. They may be nominated by YLC alumni, their group’s management or may be self-nominated with management’s recommendation.

“I am so excited to begin the YLC training program,” says Jennifer. “As my career has progressed, as I’ve worked with our clients’ children and high school girls to better understand finance and frankly as I’ve watched my dad’s philanthropic commitment, my own passion for giving back to our community has grown continually sharper. I want to do more to support Nashville and its people. YLC will provide training and insight to help me discover where and how I might best do that.”

The YLC consists of a eleven-session training program, addressing fundamental board skills. These interactive sessions reflect on such leadership indicators as collaboration, diversity and the role of catalyst deemed crucial for today’s nonprofit leadership roles. The training is followed by a year internship with a community agency. At this time, the YLC participant serves as a non-voting member of a working board.

Jennifer Pagliara, Senior Advisor, has served on our client advisory team since 2014. She works closely with President and CEO Phoebe Venable and Senior Advisor Traci Olive to help ensure that our clients have the best experience with us as possible. Jennifer spearheads our efforts to reach the Millennial market and serves as personal advisor to our growing number of Millennial clients. While pursuing her Bachelor of Science degree in Business Administration from Birmingham-Southern College, Jennifer interned with the firm in the summer. Upon graduating in 2010, Jennifer joined the firm full-time, working in both compliance and client services.

In 2014, Jennifer completed her MBA degree at Belmont University with a concentration in Finance. While there, she was a member of Beta Gamma Sigma (the top 10% of her class). In her program’s culminating course, each year students participate in a business-simulation competition. The same product is assigned to all teams, and each as a competing company must plan research and development, production, pricing, marketing, employee benefits—everything that real-world companies must wrestle with. Ultimately, after being pitted against three other student teams as well as three computer-model teams, Jennifer’s team won, scoring higher than any team in Belmont University history.

Along with Phoebe Venable, Jennifer hosts “Money Camp” for our clients’ children and grandchildren, teaching them the fundamentals of saving, spending, giving and investing. She has recently begun to give “guest speaker” presentations to local businesses and organizations about finance, speaking specifically to certain topics like 401(k)s, college savings and the stock market. For the past two years, she’s served as a mentor and teacher for Rock the Street, Wall Street, a national organization dedicated to inculcating a passion and a vocation for finance in high school girls.

Jennifer holds FINRA licenses including the Series 7, 63 and 65, and is a member of the National Association of Professional Women, a national membership organization representing professional women of outstanding leadership and accomplishment.

She grew up in Franklin, Tennessee, and today resides in Nashville. She loves animals, particularly her dog Luna, she reads a about novel a week on average, and she enjoys yoga and the area’s great hiking trails. In 2016, she summitted Tanzania’s Mount Kilimanjaro, the highest peak in Africa.

A proud member of the Millennial Generation, Jennifer writes a bi-weekly financial column for The Tennessean that speaks to her peers and anyone else that wants to get ahead financially.  You can follow her columns on our blog or at Twitter and LinkedIn.

Dow 20,000: What’s in a Number?

The following column from Phoebe Venable, CapWealth Advisors President & COO, appeared in The Tennessean on February 10, 2017.

Getty Images/iStockPhoto

On Jan. 25, the Dow Jones Industrial Average (Dow) pushed above 20,000 and held until trading ended. It was an historic first, a major symbolic and psychological milestone that captured headlines and the attention of market watchers. Practically speaking, however, it’s almost a non-event. There’s very little difference between Dow 19,999 and Dow 20,001 for any individual’s portfolio.

Moreover, though the Dow is famous, partly because it’s been around since 1896, it only represents 30 stocks. Professional market watchers prefer the S&P 500, whose 500-stock index (505, actually) better represents the U.S. stock market and provides a more accurate bellwether of the economy.

So which is it — a major milestone or a non-event? Before answering that, let’s look at how we got here.

Unexpected impact

Since the election in November, investors have been expressing confidence in our economy by pouring money into stocks, especially shares of banks and other cyclical companies. Investors are optimistic that the Trump administration will ignite economic growth through a combination of infrastructure spending, regulation repeal and tax cuts. President Trump himself acknowledged the Dow’s milestone with a tweet: “Great! #Dow20k.”

Interestingly, the reigning wisdom before Election Day was that a Trump victory would hurt stocks. Many even predicted a crash.

Power, slow and steady

On Jan. 25, 2017, it had been about 18 years since the Dow closed above 10,000 for the first time on March 29, 1999. The growth rate from 10,000 to 20,000 over 18 years is about 4 percent a year. Do you know the “Rule of 72”? To estimate how long it will take your money to double at a given fixed annual interest rate, just divide the interest rate into 72. Or in this case, we know it took 18 years for the Dow index to double, so we divide 72 by 18 to get an interest rate of 4 percent.

Why is that interesting? Because it demonstrates the power of compounding interest, the slow-and-steady engine behind all of our investment portfolios. (Hopefully your average rate is north of 4 percent.)

What was going on when the Dow crossed the symbolic 10,000 mark for the first time? Bill Clinton was president and Donald Trump was divorcing Marla Maples. We were at the height of the dot-com stock bubble. iPhones didn’t exist. The Atlanta Falcons lost Super Bowl XXXIII to the Denver Broncos. Computer technology was changing everything, the internet was taking off and interest rates were falling. U.S. companies were innovating at an incredible pace.

Dips, detours and seeming derailments

By the end of 1999, the country was worried about the Y2K problem. Would there be havoc in computer networks around the world because programmers had represented the four-digit year with only two digits? What would happen when the year changed from 99 to 00?

Computers and networks didn’t shut down and there was no apocalypse at 12:00 a.m. on Jan. 1, 2000. However, the dot-come bubble would burst in 2000 and the Dow would retreat, not to retake the 10,000 mark again until late 2003. By October 2007, it had reached 14,000. Then came the financial crisis, at the bottom of which the Dow index fell below 6,500, eight years after closing above 10,000 for the first time.

Practicing patience and the long view

This isn’t merely interesting, it’s instructional, even essential, to understanding investing. The ups and downs of the stock market teach the wise investor to be patient. As legendary investor Warren Buffett once said, “The stock market is a device for transferring money from the impatient to the patient.” Over time, the stock market has risen. More specifically, there is always opportunity if you know where to look. That is, somewhere a stock is trading at a lower value than it should be for a temporary reason or even apparently no reason — that’s true when the markets are down as well up. And listening to popular opinion or all the background noise can steer you astray.

The most interesting thing about 20,000 isn’t the number itself. 20,000 doesn’t tell us where we’re going. But it does tell a story about where we’ve been and how we got here: through patience and taking a long-term view. For most investors on a long journey, it’s a story we need to hear again and again.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors, LLC. Her column on women, families and building wealth appears every other Saturday in The Tennessean.

Annuities Don’t Add Up for Millennial and Middle-Aged Investors

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on February 3, 2017.

Illustration by Howard McWilliam

Many of you are sick of hearing about financial products that you don’t understand. Millennials certainly are. We’re even cynical about financial products we do understand. That’s because the news of our short lifetimes has been Enron, the Financial Crisis of 2007-2008, Bernie Madoff and more. Which is why I’m so perplexed to see annuities marketed to millennials and, even more astonishingly, to have millennials approach me about investing in them.

With rare exceptions, annuities simply aren’t appropriate for younger people. Or really anyone that’s not very near or in retirement. Here’s why.

What’s an annuity?

An annuity is a contract between an individual (the annuitant) and a life insurance company or other financial institution. The annuitant funds the annuity either by a lump sum or periodic payments during his or her working years. The institution grows those funds during the accumulation phase by investing them somehow. Upon reaching the annuitization phase at a later point in time, the institution will pay out a stream of payments to the annuitant. A fixed annuity will provide regular periodic payments at a fixed rate of return. A variable annuity provides payments based on the performance of an annuity investment fund — made up of stocks, bonds or other market instruments. Thus, the returns can vary over time.

All annuity earnings grow tax-deferred and taxes are paid when earnings are either withdrawn or paid out during annuitization. Also, an annuity can ensure that, if the annuitant dies, his or her beneficiary receives no less than the initial investment — this is called a Guaranteed Minimum Death Benefit (GMBD). These are the important basics of annuities, though they can be structured in many, many different ways, including how long payments are guaranteed to continue.

So far, so good, right? And annuities can be quite good for people who need to secure a steady cash flow during their retirement years and/or are in danger of outliving their assets. In fact, defined-benefit pensions and Social Security are two examples of annuities.

Reasons to be wary

For everyone else, some things to consider about annuities:

1. They’re complicated and confusing. I’m a firm believer that you shouldn’t buy anything that you don’t fully understand.

2. They’re expensive. I cannot stress enough how expensive these products can be. Variable annuities on average cost between 2 and 3.5 percent; I’ve seen even higher when all the fees were compiled. What fees? Riders must be purchased to add the GMBD, to accelerate payment if the annuitant is diagnosed with a terminal illness or to adjust payments based on inflation. There are also M&E fees, sub-account expense ratios, administrative fees and surrender fees of 10 percent or more if the annuitant takes money out too early. You also need to realize that the person selling you your annuity often gets a commission — that money has to come from somewhere.

3. There are no guarantees. “Guaranteed” income is what draws so many people to annuities. But there could be nothing further from the truth. Guaranteed lifetime income costs extra, and even then it goes away if the annuitant withdraws more than the schedule permits. Moreover, for that “guarantee,” annuitants will on average pay 4 percent a year. So your guarantee of 5 percent is really only 1 percent. That’s a crummy return.

4. The risk-reward calculation too often doesn’t add up. For me and my firm, investing has a long-term focus. It should for you as well. If you’re a millennial, or in your 40s, 50s and even 60s, you’ve most likely got years and even decades to ride out market meltdowns. In that case, you really need to think about fully participating in the market’s long-term upside. While that’s not guaranteed either, the market’s growth over time has been demonstrated over history. Locking your investment money into an annuity’s low returns out of fear or an overabundance of caution could irreparably stunt your nest egg. If you’re risk-averse, you’re likely much better off with a portfolio of low-cost stock-and-bond index funds or enlisting the help of a good financial adviser. As Ken Fisher, founder and chairman of Fisher Investments, once said: “Almost always, anything that can be done with an annuity can be done a better way.”

A final thing to consider. Life insurance is bought to deal with the risk of dying prematurely. An annuity, on the other hand, is bought to deal with the risk of outliving one’s assets. In either case, actuarial science tells an institution how to price their policies so that on average they— and not you — earn a profit. When I said the risk-reward calculation doesn’t add up, I meant it!

Jennifer Pagliara is a financial adviser with CapWealth Advisors. Her column appears every other week in The Tennessean. 

Millennials Demand Quality, Innovation and Value in Every Glass

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on January 20, 2017.

With New Year’s two weeks past, the Bicentennial Mall “mud pit” has been cleaned up (amazing what rain and thousands of revelers can do to a place!) and no doubt all vestiges from your own private celebratory bashes have been cleared away.

At my own recent trip to the recycling center, I marveled at the mountainous heaps of empty booze bottles. Then this weekend at a coffee shop I overheard a conversation at the table beside me. The two millennials were avidly discussing liquor. One of them said, “Even though I don’t make much money, there’s a line item in my monthly budget for good Irish whiskey. Life’s too short to drink bad alcohol,” he proclaimed. The same sentiment is true of many millennials, judging by my own friends and acquaintances.

The U.S. alcoholic beverage market has $211.6 billion in annual sales. Millennials of legal age, though only representing one-fourth of adults over 21, account for 35 percent of U.S. beer consumption and 32 percent of spirit consumption according to Nielson. The Wine Market Council reports that they consume 42 percent of all wine in the U.S. As more and more millennials turn 21, it shouldn’t surprise you that the alcohol industry is scrutinizing with clear eyes and clear heads how millennials choose to become a little bleary-eyed and warm and fuzzy inside. While drinking and driving never mixes, the unique ways that millennials are drinking is certainly driving new trends.


When it comes to shopping, millennials are value-conscious. They look for good deals and use coupons. But this does not mean they settle when it comes to quality. In fact, just the opposite is true. According to Nielson’s alcohol surveys, a large percentage of millennials reject mass-market alcohol beverages, helping to fuel the rising popularity of “handcrafted,” “artisanal,” “microbrewery,” “small batch” “single barrel” and “single malt” alcohol products. Over 40 percent of millennials equate price with quality, while only 27 percent of baby boomers do. This trend seems to be born out in wine sales. Last year, says the Wine Market Council, 37 percent of high-frequency wine drinkers purchased at least one bottle of wine over $20 per week, nearly doubling 2010’s number.


It would be a mistake to believe this penchant for quality translates as brand loyalty, however. Says Ben Steinman, president of Beer Marketer’s Insights, “Famously, the millennials are fickle. They’re seeking variety, innovation and flavor.” Wine Spectator magazine concurs, writing that “It’s not an exaggeration to say the millennial American consumer has the most varied set of tastes of any wine drinker in history … young wine drinkers clamor for diversity in regions and styles more than ever.” As is the case with much of the millennial generation’s consumption and experience-seeking habits, they’re adventurous and like to try different things.

They don’t drink alone

While a millennial might drink alone, he or she is more apt to tell the whole world about it! Of millennials who drink wine, again according to the Wine Market Council, over 50 percent talk about it on Facebook and more than a third do on YouTube, Twitter and Instagram. No doubt millennials are just as digitally gregarious about their experiences with beer and hard liquor. Millennials listen, too, eager to know what both peers and experts have to say about alcohol products. About 60 percent consider wine reviews “extremely” or “very” important, compared to about 20 percent of baby boomers.

Millennials have changed not only how we talk about things, but how we buy things, too, and that’s true of alcohol. Starbucks now offers wine. I’ve seen bookstores, movie theaters and even car washes that offer wine. And thanks to technology, there are now companies such as Drizly and Minibar that will deliver alcohol directly to you in less than an hour!

For alcohol-related businesses willing to pursue innovation, originality and quality, millennial tastes will reward them with economic opportunity. Cheers!

Jennifer Pagliara is a financial adviser with CapWealth Advisors. 

Guts, Glory and Uncompensated Risk

The following column from Phoebe Venable, CapWealth Advisors President & COO, appeared in The Tennessean on January 13, 2017.

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For investors, part of starting every New Year is the assessment of the prior year. Year-end statements are arriving in our mailboxes and inboxes. Will you rip open your statement and immediately sit down to review the results? Or will you be one of the many that will set aside the statement until you can muster up the courage to look? If you fall into the latter category, you should know that the stock market performed quite well last year. So have no fear — rip open your statements and look!

A good year for U.S. stock market

The U.S. stock market rallied to record levels in 2016. The Dow Jones Industrial Average was up 13.4 percent last year, reaching an all-time high of nearly 20,000 points at the end of the year. Of course, the Dow only tracks the performance of 30 selected stocks. The S&P 500 Index is a much broader measure of stock market performance as it tracks 500 stocks. Last year the S&P 500 Index returned 9.54 percent (price index) or 11.96 percent with all dividends reinvested. Not a bad year at all for U.S. markets.

Markets abroad — not so much

Markets abroad didn’t perform as well. The Global Dow, an index of 150 blue-chip stocks from the around the world, was up 8.3 percent last year. But most of the gains were concentrated in a small number of countries, such as Russia and Brazil, which most Americans didn’t invest in. The Russian Trading System Index, which is calculated on the prices of the 50 most liquid Russian stocks, rallied 55 percent last year as global investors rushed into Russia following the election of Donald Trump under the assumption that the U.S. business relationship with Russia would improve. Russia is also a commodity-driven economy, heavily reliant on revenue from oil, and the recent surge in oil prices has stimulated Russia’s equity market. Brazil is another commodity-driven economy with exports in iron ore, oil and soybeans, all of which saw major price increases during 2016. Brazil’s equity returns soared 66 percent last year, although it’s worth noting that compares to -41 percent in 2015.

The U.S. economy is far more diverse than Russia’s or Brazil’s, which helps shield us from such drastic swings in our market fortunes. In fact, it is a very small group of countries whose markets performed above the rate of inflation. It’s an even smaller group of countries whose markets actually compensated investors for the risk they took investing in them.

Higher risk, higher returns

Investors must be paid a premium, in the form of a higher return, to compensate them for taking higher risk. It’s one of the most basic principles of investing—but with the caveat, of course, that there is no guarantee that you will actually get a higher return by accepting more risk! Where there’s guts, there must be the possibility of glory, with the understanding that there could just as well be agony. While the U.S. certainly has market ups and downs, and plenty of things to go wrong economically, we’re generally better off than the rest of the world, including Europe. On top of a historically more reliable and robust economy, we also have the most established governmental and legal institutions to safeguard investors. Some of the international or emerging markets offer great potential but they come with more fragile and unpredictable institutions and balances of power.

If you rip open your year-end statement and disappointment sets in, it may be a good time to meet with your adviser and discuss your portfolio. No matter the investment asset — be it foreign equities, alternative investments or bonds — you should be adequately compensated for the risks you’re taking over time.