Celebrating 30 years of fee-only financial planning       
  • Photos from the O&A 30th Anniversary Celebrations

    in Norwich, Vermont and Katonah, New York


  • Photos from the O&A 25th Anniversary Celebrations

    in Norwich, Vermont and Katonah, New York


  • What We Do

    Today more than ever, financial issues impact every aspect of our lives. At Otto & Associates, we believe that helping our clients make sound financial decisions begins with learning who they are, getting a complete picture of their current financial situation, and understanding their goals. Only then can we offer a balanced, integrated strategy to answer our clients’ financial questions – whether simple or complex – and to help them achieve their goals.

    The first step in becoming our client is an initial consultation session. Prior to this meeting, you provide documents and information that will help us understand your overall financial picture. We will use this information to assess your current financial circumstances and look at your long-term financial future. Beyond big-picture feedback on your situation and investments, we can discuss specific issues of interest to you, and use this meeting as a time for each of us to ask any additional questions that arise.

    The charge for the initial consultation is $750, and the meeting usually lasts for ninety minutes. Based on the first meeting, you will make a plan for how you wish to proceed. Some clients take our recommendations and implement them on their own, coming back to us for financial check-ups and advice as needed. For this, we charge hourly rates.

    Other clients prefer an ongoing financial planning relationship. Financial issues often need monitoring on a regular basis, particularly with investments This means that we manage clients’ assets, as well as consult on other aspects of their financial life including taxes, budgeting, insurance, retirement planning, gifts to charities or children, big ticket purchases, and cash flow. Our fee for ongoing financial planning is an annual charge of 1% of investment assets per year paid quarterly in advance, with a minimum of $300,000 of investable assets. This fee is reduced to 0.5% for assets in excess of $1,250,000.

  • Investment Management

    Otto & Associates manages investment assets almost exclusively through no-load mutual funds, exchange traded funds (ETFs), and private investments when appropriate. Our goal is to help clients achieve the security of a diversified portfolio that provides a solid return without undue risk. We buy and sell investments following guidelines established with our clients and - because we do not accept commissions - our clients receive unbiased asset evaluation, selection, and management.

  • Retirement Planning

    Otto & Associates helps prepare clients for life after their paid work ends. We assist clients with decisions between retirement plans offered by their employer, and help them determine whether they can maintain their standard of living after they retire.

  • Estate Planning

    Otto & Associates helps our clients ensure the transfer of their wealth and assets will occur in a smooth and systematic manner. We will help to establish and review estate documents including wills, trusts, health care proxies, and powers of attorney.

  • Saving For College

    Otto & Associates has expertise in college planning, including 529 plans. We can help give guidance, whether clients are planning for the education of their children or their grandchildren.

  • Insurance Analysis

    To protect against unforeseen events, Otto & Associates will examine and evaluate existing life, auto, homeowners, umbrella liability and other insurance policies to determine whether clients have adequate coverage. We do not sell any insurance or receive referral feels when recommending new insurance.

  • Tax Planning

    Otto & Associates reviews federal and state taxes annually and works closely with accountants to make sure that tax considerations are an integral part of our clients’ financial decisions. Our planning software helps us recommend tax-related decisions including charitable contributions from IRAs, gifts of appreciated securities, and Roth conversions.

  • Budgeting And Cash Management

    Otto & Associates provides advice on loans, credit management, mortgages and refinancing, savings, and gifts to family members.

  • Charitable Giving

    Otto & Associates encourages clients to be generous and thoughtful in their giving, and helps them to understand the tax implications of various gifting options.

  • our staff

    Photos from the O&A 30th Anniversary Celebrations in Norwich VT and Katonah NY
    Photos from the O&A 25th Anniversary Celebrations in Norwich VT and Katonah NY

    David W. Otto

    David Otto founded Otto & Associates in 1991. He is a CERTIFIED FINANCIAL PLANNERTM professional. David holds a Master of Divinity from Union Theological Seminary in NY and a Doctor of Ministry from Andover Newton Theological in Boston. He received his financial planning training through Pace University in NY. He is a member of The National Association of Personal Financial Advisors (NAPFA), a national professional association of Fee-Only financial planners, and has served on numerous boards over many years. He recently was on the Board of the Montshire Museum of Science, where he was Treasurer and Secretary and is currently on the Board of Twin Pines Housing, a low-income housing organization. In addition to directing pastoral counseling centers in the Poughkeepsie area from 1976 to 1991, David worked part-time in the 1980s with investment real estate and founded a corporation dedicated to real estate financing. He and his wife live in Shelburne, VT and have two adult daughters, one of whom has recently become President of O&A.

    Susan Otto Goodell

    Susan Otto Goodell joined Otto & Associates in 2007, after a 15-year career as a teacher. She serves as Treasurer of the West Newbury Congregational Church and is a Board Member of Oxbow Senior Independence Program. Susan is President and a co-owner of Otto & Associates and brings with her to the Norwich office a familiarity with the Upper Valley and expertise in working with younger families and the varied financial issues that arise for them. She is a graduate of Bates College and has a Master’s Degree from Antioch New England. Susan is a CERTIFIED FINANCIAL PLANNER™ professional and a member of The National Association of Personal Financial Advisors (NAPFA). She and her husband live in Newbury, VT and have two adult children.

    Deborah Levy Maher

    Deborah Levy Maher joined Otto & Associates in 1997. She is a CERTIFIED FINANCIAL PLANNER™ professional and holds a BA with honors from Vassar College. She is a member of the Financial Planning Association (FPA) and has served on the Board of the Greater Hudson Valley Chapter. Deborah was formerly a Vice President of Chase Bank and its predecessors Chemical and Manufacturers Hanover Trust, where she worked in a variety of lending and relationship management positions. Volunteer activities include pro bono financial planning through the FPA, Vice President of The Inter-Religious Coalition of New Rochelle, and volunteering for and with Temple Israel of New Rochelle. She and her husband live in New Rochelle, NY and have three adult children.

    Kathy Patton

    Kathy Patton joined Otto & Associates in 2007 and serves as the Office Manager, a role that helps to streamline the office processes and procedures efficiently. She received a BS from Georgetown University, after which she worked at Goldman, Sachs & Co. for 14 years in the Equity Capital Markets and Asset Management divisions. When Kathy is not at O&A, she spends her time reading, playing tennis and caring for their new Dachshund puppy named Cash. She and her husband live in Bedford, NY and have three adult children.

    Joan Poulin

    Joan Poulin joined Otto & Associates in the spring of 2012 and acts as the Client Relationship Manager. She received a BA (Finance) from Pace University. She was a relationship manager for financial products at the Royal Bank of Canada for 11 years. Joan enjoys contact with O&A clients, organizing and helping to host events, and being a team player. She is an active volunteer with the Holocaust & Human Rights Education Center to help second and third generation Holocaust survivors tell their family stories. She and her husband live in Somers, NY and have two adult children.

    Laura S. Bergstresser

    Laura Bergstresser joined Otto & Associates as an administrative assistant in 2022. Laura has a master’s degree in anthropology and spent several years working as an archaeologist and environmental planner with the National Park Service before parenting small children in remote locations made staying home the more sensible option. Her family moved to the Upper Valley in 2010. Since then, Laura has balanced shuttling kids around the region for after-school sports, arts, and musical theater events with her paid and volunteer work. She’s been production manager for school musicals, the religious education director for their church community, a long-standing board member with the local library, and the assistant clerk at a local town office. She is happy to have joined O&A and looks forward to growing with the job.
  • June 2022 Newsletter - INTRODUCTION

    Here is the Summer edition of the Otto & Associates Newsletter. We have a lot to report, including a comment on the volatile stock market that has been losing money since the end of last year. Our first article, however, begins with describing the evolving situations at both our Katonah and Norwich offices. Following that is a brief article introducing our new employee in Norwich.

    We then turn to a discussion of the stock market, and the fourth article reviews various ways to make charitable gifts that may help clients save some money in the process. This is followed by a piece on Life Care Communities.

    The penultimate piece is a collage of employee information about themselves during time off. Don’t miss the final “SAVE THE DATE.”

    Read More

  • June 2022


    Here is the Summer edition of the Otto & Associates Newsletter. We have a lot to report, including a comment on the volatile stock market that has been losing money since the end of last year. Our first article, however, begins with describing the evolving situations at both our Katonah and Norwich offices. Following that is a brief article introducing our new employee in Norwich.

    We then turn to a discussion of the stock market, and the fourth article reviews various ways to make charitable gifts that may help clients save some money in the process. This is followed by a piece on Life Care Communities.

    The penultimate piece is a collage of employee information about themselves during time off. Don’t miss the final “SAVE THE DATE.”


    As many readers are aware, we closed the 200 Katonah Avenue office in August, 2021. Though our lease was up for renewal, Covid was a primary mover in the decision. After more than a year, the employees had grown to love working from their homes in Westchester County. All of us got onboard with leaving that office behind. We had a lot to figure out, but we are now fully functional in different locations in and around Katonah.

    The accounting firm of Heckler and O’Keefe, used by O&A for many years and also by many of our clients, offered their conference room as a place to see clients. Their offices are in the same building as our old office. In the last nine months we have found that conference room comfortable and compatible, for both clients and staff.

    David and Mary have owned a condo in Katonah for many years (11 Wildwood Road) and that now serves as the location for all nine of our computers, as well as being a place for the staff to meet together and work individually. It appears that this new arrangement in Katonah will be satisfactory for the long-term future.

    In the process of making changes in Katonah, we moved our corporate offices to 289 Main Street, Norwich, VT. That is three doors up the street from our old Vermont office. As the Newsletter masthead suggests, this is now also the place where correspondence should be sent. We hired an interim person during that transition, but after a few months she decided that this was not the right job for her. We have now hired Laura Bergstresser, who seems to be an excellent fit.

    BUT, we are on the move again. The Main Street office in Norwich has proven to be too small. We expect to sign a lease very soon for larger office space, still in downtown Norwich. Stay tuned.

    There is no change in our telephone numbers. Both the New York number and the Vermont number go to all phones. All staff members have a phone in their home office (except Laura, who does not have a home office). Phone numbers are also listed on the masthead.


    As was mentioned in the previous article, we have a new employee in the Norwich office. Laura Bergstresser joined Otto & Associates as an administrative assistant there in March. She’s new to financial planning, but brings wide-ranging work experience to the job.

    Laura has a master’s degree in anthropology and spent several years working as an archaeologist and environmental planner with the National Park Service (NPS) before the fact of having small children in remote locations made staying home the more sensible option. Her husband still works for the NPS, and his career brought the family to the Upper Valley in 2010.

    In the intervening years, Laura has balanced her life of shuttling kids around the region for after-school sports, arts, and musical theater events along with her paid and volunteer work. She’s been production manager for school musicals, the religious education director for their church community, a long-standing board member with the local library, and the assistant clerk at the Hartland town office. The Covid shutdown coincided with her mother’s need to move to memory care, and she is now in a nearby facility where Laura visits her frequently.

    With the kids getting older and (hopefully) more independent, it seemed the right time to forge a new career path. Fortune had her perusing the want ads just as Otto & Associates was hiring. It’s a good match all around, and she looks forward to a long career here.


    “It feels like everything is down this year! What's going on and what do I do?” The above was a recent Dimensional Fund Advisor’s (DFA) question of the week. As you undoubtedly know, both stock and bond investments are down this year, which is unusual. Typically bond investments provide protection against stock downturns, but that has not been true recently. Although diversification hasn’t helped so far this year, we are confident that it will over the long term.

    What follows is DFA’s answer to the question at the beginning. The article has been edited for clarity and brevity.

    DFA says: Rarely have we seen quarters with both stocks and bonds down at the same time. In the last 173 quarters only 14 quarters have experienced negative returns from both US Stocks and US Bonds.
    • It's normal to be nervous, but you don't have to be scared. By accepting that uncertainty is part of investing, you can avoid unnecessary anxiety. If investing were a definite slam dunk without ambiguity, there would be no reward. For an investment to do better than an investment from a money-market fund, it needs to carry risk.
    • Information about risk and returns are constantly being incorporated into market prices. These expectations can include macroeconomic and company-specific factors as news develops. If you read an article about what the latest news for ABC company means, it's likely that the information has already been incorporated by other buyers and sellers before you make your buy/sell decision.
    • History shows us that markets have rewarded long-term investors. Think all the way back to two years ago. In March of 2020, the S&P 500 Index declined 33.79% from the previous high as the pandemic worsened. Even if investors were able to time getting out of the market, they were probably unable to correctly time getting back in. As more information became available, the S&P 500 Index jumped 17.57% from its March 23 low in just three trading sessions.
    • The Federal Reserve Bank has been getting attention recently as it announced plans for a series of rate increases to combat inflation. Historically, on average, US equity market returns are reliably positive in months with increases in interest rates. Similarly, within bond markets, periods of rising rates do not necessarily result in negative returns.
    • FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google) whose returns have been very high in recent years, have posted disappointing returns this year. As of May 5th, the group collectively underperformed the Index by nine percentage points. This reversal is a warning about the allure of assuming past returns will continue in the future.
    • While the future is uncertain, the quality of your choices doesn’t have to be. When headlines scream do something, remember lessons learned. A financial advisor can integrate your unique needs into a plan that you can stick with in good times and bad.

    As the O&A Newsletter goes to press (6/17) the U.S. market has lost over 11% in the first half of June. This can be painful to experience, but the DFA perspective offered above reminds us that big swings down can result eventually in big swings up.


    Building thoughtful, expansive and creative giving into your financial plan allows you to align your financial interests with your personal values. While writing a check to a charity is one way to make a donation, there are two other options that can help clients attain their charitable goals while also saving money: a qualified charitable donation (QCD) and a donation of appreciated assets. We should note, however, for clients to take advantage of one of these options, O&A asks that the charitable gift be at least $1,000.

    One choice we like is giving through QCDs. Only donors over 70½ can make QCD donations, which come directly from IRAs. When Required Minimum Distributions (RMDs) are mandatory at age 72, the RMDs is taxed as ordinary income. However, making a charitable donation from an IRA can satisfy some or all of the donor’s required distribution. In this case the money comes out of the IRA with no Federal tax being due. An illustration might be enlightening.

    Sally is 73 and thus required to take $10,000 from her IRA. She wants to give $6,000 to the local food bank, which she does by making the donation directly from her IRA. She owes no tax on this withdrawal. Since she is still required to take another $4,000 out of her IRA, she can give that money to other charitable organizations and still pay no tax. She can also opt to take the money out to spend or save it. In that case there will be taxes due on the withdrawal.

    A second option we discuss with clients is charitable giving through appreciated stock from a taxable investment account. Fred wants to give $10,000 to his temple. He owns ABC mutual fund which he bought a few years ago for $5,000. It has now appreciated to $10,000, so he decides to donate the entire mutual fund to the temple. In this case, he gets an income tax deduction of $10,000 as a charitable donation. As well, neither he nor the temple pay tax on the $5,000 of capital gain. Had Fred sold the fund, he would have owed capital gains taxes of approximately $750 (while this figure applies to most of our clients, it could be more or less), but in this case the capital gains tax goes away. It’s a win-win situation!

    If you want to take advantage of one or both of these programs, in order to avoid problems at the end of the year please let us know of your intentions sooner rather than later. We are asking that charitable decisions be made by the end of October. Should problems arise, that gives ample opportunity to solve them.

    We and TD Ameritrade have made notable improvements in getting money in IRAs to charities. All withdrawal checks will now have the name and address of donor on the check, thus eliminating confusion on the part of the charity as to who is making the donation when it arrives from TD Ameritrade.

    Please let us know if you would like to discuss these options for charitable giving – or to talk about giving to charities in general.


    In recent years, we at O&A have developed something of an expertise in retirement communities. We now have well over a dozen clients who have considered, evaluated, and moved to retirement communities, many of them into a Life Care Community. Our learning has been greatly enhanced because, as many of you know, David and Mary moved to such a facility in August, 2020.

    We have written in past Newsletters about compelling reasons older clients should consider Life Care communities as their ultimate residence. (For previous articles go to the O&A website; click the Newsletter tab and then scroll to the March 2018 edition and see article titled “Long Term Care.” A related article is found in the March 2020 edition called “because I said I would”.)

    Some background: there are many kinds of retirement communities. Some offer only housing and no additional services, but simply require that one member of a couple be a minimum age, often between 55 and 65. At the other end of the spectrum are CCRCs – now seemingly referred to more commonly as Life Care Communities. These communities have independent living homes or cottages as well as apartments. They also offer units for licensed residential care where people can live somewhat independently, but need modest help, as well as skilled nursing and memory care facilities.

    Other communities offer independent living with some additional support, but not full-time care. However, those residences often have another facility near-by that offers higher levels of care.

    The community that David and Mary moved to is Wake Robin in Shelburne, VT. It is a Life Care Community. They moved there less than two years ago and are now fairly settled, particularly as Covid guidelines slowly, and unevenly, loosen up.

    Evaluating a Life Care Community can be a challenge. Prospective residents should ask a lot of questions of themselves as well as of the facility they are considering. How important is privacy? Do you want a cottage, a stand-alone house, or an apartment? How do you assess the extended care options that residents can receive as needs arise?

    How much autonomy is there for those who need no special care and who want to continue to live an independent life? How important is the opportunity to stay active by walking on trails, having an extensive fitness center, etc.? How much meaningful participation could residents have in an active residence association? How involved are residents in major decisions regarding the facility? What is the relationship residents have to the corporate board?

    Perhaps the most useful external group to help perspective residents evaluate Life Care Communities is the National Continuing Care Residents’ Association (NaCCRA.) That association exists for potential residents to find guidance in assessing a community. Their Consumer Guide document (readily available online) concludes: “The CCRC industry emerged from former ‘old people’s homes.’...A paternalistic pattern of governance is a legacy of this early history, a pattern which is only gradually being overcome.

    “Now that it is the residents who pay for the services they receive, rather than a governmental agency or a fraternal or religious sponsoring organization, it is appropriate that the industry evolve toward more governance accountability to residents themselves….As the baby-boomers, with their greater aversion to paternalism, enter the field as new residents, the CCRCs with the most robust enrollments will be those who meet this governance challenge creatively.”

    The sole purpose of NaCCRA is to help individuals and couples figure out how to meaningfully evaluate various Life Care communities in matters that are important to their ultimate satisfaction as residents. The membership fee is modest ($25/annually), given the importance of the decision in choosing a Life Care community. O&A will also continue to be a resource to our clients in considering such choices.

    We will add that Life Care communities are not the best option for everyone. Finances are a consideration. Sometimes moving into the home of a child makes sense, particularly if there are quarters that are somewhat separate. The larger point is that plans should be made in advance, prior to an incident that requires quick decisions when the option of returning home from a hospital or rehabilitation center is not viable.


    In this edition of the Newsletter, we have invited each employee to say a few words about current activities and interests.

    Susan Otto Goodell
    Susan is enjoying the benefits of having a retired husband at home. After 25 years of teaching, Jeff has hung up his backpack and put away his lunch box. He misses many things about being at the Newbury Elementary School, especially interactions with the children, but he is happily adapting to his new roles as chief cook and keeper of the house, as well as an active participant in a few volunteer opportunities. Their kids continue to come home often: w Carter from Portland, Maine, where he is an oyster farmer, and Eliza from Oberlin College, where she is one semester away from graduating with a major in Geology.

    David Otto
    For David, the state of VT continues to expand, or at least his knowledge of it does. While moving from Norwich to Shelburne, just south of Burlington, has had some losses, it also has some gains. With Covid now more manageable and Burlington just 20 minutes from home, he and Mary are discovering restaurants, shopping, the Flynn Theater, music at UVM, a film festival, and good walking along the lake. Closer by are the Shelburne Museum and Shelburne Farms. Both are worth a visit if you are in the area, as are their websites if you’re not. They are also enjoying the connection with the Charlotte (just south of Shelburne) United Church of Christ, and David sings in the choir there. In general, he travels to Norwich every other week, he and Susan go to Katonah once a month, and they work from the office in Maine for much of the summer. Getting to know the Wake Robin Life Care community continues to go well.

    Deborah Maher
    Deborah and her husband are selling the house they’ve lived in for over 25 years and are moving to an apartment. Downsizing is hard work and she looks forward to soon being done and settled in a new place with great views of the Long Island Sound. She is too busy packing and finding good homes for things they don’t have room for to write any more.

    Kathy Patton
    The Patton Family is expanding. Kathy and Chuck Patton will welcome their first grandchild this summer, giving new meaning to the date Labor Day. Their elder daughter and her husband, who reside in Washington, DC, are expecting a little boy and it has sent the whole family over the moon. The expectant parents are doing well and having fun kicking around boy names. Kathy and Chuck are also having fun diving into the “grandparent name” trend. Everyone will have to wait until the end of summer to find out who’s who in the Patton household.

    Joan Poulin
    Many happy events in Joan’s family. Joan and Steve’s older daughter, Olivia, just moved into a new apartment. She works for a small company (much like O&A) and loves the team atmosphere. She helps people find working capital solutions for small businesses. Their younger daughter, Juliette, graduated with a Master’s Degree in Elementary Education. She spent her first-year teaching in Tampa, Florida. While the weather is wonderful, the state was not for her. In July she will be moving to Maryland and has a second-grade teaching position lined up.

    Joan’s niece, Danielle, just had a baby boy and Joan met him for the first time on June 15th. They marvel at her energy juggling the new baby and two boys ages five and two. They get tired just watching her!

    Laura Bergstresser
    See article above.


    The year 2021 marked the 30th Anniversary for O&A. For obvious reason our celebration had to be postponed to 2022. But it is going to happen at the end of September in Norwich and the first week of October in Katonah.

    In Norwich we will be returning to the site of the 25th Anniversary party at the Montshire Museum of Science. The date for that event is Thursday, September 29th. In Katonah the event will be held the following Thursday, October 6th. The venue will be Le Fontane Restaurant three miles outside of town. For those of you within driving distance of one office or the other, we look forward to welcoming you to our celebration.

    Everyone in the office contributed to this Newsletter. While David (and Mary) are the editors, this Newsletter had more than the normal amount of staff input.

    The O&A Team wishes you a relaxing and restorative summer.

  • September 2021


    We are pleased to bring you this Newsletter with significant information about forward-thinking shifts that are happening at Otto & Associates. The first two articles focus on these changes. We then have three articles on aspects of investing. One is a somewhat technical interview with David Booth, the founder of Dimensional Fund Advisors. We include it for those who are curious about why we have made Dimensional our primary investment fund family. Rest assured that there will not be an exam.

    While the Booth article on investing makes reference to the way some people treat investing as a gambling endeavor, the next article presents a more thoughtful position on the difference between investing and gambling. In the third investment article we actually make a prediction about how the markets could perform going forward.

    The penultimate article on charitable giving highlights the generosity of our clients, with some interesting statistics on a vehicle some O&A clients use to also reduce income taxes. We conclude with an article by Susan Otto Goodell, which gives a brief history of Otto & Associates, beginning in 1991.


    After 25 fabulous years at 200 Katonah Ave., the O&A staff is in the process of finalizing a major shift to relocating our main office in Norwich, VT. It has been a multifaceted and challenging process, to say the least, but the future is bright.

    The impetus for moving out of the office on Katonah Ave. was a direct result of changes we made during the (first) 18 months of COVID. A few months ago, all of the employees in Katonah (i.e., Deborah, Kathy, and Joan) proposed that they would like to continue working from home and that we close the office at 200 Katonah Ave. After a number of discussions, we all eventually arrived at the conclusion that leaving Katonah Ave. was the right decision.

    Early in the COVID pandemic, as offices became unsafe and workers moved home, our genius computer consultant, Mark Kandle, facilitated setting up home computers so everyone at O&A was connected and could access information SECURELY from our home computers. A few years before we had implemented a computer-based phone system that let us speak to each other and clients from various locations. That was then expanded so all employees could simply move their office phones to their home location. As time went on, Mark has been able to complete additional home-office computer adaptations that support efficient, remote working for all staff.

    With those pieces of the change in office location in place, other decisions followed. A number of years ago we converted all of our files to an electronic filing system so we already had the ability to remotely access information (e.g. tax returns, wills and other estate documents, etc.). A larger issue was where to put the seven s office computers accessed by individual members of the staff. Again, with Mark’s help, we saw that a small bedroom in the Ottos’ Katonah condo would work, and in early-August, those computers were moved.

    Another big question was, where would Deborah, Susan, and David see clients in Katonah, and where would the Katonah staff meet when they were together? We entered into a discussion with our friends and colleagues at the Heckler & O’Keefe accounting firm. It turns out that they have a little-used conference room they are happy for us to use. You may recall that they are also based at 200 Katonah Avenue, but on the second, rather than the third, floor. As for staff meetings, they will likely occur most often at the Ottos’ condo.

    September will be the start of these new permanent arrangements in Katonah, so if you are among our Katonah clients, we will look forward to guiding you through the new protocols, especially getting together in person, assuming the Delta variant does allow that. And of course, we will welcome your feedback as we get this part of our new arrangement through the transition.

    Read on for new developments in Norwich, as we make that our main address and primary office space for the future, with Susan heading things up there with the help of Maria, our new employee (see next article) and David working in Norwich generally one day a week. David and Susan will continue their practice of coming to Katonah each month, except for the summer.

    The Norwich mailing address continues to be P.O. Box 1203, Norwich, VT 05055. The new Norwich office is located at 289 Main Street. All phone numbers remain the same: (914) 232-5379 and (802) 649-1946. Both numbers ring at all phones in the system.


    Another delightful aspect of the O&A reconfiguring process has been the addition of an executive assistant at the Norwich office. Maria Dantos spent her first day at work in Norwich during the last week of June.

    Maria, her husband, George, and their two children said goodbye to their lives in Manhattan because of the difficulties of COVID there and returned to the Upper Valley where Maria had grown up. George had already been working from home, so he was very flexible in terms of his job with Morningstar in Chicago. Some of you may remember that O&A has subscribed to the services of Morningstar for many years. Maria and her husband are delighted to have recently purchased a home in Norwich, which will entail sending her older child to the Marion Cross elementary school just across the street from the office.

    Maria holds her Master’s in Education and has worked in corporate and nonprofit sectors. Before coming to O&A, she founded and directed a preschool in Manhattan which was acquired by a public company. As CEO in New York, she was able to use business management and administrative skills that she is happy to bring with her to O&A.

    Please welcome Maria in person if you live near Norwich, or say hello over the phone on one of the times she answers your call. We are pleased to have her on the staff.

    David Booth, DFA

    Recently David Booth, co-founder and Executive Chairman of DFA (Dimensional Fund Advisors) was interviewed by David Westin on “Wall Street Week.” One of the reasons we at O&A have invested heavily in Dimensional mutual funds is that they not only have a solid, conservative investment strategy, but they also do an exceptional job of educating both lay investors, as well as professionals in the field. What follows is an edited version of questions asked by Westin and responses by David Booth.

    Question: After over 40 years of running DFA, what have you learned?

    David Booth: During that time we have tried to separate the signal from the “noise.” The set of ideas we have built around the firm have shown that you can have a successful investment experience without having to forecast the market turns; without trying to outguess the market. A lot of that is tuning out the “noise” and focusing on what really matters.

    You can’t control markets, but you can control the amount of risk you take. It is important to come up with a sensible long-term strategy. If you are going to invest in risky assets you need to have a long-term investment strategy - a strategy that you believe in enough that you can stick with it. Markets are going to go up and down and investors have to figure out how to deal with that uncertainty and come up with a sensible solution that they can stick with.

    Q: How do you separate out what looks like gambling from normal risk?

    Basically, trying to time short-term movements in the market is more akin to gambling than investing, and if you are going to invest in the market, you need a long-term focus. This last year, 2020, is a great example. The market was down 30% over the first few months of the year and a lot of people bailed out, but the market ended up 20% for the year. So if you tried to time the market and got out, you missed out on a big return.

    Q: People are now talking about the possibility of runaway inflation. What do you do in a case like this? Do you plan for the worst and hope for the best? Do you change your strategy at all?

    People talk about inflation but I don’t see too many of them saying, “I am really confident I know where inflation is going.” There are a lot of opinions floating around and that’s really the point. You can’t forecast these things and even if you could forecast where inflation is going, you don’t know what the effect is going to be on the stock and bond markets.

    Q: When you began 40 years ago, did you simply invest in the entire stock market or did you lean a little this way and a little that way?

    Research back in 1981 showed that over the long term, small stocks and value strategies did well. They had higher return with modestly lower risk. So, we have implemented a bias toward small and value, which doesn’t mean you win every year. But over the last 50 years, with these ideas, combined with lower fees, people should have a much better investment experience than they had 50 years ago. You can have a great career in finance and at the end of it all, feel good about yourself because you can help people. Going forward, if we’re going to help people out, part of the answer is we have to have better and safer financial services.

    Q: What can we do to make offerings better and safer?

    Our approach is to try to educate people. What is often called “noise” in the market is like a siren calling people to do silly things. Sometimes they win big; sometimes they lose big. And with lower fees, people are attracted to come into the market who would never have gotten in 20 years ago, which is terrific. Unfortunately, many of them have come in with the wrong set of ideas about how to invest. They think investing is gambling, which is the wrong way to approach the market.

    Q: What do you make of some of the recent stocks that have shot up several hundred percent in a matter of weeks or months.

    Investing in markets can cost people a lot of money as they get educated. They make foolish mistakes and have big percentage losses. Fortunately, people starting to invest frequently have very little money, and that is often a good thing because they can’t lose a lot if they don’t start with a lot. Overtime people learn there is no magic. What seems like magic is often just part of the “noise.” People think that there is magic out there. They may not have it, but somebody else does. “And if I could just figure it out then I would really be set.” But that doesn’t exit. There is no magic.


    It may come as no surprise that the Super Bowl, the biggest football game of the year, ranks as one of the most popular events to gamble on. The American Gaming Association estimates that over 23 million people in the US will wager around $4.3 billion on the big game. It may also come as no surprise that some of the money wagered will be lost. As the old adage goes, “the house always wins.”

    Recent speculative events in the financial markets have provoked some to question if investing in the stock market is akin to that kind of gambling. (For example, the price of a company called Overstock increased more than 20 times in 5 months). While the stock market may have some similarities to gambling, such as the possibility of making or losing a huge amount of money, the likelihood of having a positive experience in the stock market is much greater than in traditional gambling, at least when you take a long-term approach.

    When a mutual fund you own buys a basket of company stocks, you actually become a small owner in each of those companies and are entitled to a portion of the earnings and dividends. Stock prices fluctuate based on new information and the expectations of companies to generate profits. Prices, however, generally settle at a level that normally increases in value as time goes on. That is how you make money in the market. By contrast, when you gamble, money is simply transferred from one party to another and no added value is created. In addition, the odds are generally stacked against the players.

    The table below illustrates the historical record of success when investing in the stock market, using the S&P 500 as a benchmark. Even over the shortest time period, one day, there has been a 56% chance of achieving positive returns. As you extend the time frame the probability of earning positive returns in the market increases.

    As a gambler, the longer you sit in a casino, the greater the odds you'll walk out a loser; as an investor, the longer you stay in the stock market, the greater the probability you'll experience positive outcomes. Unlike with gambling, the “house” (i.e. the stock market) is on the investor's side when taking a disciplined, long-term approach to investing.

    S&P 500: 1926-2020

    Time Frame Positive
    Daily - 56%
    1 Year - 75%
    5 Years - 88%
    10 Years - 95%
    20 Years - 100%

    Excerpted from a Dimensional Fund Advisors “MONDAY MOVES”, 2/8/21.


    Unless you are a new client, you have already heard us say repeatedly that in the short and intermediate term, we do not know how the markets will perform.

    Right now, however, we will venture a different message. We think in the not-too-distant future, it is likely the markets will correct and fall some significant amount. Of course, we don’t know whether the next correction will be short, as we experienced earlier this year, or longer. We don’t know what the loss will be and to what degree it will alarm investors. The precise timing is unpredictable.

    You should also know that we had some of the same thoughts a year ago, and the stock market has gained over 12% since that time. We are certainly pleased that we stuck with the allocation that each of our clients has, and we expect to do the same going forward. We will have our hunches about the market, but we do not invest on the basis of a hunch.

    Lest you think this is a mixed message, let me be clear. The investment future is always uncertain because markets are uncertain – in the short run.

    For that reason, we keep cash and cash equivalents in every client account. For those who are still accumulating money and rarely, if ever, withdraw money, we keep a modest amount of cash and cash equivalents for an emergency. For retired clients who take money from their account regularly, we keep approximately one year of cash or cash equivalents. That pretty much ensures that clients can survive a market downturn without having

    A word about cash equivalents. Particularly in this environment, we choose to think of high-grade bonds as cash equivalents. Bonds rarely lose much money for an extended period when the stock market loses money, and typically increase at such times. That is because when the stock market goes down, investors might sell some or all of their stocks and the cash generated has to go somewhere. Typically, some significant percentage is invested in the bond market. That drives bond prices higher, which is why in a market downturn, bonds often make money. If clients need cash at such times, selling bonds is a viable option.

    It should be noted that this stance, of holding cash and cash equivalents, has diminished the returns in client portfolios. That is the price for having a more conservative portfolio. Had all money been in stocks in recent months and years, returns would have been better. But we and our investors would not have had the “insurance” that allows clients to weather a downturn.

    As you would expect, we will hold our course if and when there is a market correction, and we will wait for the recovery.


    According to Giving USA, charitable giving in the U.S. is holding steady. In 2019, according to the most recent available statistics, Americans gave $450 billion to worthy causes. O&A clients are among this group.

    Kathy Patton, in the Katonah office, recently dug out some interesting numbers having to do with our clients and the amount of money that went from client TDAmeritrade accounts to charities over the past two years. 2019 saw $498,858 leave client accounts to go to charities.

    During 2020 giving was a bit higher when 33 clients gave to 130 organizations, a total of $519,257. With few exceptions, donations were appreciated stock, or charitable donations from IRAs. The appreciated stock came from individual or joint accounts. Gifts from IRAs may only be contributed from clients who are at least 70½ years old, but for that group, thi

    s strategy is often useful in saving on income taxes. Of course, these numbers do not include money given to charities from client checking accounts. Our hats are off to all of you who have been generous to others in these challenging times.

    We are happy to work with any of you in arranging donations from your investments. As we move, by fits and starts, into the post-COVID period, there are still an unusually high number of people who depend on charities for some kind of support and we urge readers to be sensitive to this fact.

    When Mary and I moved to Shelburne, VT, in the midst of COVID, we did some research on organizations that were helping people in need. We discovered the Boys and Girls Club of Burlington and the way they helped kids who had family problems or other significant challenges. A number of the children they help are from immigrant families. As we have come to know the organization better, we have learned some dramatic stories, often directly (via Zoom) from presentations made by articulate kids themselves. We know firsthand how donating to such causes can bring a sense of satisfaction to the donor as well as the recipients.

    A HISTORY OF O&A: Susan’s Perspective

    For many of you, much of this article will contain new information about the journey of David Otto and the O&A office. For some of you, parts of this article will be familiar. And for a small handful of readers, you will know the story from the beginning.

    David started O&A in 1991 in an extra bedroom in the house that he and his wife, Mary, lived in at 136 Valley Road in Katonah, NY. A year before, he had heard about Fee Only Financial Planning and NAPFA (National Association of Personal Financial Advisors – the Fee Only Planners’ organization) and decided that it was the right career for him. He had been a minister and a pastoral counselor and enjoyed working with people. He also recognized that many of the challenges that people dealt with often had to do with money. Sometimes too little money, sometimes too much, and sometimes just not knowing how to deal with financial issues.

    For the first year, after working briefly with another certified planner in the area and becoming a Certified Financial Planner (CFP), he founded O&A. At the beginning he did all the jobs – answered phones, conducted meetings, took notes, invested money, and marketed the business. After a year, he was busy enough that he hired a part-time secretary. Sometime later, there were enough clients that the family living room became a waiting room and both David and Mary realized that the upstairs office was no longer viable. O&A moved into 200 Katonah Ave. in 1997.

    At the same time, the second financial planner, Deborah Maher, joined the team. While there have been two other support staff over the years, the current Katonah team has been together for nine years. (Kathy started working for O&A in 2007 and Joan in 2012).

    In 2002, Mary retired from her teaching career and the two decided to move to Norwich, VT, to be closer to grandchildren. (Susan and her husband, Jeff, settled in Vermont in 1995.) David continued to work in Katonah and spent the weekends in Vermont. Of course, being in a new Vermont community meant meeting new people with financial questions and needs. As a result, David started seeing people in Vermont, and since he did not have an office there, it was back to client meetings in a home office.

    By 2008, O&A had grown in both Katonah and Norwich, and David needed more help. At the same time Susan decided that she was ready for a career change and, after 15 years of being a third-grade teacher, went back to school to become a Certified Financial Planner. O&A hired her even before she received her CFP certificate.

    Once again, the house was insufficient as an office, so Mary and David found a new house in Norwich that had an attached office with enough space for both David and Susan to work efficiently. Clients from the area came to the Vermont office, and David and Susan traveled to New York once a month to see clients there.

    With the already reported changes for the O&&A staff in Katonah, along with David and Mary’s relocating to Shelburne, VT, this summer seemed like the right time to move O&A’s main location to Vermont. We found a lovely office in Norwich and have added Maria to our team. The office is in an historic, former home in Norwich – the Burton House – and our new space is located in the front two rooms. Both rooms have fireplaces and beautiful wood floors. We have learned a bit about the history of the house from a Vermont client who grew up living there.

    We hope all of you, whether you live near the former Katonah office or close to the new Norwich office (or elsewhere in the US or the world), will consider a visit to us at our new office in Vermont! Our street address is 289 Main Street, Norwich, VT. The invitation includes the possibilities of lunch at the nearby “Blue Sparrow Café,” a trip to the famed Norwich Bookstore, and – not to be missed – a visit to the Norwich General Store. The store is Dan and Whit’s, and their motto is, “if we don’t have it, you don’t need it.” We look forward to seeing you.

  • December 2020


    We are particularly pleased to share this Newsletter. The COVID-19 pandemic has challenged us all. We hope that you will find the Newsletter modestly uplifting as we offer perspectives different from those in our previous Newsletters.

    We begin with an article on looking ahead for the stock market, much of which is a report of a study done by Dimensional Fund Advisors, the mutual fund company we are using increasingly. I’ll tell you the conclusion I come away with from reading that article: I need to relax because the market will do what it will do, but in the long run it will go up significantly. And with a diversified portfolio, the terrible times in the stock market will not be so terrible. A corollary is that we don’t know what will happen in the immediate future.

    We continue with a piece on charitable contributions in a time when others will be helped by your generosity. There are also a number of needs that can be met with little or no money. However, we focus here on gifts of money, while also appreciating the important volunteer work that so many of you are actually engaged in.

    The next article is on the move Mary and I made to a retirement community. And we conclude with a report on how the people who work at O&A are managing in their alternative offices, and Office Matters. Happy reading – and may good health, perseverance, and kind consideration of our fellow humans be our watch words.

    David W. Otto, Editor


    With President-Elect Joseph R. Biden and his team looking forward to the January 20 inauguration, what can we expect from the stock market?

    The Dimensional Fund Advisors team has provided considerable research on the difference in stock market returns depending on which party is in the White House. What follows is taken from an article that addresses a specific question: How might a Biden/Harris administration impact the stock market?
    • • With a new administration comes new policies, which may cause investors to make changes to their portfolio based on their perceived implications.
    • • Perhaps one of the biggest questions on investors' minds is the impact of Biden's proposed tax plan - some of the key features of which include:
      • • A new 12.4% social security tax on incomes above $400,000 (split between employers and employees)
      • • A corporate income tax increase from 21% to 28%
      • • Repeal of the Trump tax cuts (currently set to expire in 2025)
      • • Long-term capital gains rate increase from 23.8% to 39.6% on incomes above $1,000,000
      • • Elimination of the stepped-up basis rule [which will mean that when a tax payer dies, beneficiaries will likely pay increased taxes on assets that have appreciated.]
    • • To pass a tax increase, both the House of Representatives and the Senate need to pass a bill –a divided Congress could constrain this. If changes do happen, they aren’t immediate, and it is impossible to predict their end-effect. For example, in 2013, the Bush tax cuts expired for those making more than $400,000. In effect, this was a tax increase on income above that range. The S&P 500 increased in 2013, 2014, 2015, and 2016; highlighting that the tax increases did not cause a market collapse, a worry that many investors have during times when we experience tax hikes. Investors should be careful to extrapolate the impact of tax policy on their portfolios.
    • • Often when a new administration comes into office there are plenty of opinions and prognostications around which sectors will perform best, leading some to make tactical changes. President Trump’s most recent 4-year term serves as an example of the difficulties of making sector forecasts based on who is in the Oval Office. Energy and financial stocks were viewed as the best bets under a deregulatory Trump administration, yet they’ve been the worst sectors since 2016.
    • • Lastly, investors should remember that while US presidents may have an impact on market returns, so do hundreds, if not thousands, of other factors—the actions of foreign leaders, a global pandemic, interest rate changes, rising and falling oil prices, and technological advances, just to name a few. The combined impact of millions of investors placing billions of dollars’ worth of trades each day based on the perceived impact of these factors results in market prices that incorporate the collective expectations of those investors. This makes consistently outguessing market prices very difficult.
    • • While it may feel natural to draw a connection between the administration in power and the impact they may have on markets, shareholders are investing in companies, not a political party. Companies focus on serving their customers, helping their businesses grow, and generating profits, regardless of who is in the White House. The chart below shows the annualized returns during different presidential terms going back to 1932. [Red shows a Republican President; blue represents a Democratic President.] The exhibit illustrates that there is no evidence to suggest that having a Republican or Democrat in office is better or worse for markets.
    • • Making investment decisions based on the outcome of elections, or how investors think policy changes may unfold, is unlikely to result in reliable excess returns. On the contrary, it may lead to costly mistakes. Accordingly, there is a strong case for investors to rely on a consistent approach to asset allocation—making a long-term plan and sticking to it.

    In general, what the Dimensional analysis suggests is that it is impossible to predict stock market performance on the basis of who is in the White House. When President Trump was elected, virtually no one predicted that the market would gain 21% in the first year, then lose 5% the second year, followed by a 30% return. The final year (2020) saw a loss of 35% in a month. While one can argue that that loss had little to do with Mr. Trump, that only makes the point that who is President is rarely the main thing that drives the market.

    The kind of research done at Dimensional is a key reason that we at O&A decided to make extensive use of these mutual funds. Dimensional encourages all of us to pay attention to research instead of commonly held beliefs, the latest article in print media, or one person’s perspective propagated on the radio or television.


    In this unsettled time of the COVID-19 pandemic, so much of life feels beyond our control. But consider that there can be inspiration and purpose in philanthropy.

    Since the onset of the pandemic, Americans have engaged in dramatically increased charitable giving. The Chronicle of Philanthropy journal stated that 40% of regular donors to a variety of causes expect to give more to charity in 2020 than in previous years.

    The events of 2020 are asking all of us to be more generous than we have ever been. With so much disruption in the lives of so many, the needs are broader and deeper than ever. As you make decisions about your end-of-year charitable giving, we at O&A are offering a context for you to consider extraordinary charitable donations.

    How far can you expand your donations in the face of unprecedented need?
    You might begin by looking at how significantly you have reduced your expenditures in the past nine months. Compared to last year, many people are spending dramatically less on travel, restaurants, clothing, and many other things. That leaves extra money to be put to good use.

    What are you prioritizing?
    You are probably being flooded with requests for support from nonprofits in challenging circumstances. Are your concerns primarily for people facing food insecurity? Homelessness? Or would you choose to support Education? Domestic abuse? Are your interests in helping to keep the arts alive – or something else entirely? Might you have a bonus you would share?

    Then, consider the connections you could make to local, national, or world-wide organizations that would not only benefit from your donations, but also broaden your horizons. Do you read the stories in the New York Times Neediest, for example? So many human-interest stories tug at our hearts and invite our compassion.

    With our recent move to Wake Robin, we looked for organizations in our new part of Vermont that might benefit from our help and be consistent with our priorities for giving.

    Burlington has a history of welcoming immigrants to the area. In the last thirty years Burlington (population 43,000) has added 5,000 immigrants. Many of them have challenges like learning English and making a living wage. The Boys and Girls Club of Burlington has a significant focus on programs for kids from families with those needs. They have a terrific guideline for the kids: “We’ll commit to your success, if you commit to your success.”

    For understandable reasons, the pandemic has made life for Burlington’s immigrants more challenging, and the Boys and Girls Club has increased staffing to offer more alternatives to this segment of the population. Our personal contribution to that organization has led to a connection to the Boys and Girls Club we will hang on to in the future.

    You may have something similar where you live: an established organization that has the expertise to ramp up their efforts to meet the needs of the pandemic. Your donations can help them and spark joy for you as well, via the new commitment.

    How will you make your philanthropy decisions for 2020 year-end?
    As you consider your options and do research, there are decisions to make: will you stay local or cast a wider net? Where will you focus? Might you find it helpful to write out a plan so you can more easily evaluate it? Then, it is important to set a date for writing checks.

    Here is another creative idea. This Christmas our family has decided to have a name-draw within the family. Each person will receive one gift. In addition, each person is also asked to donate to a charity, chosen specifically to honor the selected family member, for which that person might be particularly appreciative. Ideally, we are not only raising a bit more money for good causes, but we are educating the next generation or two to think generously about the needs of others.

    One more consideration: your philanthropy may not cost you as much as you think. For those who itemize on their income tax return, additional charitable donations can be taken as a tax deduction. If you are interested, there may be other ways that O&A can be of assistance, e.g. giving charitable donations from an IRA for those who are over 70½.

    As we have our ongoing discussions with you, our clients, we look forward to hearing the inspirational ways you have used philanthropy to make this a better world.


    David and Mary have moved to Shelburne, VT, in the western part of the state, just south of Burlington. They decided to take the advice David has been giving to clients for years: as you age, consider where to live. First of all, find a place that nurtures your interests, provides cultural opportunities, and makes your preferred physical activity easy. Is it near children, siblings, and/or friends? Does it have options for help when and if you might not be able to adequately care for yourself? Making those plans early enough is important. A crisis, even a mini-crisis, is not a good time to do long-term planning. (See O&A Newsletter from March 2018 on the website, for the original, extensive article on this subject.)

    David tells the story: We looked at various retirement communities over the course of several years, mostly Continuous Care Retirement Communities (CCRCs), and decided that 2021 was the year to move. Then a cottage that seemed just about ideal came available at one of our top two choices, and we decided to make the move a few months sooner. We left Norwich, VT, and moved to Wake Robin in Shelburne, VT, in early September of 2020.

    So how has it gone? Moving in the middle of COVID has had its challenges. But the planning, deaccessioning, and packing, though time-consuming, went well. We had the good fortune of getting fabulous help from our children and a granddaughter who had not yet started her fall college semester. But for those who don’t have these resources readily available, there are services that assist with such a move, referred to generically as “Senior Home Consultants.” One of our client couples used such a service in a recent move, and both of them were very impressed. Such services help you downsize, find outlets for excess baggage, pack everything to be moved, and unpack and settle the house upon arrival. While these clients did not use all the services offered, they reported that they took pictures of their new CCRC and showed the consultants where they wanted their current belongings to end up. They left their former residence, spent one or two nights in a B&B, and walked into their new place with most everything where it belonged.

    We now live in a semi-detached cottage that, while considerably smaller than our Norwich home, has proven to be just the right size. While I admit to missing my basement garage and shed where I kept tools, etc., and Mary really loved the kitchen that she created in our last home, we have both adjusted rather quickly to a modified way of living. We currently have sufficient space to live very comfortably. To say we long for our former house would be inaccurate.

    There is another aspect of moving to Wake Robin that has made this move appealing: in many ways we have a brand-new cottage. The previous residents lived here more than 10 years and, as may be typical of CCRCs, all homes get a complete makeover at that point. That generally means an all new kitchen, new appliances, new bathroom fixtures and cabinets, etc. Having southern and western light is a real plus. The fall sunsets over the Adirondack Mountains have been spectacular. The cottage reflects our wishes and tastes in many ways.

    Meeting new people here at Wake Robin is considerably restricted because of the pandemic. But we are beginning to know a surprising number of fellow residents and not infrequently we meet a new acquaintance on morning walks (there are six miles of trails at Wake Robin.) Jasper, our West Highland White Terrier, is a real asset in that regard. Also, we have spent some very nice time with the neighbors in the three closest cottages. In short, if we had it to do over again, we would do the same thing.

    I have converted one of the bedrooms into an office. We have the same office phone system, so telephone numbers remain the same. I go to the new Norwich office occasionally (it’s a drive of an hour and 45 minutes) and when the pandemic is under control and we are again seeing clients face-to-face, I expect to go there on a more predictable basis. Incidentally, the new office at 289 Main Street in Norwich is three doors up the street from our previous office.

    In short, we expect this new adventure to go well and are happy to talk with people about our experience.


    When the pandemic hit in March, the experience of the O&A staff members was likely quite similar to yours. Our work and personal life went from normal to absurdly not normal in a very short time. Susan returned from a ski vacation in Wyoming at the end of February and was surprised to see a few travelers in the Chicago airport wearing masks. Kathy was preparing for a long-awaited vacation to Iceland with her son in mid-March and we were all fairly certain that she would get on the plane. Then everything changed; we closed our offices and everyone worked from home. What follows are snapshots of our pandemic experiences.

    From Deborah:
    I was the first to go remote because my city of New Rochelle was one of the first epicenters of COVID-19 in the US, and my husband’s County Legislator position meant he was out with the public a lot. Sadly, things shut down everywhere soon after and the rest of the world has more than caught up to us. My first “home office” was in our dining room, where I had plenty of space to spread out and display my first professional name plate – Ms. Levy – at the edge of the table. I’ve since moved the home office, because I needed a quiet room when my husband started working remotely, but I still come back to the dining room when I’m alone for better heat and a more attractive Zoom background. I appreciate how technology has made working from home so easy and efficient, although I miss the office camaraderie and meeting with clients in person. But I don’t miss commuting, and am happily using the extra time for longer walks and political and community work.

    From Kathy:
    Since March the Patton house has transformed into a “WeWork” office for my husband, Chuck, two of our adult children back from New York City, and me. Our once simple daily routine now includes a morning race to the coffee maker, a continuing battle for Internet bandwidth and the comfort in the evening of a quarantine meal – lots of meals. Things we purchased during quarantine include: An internet extender, 1 desk, 2 ergonomic chairs, 3 monitors, 2 keyboards, 4 extra-large reusable water bottles, several ink cartridges, 2 sets of headphones, a new cast iron skillet, a ton of food and of course, plenty of coffee. Going through the pandemic with each other helped us cope with the evening news report and Chuck and I were happy to have the nest partially filled once again. Now, about those extra pounds we put on…

    From Joan:
    In November of 2019, we lost Princess, our almost 16-year-old Shih Tzu. We had little thought of getting another dog, but when Steve and I both started working from home and realized how empty the house was, that seemed the perfect time to get a puppy. So we welcomed 5-month-old Jack into our home. He is also a Shih Tzu and brings us so much joy. But it also started me thinking about how many others have adopted pets to fill an emptiness they may not have known they had. And with that, I realized that people need more love, kindness and help than they are willing to ask for. So when this pandemic is over, I will be volunteering a lot more to help the most vulnerable in our community.

    From Susan:
    I have never been a basketball fan, so March Madness has never meant much to me. In 2020, though, I had my own version of March Madness to look back on. When it was clear that COVID was serious and was easily spread when people were together, I stopped travelling to the Norwich office. This meant that I stopped my daily walks with my parents and my in-person work relationship with my father. My dog, Poppy, lost her daily romp sessions with Jasper – my parents’ Westie. Both dogs are sad about that. On March 15th, my husband and I made a very quick trip to Ohio, armed with disposable masks, a box of latex gloves, and two bottles of hand sanitizer that we happened to have in our cabinet, to retrieve our daughter and all of her belongings from college. She then settled in to college life from home and joined my teacher-husband and me in a struggle for the limited bandwidth in rural Vermont. Since that time, I have continued to work at home, going to our beautiful new Norwich office once a week. We are not seeing clients there at the moment, but perhaps by next March, the madness will have subsided and my father and I will be able to see clients in-person once again. I look forward to that time tremendously.

    From David:
    I have managed to set up a pretty functional office in our new home. However, the pandemic has limited my ability to get and install such things as the needed furniture. And the phones and computer system took much longer to be efficiently functional. I am used to a system that takes little of my attention and for the last three months it seems like everything has taken more time. Recently however, things seem to run more smoothly.

    During this year, the staff has stayed very closely connected. We talk daily, Zoom together with clients, and occasionally have social gatherings. We even managed to pull off a wonderful Holiday party to replace our in-person restaurant gathering with a substitute for the usual Yankee Swap. This year we all got together with spouses on Zoom. The first half of our evening was facilitated by Lauren Clark of LC DESIGNS NYC, who directed us in putting together our elaborate charcuterie board. LC DESIGNS NYC sent out the ingredients to each couple, which included cheeses, Parma ham, salami, fruit, nuts, dried fruit, and even edible flowers. Lauren then conducted an in-person Zoom class on how to artfully prepare and present it all. It was delightful. We then ate what we had prepared. That was followed by the highlight of the evening, opening our “Secret Santa” gifts that were thoughtfully purchased and sent to each recipient. While we all missed being together in person, this was a wonderful second choice.

    The O&A team is strong and continues to be dedicated to meeting the needs of our clients. We miss the in-person time with you, but always enjoy phone calls, emails, Zoom, and look forward to welcoming you back into our offices.


    In this section we often report on conferences various members of the staff have attended. In the March Newsletter we wrote that we had not been able to go to a Dimensional Conference because of the pandemic but hoped to do that prior to summer vacations. Little did we know that not only would there be no in-person conference for a year or more, but that summer vacations would also be radically disrupted. Most of us have been to one or more virtual conferences, which have the advantage of taking less time, by having no travel. But Zoom conferences also lack a lot that in-person conferences offer. Perhaps later in 2021 that will change.

    Also announced in the March Newsletter were historically low mortgage rates. Surprisingly, those rates are now even a bit lower than they were in March. Let us know if we can be of help.

    This year taxpayers who do not itemize can still deduct up to $300 of charitable contributions made during 2020.

    Finally, while David continues to be the primary writer and nominal editor of the Newsletter, everyone in the office contributes significantly. The reader is the beneficiary.

    All of us at Otto & Associates send good wishes to you and your family for the holidays and the year ahead.

  • March 2020


    This latest Otto & Associates Newsletter is being wrapped up on March 21, the day after Governor Cuomo closed all non-essential business offices in New York State because of the Covid-19 virus. At this point the experts seem to have little idea what’s ahead. Perhaps we will all look back on the contents of this Newsletter as an example of folks who fiddled while Rome burned. At O&A we are not certain even how we are going to get this Newsletter out, or whether we can get the paper needed to do so. Our traditional, grey paper is in the O&A office and it is likely that is not available to us. In any case…

    The Newsletter covers a number of topics. Today we have no choice but to begin with an article on the coronavirus, how we are dealing with it at the office, and what long term effect it could have on investment portfolios. We continue with a description of a conference workshop attended by two of us, with a dynamic speaker who encouraged participants to challenge themselves to accomplish important but difficult goals for various areas of their lives. As a part of that article, we discuss the upcoming move of David and Mary.

    Next, we introduce Dimensional Fund Advisors, a new family of mutual funds that O&A will begin using soon; an article on scams, targeting particularly older people; and the recently passed SECURE Act and how it will affect and potentially help various aspects of savings. The final articles include the total amount of money given to charity by O&A clients from TD Ameritrade accounts, and Office Matters, which includes a move of the Norwich Office. Happy Reading!

    David W. Otto, Editor


    Events have unfolded very quickly as it becomes apparent that the U.S. is frantically trying to get control of life in the face of the coronavirus. We write this on March 19 as our government strives to find equitable ways to inject huge amounts of money into our economy, both for individuals and businesses. They are also working to develop viable medicines and provide necessary equipment for patients. We hear predictions that the virus could change our way of living, including shuttering businesses for up to 18 months.

    We also get encouragement that maybe we will get lucky because of the draconian measures we are taking, following the path of China, Japan, and Korea, where new cases are leveling off or diminishing. Of course, there is no guarantee that those three countries will continue on that path. We are in uncharted waters.

    Because of the rapid changes, we encourage you to contact us with questions and concerns. At this time the five of us at O&A are mostly working in five locations. Joan has been in the Katonah office, David is in the Norwich office, and the other three are generally working from home. For now, this seems to be effective, although Joan will likely switch to working from home too, with the new order for non-essential businesses in NY State. We are happy to set up a telephone conference call with you at any time. It is easy for any of us to be on a call with you. During this time, we prefer more contact with our clients, not less.

    As for the effect on investments, the decline in stock market prices has been very quick and dramatic. The Total U.S. stock market hit an all-time high a month ago and has lost close to 30% since that time. Where we go from here depends a great deal on how quickly we get some kind of predictable control of the virus. Deborah found a quote that states well our position: if your goals and your plan haven’t changed, “don’t touch your face or your portfolio.”

    We hope you and your loved ones stay healthy and safe.

    because I said I would

    All of the Otto & Associates staff attended a three-day conference in Orlando at the end of January. Most multi-day financial planning conferences include motivational speakers, often featuring sports figures, or people from the military or government. Alex Sheen was different. Many of those who heard him left enraptured.

    Sheen is the founder of “a social movement and nonprofit that is dedicated to the betterment of humanity through promises made and kept.” You may have heard him on one of several TED Talks he has done. He is an engaging speaker who doesn’t take himself too seriously, even though he speaks of vital matters. Likewise, he invites his listeners to be reflective and creative in responding to important matters, particularly by making and keeping promises.

    Conference attendees entering the hall were all given a pack of small cards that said “because I said I would…”. Then we heard Alex’s engaging story about how he started this organization. His dad, who was diagnosed with small-cell lung cancer in 2011, initially responded very well to treatment but ultimately lost his battle with cancer.

    This is how Alex described his father. “He was no war hero. He never wrote a book. He never ran marathons. He was a pharmacist. No recognition. No fame. But for everything that made my father ‘average’ and ‘an everyday guy’, there was one thing he did exceptionally well. He kept his promises. My father was a man of his word.”

    As Alex prepared for his father’s funeral, he realized how exceptional this ordinary man was. He decided to try to honor that quality of his father. That determination was the beginning of the organization “because I said I would.” After Alex described his father, he invited conference attendees to write their own goal(s) on the card as reminders of promises they have made or wanted to make at that time. For more about the organization, you might want to explore his website: becauseisaidiwould.org. I tell you about Alex for two reasons. 1) To offer inspiration from the message of the “because I said I would” organization, and 2) to give a real-life example of your author (David) who, with his wife, Mary, had arrived at something of the same place as Alex – with a bit of a twist.

    The planners at O&A regularly talk with our older clients about making preparations for aging. In addition to investments, retirement planning, and tax considerations, thought needs to be given to issues like living in a one-level dwelling, or where you will live if you need care. One good alternative we often mention is a Continuing Care Retirement Community (CCRC).

    Last fall Mary and I decided to listen to this advice. Living in a big, old house with no first-floor bedroom and recognizing this would not be a good place in which to grow old, over several years we visited a number of retirement communities and put our names on the lists of three. We eventually decided on Wake Robin, in Shelburne, VT. We tentatively planned to move there in 2021. However, a cottage came available that seemed almost ideal for us, so we made the decision to move sooner. That duplex cottage is currently being renovated and repainted; we expect to make the move sometime in May. The Vermont location of the O&A office, which is now in an extension to our house, will move down the street three doors into an older home that decades ago was converted to a commercial building. We are most fortunate to have found a two-room suite with fireplaces in both rooms. The address is 289 Main Street. This will be the main office for Susan, and David will be in that office less frequently. However, he will also have a small office in the new Wake Robin cottage and be available through the office phone network.

    So why do two 78-year old folks who are pretty healthy decide to move at this time? We certainly are ambivalent; we love our home and town and friends. But we think it is the smart thing to do. And also, we are doing it because we said we would. If you are interested, you can find the Wake Robin website at: www.wakerobin.com.


    For the more than 28 years, O&A has worked to successfully address the various financial needs of clients. We help with wills and related estate documents, monitor and give opinions on income taxes, offer guidance on saving and thoughtful spending, help clients think through charitable donations, plan for retirement – the list goes on. We also spend significant time on investment matters. To that end we are creating a relationship with a mutual fund family that will be new to most clients.

    The firm is Dimensional Fund Advisors, formerly known as simply DFA. What follows is a brief overview.

    Dimensional is NOT a custodian. They will not take the place of TD Ameritrade, which means we will continue to buy Dimensional funds at TD, just as we have bought a host of different funds there in the past. Dimensional is a fund family, but one that has many offerings and strives to meet all, or most of the investment the needs of clients.

    We will proceed slowly and do not intend to sell large numbers of funds owned by clients. However, we expect most clients will eventually have a significant number of Dimensional funds in their portfolio and may have the majority of their money invested in those funds.

    In summary, we at O&A think it will work better to have one, over-arching perspective on investing, which Dimensional can provide. We will send a letter to clients explaining Dimensional more fully and commenting on why we are planning a move at this time, and what it will mean to clients. This entire process is, however, likely to be delayed because of the upheaval caused by Covid-19.


    We like to think that most people are good, honest folks but sadly, not all are. Technology has made it easier for thieves to scam people. We at Otto & Associates want you to be aware and alert, so that if you get a call or email from a stranger saying that your grandson is in trouble, you’ll think twice before your emotions take over and you send money.

    Of course, you want to help your grandson get out of jail for an auto accident in Maryland! Never mind that he lives in NY and doesn’t own a car. If the “lawyer” says that your grandson said not to tell his mother because he’s embarrassed, we hope you’ll call her first.

    This common scam happened to one of our clients recently. It followed almost to the letter the typical script from the NYS Consumer Protection Office website:

    “These scammers call or email seniors asking for money. They impersonate loved ones who are in some kind of trouble and need cash. Often, the calls are made in the middle of the night, so the adult answering the phone may be disoriented.

    “These con artists seem credible because they have become sophisticated in finding and using personal information from social media and Internet searches. In some cases, the scammer impersonates a police officer, a lawyer, or a doctor who is calling on behalf of the relative in trouble. In all cases, the scammers request that money be sent immediately and usually through a wire transfer.”

    Of course, the grandparent scam isn’t the only one. There are sweepstakes scams, funeral notification scams, IRS scams, and it didn’t take long for thieves to start coronavirus scams. One of the O&A staff received a call asking if the person had swollen or achy legs and feet, one of the supposed signs of Covid-19. The person who received the call hung up, but we can assume that an affirmative answer to the question of swollen feet would result in the offer of a miracle drug if the person would simply wire money.

    So be on your guard when answering your phone and reading emails. Scammers can make phone calls look like a local call or a legitimate organization and they often create emails that look official. Never give personal information to a stranger. Legitimate organizations don’t ask for personal information by phone or email. And to help prevent identity theft, don’t click on links in your emails that seem at all strange.


    On December 20, 2019, the SECURE Act was signed into law by President Trump. The full title, “Setting Every Community Up for Retirement Enhancement,” is aimed at preventing older Americans from out-living their assets. While most of the items in the law are related to retirement in one way or another, it is quite a mix of changes.

    Because Americans are working longer, one of the new provisions pushes back the age at which taxpayers must begin taking the Required Minimum Distribution (RMD) from their Individual Retirement Accounts (IRAs). Prior to January 1, 2020, you needed to start taking your RMD the year you turned 70½. The age has now been increased to 72. In addition, anyone who has earned income can now contribute to an IRA, no matter how old the person is.

    Another change is the elimination of the “stretch IRA” for many beneficiaries. Non-spouses who inherited IRAs used to have the benefit of stretching the IRA distributions over their lifetime. There is no change for those who inherited an IRA prior to December 31, 2019.

    Now however, with a few exceptions, those who inherit an IRA of a decedent who died after Dec. 31, 2019, need to withdraw the entire amount within ten years of the original account owner’s death. This change will require careful and creative planning. Since there is no RMD, distributions from the inherited IRA can be taken in year(s) when anticipated income might be lower.

    The generalization is that these changes are complicated and nuanced enough that, except for spouses, those who inherit IRAs should seek guidance from us on how and when to take withdrawals. The rules for a spousal inheritance have not changed; when a spouse inherits an IRA, it becomes part of that spouse’s own IRA so these changes do not apply.


    Charitable giving is a high priority for many O&A clients. They give to organizations that feed the hungry; shelter the homeless; support the arts, religious organizations, farm to table groups, educational institutions, and more recently, help those who are losing their jobs because of Covid-19. Our clients have, in the last three years, given to charity directly from their TD Ameritrade accounts, on average, the total, remarkable figure of over $550,000 per year.

    Charitable gifts are made in one of two ways. First, clients sometimes give appreciated securities from their individual or joint account. Giving appreciated securities allows the donor to take the full value of the security as a tax deduction and the capital gains tax that would normally be paid by the donor is forgiven by the IRS.

    Second, for those who are over 70½, a donation may be made directly from an IRA, which accomplishes two things. The charity gets a gift, of course, but in addition the gift helps to satisfy the Required Minimum Distribution (RMD) for those who are over 72. (The government has recently raised the age for beginning the RMD to 72, but the charitable donation may still be made after age 70½. See the previous article on the SECURE Act for more information.)

    As the impact of the Coronavirus spreads, clients may want to especially help others who are particularly affected financially because of the virus. Stay alert for organizations who will step in to meet critical needs. We are happy to help if you want to use one of your TD Ameritrade accounts to make vital charitable gifts at this unprecedented time.


    This past November Charles Schwab & Co. announced their intention to purchase TD Ameritrade, a rather ironic move for long-time clients of O&A, since we used Schwab as our custodian until we moved all clients to TD Ameritrade in 2012. While the government still needs to approve this acquisition, we will likely be back at Schwab sometime in 2020. We have been told that many details need to be worked out, so at this point there are more questions than answers. Stay tuned.

    Reference was made earlier in the Newsletter to the entire office staff going to a January TD Ameritrade conference in Orlando. We often went to separate events that had special interest, but we all thought it was a particularly good conference. Deborah also took the opportunity to reconnect with two old friends in Florida, and Joan met her husband there so the two of them could visit their daughter, Juliette, a junior at the University of Tampa. Kathy was able to spend the following week in southern Florida visiting family.

    As for O&A’s use of Dimensional Funds in the near future, the staff has had innumerable conference calls with the Dimensional staff, and also a meeting with them in our office. A seminar at one of the Dimensional offices is still to come, when air travel is again recommended. We hope to achieve that goal before the summer vacation season.

    One positive bit of fall-out from our current crisis is that mortgage rates have come down, and at this writing, the drop is significant. The rate for a 15-year mortgage is as low as 3.0%; 30-year loans are as low as 3.5%. Rates could go lower. Give us a call if you wish to discuss this.

    As a reminder, O&A has a relatively new office phone system that seamlessly connects the Katonah and Norwich offices, as well as Susan’s home office. In the near future, David’s home office at Wake Robin will also be included. The long-time office numbers, (914) 232-5379 for Katonah and (802) 649-1946 for Norwich, ring at both offices and are also connected with the home office(s).

  • June 2019


    Some readers may recall that the last Newsletter (Spring, 2018) had a lead article on planning for living arrangements as we age. We particularly discussed Continuous Care Retirement Communities (CCRCs). This issue of the Newsletter leads off with a related topic: anticipating and planning for how to deal with end of life issues. Reference is made to a book that covers many of the potential complications of aging – and we are again offering to send a copy of that book to all who are interested in reading it.

    The second article is on Psychology and Money. It is a report on some of the primary emotional issues that can sabotage smart, long-term investing. We then turn to a quite different aspect of investing, namely investing that takes societal issues and problems into account, often referred to as Socially Responsible Investing.

    The notion of putting the interests of clients and customers of financial services ahead of those of financial service providers (“the Fiduciary Rule”) is the penultimate article. And we always end with Office Matters.

    David W. Otto, Editor


    Finish Strong by Barbara Coombs Lee deals with how we want things handled at the end of our lives. Too often we have avoided thinking about this matter. It is also likely that we have not made our wishes sufficiently known.

    Barbara Coombs Lee presents an excellent guide that surveys this terrain. In the Preface, Lee states that it was in May, 1994, that her thinking changed. At that time John F. Kennedy, Jr., said of his mother, Jacqueline Kennedy Onassis, after she passed away of non-Hodgkin’s lymphoma, “My mother died surrounded by her friends and family and her books. She did it in her own way and in her own terms and we all feel lucky for that.” When she knew that death was approaching, Onassis left New York Hospital and went home. She called those she loved to be with her as she passed quietly. “She died with the same grace and dignity with which she lived.” Reading those words turned on a lightbulb for Barbara Coombs Lee.

    Lee notes that 25 years ago it was unusual to die on your own terms. While people were beginning to use advanced medical directives, these were often ignored, as the medical community “regularly continued to deliver unnecessary, painful, and unwanted treatments.” While much has changed, Lee cautions that people may still die in ways they would never choose. We must be proactive because “a momentous event, our death, will someday be upon us and we risk being unprepared.”

    Finish Strong encourages thinking and talking when we are healthy so that we will be treated according to clearly articulated values. In that vein, Atul Gawande writes in Being Mortal, "Life has meaning because it is a story. And in stories, endings matter." (For more information on this book, see the O&A Newsletter of November, 2014.)

    Lee orients her book to both those who want to form and express their end-of-life wishes and to family and friends of those looking toward death. Lee suggests meaningful questions: “What are the most pressing requests, concerns, and desires of the actively dying? How can we best provide authentic comfort and support to the loved ones preparing to cross this final threshold?" In her experience, many want assurance that their treatment decisions are well informed and don't subvert their primary values. Treatment decisions is an area where people may want to be very explicit as they make their wishes known.

    One chapter in the book called "Talking About Death Won't Kill You (But It Could Improve Your life)" points to a study of 323 cancer patients which showed "that those who had end of life talks with family and loved ones were three times less likely to spend their final week in intensive care, four times less likely to be on breathing machines and six times less likely to receive CPR." Surprisingly, other studies suggest that patients who decide to focus on the quality of their life rather than the quantity find that their days of living are not actually shortened.

    Over-treatment is still more common than it should be and Lee discusses some of the understandable reasons for this: a doctor's reluctance to deliver bad news, patients' and their families' desires for them to recover, and palliative care being viewed as giving up. Finances can also be a factor. Hospitals and doctors are incentivized to do more, not less.

    The opening of the chapter called "Let Me Die Like a Doctor" could easily be called "Let Me Die Like My Dog," as Lee makes the comparison to when a dog is incurably sick, and suffering. At that point euthanasia is a common and merciful choice. But she goes on to note that this comparison is imperfect because dogs are not persons who can make decisions for themselves, after carefully considering options. She writes at some length, however, about doctors at the end of a terminal illness who often do not seek aggressive treatments. One doctor writes that if there is only a 15% chance of a benefit, he would forego treatment that would result in "misery we would not inflict on a terrorist."

    The book includes other thoughtful guidance: Tips for Combating Overtreatment, What We Hope for Can Change as Terminal Illness Progresses, Vital Questions to Ask Before Consenting to a Test/Treatment, Creating a Video Supplement to Your Advance Directive, and How to Become a Storyteller.

    Lee also stresses that if we care about this subject, we need to get involved in legislation. New laws already exist in eight states and the District of Columbia: California, Colorado, Hawaii, Montana, Oregon, Vermont, Washington, and in April, 2019, New Jersey. Compassion and Choices, the organization with which Lee has been affiliated since its founding in 2007, is committed to supporting changes that allow physicians to assist with dying throughout the country. Compassion and Choices was an important resource to the Vermont Death With Dignity legislation passed in 2017 and is active in moving similar legislation forward in New York and other states. Contacts and resources are listed in the book.

    Too many people will see this as a book they should read, but then they won't get to it. Your author came close to taking that stance; I am now pleased to have read it. Of course there are many additional resources. One that has come to our attention is The Conversation Project which is dedicated to helping people talk about their wishes for end-of-life care: theconversationproject.org

    We would like to send you a copy of Finish Strong. Please call or email and we will get it to you. We hope to engage in useful conversations following your reading of this significant book.

    A final note. With the encouragement from O&A, some clients over the years have completed the “Five Wishes” plan. While we believe this vehicle is helpful, Finish Strong encourages more extensive conversations and documentation than this earlier form we were recommending.


    The concept of behavioral finance was first discussed in the financial community in the 1970s, and investors have slowly become more informed about what it means and why it matters. Behavioral Finance is the science of looking at the ways humans act with regard to money in general and their financial investments in particular.

    A simple example involves what is called “anchoring,” hanging on when doing so is irrational. Sam decides to buy a stock, and the stock declines in price. A rational approach would suggest that Sam continue his research on the stock to see if he made a mistake. But fear of losing money causes him to simply hope it will make a big comeback. How many times have you heard someone say, “I don’t want to sell it before it comes back to what I paid for it”? Anchoring can keep an ordinary investor from becoming an intelligent investor.

    An article in the January edition of the American Association of Individual Investors includes an interview with Daniel Crosby, a researcher in the field of behavioral finance. He looks specifically at psychological issues which affect investors.

    Crosby begins with comments related to ego and acting overconfident. This problem is particularly tricky because it involves our egos. Humans who cover insecurity with bravado are typically unaware of how their feelings manifest themselves on a minute by minute basis. “People who appear the most confident are the ones who ought to think twice” because acting confident can be a cover for insecurity and a lack of full understanding. An interesting statistic Crosby has discovered is that more than half of the people who are certain that they have beaten the market have, in fact, trailed the market by a large margin.

    His research also reveals that women often believe themselves to have much less confidence when it comes to investing. But the truth is that with investing “women [in the investment world] outperform men in every conceivable way….They are more likely to stay the course... [and] they are better at weighing probability….Yet, they lack confidence.” In this instance a lower sense of self-confidence appears to be, in fact, an asset.

    A second problem Crosby cites is relying on feelings instead of knowledge and logic. Often the emotions involved are outside our awareness. Emotion, particularly extreme emotion, is the enemy of good decision making in investments.

    At O&A we try to minimize emotions in making investment decisions. When the market is going up and up and clients are pleased with their investment portfolio, they are understandably reluctant to have us sell. But nothing goes up forever, so at times of strong markets, we sometimes want “to take some profit off the table.” Likewise, when markets are going down, it is easy to become fearful and want to sell so as not to lose more money. Our professional reaction may be more cautious, saying something like, this is not the time to sell, for nothing goes down forever. “Steady as she goes” is our guide.

    Crosby then discusses a related issue: “While there are some people who suggest that you tap into your emotions almost as a sixth sense, or a premonition about what’s going to happen, I have not been able to find a single thing to support that in the literature.” Intuition does not work as a guide to investing.

    Crosby points out that if someone is nervous about the stock market, turning on CNBC and getting spooked by the news of the day is not a good idea. That is like counseling “an alcoholic to spend a bunch of time in bars….So the biggest thing you can do is control your environment. That’s absolutely number one!”

    Ultimately Crosby advises “conservatism.” For him, being “conservative” refers to not veering off course – sticking with the plan and not readily trying something new. Make a thoughtful decision about your investment plan and then stick to it. Reviewing investment strategies once a year is more than sufficient. There are several successful paths up the investment mountain, but switching from one path to another (read “changing investment paths with each new headline”) will lead to trouble.

    “The great thing about finances is that you can – after reading, discussing, and developing a plan – lock in some really great practices and then let the natural tendency toward laziness and inertia take over in the best possible way.”

    To summarize, we generally follow Crosby’s model in advising clients: avoid over confidence, cut through emotions when deciding on investments, and then stay the course. Crosby concludes with the following: “We found that simple rules beat frequent changes in investments more than 94% of the time.”


    In our May, 2017 Newsletter we reported that O&A was becoming increasingly interested in Socially Responsible Investing (SRI). Since then our interest has continued and our field of knowledge has grown. Both Susan and Deborah have attended conferences and webinars, met with fund managers, and read countless articles on the subject. The result is that, for those who are interested in SRI, we are able to construct portfolios that offer good options.

    The easiest SRI strategy is for a client to select the fund or funds he favors. As interest and enthusiasm for SRI grows, so do the choices that are available, the complexities of deciding, and the number of ways to define this space. And a fund that does one kind of responsible investing may be of less interest to some SRI investors because of its specific area of investment. Socially Responsible Investments include renewable resources, human rights, poverty, diversity, and income equality. While the areas that SRI can encompass may be wide and varied, the two main goals of these investments are consistent: social impact and financial gain.

    A different form of SRI strategy focuses on exclusion, rather than inclusion. This means that funds own stocks which generally meet certain SRI goals but definitely exclude all companies that are involved in selected industries. This may mean avoiding companies that invest in fossil fuels, alcohol, tobacco, guns, or other “sin” stocks”. To give the reader an idea of what SRI investments might look like, we’ll share three funds that we are currently investing in.

    The first is Pax Ellevate Global Women’s Leadership Fund. This low cost index fund invests in the highest-rated companies in both domestic and international markets for advancing women through gender diversity on their boards and in executive management. From the Pax website: “Research indicates that companies with more women in leadership have higher returns on capital, greater innovation, increased productivity, and higher employee retention and satisfaction.” Investors can expect to benefit from investing in this fund by helping to close the gender gap while also getting a good return on the investment.

    The second fund is also part of the Pax family of funds: Pax Global Environmental Markets Fund. This fund invests in companies that are developing innovative solutions to challenges in four key areas: energy efficiency and renewable energy, water infrastructure, waste management, and sustainable food and agriculture.

    Finally, Calvert International Responsibility Index Fund covers a broader array of responsible investing. Calvert has had a social mandate for decades and has developed broad SRI principles that result in buying companies that demonstrate leadership and create positive impact in society through their business operations and overall activities, while producing competitive investment returns.

    We will continue to explore other SRI investment options that will enhance our clients’ portfolios. As always, we welcome your questions or thoughts.



    The National Association of Personal Financial Advisors (NAPFA) was founded in 1983 with the over-arching principle of putting clients’ interests first – referred to commonly as the “fiduciary rule.” For an organization to claim that as a first principle in 1983 was revolutionary.

    NAPFA’s radical stance was a response to egregious problems in the investment world at the time. From the beginning, buying and selling investments had commissions which were sometimes quite expensive. Over time additional incentives which investors were not aware of motivated stock brokers and other people selling investments to push one product over another. Free trips and undisclosed monetary incentives too often guided sales. Thus, NAPFA’s stance. And slowly, over time, the entire financial services industry has moved in the direction of putting investors’ interest first by being more transparent regarding compensation and other incentives received by the sales force.

    Often Government regulations have required a move in this direction. During the Obama administration steps were taken by the Department of Labor to require everyone in the financial industry who dealt with IRAs, 401(k)s and other work place retirement plans to put clients’ interests first. The final implementation of those regulations was not scheduled to take effect until after Obama was out of office. Subsequently, the new administration delayed implementation repeatedly and ultimately put the entire plan on hold indefinitely.

    The Securities and Exchange Commission (SEC), which gives oversight to virtually all other investments, had begun discussions moving in the same direction, but has also put this on an indefinite hold.

    From our standpoint this remains a matter of ethics. It is imperative that all financial professionals have a first principle of putting clients’ interests ahead of other considerations.


    Deborah, Susan, and David attended interesting and informative conferences since we last wrote. For Deborah and Susan, one was a United Nations Sustainable Investing Conference, where they learned about the UN’s 17 Sustainable Development Goals, a blueprint for countries to improve lives and equity by working on a shared vision. The goals include ending poverty and hunger, promoting economic growth and full employment, enhancing quality education, finding clean water and energy, and taking urgent action to combat climate change. The conference emphasized using Socially Responsible Investing to advance these objectives.

    We always appreciate conferences and presentations from mutual funds companies when they’re in NY. The in-depth knowledge we gain is a good supplement to the regular financial information they send. Presentations by mutual funds managed by PIMCO, First Eagle, and Baron were recent highlights.

    More personally, since our last newsletter Kathy Patton and family celebrated the marriage of their daughter Molly over the 2018 Labor Day weekend. The wedding took place in Chevy Chase, Maryland, and the Washington, DC, weather did not disappoint. It was close to 90 degrees and sunny, but that did not stop the wedding revelers. It was a very happy occasion.

    We have also had graduations to celebrate. Deborah’s oldest, Joe, received a Master’s in School Counseling from Hunter College and Susan’s son, Carter, graduated from Bates College with a B.A.

    On July 13, Susan, David, and Mary, along with other family members will participate in the annual fund raiser for cancer research at the Dartmouth Hitchcock Medical Center by joining in the Prouty bicycle ride.

    O&A has a new telephone system that connects our two offices seamlessly. You can now call the number we have had for 28 years and get anyone in either office. That number is (914) 232-5379. However the newer number that has been associated with the Vermont office – (802) 649-1946 – works just as well. The fax number for both offices is: (914) 232-5378. Staff in either office will be able to view all faxes that come in.

    During most of July and August Susan and David will again be working in Boothbay Harbor, Maine. That office is also connected to the new phone system. If you are visiting Maine and want to see one of us during that time, we welcome you. Please call ahead.

    Finally, although I (David) continue to be listed as the Editor of this Newsletter, others in the office have an increasing role in the content of this document. The reader is the beneficiary of this evolution.

  • March 2018


    We are pleased to have you reading our March 2018 Newsletter. Giving thought to Long Term Care is the focus of the first two articles. As all of us live longer, older people need to plan for less than full “capacity,” and the article argues that oldsters will do well to include their children and younger friends in discussions on the subject. Following those articles is a book review of When Death Becomes Air, an article on looking back at 10 years of stock market ups and downs, one on Global Economics, and one on giving of time, talent, and resources to others. As always, we conclude with Office Matters. The office is a happening place.

    While all articles in the Newsletter are something of a team effort, your editor has the main responsibility for most of the articles. However, Deborah wrote the Global Economics article and Susan wrote the article featuring Nickolas Kristof.

    David W. Otto, Editor


    Long-Term Care is getting a lot of press these days, as people live longer and fewer people drop dead of the proverbial heart attack. That raises questions not just for older folks, but also for sons, daughters, and friends of those who may eventually need some kind of care in their later years. What options are available? What preferences are high on the list? When is it time to at least look seriously at possibilities or actually make a decision?

    We all know of situations where the lives of family members have been quite disrupted for short or long periods of time because of a lack of forward planning. Several instances come to mind.

    Bill and Stephanie (all names have been changed), well into their 80s, loved the house in which they had raised their children. But a few years ago, they spent a housebound winter as a result of their infirmities. They had been an active couple ever since they married but failed to anticipate the result of the combined influence of Bill’s deteriorating joint problems and Stephanie’s dementia.

    The last winter they were in their home, Stephanie had a stroke, which took her into a hospital for more than two weeks. At about the same time, there was a whopper of a New England snowstorm. Neighbors shoveled Bill out and brought him food, but he couldn’t get out to visit Stephanie. They slowly realized that they should not be living in that house.

    They made it through the winter and were accepted into a Continuing Care Retirement Community (CCRC) where they enjoyed independent living for several months. However, they soon needed increased care, for which they were eligible. They were fortunate. Had they had waited another year, it is clear they would not have been admitted.

    Continuing Care Retirement Communities, also referred to as Life Care Communities, have accommodations for independent living, assisted living, memory care, and nursing home care. They also have skilled nursing, where a resident is expected to eventually return to independent living. Applicants are required to be able to live independently when they move in to a CCRC, and then it is expected that a person will spend the rest of his life there, moving between levels of care as circumstances change.

    Unlike Bill and Stephanie, Frank and Sally waited too long. They lived on the Iowa farm where Frank was born. Their son had long ago taken over the farming operation. After Frank had experienced two heart attacks over five years and was somewhat compromised, they decided it was time to look into where they would move next. Still, they enjoyed their house and continued to live there.

    They looked at various options and decided they would like to move to a CCRC outside the nearby city. They had an interview and the Life Care Community agreed to take them, although they would have to pay a premium on their initial deposit because of Frank’s pre-existing condition. But as they made concrete plans for the move, it just didn’t seem right. It seemed crowded, and they decided they would stay in their more spacious home.

    Then Frank had another medical issue and Sally could no longer care for him. A phone call confirmed that they were no longer eligible to move to the CCRC. Instead, Frank entered a different care facility and Sally lives on the farm thirty minutes away. Neither of them likes the situation because they are alone for long periods each day. Sally has also had several medical issues. She has been able to care for herself with modest help from her daughter-in-law, but at those times she has been unable to see Frank.

    These two stories focus on issues encountered by the older generation. But it is also true that the difficulties of aging parents can have a major impact on their children.

    Sandy and her husband lived several hours from Sandy’s parents. Her father, who had a failing heart, had been near death more than once, but each time he recovered, sometimes needing to be in a rehabilitation center for an extended time.

    With his last extended illness, however, Sandy’s mom could not care for her husband. During a two-month period Sandy made several trips to support her parents and eventually took a leave of absence from her work, leaving her husband and her home, to be with her father. Difficult as it was, it was what she wanted to do. After three months of constant care by Sandy, her dad died. Sandy returned to her life and her job, still concerned for the well-being of her mother. A lot of responsibility for a daughter.

    There is not a “one size fits all” when it comes to planning for living arrangements in old age. But it is increasingly useful as more appealing options become available for people to make decisions when they are healthy.

    Here are a number of questions to consider:

    1. What are my/our options for where we could live in our older years?
    2. What are the views/wishes of other family members?
    3. What help should I/we solicit from a financial advisor, attorney, or doctors?
    4. What will the timing be if I/we opt to leave our home for another place to live?
    5. What can I/we afford?
    6. What are my/our priorities? Be close to family? Live in a place that I/we are drawn to? Curtail expenditures?

    It is difficult to make generalizations as to the cost of CCRCs and other such care facilities. Most places have a not insignificant lump sum that is required at the outset. The initial amount can vary widely, one factor being the part of the country where the facility is located. Prices are higher for a couple than a single person. Several CCRCs we are familiar with give a decreasing refund on the initial payment, often going to zero after four or five years. Also, CCRCs may give the prospective resident a choice of paying more up front and then being guaranteed of getting money back when they leave or die. There is also a set monthly fee from the time of entry. This fee changes very little when the resident moves to a higher level of care. In that way a Life Care Community serves as a long-term care insurance policy.

    It is also possible to choose something else entirely in terms of where to live when added care is advisable. One couple we know has decided to stay in their home because it is less than a half mile from a care facility that could meet their needs adequately. A widow who lived alone has a daughter with a mother-in-law suite in her home. Both her daughter and son-in-law said she would be welcome to come there at any time. In fact, she made the move a couple of years ago.

    To summarize: it is easy to delay discussions and put off change. Nonetheless, there are a multitude of good options for living well in our older years. This article makes a case for, at a minimum, having some serious conversations on the subject.


    In view of the article above, the question of Long Term Care Insurance is an important one. The insurance industry has created intentionally alarming stories about how much Long-Term Care could cost if you waited too long to buy it. So, do you need it? It can be difficult to get objective advice.

    The first thing to acknowledge is that, on average, owners of any insurance policy, including LTC insurance, will often get back less than they contribute in premiums. It cannot be otherwise or the insurance companies would go bankrupt. The guideline for insurance in general is that a person needs insurance for losses that s/he cannot absorb. Many of us would be many dollars ahead if we had never bought homeowners’ insurance, which we may have had for decades. But, we could not afford to replace a house in the case of a fire, or to settle a large liability claim. Still – is it wise to purchase LTC insurance for yourself or someone in your family?

    It is true that many people can manage long term care costs without insurance coverage. Rarely does anyone require care over a very long period of time. Also, other costs will go down when a person enters a care facility. A car may no longer be required; vacation costs usually evaporate. Entertainment, clothing, and groceries are greatly reduced. On the other hand, the sale of a home is a potential resource in paying for care. The income side of the equation for this planning process also needs to be considered: things like Social Security benefits, pensions, and investment income normally do not change, meaning that they remain as monetary resources.

    Another consideration in purchasing LTC insurance is whether or not you will be able to pay premiums as you age. That matter is often somewhat unpredictable, but should you live a long time and then run low on funds, you could be forced to give up the insurance just as the time draws near that you would need it.

    If you in fact decide to purchase a policy, a number of other considerations arise. One is the question of how and when the LTC insurance can be used. Many policies allow for home care, normally at a reduced daily rate. Other issues are: a) selecting the daily maximum payment (people who need LTC insurance normally do not need to cover all potential costs); b) deciding on the elimination period (i.e. the time during which you are eligible for coverage, but are not reimbursed); and c) selecting the maximum number of months and/or the maximum dollar amount the policy will cover. It is also true that Life Care Communities are often geared to make use of LTC insurance when it is an appropriate policy.

    One other facet of the LTC question that occasionally arises as we deal with new clients is, if you already have LTC insurance, do you still need it? At that point, a close examination of your policy, your anticipated need, and your resources is advised. Factors such as cost, coverage and your current health will be relevant.

    The decision to purchase or not purchase LTC insurance is complicated, as is deciding on the continuation of an existing policy. Of course, we at O&A are glad to help clients think through the pluses and minuses of such a decision.


    When Breath Becomes Air is a memoir by Dr. Paul Kalanithi. It begins with Dr. Kalanithi’s student days at Stanford University as he explores English literature, the philosophy of science, and medicine. Ultimately he goes to medical school at Yale, where he meets and marries Lucy. They both become doctors but during Paul’s residency in neurological surgery, back at Stamford, he is diagnosed with metastatic brain cancer.

    Most of the book tells of Kalanithi’s work and life while he is a patient. It is a record of his thoughts and interactions with his own medical patients, as well as with his doctors, friends, and particularly his wife. It is a love story as well as a documentary of a life well lived to the very end. It also serves as an inspirational challenge to the reader. Paul dies at age 37, the book all but complete. It concludes with a moving epilogue by Lucy.


    This article is being written on Feb. 24 after the market had a mild correction that may seem like the distant past by the time you read it. A “correction” is defined as a stock market loss of 10%. This “Correction” just barely counted because some of the indices did not lose 10%, but it seemed to cause a major upset as judged by media reporting. The media angst is understandable, given the fact that the market marched upward for most of the past nine years and volatility has been unusually low.

    It is interesting to note that this past October of 2017, was the 10-year anniversary of the market high which was reached on October 9, 2007. Beginning on that noteworthy day and for the next 18 months, the U.S. stock market lost about 50% of its value. Imagine that you were sufficiently prescient to know on that October day in 2007 just how bad it was going to get – that some major banks and many companies were about to go out of business. Imagine you also knew that unemployment would rise to 10% and that the federal debt would double. Then, pretend that you would be allowed to put all of your investments in only one asset and you could not change that decision for the next 10 years. Your options were: The S&P 500 index fund, a 10-year Treasury Note, gold, oil, housing, or cash. What would your choice be?

    At that time, it would have been extremely difficult to pick stocks – the S&P 500 Index – as your choice. Yet, that is, in fact, what did the best in the next 10 years. From the market high of Oct. 2007, to Oct. 2017 the stock market returned 7.2% annually, while gold made 5.7%, the 10-year Treasury Note made 4.7%, home prices increased 1%, and cash returned .4%. The laggard was oil, which lost 4.3% annually. It seems quite remarkable that after losing 50% in 18 months, in the next eight and a half years the market not only made up all of the loss but also made enough more to return 7.2% annually.

    So, what is the point? Even if you had known in October 2007 that the market was going to lose 50%, you would still have done best to hang in with the U.S. stock market by choosing stocks for your ten-year investment.

    We don’t know if this small recent correction might result in the market continuing to go up or not. We do know the market will have a more significant correction one of these days. It is possible that correction might be large because it could be accompanied by an economic recession. In any case you can be assured that we have not seen the last recession. However, most 10-year periods since World War II have had a reasonable return. We expect the same will be true for the next ten years. Saying “Don’t worry; be happy,” may be Pollyannaish. “Hold onto your hats,” might be more apt. There will be undoubtedly be some trying times ahead but the markets will eventually end up making money.


    Even though we thought this talk at the TD Ameritrade conference might make our eyes glaze over or even allow us a much-needed nap, those of us from O&A who attended this big-picture presentation on global politics and economics by Ian Bremmer of Eurasia Group found it very interesting and thought provoking. We are living in an increasingly interconnected world and need to be aware of what’s happening overseas. One example: Bremmer believes China is in the process of becoming a global economic superpower and that 10 years from now we’ll say that this period marked the transition in the world order, including the waning of U.S. influence. President Xi is a very strong leader, the strongest since Mao, taking advantage of weak leaders around the world to advance his country’s power and influence via huge investments in technology domestically, and infrastructure projects domestically and globally.

    Ian Bremmer thinks there are only a few other strong leaders on the international scene: Prime Minister Abe in Japan, President Macron in France, and crown prince Mohammed bin Salman (MBS) in Saudi Arabia. He stated that Abe’s economic policies and other reforms are succeeding in lifting Japan out a long-term slump. Macron stands out among other European leaders who are weak or forced to work with coalition governments. He believes that crown prince MBS is the most revolutionary leader in the world today, but he won’t be able to accomplish all he wants, because his country is suffering from declining oil revenues (the US is likely to produce more oil than Saudi Arabia soon), corruption, and a difficult geopolitical environment. The assertiveness of these leaders, Bremmer suggests, is changing the scene dramatically.

    Such shifts in regional leadership on a global scale are, according to Bremmer, accompanied by other disrupting factors. Immigration is one of them, especially in Europe; Brexit is another, as is the increased risk from North Korea.

    While Bremmer believes that just how the leadership changes will play out is yet to be determined, it will have significant effects on world politics. For the U.S., which has been the world leader so long that few remember when it was otherwise, this will be a radical change.

    Deborah L. Maher



    Nicholas Kristof wrote an article on February 7, 2018, for the New York Times series called “A Year of Better Living.” This monthly online series for subscribers is designed to “improve your life, community, and world.” The title of Kristof’s February article is “How to Make the World a Better Place,” and his suggestions for where to make financial and other types of contributions were not quite as daunting as the title might suggest. What follows are a few of the ideas that I gleaned from the article, with some personal examples added. If this is a topic that interests you, I would encourage you to read Kristof’s entire article online and follow many of the links that are provided. See the end of this article for a link. These days the concept of making the world a better place can seem totally overwhelming. It is easy to find excuses – I don’t know where to start; my small amount of money won’t make a difference; I don’t have the time. The reality is that even the smallest efforts can make a difference and, in addition, according to Kristof, “Our efforts to help others may have a somewhat mixed record of success, but they have an almost perfect record of helping ourselves.”

    So how can we give our time, talent, and treasure? Here are a few ideas to stimulate your thinking around this question:

    Ways to give of your time and talent:

    • Donate blood – through The Red Cross
    • Mentor a child in school, a refugee, an inmate
    • Serve on a board of a non-profit – local, regional, national, or international
    • Volunteer for a local organization – a church or synagogue, library, food pantry
    • Be an advocate – for those who need added support

    Considerations when giving away your treasure:
    • Requests for money seem to be on the increase. Having a plan or framework for how you will give money away will help keep you focused. I know of one family who takes the stack of “asks” in early December and separates them into piles that include: NO, low-priority, medium-priority, and MUST GIVE. They decide how much they will give away in total and then figure out how much each charity in the pile can get so that they stay within their budget.

    • Kristof cites two online resources that we have used to help evaluate the organizations that you want to give money to: Givewell.org and Charitynavigator.org. These websites help you understand the impact of your gifts, including what exactly your money goes to support, and how much of your money goes to the mission of the organization vs. simply running the organization, which should influence your thinking.

    • It is often hard to know whether it is more important to give locally, nationally, or globally. Kristof makes an interesting point that our dollars can have a greater impact internationally. He states, “An aid group abroad can save more lives more cheaply than an organization in the United States, and generally can do more good with less money.” Of course this ties back to the first point about establishing a framework for giving.

    • There are many ways to be creative and accomplish more than simply getting money to a charity. Involving children in decisions about giving money to the local foodbank can be a good option. Instead of just writing a check, the parents decide how much they want to give to the food shelf and then go to the grocery store with their kids to purchase the food to be donated. This encourages discussions about budgeting, limited resources, nutrition, and a host of other things.

    The areas you can support through volunteering and donating your money are endless. But whether you invest in women and girls, clean water, early literacy, animal welfare, land preservation, or any other worthy cause, the point is to act. Your efforts combined with the efforts of many like you can help to make the world a better place. The Kristof article with links can be found at: https://www.nytimes.com/guides/year-of-living-better/how-to-make-the-world-a-better-place, where there are literally three dozen links to other sites. Or go to www.ottoandassociates.com and then go to the Newsletter tab. Find the March 2018 Newsletter and then find this article. You can then go directly to the Kristof article online.

    Susan O. Goodell


    For a few days around the beginning of February, David held down the fort in subzero Vermont while the rest of O&A traveled to Orlando to attend the TD Ameritrade Conference. But Kathy didn’t make it to the conference. It turns out she was traveling with acute appendicitis and ended up in the hospital for an emergency appendectomy. She is fine now, after recuperating in Florida. The rest of us attended educational sessions, saw technology demonstrations, and tried to get outside for a few minutes between sessions to enjoy a break from the cold New York and even colder Vermont winter.

    In other health news, David is scheduled to have knee replacement surgery in mid-March. He plans to take a couple of weeks off to recuperate, and then hopes to be recovered sufficiently to ride his bike for the Prouty in July.

    Late last year, David and Susan attended a NAPFA Conference (also in Orlando) with other fee-only financial planners. The conference had many good sessions on a wide range of topics including cyber security, tax planning, retirement income planning, and the Department of Labor’s Fiduciary Rule. As is always the case, it was an opportunity to chat with other planners and hear new ideas and inspirations.

    Deborah’s husband, Damon, was elected to the Westchester County Board of Legislators in November and took office last month. They are very excited about his opportunity to work with the new County Executive to make Westchester an even better place to live!

    Other office family matters include Kathy’s oldest child, Molly, getting married. Her youngest child, Grace, will graduate from The College of Charleston this spring. Joan and Susan also have upcoming graduations. Joan’s daughter, Olivia, is graduating from Pace University, and Susan’s daughter, Eliza, is graduating from Oxbow High School in Vermont.


    “The investor’s chief problem – and his worst enemy – is likely to be himself. In the end, how your investments behave is much less important than how you behave.” --Benjamin Graham

    “The function of economic forecasting is to make astrology look respectable.” --John Kenneth Galbraith

    “The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successful and consistently. I don’t even know anybody who knows anybody who has.” --Jack Bogle

    “The intelligent investor is a realist who sells to optimists and buys from pessimists.” --Benjamin Graham

    “Invest for the long haul. Don’t get too greedy and don’t get too scared.” --Shelby M. C. Davis

    “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” --Peter Lynch


    • TD Ameritrade will be enhancing its Advisor Client website later this year to give you more relevant information in an easier to read format. We are always here to help you navigate the changes.

    • Cybersecurity is foremost on our mind at O&A. We continue to seek the most recent software and protocols to protect your information.

    • Tax matters: K-1’s are expected by March 31. You will be notified by TD of any corrected 1099s. They are available on the Advisor Client website. Tax filing day is Tuesday, April 17th this year.

    • O&A continues to go green and look for ways to avoid paper. Using ZixMail is an important tool as it allows us to securely e-mail documents to you and for you to return documents to us. Stay secure, save paper, save time!

    • Remember we are always here to answer any questions you may have. We welcome an email or chat on the phone.

  • November 2017


    We are pleased to send this Newsletter to you before summer is fully upon us. The first article is a discussion of the fiduciary standard, something that has gotten increasing attention in the news media. It is an important issue to many investors, and just how and where this fiduciary principle will be applied is uncertain. The next article is on the market prospects in an intermediate time frame, and that is followed by a longer article on “real” rates of return. Real return is the increase in value reported in the newspaper minus inflation. This article looks at why real return is what investors should actually focus on for evaluating their long term investments.

    We conclude with a report from Susan on a conference she recently attended in Chicago on socially responsible investing and how O&A expects to get increasingly involved in this field. As always, Office Matters is the finale.

    David W. Otto, Editor


    Definition: “a fiduciary is a person or organization that owes to another the duties of good faith and trust….It also involves being bound ethically to act in the other's best interests” (from Investopedia). A fiduciary agrees to put clients’ interests before the interests of the fiduciary.

    During the past few years the matter of the fiduciary standard has gotten the attention of the press. The Obama administration, and specifically the Department of Labor (DOL), developed new requirements for applying this standard to all U.S. retirement accounts.

    While the government finalized the regulations and set a date of April 10, 2017, for implementation, they actually gave organizations about a year to provide time so they could decide how they were going to comply with the new regulations and begin informing customers about new procedures and pricing. Recently the Trump administration delayed this action for 60 days. It is not clear if the new administration will move ahead with the proposed standards, modify them, or repeal them altogether.

    Because Otto & Associates has stated from the day we opened our doors in 1991 that we are fiduciaries, the changes required of us are almost exclusively internal, necessitating mostly just documentation as to how we follow the fiduciary standard. Thus clients have not received any notice of changes from us. However, other organizations have made extensive plans, and many have announced how they intend to implement changes to comply with the new regulations. We have specifically seen documents from Edward Jones Investments and the investment bank of J.P. Morgan.

    The concept of broadening fiduciary responsibility and transparency has arisen because the ways of handling the money of private investors has changed radically in recent years. From at least the early 1900s, the investment process was built on the commission system. Some of you will remember seeing slips reporting the purchase or sale of a stock that listed not only the price and the number of shares traded, but also the commission charged by the brokerage firm for doing their work. This system seemed effective, was transparent, and continues today in a limited and modified way. Then, the customer knew what he was paying for the service.

    As transparency has lessened, problems have cropped up. A good example is in mutual funds, for which there is often no fee for buying and selling the fund, but there is a fund management fee that may be difficult to discern. While a fee to manage a fund is legitimate, these fees can range from.05% to well over 2%. The new regulations do not limit the amount that investment professionals can charge, but they do require that the charges be clear and obvious.

    On March 3, 2017, Ron Lieber, a NY Times columnist, wrote an article that received considerable attention on the matter of investment costs. The article focused on 403(b) retirement plans offered to public school teachers. [403(b) plans are for employees of nonprofit organizations and are similar to the 401(k)s available to employees of for profit corporations.] Lieber pointed out how these teacher plans often come “with high fees and problematic investments.”

    The first unsettling issue that Lieber notes is that these plans often offer unknown mutual funds. Researching them was difficult for him, which suggests this could be an impossible task for most teachers not trained in the field.

    Lieber then turns to expenses, which he was unable to verify for most of the 6 – 8 companies he contacted. The one company that was willing to discuss the matter of fees said the cost was 1.81% or higher. The author believes many mutual funds in these retirement programs charge fees in excess of 2.0%, which, of course, diminishes the income the teacher will receive in retirement.

    Many in the investment community have assumed that if the new fiduciary regulations proposed by the Obama administration are implemented and seem to work well, the SEC and other regulatory organizations will, over time, adopt rules for traditional, taxable investment accounts that are similar to the new rules for tax-deferred accounts.

    Although the creativity of some investment companies in setting fees is not to be underestimated, it is likely that the new regulations for retirement accounts would be useful if they were enacted. If they are completely repealed, some salaried employees such as teachers will have their retirement savings reduced by excessive expenses. We hope that after years of getting close to implementation, the proposed regulations, or ones very similar to them, will be adopted.


    That the market is unpredictable has never been more obvious. Everyone “knew” that if Donald Trump was elected President, the market would go down, which it did for a few hours and then reversed itself.

    And another thing we also thought we “knew” was that the market did well when things were predictable and stable. Oddly, the U.S. stock market has increased 12% since the election of a very unpredictable leader.

    Investors are understandably concerned about today’s markets. The current bull market began more than eight years ago and the U.S. stock market has increased around 250% during that time. While eight years is a reasonably long time for the market to continue an upward trend, there have certainly been longer periods of rising prices, as the 1987 – 2000 bull market reminds us. During that 13 year period, the market went up close to 600%, more than twice what the market has increased during the present period. This comparison can be viewed as reassuring.

    As well, it is unlikely that we are on the precipice of an imminent downturn in the market. Various metrics, including the price earnings ratio – a measure of valuation – are not yet reaching the outer limits of a normal range in an investment cycle. And, valuations overseas are lower than in the U.S., suggesting that it could be a good time to invest more money outside the U.S.

    Our response to today’s conditions is to look for ways to be more conservative and to veer away where we can from the mainline U.S. stock market. Our strategies include investing internationally and in higher dividend paying stocks as well as private placement real estate, when these are possible and warranted. And we keep in mind that the angst of the present environment will eventually change, which is why we continue to focus primarily on long-term investing and diversification.


    A client recently asked, “What ever happened to the stock market returning 10% or more for long periods of time?” It is a good question, and in answering it, it is helpful to explain nominal and real rates of return. The above 10% reference is nominal.

    At O&A, a nominal rate of return is what we normally refer to when we discuss investment returns. That term, “nominal rate” means that it is the investment return rate which does not take inflation into account. An illustration will show how the nominal rate differs from a real rate of return. If an investor makes a 10% (nominal) return one year, and that year inflation is 10%, it is clear that the investor is no further ahead. A year later she can buy only the same goods and services she bought the year before. In this case, we would say her nominal return is 10%, but her real return is 0%.

    To understand investments over the long run, the real question is: can I buy more goods and services with my money? Examining real return is a way to quantify the answer to that question.

    Investment professionals over the years have seemed to agree that a real rate of return of 4% is a reasonable target. It may be possible to hit a higher target with aggressive, professional management, but for the average investor a 4% real return is respectable. In view of this, how have the markets done during the recent ten year (2007 – 2016) period in terms of real return?

    To do this calculation we must make an assumption about the stock/bond ratio. As most readers of this Newsletter will understand, O&A (and virtually all investment professionals) recommends adding bonds to a portfolio. While over the long haul bonds underperform stocks, they are an essential counterbalance: when the stock market goes down, historically the bond market has gone up. Thus, bonds help to modulate the dramatic swings of the stock market. For the purposes of this article we will assume the investor places 70% of her assets in stocks and 30% in bonds.

    The stock market return for 2007 – 2016 was 7.2% while bonds returned 1.2% during the same period. The blended index during this period (70% stocks and 30% bonds) was 5.4%. Remember, however, all of these numbers are nominal returns.

    In order to understand real returns we need to also calculate the impact of inflation for this period. While historically inflation has been at 3.0% (since 1926), the past 10 years have seen inflation of only 1.5%. Knowing this allows us to do the calculation for the real return during the past 10 years. The real return (5.4% minus 1.5%) was 3.9%, very close to the target of 4%.

    So one response to the initial client question is, your real return was never 10% but your assumption that it was is a very common one to make, and it mixes apples (nominal returns) with oranges (real returns).

    But, even talking just about real returns, it is true that the recent 10 years could be seen as disappointing. During that time the stock market experienced 18 months (from the end of 2007 through the beginning of 2009) when it lost more than 50%. Were we to eliminate that period and look only at the eight years from April, 2009 through March 2017, the blended nominal return would be 13.1% and the real return (after inflation of 1.6%) would be 11.5%. While the 10 year real return may be a bit below average, that 11.5% figure is not a sustainable figure. However, these two figures remind us that the market fluctuates significantly over intermediate time periods, and this fluctuation influences our longer term perceptions.

    In brief, the 10% return our client referred to above 1) forgot the fact that most investment portfolios include bond investments which will lower long term returns, and 2) may have conflated real and nominal, when a real rate of return is the more useful number.

    If you are a client of O&A, we are happy to discuss your real return numbers with you.


    It has been a long-standing belief by many that if you wanted to choose investments that were “socially responsible,” you had to give up some return. This was because socially responsible funds often had high expenses and were invested in areas that were not considered mainstream and therefore might underperform. It now appears that this perception is changing and old views of SRI are giving way to new realities. The previously perceived “performance gap” between returns from SRI and traditional investments seems to have been eliminated, and SRI investments are now able to keep up with, and sometimes even exceed, conventional market benchmarks. Investors now have the opportunity to align their investments with their values and receive competitive returns. In short, it appears that investors can now do well by doing good. Otto & Associates is becoming more interested in this growing field. In an effort to learn more about the possibilities, Susan spent three days in Chicago at a US SIF conference. From its literature, US SIF is The Forum for Sustainable and Responsible Investment, and “is the leading voice advancing sustainable, responsible, and impact investing across all asset classes.” Its mission is “to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts.” There are many terms that the broader investment industry uses to categorize “social” investing. SRI has been widely used for some time, and today ESG (Environment, Social, and Governance) is often heard as well. “Impact Investing” also gets tossed around as does “Exclusion Investing” and “Social Justice Investing.” All of these terms lead to different investment strategies that have varying, but often related, goals and impacts. Some questions to consider when thinking about investing in a socially responsible way include:

    • What do I want to avoid investing in? (Negative screening) Coal? Fossil fuel? Tobacco? Guns? Nuclear weapons?
    • What impact do I want my investments to have? Investing in companies that manage forestlands for financial, ecological, and social returns, for example.
    • How do I know if my investments have achieved desired goals, in addition to making money?
    • What do I want from shareholder advocacy? Is it important to have women on the Board of Directors?

    Investors may have many different reasons for choosing SRIs or for selecting one SRI investment over another. We will continue to research the opportunities that are available and evaluate fully the potential for a good return, the possible risks involved, and the potential of an SRI investment having a positive impact in the world. We are happy to discuss our findings with you and would welcome your views on putting SRIs into your portfolio.


    It has been an active time for the staff of O&A. In addition to the conference Susan went to, Deborah again attended the Financial Planning Association of NY Spring Forum. There are always a number of outstanding speakers and panelists. She brought back some useful perspectives on the markets and the economy. The conference also provided her with confirmation of our current thinking on allocation and investment strategy.

    In addition all five of us have had or are about to embark on some interesting vacation travel. If you are interested, we are all happy to talk about it. Deborah ventured the furthest, to visit her son in China.

    The phone in Katonah [(914) 232-5379] has been linked directly with Norwich for some time. While the VT phone number is still active, it is probably safest for clients to call Katonah to reach any one of us. If no one is available in either office, a message left on this answering machine will reach us no matter what office we are in.

    David and Susan have regularized the time that they are at the Katonah office. While there will be exceptions, they now normally come to Katonah the first week of every month, leaving Norwich, VT, on Monday afternoon and working in Katonah Tuesday, Wednesday, and until early afternoon on Thursday. During months with a national holiday in the first week, they will be in Katonah the second week. Neither comes to Katonah in August when they are both on a working vacation in Maine. Both maintain regular, reduced hours in the Maine office. If you are ever near Boothbay Harbor during that month, we are happy to schedule an appointment. This year that “month” will stretch from about July 20 to September 1.

    All of us wish you a relaxed and refreshing summer.

  • November 2016


    We are happy to get this Newsletter to you before the rush of holiday mailings. We begin with a report on the two O&A 25th Anniversary celebrations, one in Katonah and one in Norwich. The second article describes recent research which documents why investing in volatile markets is so challenging. Following those two pieces are articles on the new application of the Fiduciary Rule for all company retirement accounts; the problems that apply specifically to one type of retirement account, the 403(b) plans; and a report on the recent examination of O&A by the SEC. We end, as usual, with a report of some of the comings and goings of staff at O&A. David W. Otto, Editor

    O&A Celebrates 25 Years

    Many of you were able to join in the Otto & Associates 25th Anniversary celebratory gatherings. More than 50 people attended each celebration, the first being at the Katonah Museum of Art, where an exhibit called “The Nest” featured fascinating artistic variations on the theme of nests, birds, and feathers. Guided tours of the two exhibit rooms were offered to guests.

    Later in June we held the second event at the Montshire Museum of Science in Norwich. That evening guests explored the entire museum including a prototype for an exhibit titled “Making Music.” It aimed to explore “the science and art behind building and playing musical instruments.” Included were string, percussion, wind and electronic instruments. The Museum was looking for feedback from participants (which some of our guests provided) and the full exhibit is scheduled to open on November 25. While none of our international, West Coast, mid-America, or southern clients were able to attend, they sent good wishes. It was nice to see several clients who go back to the very early days of O&A in Katonah. At both events David reflected on O&A’s 25 year history:

    Thank you for coming to help us celebrate the Otto & Associates 25th Anniversary. I and we are immensely grateful to each of you because without you, we would not be here tonight. When I embarked on this venture 25 years ago with Mary’s strong support, we had no idea that Otto & Associates would turn into the organization it is today.

    I want to start with a brief rundown of my work history because in some ways, the various aspects of my career are all related. In 1966 with a one month old baby, Mary and I left Union Theological Seminary in New York City for northern Westchester County where I became a pastor of a small country church. That was a very good job for me for a variety of reasons, among them that it led to my becoming a pastoral counselor. After almost 10 years, I left that parish to take a job at the Poughkeepsie Counseling Center and soon became the Executive Director of the Center, which was sponsored by Catholic, Protestant, and Jewish congregations. That proved to be a dynamic time for me, and as part of that process I completed my Doctor of Ministry in Clinical Studies at Andover-Newton Theological Seminary.

    The Poughkeepsie Center was part of a larger organization that had two training programs. I joined the faculty of one and enjoyed doing teaching and clinical treatment for many years. But eventually reorganization was in the wind there, and I was ready to explore a new direction.

    In running the counseling Center I had recognized the need for more cbusiness and managerial skills, and with Pace University nearby, I enrolled part-time in their MBA program. There, almost by chance, I learned about the Certified Financial Planner™ program – something I had never heard of, even in my MBA studies. The CFP® seemed the right course for me so I took a year to earn my CFP certificate, after which I resigned from the counseling center.

    Otto & Associates began in our Katonah home on July 1, 1991. The work grew about as fast as I and a very part time secretary could manage. In 1997 Deborah joined the staff, and at the same time we moved the offices to the current location in downtown Katonah.

    Deborah has been a terrific addition to O&A. We have different and complementary skills; she is much more analytical and precise than I am. In addition she brought a strong banking background to the organization and in a way, a more conservative, financial perspective. Her degree from Vassar has also been of value. In so many ways Deborah’s additional abilities enhanced the solo operation that I was running.

    Mary retired from public school teaching in 2002 and we moved part-time to Norwich, VT, to be near our older daughter, Susan, and her family of four. Mary joined the faculty of The Sharon Academy and I continued to be in Katonah four days a week, although over time I worked from VT increasingly more. While O&A did not have an office in VT, we did have a few clients who were already in the area. I was back to working from home again.

    At some point, Susan, who was the reason for our move to in Vermont, started doing a bit of secretarial work for me. But then, almost overnight, something changed. It happened when her mother said, “Why don’t you consider doing planning with your dad?” I’m not certain why neither Susan nor I had thought of that, but Mary’s words functioned as though a light bulb had come on.

    Rather quickly Susan started down the CFP route, got her certificate in 2011, and has been wonderful to work with. She also brings broad experience, having received her Master’s degree in education from Antioch where she learned both educational and management skills, each useful to her work.

    We have never had such a smooth, well-functioning office as we do today. Kathy Patton worked for Goldman Sachs for many years and she picked up some remarkable skills which have helped the office work well. You all may not be aware of what is behind Susan, Deborah, or me being able to talk to you on the phone and easily find your will or tax return or whatever it is we need that makes us look so well prepared, but Kathy is probably responsible. Kathy has a Bachelor’s degree from Georgetown University and came to O&A nine years ago. She has been the office manager for the last four years.

    Joan joined O&A four years ago and has been a team player from the start. She graduated from Pace University in finance. Joan worked in New York for the Bank of Canada for a number of years before taking time off to raise her daughters. Fortunately for us, she was looking to get back into the financial area when we were looking to hire someone. If you need a job done quickly and right, Joan will do it.

    I have taken the time to talk about these five women (including Mary, whose support has been invaluable) because their expertise has helped O&A to become a respected, fee-only financial planning organization in both Westchester County and the Upper Valley of Vermont and New Hampshire. While I was the one who began this organization, O&A functions well because of the work of all of us.

    I want to conclude by stating how much I value you, our loyal clients and friends. At times when people asked me why I left pastoral counseling for financial planning, I would say that in doing my doctoral work, I learned that someone attributed the root of all emotional problems to family, sex, and money, and I was never very interested in the first two. (This comment received quite a laugh.)

    What that underscores is that money is, in fact, more than money. Money has an important emotional component to it and we at O&A do not shy away from regularly addressing that fact. I am appreciative of and enriched by your sharing this important dimension of your lives with us. The reason I am still working is that you present interesting challenges, stimulating questions, and invitations into a relationship as part of your team. I, and we, enjoy walking this path with you. In short, I am deeply, deeply appreciative of all of you. Thank you for joining us in the celebration.

    Party favors were given out to everyone present. If you did not get your special O&A bottle of wine, please make certain to remind us the next time you are in the office because we have a few bottles left.


    We have written previously that investing can be quite counterintuitive. A recent article titled “Humans Aren’t Wired for Investing,” from the American Institute for Economic Research, piqued our interest because it approaches the subject of how people invest their money from a somewhat different angle.

    The author, Luke Delormoe, presented a graph that covered 1990 to today, documenting the way in which investors have held various percentages of stock in their portfolio (as opposed to bonds and cash). At its high point, the average portfolio was comprised of 65% stocks. At its low, stocks were, incredibly, below 25%. Overlaid on that graph was another one of the performance of the S&P 500 stock index. The resulting picture illustrated that investors had put a greater percentage of assets into stocks after the market had risen, and continued adding more money to the stock side of their portfolios as the market peaked. It was only after the market had fallen that investors began to take money out of the stock market. As the market hit bottom, investors had the smallest percentage invested in stocks. It was at that point that the market began to make money again. In other words, as the stock market made substantial gains, investors had only 25% of their money invested in the stock market, when, in fact, it would have been more rational to have 65% in stocks.

    The article goes on to point to the biological reason for this “irrational” behavior. It is known that when our ancestors were in highly stressful situations, such as confronting wolves which might attack, the cortisol levels in their bodies increased. Today, too, our cortisol levels become elevated as our worries escalate. New research shows that with higher levels of cortisol, we also get significantly more risk averse. That is the new information in this article. With elevated cortisol levels, we are inclined to become more financially conservative, which helps explain the “irrational” behavior conveyed by the chart described above.

    “Today, we face a different kind of stress…than our ancestors. We are confronted with spikes in cortisol as markets get choppy and our investments lose value. It is agonizing to think about losing money. We have all felt that pain….This human reaction was perfectly rational when we had to face a pack of wild animals. Today, we find that it can be detrimental when dealing with bears and bulls.”

    Because these tendencies are counterproductive in managing investments, the article suggests two ways to guard against bad decisions at such times:

    1) Acknowledge that these tendencies are real and that pain will exist. Investors must train themselves to suffer through it. “This requires almost constant reassurance that we’re doing the right thing, even when it feels wrong.” Reading literature that supports long-term investing can be an antidote at such times.
    2) Decide that if you don’t like the heat you should get out of the kitchen. That translates to significantly (or completely) reducing your exposure to the volatile markets, while understanding that return will diminish, and may, in fact, drop below the inflation rate. The “price” for this option could be significant.

    We would add a third option, which is a variation on part of #2 above. A compromise could include reducing the risk to a place where you believe you can manage the volatility and related suffering. We would also add that considering the rewards of staying the course during a down market should be considered and may mitigate some of the pain.

    It is critical that investors understand themselves and their impulses in order to make wise financial decisions. For a somewhat different take, although consistent with this article, readers may want to go back to the first article in the December, 2015, O&A Newsletter. That article looked at this same issue from a somewhat different angle. That Newsletter is available on our website at www.ottoandassociates.com. We also have copies in both offices.


    Fiduciary responsibility, which requires that advisors put clients’ interest ahead of their own, has been the rule for fee only advisors who are members of NAPFA, the national fee only organization, from its inception in 1983. Now, effective in the spring of 2017, the Department of Labor (DOL) is stepping into the process by applying the Fiduciary Rule to retirement accounts offered by corporations and other businesses, including plans such as 401(k), 403(b), as well as Rollover IRAs.

    The action of the DOL has had the effect of encouraging the SEC to also adopt stricter fiduciary rules., but there is confusion in the industry, particularly since many advisors (including O&A) work with clients who have both regular, taxable investment accounts as well as company retirement plans. The SEC is working with only three of the five commissioner slots filled (the vacancies are the result of the current governmental dysfunction) but is hoping to clarify their guidelines on putting clients’ interests first.

    On his Last Week Tonight HBO show, John Oliver did a humorous piece on retirement plans that discusses fiduciaries. As long as you don’t mind explicit language, you may enjoy the 20 minute program. You can find it here.

    While O&A will likely have to make some minor modifications to our process to satisfy the way in which the DOL will implement the rule, we have been supporters and adherers to this rule from the outset.


    Some of you may have seen the recent excellent coverage in The New York Times about 403(b) accounts, which are retirement accounts for public service employees. The series, written by Tara Siegel Bernard and Ron Lieber, was sufficiently lengthy that you probably read it only if you are a teacher or work for a nonprofit organization and have such an account.

    The articles explain how employees can be ill-served when workplace retirement plans come with costly investment options and biased advice from aggressive salespeople. In some plans, employees can be locked in to expensive annuities for years, unless they pay large surrender fees to exit. We have discussed this with some clients whose plans have had these problems, and we will continue do so. (We wish to note here that there are some 403(b) plans that offer low-cost investment options, one of which is TIAA.)

    The dilemma for employees offered suboptimal plans is that if they do not contribute to the 403(b) tax deferred savings account available from their employer, they do not have another option. According to the reporter, “the people who do the most good in the world, spending their careers helping others in exchange for modest paychecks, often get the worst retirement plans.” (NY Times, Oct. 23, 2016, p. BU-1)

    The original intent of these 403(b) plans was to supplement teacher pensions. For that reason regulators allowed only annuity investments that would enhance teachers’ monthly pensions. Subsequently, in the for-profit world, a somewhat different, but generally much more competitive 401(k) was made available. The 401(k) plans generally have lower fees and, like 403(b) plans, can be transferred to and IRA upon retirement.

    You probably know that we at Otto & Associates, as fee only planners, do not sell annuities. When we do recommend them, we send people to a low cost provider such as Vanguard.

    The final article of the N.Y. Times series offers advice to employees who are motivated to lobby for better 403(b) retirement accounts.

    If you’d like to read any part of the Public Sacrifice series, you can find it on www.nytimes.com or ask us for a copy of the entire series.


    On April 21, 2016, Otto & Associates received a secured electronic email from the Securities and Exchange Commission (SEC). The email began, “The purpose of this letter is to inform you that the staff of the U.S. Securities and Exchange Commission is conducting a limited scope examination of risk factors present at your firm….This is exam is being conducted as part of the Office of Compliance Inspections and Examination’s initiative to engage with the population of investment advisers that have not been examined in ten or more years…”.

    Since our most recent SEC visit had occurred in 2004, we definitely fell into the category for a needed routine examination. The initial letter contained 12 questions, some with multiple parts. We gathered the information that was requested and sent it back, with the expectation that they would return to us with more requests for information. They did, multiple times. In fact, between April 21 and September 8, when we had our final phone conversation with the SEC staff, there were four more requests that contained long lists of questions requiring extensive narratives and documentation.

    We are very pleased to report that this SEC examination went well. The SEC had specific, minor recommendations for us around documentation and they accepted our proposal regarding how we would respond to their recommendations.

    The process was informative and, at times, extremely challenging. It took a significant amount of time and energy from all five of us, often time that we would rather have been spending with clients. Nonetheless, we are supportive of this oversight and appreciate the demands of meaningful regulation. And unless there are drastic changes, we do not expect another examination for some time, probably a number of years.


    The Newsletter was all but ready to be published when the surprise election of Donald Trump occurred. We do not want this Newsletter to go out without adding our thoughts on the possible impact of the Trump election on investments.

    As the reader must know, prior to the election there were seemingly agreed upon predictions that a Trump election would result in an immediate stock market loss and maybe a subsequent recession. Technically those pundits were correct. The futures market lost 5% (“triggers” kicked in at that point so the market could not go down further) in the middle of the night of Nov. 8-9, but by the time the markets opened on Wednesday, that trend had reversed and the markets were essentially flat. By the end of the first day after the election, the US stock market had gained more than 1%.

    Because we at O&A never know where the market is headed in the short term – and maybe not even the intermediate term – we are urging that clients hold their course. The one exception is that for those clients who are retired and take money from their account regularly, we are recommending that we have a bit more cash on the side during this period, which could be volatile. Having developed this perspective, we were glad to see today (11/11/16) that Warren Buffet has a useful perspective. In an interview on CNN today, he indicated that he thinks the US stock market is strong and Trump will not have a long-term negative effect on the market.

    As always, we welcome questions and conversations from clients on this and other matters.


    In mid-October David and Susan attended a three day NAPFA conference in Washington, DC, that was focused on “Leading in Times of Change.” That trip also allowed us to see four clients who live in the area. Earlier in the year Susan and David went to the TD Ameritrade conference in Orlando.

    Deborah, Susan, and David have also attended a variety of one-day or partial-day educational conferences, including several presented by mutual fund managers. One of the more memorable was the Baron Conference, held each year in November at Lincoln Center, where the attendees take over the entire Lincoln Center campus. Approximately 5,000 people, including Deborah, were there. In addition, Deborah volunteered at Westchester Community College’s Financial Education Day, answering participants’ financial planning questions. She also completed a project for her city of New Rochelle to compile a list of free on-line financial literacy resources for teens and adults.

    The entire staff is looking forward in early December to the O&A Holiday Party with the Yankee Swap, something that has become a tradition.

    As a reminder, our recently updated website is available with lots of information. For instance, we are planning to post photos from each of the 25th Anniversary celebrations soon. In addition, this and previous Newsletters are available on the site as well.

    Finally, we remind readers that to get in touch with any of us by phone, simply dial the telephone number we have had from the outset, (914) 232-5379. The phone system links all the phones in both Katonah and Norwich. The call will be answered if someone is in the office and available. If no one answers, your call will go to voice mail and we will get back to you as soon as possible.

    As Thanksgiving, Hanukkah, and Christmas approach, David, Deborah, Susan, Kathy, and Joan join in wishing you a very happy season.

  • December 2015


    It is a pleasure to be sending you this issue of the Newsletter. The feature article discusses why stories matter and how we construct various stories of our life. Stories are as important in our view of ourselves as investors as they are in other aspects of living. There a brief list of quotations from famous people on living with money, followed by articles on why investors periodically pay higher than expected income taxes, important recent changes in Social Security, and activities with the O&A staff, including an event which allowed the Katonah staff to meet clients in VT and NH. But we begin with an article on how important it is for long-term investors to keep a long-term perspective.
    David W. Otto, Editor



    With today’s markets in flux, presenting daily swings of a percent or two, investors are unsettled. So a lengthy piece on this subject from a Litman Gregory newsletter to which we subscribe caught our eye. The recent article was titled “What It Means to Be A ‘Lifetime Investor’ and Why This Concept Is So Important But Largely Ignored.” What follows is from the opening paragraphs.

    “Many investors are more financially sophisticated than they were decades ago thanks in part to the availability of information on personal finance and investing. But there is also a large portion of the investing public that has a tendency to get whipsawed—over and over. They have a ‘recency bias’ [defined as ‘the tendency to think that trends and patterns we observe in the recent past will continue in the future’] that can contribute to performance chasing; they give up too soon when an investment disappoints; they are overconfident in their ability to make sense of investment markets and specific investments; and they are susceptible to the grass is always greener way of thinking.

    “To guard against these very common human tendencies, investors must do two things: First, they must find an investment philosophy that resonates strongly and is grounded in sound investment theory...

    “Second, investors must embrace the reality that they will be investors for the rest of their lives….The concept of being a lifetime investor may seem straightforward, and sometimes things that are simple may seem unimportant. But in our view, executing this concept is hugely important and is a strong facilitator of success in meeting an investor's long-term investment goals….

    “Being a lifetime investor facilitates accepting certain investment realities, including the very real cycles of over- and underperformance that managers and consequently portfolios experience. The investor can accept that over a lifetime, a prudent investment approach will likely disappoint at times, occasionally for a few years, but over the very long term, common sense discipline wins. These periods of underwhelming performance are likely not [significant] to investment returns over decades. Understanding this helps to protect the investor from giving up on something that will work well over the long run just because it has been out of [favor].

    “What this all gets at is being disciplined about building and sticking with an investment program. It's easy to say but surprisingly difficult to do.”

    This article states the investor’s dilemma well. It is essential to find a way to ignore the noise of day-to-day market fluctuations and concentrate on the long view, which usually seems to work out, even if it’s not quite as planned.

    Building and sticking to a philosophy of money and investments is a challenge. Perhaps the following feature article will stimulate your thinking.



    In early November, the Vermont Humanities Council sponsored a conference titled “Why Do Stories Matter?” The opening address was by William Cronon, a historian from the University of Wisconsin who made a rather surprising statement: “History is not about the past, but about the stories we tell about the past.” The facts of history become relevant only as they are given a context. He demonstrated how there can be a number of interpretive variations about the same “facts.” The storyteller puts on his own spin, including about situations that involve how we live with money. Here are a few examples.

    First, though, it may be useful to see the various financial issues people deal with as falling into three levels. The basic level might be called “Getting on Track.” This stage addresses financial issues that can be a problem to many folks, such as management of debt, a lack of saving, or overspending. The second level might be referred to as the “Neutral State” where there are no major financial problems but money concerns still create worry, and during certain periods can take a fair amount of energy to manage. The final level could be seen as a “State of Fulfillment,” where money and financial decisions have become a resource or a tool used in finding a meaningful and rewarding life. This level also assumes that the person has figured out what is “enough,” and is relatively content with a certain life style.

    A client from years ago who I’ll call Samantha spun out, at our first meeting, a story of impossibility. Things just kept happening to her. She would get ahead $200 and then a repair to her car would cost $600. At one point her uncle died and left her $10,000. She decided to spend $2,500 on a longed-for trip to Europe. That would allow her to have three-fourths of the bequest left to pay off debts and still have a cushion left over. But while she was in Europe the refrigerator broke in her apartment back home. Buying a new refrigerator used much of her cushion. Plus the European trip actually cost more than $2,500. In less than a year she again had begun accumulating credit card debt. She felt dragged down by circumstances beyond her control and had the potential of living out her life that way.

    But then consider the story of Jessica. Jessica graduated from college with no debt. When she entered graduate school the next year, she had a grant that was supposed to cover all of her expenses. But the grant money did not arrive until mid-October, so she used her credit card to get started. When the grant money arrived, she paid off her credit card, but before the end of the academic year, she was out of money and had to use her credit card to finish the second semester. Without quite realizing it, Jessica had moved up her standard of living, yet her grant was not sufficient to support that lifestyle.

    A large heating bill was a wakeup call to Jessica. To get control of her finances, she would stop eating out and “eat rice and beans” until she had her credit card debt paid off. She also went through her extensive library and sold the books she was no longer using. It did not take too long before Jessica had no debt.

    In each woman’s case the telling of the story seemed to predetermine the outcome. Jessica puts herself in the driver’s seat. It is a story of determination and success.

    What are your personal and family stories around money and investments? Are they useful or do they hold you back? By examining these storylines in the light of day, we have the opportunity to make changes in our perspective and behavior. Consider the following story.

    Francine, an older woman who is retired as a secretary to a legal firm, is someone who moves back and forth between the second and third levels. She is a worrier so she will probably always spend some time in the Neutral State. A recent example is typical of a call we get from Francine periodically. “I just needed to be reassured. With the downturn in the market, I am worried that I may not have enough money.” It is easy to reassure her because Francine does not regularly withdraw money from her TD Ameritrade accounts. Her Social Security and pension income provide more than enough money for her day-to-day expenses. When she does take money out it is generally to give it away to family or charity.

    During a conversation early in 2015 we pointed out that her account had built up in recent years, and we had raised the question of what she might want to do with that money. A while ago when her husband was alive, we had raised this same question. Our conversations resulted in a decision on their part to take their children and grandchildren on a Mediterranean cruise. Francine views that trip as one of the high points in her life. Following up on the call earlier this year, Francine got back to us to say that she has decided she really could afford to take her family on another trip – this time to South America.

    Most O&A clients would not consider Francine to be wealthy. But she definitely spends time in the third level, the State of Fulfillment. She has concentrated on saving all of her life. Not surprisingly, she was born during the Depression. But she now can regularly see that money is a resource to be used, and occasionally uses it in ways that seem quite extravagant to her, given her history. Even though 2015 has not been a good year for her investments, she realizes that she has more money than she will spend in this lifetime and so is using some of her wealth to foster aspects of her life that mean to lot to her, primarily relationships with her family.

    Stories are often rich and expansive. They ground us and help us manage our lives, including our financial lives.



    Which of these statements would you post on your bathroom mirror?

    Common wisdom has it that accumulating wealth is a mixed bag. People who don’t have a lot of money can be blessed by not being concerned about it. People who have money often agonize about having enough. Others worry about losing it. What follows are some quotations that put wealth in perspective.

    “Whoever loves money never has enough.” Ecclesiastes

    “Money never made a man happy yet, nor will it. There is nothing in its nature to produce happiness. The more a man has, the more he wants. Instead of it filling a vacuum, it makes one.” Benjamin Franklin

    “If you get wealth before you learn how to use it, it can be a burden on you more than a blessing.” Tony Dungy

    “If I were allowed only one answer to the question, ‘Wealth, is it worth it?’ it would be this: yes, if you give it generously. Don’t wait until you can afford it to start giving. Start right now enjoying that wonderful feeling we experience when we share our resources.” S. Truett Cathy

    “Never forget the secret to creating riches for oneself is to create them for others.” Sir John Templeton

    “The truth is you always get back more than you give away. Some people never learn this.” Warren Buffett

    These bits of advice doled out by various financial sages warn us against loving money too much; caution us that we must learn to use our wealth, however much we have; and ultimately remind us that in all likelihood, we will make the most of our money by being generous.



    “Why did I owe so much money for income tax in 2014?” We were asked that question by a number of clients this year and, while every situation is different, for many of you the general answer is the same. The issue centers around the U.S. government rules for the way taxes are handled for mutual funds.

    In order to explain the 2014 tax predicament, we need to go back to 2008. That year the stock market lost 37%, which led to many investors selling their mutual funds. When investors sell a fund, the fund manager must sell the stocks (or bonds) held in the mutual funds in order to raise cash to pay back investors. Because of the drop in the market, many of the stocks and bonds that were sold in 2008 had lost money.

    When mutual funds make money that money is not taxed at the mutual fund level, but rather the tax liability is passed on to the investors. But when funds lose money they do not pass those losses on to investors. Instead, losses are retained by the mutual fund to offset gains in a future year. That is what happened in 2008. The tax losses incurred in 2008 were temporarily held on the books of the mutual fund companies.

    As the stock market rebounded and mutual funds again made money, the funds had tax losses on the books from 2008 to offset the gains. The result was that investors had little or no tax liability from their investments. That situation continued for several years. Even in 2012 and 2013, when the market made 16% and 34% respectively, many of our clients had only small amounts of taxable capital gain because mutual funds still carried forward losses from 2008. However, by 2014 mutual funds had used up these losses. The result was a significant tax bill passed on by a number of mutual funds, which resulted in higher taxes for most of our clients.

    The good news is that the capital gains tax rate is 15% for many people, lower than the rate on ordinary income. (High income taxpayers are charged at a rate of 20%.) The bad news is that investors have little control over what year they must pay those taxes. That is left to the managers of the mutual fund who make the decision as to when to sell a stock that has increased in value. For peace of mind it is important to remember that the market made a good deal of money from 2009 to 2013 and most mutual fund investors paid a minimal amount of tax in those years. But the tax man does exact his due eventually, and 2014 was one of those years.

    So what does 2015 look like? This year the market returns are fairly flat. At least that is the case as the Newsletter goes to press near the end of November. Because mutual funds normally pay out virtually all of their capital gains in December, we are uncertain what tax liability will be passed on to investors in 2015 but a number of funds have declared the tax liability for their fund. It appears that this could well be another year with some fairly significant capital gains.

    We are currently examining opportunities to do some tax-loss selling, but those possibilities seem limited. We do not want to sell funds we believe in just because they have lost some money. As we regularly state, we don’t let the tax tail wag the investment dog. That said, where it makes sense, we are selling some funds that have losses to reduce the tax burden.


    At the end of October, Congress uncharacteristically passed budget legislation at lightning speed. Buried in this legislation were changes to Social Security. With little advanced warning, these modifications will significantly limit future Social Security claiming strategies.

    If you were born on or before May 1, 1950, you are in luck! There will be no changes to your retirement benefits and the claiming strategies that have been available, remain so, with one modification. If you plan to “File and Suspend,” so that one spouse can collect benefits based on the salary history of the other spouse, you will need to take action before May 1, 2016. In fact, for the most part the changes affect only married couples.

    For those of you born between May 2, 1950, and January 1, 1954, there will be some changes. If you will be 62 by the end of 2015, you will be able to claim a spousal benefit when you turn 66. HOWEVER, your spouse needs to either be collecting his/her Social Security benefit or have filed and suspended benefits before May 1, 2016. The options for people in this age group are complicated and difficult to fully explain. If you fall into this category, we should review your most recent Social Security Benefit statements so that we can evaluate how best to proceed.

    Finally, if you were born after January 2, 1954, you now have very limited choices for your Social Security benefits as a result of two major changes in the bill. The first is that folks in this category are no longer able to “File and Suspend.” The second change is to the “Restricted Application.” This is likewise difficult to explain. In brief, earners can no longer elect to claim a spousal benefit until reaching age 70 and then switch to taking benefits based on one’s own record. If you are entitled to both a benefit based on your own earnings record and a spousal benefit, you will simply receive the higher of the two amounts and stay with that option for the remainder of your life, or until your spouse dies.

    It is important to note that this legislation does not change the rules for surviving spouses. Surviving spouses will continue to be able to collect a survivor benefit if it is higher than their own benefit.

    Consider yourself fortunate if your Social Security decisions are behind you, for you will continue to receive the same monthly amount. Also, these changes do not affect our general belief that it is best for most people to wait to collect Social Security benefits until 70. More than ever, however, we are happy to discuss these options and how the changes may influence your retirement planning.



    Susan Otto Goodell, CFP®, joined Otto & Associates more than six years ago, and since she works primarily in VT, we have taken on a number of clients who live in VT or NH. While many financial planning firms use a model where each client works primarily with one financial planner, the O&A model assigns client tasks to those members of the firm who have expertise in a given area. While there is a good deal of overlap in our team approach, Deborah knows a lot about 529 College Savings Plans and does more detailed monitoring of investment options, Susan has expertise in Social Security options and retirement plans, Kathy and Joan both do a lot of client service matters such as opening accounts and changing beneficiaries, and David attempts to keep big-picture issues in focus. However, using this model means that with office staff in both NY and VT, not all clients know all staff members.

    For many clients that matter was corrected when we had a cocktail party at the VT office (and home of David and Mary), followed by a dinner at a Hanover, NH, restaurant. The dinner was sponsored by Martin Stever from Pacific West Land, LLC. Pacific West manages real estate alternative investments from offices in WA State that a number of O&A clients are part of. We also took this opportunity for Martin to give an update on the various projects and field some questions. Reports from both clients and staff were extremely positive.

    There have been suggestions that we do something similar in 2016 in both New York and Vermont. Next summer will mark the 25th anniversary of Otto & Associates and we are hoping to have two events so you can help us celebrate. More information will follow when the dates are closer.



    Otto & Associates has a new website, and we urge you to check it out! Kathy has headed up this project that has been surprisingly complicated, in part because it is built on an entirely new platform.

    For various reasons the staff has not attended a major conference in recent months, although Deborah and to a lesser extent, Susan, have both attended half day or full day investment gatherings. David and Susan and perhaps other staff will be in Orlando in early February for the annual TD Ameritrade Advisor Conference.

    The O&A Holiday Party happened on Dec. 4. This is one of the few times that staff and spouses are together and it is always an enjoyable time, made the more interesting by the traditional Yankee Swap. Deborah, Susan, Kathy, Joan and David all join in wishing you the Happiest of Holidays.

  • November 2014


    With the holidays only weeks away, we hope the November O&A Newsletter arrives in time for you to read it before your house is full of company or you are about to head out the door to be with family and friends elsewhere. We’ve begun this Newsletter with an article on a topic not usually addressed in financial planning publications, that of how the medical community treats aging and dying and why it should matter to us all. We hope that our offer to send you a copy of Atul Gawande’s Being Mortal might open the door for discussions of this vital topic as you visit with people who are important to you in the upcoming months.

    What follows are articles on annuities, modifications in client portfolios, and some wisdom from famous investors spanning the past 80 years. As usual, we close with Office Matters.
    David W. Otto, Editor



    When was the last time that you were so engaged by a book of non-fiction that you couldn’t put it down? That happened to me recently with the new book Being Mortal by Atul Gawande, a surgeon who practices at Brigham and Women’s Hospital in Boston and teaches at Harvard Medical School. Gawande, who writes regularly for the New Yorker, focuses his book on the issues surrounding the last chapter of life, and he begins with the acknowledgement that, naturally, we all are going to die. The author points out, however, that until the last two or three centuries, we lived an average of fewer than 40 years, and it is only in recent decades that so many people are living into their 70s, 80s, and beyond. He is of the distinct belief that we are not doing a good job of shepherding and supporting people in the final years of life, and he is the most critical of the medical profession itself.

    In Gawande’s view, the medical field has become the fix-it-up profession for oldsters. As we are more proficient in curing illnesses, or at least learning how to live reasonably full lives with less than perfect health, the focus has been on pushing back the boundaries on “incurable” diseases. In the process we have become less adept and less humane in our ability to manage and support people whose health is unlikely to improve.

    It was not primarily Gawande’s work as a surgeon, however, that brought him to this point of understanding, but rather the deaths of three members of his family, each of whom had quite different experiences in the final years of their lives.

    His grandfather had an extraordinarily long and atypically happy old age, dying at age 110 in a small village in India, surrounded by family members who cared for him. His was a death no longer typical in the Western world, but more common in years past when people lived shorter and more local lives. Those few who made it to old age were regarded as wise and held in esteem. They also normally lived with family, often in the family home, inhabited by successive generations. While all was not idyllic in such situations, which was also true of Gawande’s grandfather, (when he was well over age 100 he had a fight with a son, who also lived in the house, and got so mad he moved out for two months to live with another relative), his was the kind of empowered aging to which most of us aspire. But few people today can depend on that scenario at the end of their lives.

    In another death which Gawande describes, his wife’s grandmother went through a much more common, not to say awful, process. She had spent her life as a self-sufficient New Englander but began to lose more and more of her abilities. She was “not safe to live alone, not safe to drive, not safe to manage her own finances – she was [eventually] not safe to live at all, really, yet condemned to live on.” Gawande shows how difficult it can be to find a balance between a sterile, safe, and seemingly meaningless life that no one enjoys on the one hand and, alternatively, living with limitations while continuing to find satisfaction in life. The grandmother eventually moved to her own apartment in a CCRC (Continuing Care Retirement Community), but did not like it from the first day and it was not good for her. After several falls, she was moved to the nursing home part of the facility. By that time she had lost “any meaningful resemblance to what she would call living.” A few months later she died. As medical science develops more treatments for aging conditions, the grandmother’s situation is likely to become increasingly typical unless we radically change our approach. On that matter, Gawande has a lot of ideas, and documents some of the more creative projects that are being tried in the U.S.

    The third person included as a central character in the book is Dr. Gawande’s own father. “In his father’s case, it was disease, not age, which ultimately forced a careful consideration of the meanings of ‘life.’” Dr. Gawande’s father was also a surgeon and continued operating into his 70s when a malignant, inoperable tumor formed on his spine. “His surgeon’s hands were the first to go.” Gawande and his father had always been close and when his father was diagnosed with the tumor, the son was better prepared to deal with his father in a more humane manner. Although medication, which was the option his father chose rather than a recommendation for surgery, radiation treatment, and chemotherapy, allowed him to work for many more months, when his father could no longer practice medicine, he functioned pretty well for another year before he was at risk of losing the use of his limbs as a result of the tumor. The elder Dr. Gawande, with the vital help of the author as well as one other particularly sensitive doctor, was able to negotiate a life that continued to hold meaning until the very end. That was his clear goal; he was not focused on simply keeping his body alive as long as possible. Not surprisingly, as the book demonstrates with many real-life stories of people whom Atul Gawande met as he got to know people who were aged or had debilitating medical conditions, this focus often had the effect of actually keeping them alive longer than would have been likely with aggressive treatments. That was also true for his father.

    A review of this book appeared in the NYTimes on October 6, 2014. It was written by another physician, Abigail Zuger, who has thought clearly about some of these same issues and brings an enlightened perspective to her review. She suggests, only partly in jest, that we should not allow members of the medical profession to provide services to older patients until those doctors reach age 50. The reason? Younger physicians have only one orientation, which is to be specialists in preserving life, whatever the cost, both financial or quality of life. Being Mortal is a book about the necessity for the medical profession, and all of us, to look closely at these issues, according to Zuger.

    Why does this article appears in a financial planning newsletter? We at O&A are regularly involved with financial issues and aging. It is clear that there is a need for strong voices helping people to accept aging and the limitations that come with it in order to find ways to live as fully as possible.

    The O&A staff seek to insure that clients will not run out of money before they die. But we also want our clients to consider what their lives have meant and how they want to be cared for at the end of life. What can you do to make arrangements and make your wishes known about all aspects of growing older? Without some serious thinking and clear instructions, it can easily happen that your care is left to the medical profession. We believe that discussing these issues in advance is good for all involved and we encourage our clients to take the lead in these vital discussions. To read Being Mortal is an excellent first step. If you would like us to send you a copy, please contact the office.

    [As we go to print, the New York Times Sunday Book Review has published another exceptionally good review of Being Mortal. The date is November 9, 2014.]



    I recently attended my wife’s high school reunion in Iowa. One of her class members (I’ll call him Karl), whom I have gotten to know over the years (this class of 30 members has had a lot of reunions), told me that after President Obama was elected, he feared the economy was only going to get worse and had conveyed to his broker that he wanted protection from a declining stock market. The broker recommended putting all of his money in annuities, advice which Karl followed. His decision, based on politics and questionable financial logic, raised some questions for me.

    An annuity is a stream of payments made by the insurance company that sells the annuity, normally for the life of the person. Technically, Social Security benefit payments are annuities, as are company pensions. But generally, when discussing annuities we are referring to an insurance product that is purchased with a lump sum of money that guarantees to pay to the annuitant, in its most simple form, a monthly sum for the rest of his or her life. There are all kinds of variations on this theme: a 100% continuing payment to a spouse if s/he survives the annuitant; something less than a 100% continuing payment to the surviving spouse; a “ten year certain” stream of payments, so that income continues to a beneficiary even if the annuitant dies in the first 10 years. Life insurance also can be built into the policy – the options are endless. However, all of the choices come at a price, usually in the form of a reduced monthly benefit.

    Although we at O&A cannot sell annuities, I periodically get put on the wrong mailing list. Shortly before my conversation with Karl, I had received an email from an annuity company assuring me that I could earn a 7% commission on annuity products from their company. If Karl had walked into my insurance office and had $300,000 to invest, my company and I could have made $21,000 in one day, and a short day at that. Annuity salesmen are not held to the fiduciary standard so are not required to disclose their sources of income. Had Karl been told the amount of the commission on what he was buying, he might have had second thoughts as to the objectivity about the investment advice he was getting. More to the point, a commission effectively reduces the amount of monthly income the annuitant will receive.

    For those readers who want to understand the inner workings of the annuity and how the dollar payments work, we add this paragraph. The way in which “percentage” is used in describing annuities is different from the way we usually use the word. Suppose you are a 62 year old man who invests $100,000 in an annuity for which you will receive 5%, or $5,000 per year for the rest of your life. The 5% seems like a reasonable return, but it is not a normal 5% in that annuity payments include both principal and interest. Usually, if you get 5% on an investment, at some point in the future your original investment will be returned. Not so with annuities. Unless there is some special provision in the annuity, at the end of your life, the annuity quits paying and no money is returned.

    It is important to note that charitable annuities need to be looked at in a different light. First, they are a consideration primarily for people who are charitably inclined and want to give significant money to a not-for-profit organization. They work in much the same way that other annuities work, as described above. However, with a charitable annuity, the client will likely receive less money from the annuity, but in exchange the charity also gets a benefit, and the donor/annuity purchaser will get a tax deduction on a portion of the contributed amount. This can be a useful way to simultaneously give to charity and receive a lifetime stream of payments. And there is another advantage: with charitable annuities there is normally no commission paid, so there is more money available for the charity and/or the annuitant.

    We have some experience with charitable annuities, both because we have assisted clients in obtaining them and because, in my capacity as Treasurer of the Montshire Museum of Science in Norwich, VT, I have been involved in discussions on the not-for-profit side of annuities. While charitable annuities are a real benefit to both the annuitant and the not-for-profit institution, it is important to recognize that most charities will impose a minimum for the size of the annuity they accept because of the time and effort involved in setting it up.

    If you have questions about this matter or think you may be a candidate for this type of investment, the planners at O&A would be happy to discuss annuities with you and, if appropriate, help you find a competitive product or a charitable option that meets your needs.



    Those of you who are clients may have noticed that we made more changes than usual when rebalancing your accounts during the last few months. One modification was that for those funds which we expect to hold for the foreseeable future and which offer institutional shares, we traded in retail shares for the institutional shares of the same fund. We did this in order to reduce mutual fund expenses. Institutional shares are normally available only to very large investors, but we are allowed to aggregate our clients’ accounts for this purpose.

    The other step we took was to sell some actively-managed mutual funds where we are less confident that the managers would outperform their market index, in some cases because of underperformance for an extended period, and in others because the manager we had confidence in left the fund. We then bought some very low cost index mutual funds, in the hope that we will not only reduce expenses, but also improve performance.



    Several years ago the mutual fund firm of Davis Selected Advisors put together a 10 page booklet quoting legendary investors over the past 80 years. That publication has recently been updated with some valuable information. Paying attention to the thoughts conveyed below will go a long way to enhancing your savvy as an investor.

    BENJAMIN GRAHAM, “Father of Value Investing,” began teaching at Columbia Business School in 1928. Warren Buffett is one of his disciples.

    “Individuals who cannot master their emotions are ill-suited to profit from the investment process.”

    Graham pointed out that emotions wreak havoc on an investor’s ability to think clearly in evaluating investment processes and specific investments. It is for that reason that while the average stock mutual fund returned 8.6% between 1993 and 2012, the average stock fund investor earned 4.3%, exactly one-half what the average fund earned. Most investors who manage their own portfolios will do well to read Graham.

    CHRISTOPHER DAVIS is the current head of Davis Selected Advisors. The firm was founded by his grandfather in 1947.

    “Despite inevitable periods of uncertainty, stocks have rewarded patient, long-term investors.”

    After suffering through trying times of market losses, investors often reduce or abandon their exposure to stocks. The graph which accompanies the quotation demonstrates how consistently investors benefit from strong and often exceptionally high returns following a painful period, which is the often the time that individual investors have abandoned the stock market.

    PETER LYNCH was the legendary investor and manager of the Fidelity Magellan Fund from 1977 – 1990. The fund returned 29% annually for the period.

    “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.”

    A chart shows that if investors remained in the market for the 20 years between 1992 – 2012, they made 8.2%. The stock market was open for about 7,100 days in those 20 years. However, if investors missed the 30 best days of the market, their return would be 0% for those 20 years. If they missed 90 of the best days, the return would -9.4%.

    WARREN BUFFETT is Chairman of Berkshire Hathaway.

    “Be fearful when others are greedy. Be greedy when others are fearful.”

    This quotation would seem to present guidance for our current situation. Even though the market has more than doubled since the low point in March, 2009, there is still a good deal of fear today. The Buffett quote quite clearly suggests investors should continue to be aggressive when others are timid. Buffett also recognizes that his advice is counter-intuitive and not easy to follow.

    JOHN KENNETH GALBRAITH is an economist and Harvard professor.

    “The function of economic forecasting is to make astrology look respectable.”

    A chart accompanies the Galbraith page that reports on an every six month survey done by the Wall Street Journal of the predictions of economists for following six months. The chart covers the 30 year period from December of 1982 through December of 2012. Out of those 61 survey periods, the economists got the direction of the market correct 22 times, or 36% of the time. They got it wrong 39 times. If economists cannot predict even the direction of the market, let alone the market’s relative strength or weakness in the following six months, there is reason to disregard what they say when it comes to making investment decisions.

    Readers of this Newsletter, for the most part, do not make major investment decisions themselves, but work with O&A planners in making those judgments. But some of you pay close attention to the market and can get caught up in the uncertainties. We hope that remembering these five quotations will give you perspective.



    Both David & Susan enjoyed the recent NAPFA Fee-Only Conference in Charlotte, NC, from October 21 -24. The outstanding array of speakers addressed such topics as the current state of the economy, spending guidelines for retirees, and “How to Change Things When Change is Hard.” All three of the O&A planners attended several partial day conferences in recent months on estate planning and investments, including conferences presented by mutual fund managers. In addition, Deborah volunteered at Westchester County’s Senior Law Day, answering participants’ financial planning questions.

    We at O&A are presently evaluating possible alternatives to the Newsletter as a useful way to communicate with clients, primarily because the Newsletter gets published less frequently than might be ideal. We are considering publishing a periodic electronic communication somewhat more often, perhaps with only one article. We would welcome your ideas on this subject.

    The O&A Holiday Party will occur on Dec. 12 and we are all looking forward to an evening with staff and spouses which includes our traditional Yankee Swap. Deborah, Susan, Kathy, Joan and David all join in wishing you the happiest of Holidays.

  • December 2013


    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 www.behaviorgap.com/separating-buying-decisions-values/

    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.


    O&A vs. MADOFF

    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

  • November 2011


    One of our clients asked recently if he had been taken off the mailing list for the Newsletter, which brought to mind how long it had been since we last wrote. One reason for the delay is that it has been difficult to comment on this very unpredictable stock market since major forces influencing the markets change so rapidly: unemployment trends, the economy, the possibility of a double dip recession, and most recently first Europe's and then Greece's response to the Greek debt crisis. So volatility in the markets is the topic of the first article. That lead article is followed by articles on considerations for the best age to begin collecting Social Security benefits, a discussion about end of life choices, and a couple of miscellaneous matters. We conclude, as always, with what is happening with employees in the office. -David W. Otto



    What a week/month/quarter/year this has been. This piece is written in early November, but we think it likely that at least two of those four nouns in the first sentence will be fairly apt most anytime during this period. During August the market moved more than 4% in each of four of the five days in a single week. Two days were up by more than 4%; two days were down by more than 4%. Similarly, a blended portfolio was down about 6% in September and up a similar amount in October.

    That market volatility is a likely norm for the foreseeable future is a difficult reality to accept. At the moment, however, the impact of uncertain markets is made worse by the fact that many - if not most - portfolios are, at best, about even with where they began in 2011. The occasional improvements we have seen in the markets have failed to signify that recovery is just around the corner.

    During times of uncertainty, investors are often tempted to pull back in order to protect themselves. Such reactions have problems of their own. Abandoning the market totally can put retirement goals at risk. Often, buying CDs leads not only to small returns, but also to losses due to the subtle erosion created by inflation. Switching to government bonds may have helped in the past, but these too can decline in value, and their yields are likely to underperform the stock market in the long run.

    At times like this, it seems important to again focus on the strategies that Otto & Associates rely on. We have three general principles which we list here and expand on below:

    •  We pay as little attention as possible to headline news and as much attention as we can to constructing big picture understandings of market analysis, consumers, and the economy, so as to look for positive options and avoid pitfalls.
    •  We watch for opportunities in sectors of the markets where there is reason to believe investments are mispriced. This will cause us to overweight certain sectors (today one area that is priced too low, in our opinion, is commercial real estate) and underweight other sectors (it is our opinion that today traditional U.S. government bonds are vulnerable to long term price deterioration).
    •  Most importantly, we keep client goals in mind. Often those goals include a comfortable retirement and may also involve college funding, leaving a legacy, and perhaps some interim goals such as paying for a wedding, funding a trip, or helping a relative who has financial needs.

    First, at Otto and Associates we try to discount the headline news. You can depend on the media to have dramatic stories. You can also depend on the drama having a negative tilt more of the time because it is that news which draws an audience. But as we read the market tea leaves, the reality today may not be as negative as the headlines would lead you to believe. Related to that fact, we keep in mind that because the market is an auction, in the short term it is very responsive to the latest news.

    Second, we firmly believe there are often places where money can be made, even in a declining market. The difficulty comes in identifying those opportunities. Our goal is to find situations where, because of current circumstances, it is likely that stocks, or bonds, or a certain sector or a group of countries will outperform other investments. Some investment managers have said that they make half their money on the day they buy an investment - because they focus a lot of attention on buying what they understand to be undervalued and will most likely increase in value in the future.

    Because we at O&A do not consider ourselves experts in picking individual stocks or bonds, we use mutual funds, some of which focus exclusively on trying to identify sectors and specific companies that are undervalued. Longleaf Partners, a stock mutual fund we have owned for a long time, is one such fund. While the fund goes through periods of underperforming the market, in the long run the managers buy stocks that have worked out for their investors. They have been right enough of the time that in the last ten years, they have outperformed the broad market. While the market has achieved only 2.6% growth per year during this period, Longleaf Partners has done considerably better at 4.6%. In round figures, $10,000 invested in the broad stock market would have made $2,930 during that period. Longleaf Partners made almost twice that at $5,650.

    In addition, over the years O&A has developed some special knowledge in three particular areas: oil and gas, closed-end funds, and real estate. We have bought very little oil and gas properties since 2004 because we believe both the price and the risk are too high. The majority of the oil and gas investments we bought was in the late '90s, when oil was selling at $10 - $17 per barrel. It now sells in the range of $80 - $95, and all of our clients who invested in this sector have been well rewarded.

    Closed-end funds also continue to be an interest that we follow, though we buy them only when the discount is historically wide (call the office for a copy of the Sept., 2004 Newsletter for a full discussion of closed-end funds), which has occurred in only a limited way in the last couple of years. We expect closed end funds will become attractive again.

    In addition, we have expertise in private placement real estate, an area where we can purchase investments only for qualified investors who have larger accounts. In the last two years we have invested significant client money in this area.

    Finally, while there will be variations on several main themes in business news, and opportunities in the investment world will come and go, client goals remain fairly consistent as they evolve over the years. Younger people tend to focus on accumulating assets in order to buy a house, or save money to support themselves and perhaps a family. As people accomplish these goals and age, they normally focus more on having sufficient assets for retirement.

    It is these goals that we always keep in mind - and urge clients to keep in mind. Investing is not aimed at accumulating as much money as possible. Rather, investing is part of a larger financial plan directed toward meeting a person's or a family's financial goals.

    Many years ago, when the market seemed only to go up, two of our clients whose children were out of the house, said that their goal was to accumulate $1,000,000 by the time they retired. We made a note of that because it was a very concrete target and one which seemed reasonable to us. Some years later after the market had experienced significant growth, they expressed their happiness with what they had accumulated and added: we are well on our way to our goal of accumulating $2,000,000. We reminded them that they had just moved the goalposts by doubling their target, something they were completely unaware of. Currently, we keep clear records of client aspirations, review them regularly and revise them advisedly. "Enough" should not be a moving target.

    Older adults can be especially at risk for feeling the need to always have a bit more money or for worrying about running out of money. One way this shows itself is when retirees say, "We do not want to spend our principal," not realizing that they have mentally redefined "principal" to include both initial contributions and accumulated growth. It may be a reasonable goal not to spend "principal" when people are in their 60s - maybe also for those in their early 70s. But at some point spending money that has been accumulated over the years may be required.

    Writing down aspirations and keeping them figuratively in view often helps to keep financial matters in perspective. This is one technique that helps mitigate the effect of the daily headlines which can distract us from the larger goals we want to accomplish in life.



    Everyone hypothesizes about when to start taking Social Security retirement benefits. Should I begin taking payments at age 62, assuming I am retired? Should I wait until "full retirement" at age 66? Or should I hang on until age 70?

    The choice you make has clear ramifications, some of which you may not have thought of. Let's begin with an illustration from a client's Social Security statement:

    Mr. Jones is not yet 62, but his Social Security (Benefits) Statement projects that, assuming he continues to work until at least age 62, he will receive: $1,554/month if he begins taking benefits at age 62 $2,144/month if he begins at age 66 $2,752/month if he begins at age 70 He would receive no additional benefits if he delayed beyond age 70.

    The above statement demonstrates what is true for everyone who can claim Social Security retirement benefits: you receive 33.3% more at age 66 than you would receive at age 62. And if you delay taking benefits until age 70, you receive an additional 32%. The actual benefit goes up monthly by a proportional amount, increasing .67% per month. This means that someone who decided to begin taking payments when she is sixty-eight and a half would receive 20% more money than she would get had she begun at age 66. However, for this article we will limit the discussion to the three ages of 62, 66, and 70.

    What are the issues that go into making the decision as to when to begin taking benefits? Some people think the first question to ask is how long you have to live to make a delay in taking of benefits worthwhile. We think there are other matters to consider ahead of that question.

    Marital status is a very important factor because of some complementary choices a husband and wife have. For a couple where the husband and wife are the same age, but he has more Social Security credits and has had a consistently higher income, there are some natural choices, although each situation needs to be evaluated on its own merits. In this scenario, if the wife outlives her husband (which is likely), she will qualify for the higher survivor benefit, assuming her husband predeceases her. Consequently, if the husband delays receiving his payment, under average circumstances he will receive a much higher benefit for a number of years, and then she will receive that higher benefit after he dies.

    In this illustration, we would normally advise the wife, assuming she is retired, to begin taking her own benefits at age 62, while her husband delays until age 70. If she does not retire at age 62, she should normally begin taking benefits when she does retire, or at age 66, whichever comes first. People can begin taking Social Security payments without penalty at age 66 even when they continue to earn a salary. Taking benefits before age 66 means there will be a penalty if the person earns more than $14,160 in salary income. (It is actually more complicated in that a person can earn more than twice that amount the year prior to turning 66, with less of a penalty.)

    Another less tangible consideration in the decision of when to begin taking benefits is that many people tend to spend more when they have added income. It can be tempting to take Social Security as soon as possible because things are tight financially. By deferring Social Security benefits, people might learn to live just as happily on a bit less, allowing for more of a cushion against inflation or unexpected expenses in older age.

    Delaying Social Security benefits can also act as a kind of insurance policy in case a person or a survivor lives far beyond normal life expectancy, when he might run short of money. At 96 years of age, Mr. Jones (see the benefits listed at the beginning of this article), might well appreciate receiving $2,752, (the scheduled amount he would receive beginning at age 70) plus many years of a COLA rather than $2,144 he would receive if he began drawing at age 62, plus the COLA.

    Even so, there are some good reasons to start Social Security benefits sooner. If someone needs money and can't work, there may be little choice but to take benefits. If a person is in bad health and expected to live only a limited time, there is good reason to sign up for benefits earlier. And sometimes clients' emotions dictate that they start early, even knowing that there will be a price to pay down the road for satisfying the emotional desire at an earlier age.

    There may be no "right" answer for when to begin taking Social Security payments, but some personal situations are clearer than others. While we are available to consult with any of our readers on this matter, the Social Security website is also quite helpful. The address is www.ssa.gov .



    People are talking more these days about end-of-life choices. We at O&A very much encourage these discussions. While it is important to pay attention to how to minimize taxes in passing money onto heirs, and to where assets should go, there are additional considerations that people need to discuss and make decisions about. In fact, when end-of-life choices are addressed, some of the answers to the financial questions may fall into place more easily.

    In October Susan and I (David) presented a seminar at the Montshire Museum of Science in Norwich, VT, on these very issues. While the basic theme was estate planning, we did not begin with the traditional discussion of vehicles available to efficiently pass money on at death. In fact, beyond a few questions and passing references, those matters never came up.

    Rather, we focused on the idea of "legacy," what a person's life has stood for, what values the person has tried to convey and live, and how those values can be passed on. How do you want to be remembered? What contributions have you made throughout your life? And how might money be used to further accomplish those values?

    One area that we did not have sufficient time for was that of health care issues at the end of life. In 2009 Jane Brody wrote Jane Brody's Guide to the Great Beyond: A Practical Primer to Help You and Your Loved Ones Prepare Medically, Legally, and Emotionally for the End of Life. What she didn't know was that within months of publishing the book, she would come face-to-face with the subject of the book when her husband was diagnosed with lung cancer.

    We have included below an edited version of an article, written by Ms. Brody and printed in the New York Times, on Jan. 17, 2011, ten months after her husband's death. While the article has a bit of a political bent, we include it here because it raises important questions and offers an example of one family's experience. We hope it will stimulate your thinking.

    "The specter of 'death panels' was raised yet again..., prompting the Obama administration to give in to political pressure a second time [and curtail] its effort to encourage end-of-life planning.

    "Of course, the goal of this effort was not to make it easier to 'pull the plug on grandma' in order to save the government's money, as some opponents would have it. The regulation in question…, simply listed 'advance care planning' as one of the services that could be offered in the 'annual wellness visit' for Medicare beneficiaries.

    "The widespread misconceptions about the regulation were exemplified in a letter to the editor published in the New York Times. 'Death panels,' the writer said, would have denied her 93-year-old mother colon cancer surgery that has given her the chance to live several more years.

    "But that is not at all what the regulation would have done. Instead, 'by providing Medicare coverage for end-of-life planning with a physician, it would have encouraged doctors to talk to their patients about their wishes and make it far easier and more likely for these important conversations to take place,' said Barbara Coombs Lee, president of Compassion & Choices, an organization that helps people negotiate end-of-life problems….

    "Encouraging such conversations might indeed save money in the long run. Doctors and hospitals are paid only for treating living patients, so there is always a possibility that financial incentives, conscious or unconscious, would prompt many expensive, if futile life-extending measures - efforts that many patients would veto if they could….

    "At least as important, the quality of life in their final days was much worse than among those who did have such discussions. Countless studies have shown that extensive medical interventions can make the last weeks of life an excruciating experience for patients and those who care about them.

    "Although talk about end-of-life options has often emphasized avoiding unwanted, intrusive and futile care, that does not mean everyone would or should make that choice. Many patients, especially younger ones, might be inclined to ask that every conceivable measure be taken….

    "For [some] patients, hospice care is the right decision. Studies have found that terminally ill patients are likely to live longer, with a better quality of life, when they choose hospice over aggressive treatment to the bitter end.

    "The point is that end-of-life care is an individual decision that should be thoroughly discussed with one's family and physicians. Studies have shown that when doctors don't know a patient's wishes, they are inclined to use every possible procedure and medication to try to postpone the inevitable.

    "In an interview on the syndicated news program "Democracy Now!" on Jan. 5, the writer and surgeon Dr. Aatul Gawande said that patients with terminal cancer who discuss end-of-life choices with their doctors "are less likely to die in the intensive care unit, more likely to have a better quality of life [with] less suffering at the end…, and six months later their family members are markedly less likely to be depressed."

    "….A year ago, my husband was given a diagnosis of Stage 4 cancer. As his designated health care proxy, I had agreed long before he became ill to abide by the instructions in his living will. If he was terminally ill and could not speak for himself, he wanted no extraordinary measures taken to try to keep him alive longer than nature intended.

    "Knowing this helped me and my family avoid agonizing decisions and discord. We were able to say meaningful goodbyes and spare him unnecessary physical and emotional distress in his final weeks of life.

    "Preparing these advance directives should not wait until someone develops a potentially fatal disease. Patients in the throes of terminal illness may resist discussions suggesting that death may be imminent, and close family members may be reluctant to imply as much.

    "Compassion & Choices has an excellent free guide and "tool kit" to help people prepare advanced directives. They can be downloaded from the organization's Web site, www.compassionandchoices.org (select the "care" tab, then "planning for the future") or call (800) 247-7421 for a free hard copy of the documents."

    Compassion and Choices is a very useful organization in helping to think through such matters. O&A also has available for clients "Five Wishes", a multi-page pamphlet that provides a variety of issues for people to think about. However, Compassion and Choices has something similar, along with a lot of additional resources. As always, we at O&A are available to be part of the discussion.



    Otto & Associates, Inc. is required to make our ADV (a form that we complete annually for the Securities and Exchange Commission) and brochure available. Many of you have seen the three-panel brochure which explains our work, backgrounds, etc. For the most recent version of the brochure or for an updated version of the ADV, please call the office. The information in the brochure is also available on our website www.ottoandassociates.com. ADVs can also be found through the SEC's website www.sec.gov.



    The end of the year is within sight, so please think about whether some financial planning year-end deadlines apply to you. Contact us soon if you'd like our help with:

    •  Contributions to or rebalancing of College Savings 529 accounts for children or grandchildren
    •  Contributions of appreciated stock or mutual funds to charities
    •  Conversions of IRAs to Roth IRAs

    We keep track of IRA Required Minimum Distributions and will make certain that those who must take a distribution will do so. Also, we will consider tax loss selling, when appropriate. There is no need to call about these matters unless you have questions or concerns.



    One of the biggest recent events in the office occurred in January when Susan Otto Goodell learned that she had passed her comprehensive CFP (Certified Financial Planner) exam. It was a grueling process, including six courses plus six exams over a couple of years, ending with the comprehensive exam. Congratulations, Susan!

    However, a very close second to that event happened on Nov. 6 when Kathy Patton completed her first NYC Marathon. We're proud of you, Kathy!

    David's 100 mile bike ride in July to raise money for cancer research pales in comparison. (Riding at the same time as David were his wife, Mary, all of Susan's family, and some other family and friends. Jeff (Susan's husband) and Carter (her 14 year old son) also rode 100 miles, and the rest of the team, including Mary, Susan, and 11-year old Eliza rode 50 miles.

    Judy, who had some trouble recovering from a knee replacement, is again able to do most things. We're very happy to have her back.

    And Deborah has launched her third and final child. She visited her son Harry during Parents' Weekend at Grinnell College in Iowa (also Mary's alma mater) in October. (While there she traveled to Rock Island, IL, to see Harry run a cross country race where he performed very well - which is impressive given that he is a freshman.)

    Deborah, Susan, and David attended a three day NAPFA conference in Brooklyn in October. There were a number of outstanding speakers and seminars available to the attendees, as well as two opportunities to walk across the Brooklyn Bridge early in the morning. And during recent months Deborah has been keeping up to date by attending a number of conferences sponsored by mutual funds where many clients have money invested: Artio Julius Baer, Third Avenue, and Baron (two separate conferences for each of the last two.) Judy also attended a Baron conference.

  • September 2010


    The lead article of the fall Otto & Associates Newsletter centers on our view of the future prospects for both the stock and bond markets. This may be a different perspective from ones you are likely to read in your newspaper. The second article makes an important distinction between the economy and the markets, a difference not often highlighted which we think is important for investors to keep in mind. The final two articles include a reminder that now may be a good time to refinance your home, and some of the important considerations to keep in mind before purchasing long term care insurance. We conclude with several office matters.



    Does it seem like the markets are changing direction every other day? Are you often confused about whether the trend is up or down? Did you notice that pundits who said discouraging things about the market in early 2009 changed their tune later last year, only to return to being cautions again three or four months ago? And today (Sept. 18) there is another decrease in pessimism, if not actual optimism, in the air. What is going on?

    A useful way to see this extended period is to view it as an inflection point. While an inflection point sometimes refers to a very specific event (the fall of the Berlin wall has been described as an inflection point in global politics), it can as well refer to a longer period. The Great Depression may be seen as an "inflection point," even though it was a nearly ten-year period. An "inflection point" can be viewed as a positive, negative, or a mixed juncture, but one that invites us to pause as we go forward. We will argue that the current situation in the markets is largely positive for investors if they recognize that ongoing investment adjustments may be required.

    During the past 10 years, investments in the stock market have performed in a quite unusual way. Two significant downturns occurred - from March of 2000 through March of 2003, and from November of 2007 through February of 2009 - in which the stock market lost more than 45% each time. Even with a gain in 2009 of 27% - something that no one projected - the return for the decade was 0%. And in 2010, we have had additional excessive choppiness, which included a 13% loss in eleven weeks ending in early July. Such an extended period of positive and negative returns may indeed signal a turning point. We will explain why we believe this will be positive for stocks, after examining bond market history, specifically long-term U.S. government bonds.

    If we take a broad look at long-term government bonds from end of World War II until the present, we will see two distinct trends. From 1945 to 1981, interest rates for bonds went steadily upward, and the price of bonds went steadily downward. During this period bonds had mostly positive returns. However, after accounting for inflation, the returns were largely negative. For the entire 36 year period, bonds returned an annual rate of 2.2%, while inflation was 4.6%, resulting in an annual inflation-adjusted return of -2.4%. The direction of both interest rates and the value of bonds changed in the early 1980s, starting the second distinct trend. And while there is always unevenness year to year, for the last 28 years (1981 -2009), bonds have largely had positive returns in excess of inflation, often by significant amounts. For this 28 year period, long-term government bonds have returned 10.2% while inflation has been 3.2%. That means bonds have returned a real, inflation-adjusted return of 7.0% per year!

    Even though bonds have been relatively stable and rewarding in recent years, the high returns are unlikely to continue. The reason bonds made money for 28 years is straightforward: when interest rates fall, bonds make excessive returns. The interest rate on long-term government bonds in 1981 was 11.6%. The interest rate in 2009 was 3.5%. The result was that during that extended period, the price of bonds and bond funds continually went up.

    But interest rates on bonds will not go down indefinitely, and when they begin to rise from these very low rates, bond holders will not do well. An illustration may help. Were bond rates to go from 3% to 4%, a buyer of bonds would have a choice: to buy a new bond at 4% or an older bond at 3%. The only way the buyer would consider the 3% bond would be to buy it at a reduced rate, thereby in effect getting a higher interest rate. Specifically, if he could buy a $1,000 bond paying 3% for $750, it would yield 4%. The combination of low interest payments on the bonds that are held, along with a declining value in the bonds because of rising rates, can easily result in losses.

    If this idea that the realities of today's markets have led to an "inflection point," with the stock market set to increase in value over time, and long-term government bonds likely to decrease in value, we need to look carefully at the implications for investors. With this scenario, the holders of long-term U.S. government bonds will likely lose money, at least on an inflation-adjusted return, for reasons spelled out above. Likewise, the "inflection point" we envision has implications for stock investors. While the various media have carried a lot of bad news recently, many companies are making a good deal of money. In addition, if investors sour on the bond market, some of them are going to begin to put some money back into the stock market. When that happens, it could drive up the market quickly. We have written in the past about the way stocks can tumble on nothing more than negative investor sentiment. The reverse can also happen. The last ten month period of 2009 is an example.

    We anticipate that today's trend might be most difficult for retirees who have most of their investments in bonds. They had gotten used to bonds that paid a quite favorable interest rate and at the same time increased in value. Retirees invested primarily in bonds, and who have already experienced difficulty in this low interest rate environment, are likely in for additional difficulty when they also see their bonds and bond funds losing value.

    While we are just beginning discussions with our clients, very few of whom have a high bond allocation, we anticipate that we will start reducing some of their bond investments. We will also consider increasing exposure to foreign and/or emerging market bonds, since those markets have quite different histories and characteristics from the bonds discussed in this article.

    Additionally, we will look for investment opportunities that are unique to the current situation. To that end, we at O&A have kept our eyes open for non-traditional investments that don't move with stocks and bonds, including private placements, investments not traded on the stock exchange because they are too small for that marketplace. We believe there are particularly good values in some real estate assets where cash is needed to refinance debt, to upgrade foreclosed properties that banks have let slide, or to finish building properties that have gone through bankruptcy and can be purchased for a small fraction of the original price. In this environment, the traditional sources for lending (often banks, but also insurance companies and others) may be completely out of the lending business. This is part of the ongoing credit crisis. We have a relationship with two particular real estate investment companies which have found potentially good values in the past and we expect to do more investing with them in the future. These investments are generally offered to clients who meet a certain minimum net worth. More information is available by contacting O&A.

    Investing at inflection points is never easy. It always involves exploring a variety of options, being open to new opportunities, and being able to sit tight through volatility. But we are optimistic that stocks and stock mutual funds, as well as private placements of both equity and debt, are likely to appreciate in value in the next few years.

    Thoughtful investing requires much more than reading the headlines. In fact, it often means re-contextualizing investment strategies.



    Many people today do not distinguish clearly between the concepts of the economy and of the stock market. The two are very different and they can "perform" very differently. The economy can be in difficulty, as it is now to some extent, and the market can, at the same time, be robust.

    An understanding of the economy emerges from observations about important statistics, such as the Gross Domestic Product (GDP), inflation, per capita income, the unemployment rate, and a host of less well known statistics, such as what a country produces per capita. Definitions of the economy include phrases like "the careful and thrifty management of resources, such as money, materials, and labor." All of the statistics for the U.S. economy are designed to reveal how efficiently various resources are used.

    The stock market is quite different. Technically, the stock market is the exchange where shares of stock of publicly traded companies are bought and sold. More colloquially, we make reference to the stock market as the aggregate price of a representative group of stocks (e.g. Dow Jones Industrial Average, the S&P 500 Index, or the Wilshire 5000 Total Stock Market Index). With the stock market, attention is paid to whether the numbers associated with one of the indices or averages goes up or down. The economy will have an indirect effect on the increase or decrease in the market indices or averages, but investors need to be clear not only how the economy can affect the market, but also why and how the market can move independently from the economy.

    With regard to the economy today, there is an ongoing focus on the discouraging unemployment numbers. What does not get as much attention is some of the numbers that are more encouraging. Without getting into a long explanation, the U.S. GDP is actually doing reasonably well, even while unemployment seems locked in at something close to 10%, with predictions that it will not decrease appreciably for some time. Americans are also concerned about global trade, per capita income, and the balance of income between the rich and everyone else. Still the primary economic concern that is oozing over to affect the market seems to be the depressing information on the unemployment rate.

    Now, having acknowledged the effect that perceptions of economic realities can have on market performances, it is important to notice as well that markets can act more or less independently of economic trends.

    Benjamin Graham once said that "In the short run, the market is a voting machine but in the long run it is a weighing machine." We might translate that to say that while the stock market in the short-term may be unduly influenced by the mood of investors, in the long run it goes up or down to the extent that companies make money. The short term can sometimes be many months, but ultimately whether companies make money determines the direction of the stock market.

    Unfortunately, there is little ability to forecast with certainty when profits will become the factor that moves the market. Thus it is important for investors to stay in the market. because investor sentiment, as witnessed particularly this calendar year, can change quickly.

    Companies themselves can also play a role in turning the market around. Do you remember when the term "lean and mean" was first introduced to describe companies in the U.S.? While the phrase may have come into vogue more than twenty years ago, it sought to highlight a shift that corporations made from being paternalistic by taking care of their employees and not laying off more people than absolutely necessary during downturns in the economy. The "new" lean and mean paradigm includes closely monitoring customer needs and desires and when there is less demand, making changes quickly. Overtime pay is cut back, the number of shifts is reduced, people are laid off, and inventory is not allowed to build. Our companies today, as a whole, are very much in the "lean and mean" mindset. The result today is high unemployment, limited wage increases, and very low inventories, to mention three of the most obvious realities. That way of doing business can mean that companies will respond quickly to challenging times and show increasing profits. While profits are increasing, this year's stock market prices have yet to reflect the fact.

    The Depression provides a useful illustration of companies making money when the economy is in difficulty. While investment returns during the first few years (1929 - 1932) were abysmal, long term returns beginning in 1933 and through the balance of the Depression were generally positive. If you invested money at the beginning of 1933, you would have made annual returns in excess of 11% in the next 8 years.

    Investors need to recognize that markets can make money even when the economy is not doing well. The confusion between the market and the economy that is promulgated in the media and in discussions around the water cooler at work is unhelpful. We are staying invested in the stock market so that when prices increase, we will be ready.



    The amount that banks charge for interest on home mortgages is at historic lows. Recent rates for a 15 year mortgage have been at 4.125% with no points. Thirty year rates are about .5% higher at 4.625%. A 15 year, fixed-rate mortgage has monthly payments of $746 per $100,000 borrowed. We recently helped a client get such a mortgage. The total borrowed was $417,000, and the new monthly payment is $3,111. While calculating the total savings over the life of the loan is difficult, the client will save $1,050 per month on a cash flow basis.

    For those who have adjustable rate mortgages of home equity loans that will not be paid off in the next 1 - 3 years, this is a particularly good time to refinance. Although the interest rate on such mortgages may be low now, there is considerable risk that it will go higher - perhaps much higher - in the future. Today it is possible to lock in historically low costs for the duration of the loan.

    While there are always considerations beyond the interest rate, if you or someone you know has a rate of 5% or higher, you should think about refinancing. We are happy to discuss the options available and their pros and cons.



    Nearly all of us are intimidated at the potential expense involved in getting old. People observe that it could cost $100,000 or more a year for a nursing home. Such an observation may be followed by a thought that buying long term care insurance is essential. With those kinds of costs, what is there to lose?

    We at O&A recognize that there are genuine concerns about the whole issue of paying for care if one is unable to care for one's self or one's spouse. We also know that people often think of long term care (LTC) insurance as a ready solution to this worry. However, in order to evaluate the need, we begin at a different point. On average, we all lose money on insurance policies. Insurance companies cannot pay out more than they take in and still stay in business. They not only have claims to pay, they have broker fees and other expenses required to run the company. We begin with the assumption that it is likely that we will lose money on nearly all insurance purchases.

    As an example, many of us have paid a lot of money to insure our home over the years. Even so, nearly everyone seems to agree that paying one or two percent of the value of the home and its contents to guard against the risk of a total loss is well worth the money. Term life insurance, for families where the death of the breadwinner(s) would be catastrophic financially, is also generally considered a wise way to spend some of the family money.

    However, the circumstances may be very different for a family thinking of buying a LTC policy. Such a policy is not bought to protect an asset, nor is it bought for income replacement for the family, as with life insurance. It also should not be purchased as a way to turn small premiums into large cash payments at a later date. While that can happen for some people, it does not happen for the average person.

    There is also the issue with LTC insurance of looking very far into the future, which is always a problem. You buy a homeowners' policy for one year at a time and have the ability to change the terms of the policy as needs change. In buying a LTC policy, it is assumed by both the insurance company and the purchaser that it is very unlikely that you will collect any money in the first year - or even the first five or ten years. There is a many year commitment implied in purchasing a LTC policy, with little or no ability to change the terms, and both add to the dynamic in evaluating whether or not it is right.

    The basic questions in considering LTC have to do with running out of money.

    •  1. Is the person married and would long term care expenses risk the financial well- being of the healthy spouse?
    •  2. Does the person consider it very important that certain assets are protected to leave as a legacy to heirs or charity?
    •  3. If either of the above questions is answered yes, then the next question is: Is the person willing to pay the price in modestly diminished resources to avoid the risks inherent in the previous two questions?

    There is also a related question of money that may be available to support LTC with reduced insurance coverage, or no policy. Resources are likely to be freed up to support a person in a care facility because a number of expenses disappear when a person moves out of his house. The new care facility resident would normally spend very little money beyond the monthly fee at the facility. Such a person does not normally go out to dinner, buy expensive clothes, spend money on automobiles, or take expensive trips. While medical expenses will go up, much of that could be covered with health insurance. In calculating whether a person may run out of money, or not have enough money for the healthy spouse to live comfortably, diminished spending needs should be included in the mix.

    There need to be clear answers to all of these questions and they may well involve other people: a spouse, children, a charity which might suggest other ways to leave a legacy, a financial planner to make calculations, etc.

    In addition to considering LTC insurance as a way to pay the expenses involved in aging, you should also think about these options:

    •  1. To self-insure. While LTC is expensive, a number of normal expenses will likely go away, particularly for a single person who would no longer need a house if she enters a care facility. Couples can also self-insure, but the cost of maintaining a home will not be significantly reduced if one person enters such a facility.
    •  2. To consider a Continuing Care Retirement Community (CCRC). There are more and more of these facilities around and if you can afford to go into one and think that would fit your lifestyle, you do not need a LTC policy.
    •  3. To use Medicaid as a back-up. For a variety of reasons, this is not a likely option for most of our clients. There are a number of requirements to qualify and they vary from state to state. But if you have money available (whether you self-insure or have a LTC policy), can pay for up to five years of care, and then run out of money, Medicaid will generally step in. While the majority of people who enter a care facility do not live more than three years, Medicaid may be an option for those who live a longer time in such a facility.

    If this article has focused more on the reasons why not to buy a LTC policy, that is so because most of what we read seems to be focused on why to buy such a policy. There are definitely those for whom buying a policy is the right decision.

    If you ultimately decide that you want a LTC policy, it is useful to shop around. Get more than one proposal and consider carefully the many options. Consulting with O&A, financial planners who have no vested interest, is often useful.

    While we have sketched out the considerations above, a client's unique circumstances will provide the most relevant factors in charting a course toward proving adequate financial resources for the future.



    CONVERT NOW? For the first time, there are no income restrictions on those wishing to convert an IRA to a Roth IRA. We are in the process of reviewing each client's situation to assess whether it is advisable for an individual or a couple to convert some or all of an IRA. We will be in touch with you if we think it is at least a topic worth discussing with you, and we would welcome your questions.

    CLASS ACTION SUITS: Many of our clients have received notice of class action suits brought against Janus, Columbia, and a number of other companies. We have been investigating whether there is any likelihood of actually collecting on the claim and will contact you if completing the paperwork would be advantageous. For most of our clients, there will be no award from this recent group of mailings, because money awards below a certain threshold (often $50) are not processed.

    TAX RETURNS: If we don't have a copy of your 2009 tax return, please send it to Kathy Patton in our New York office. If your accountant can email us a pdf file, this is preferable.

    PERSONNEL: Deborah Maher and Judy LaPorta plan to attend the Baron Funds investment conference in October, as they have for years. Most of our clients own a Baron mutual fund and, if you do and would like to spend an informative and fun (with big name entertainment) day in NYC, go to their website www.baronfunds.com for information or to register. Also in October, Deborah plans to volunteer again for the Financial Helpline. David will attend the Regional NAPFA conference in Boston the first week of November.

    Susan Otto Goodell is in the final stage of the process to qualify for her Certified Financial Planner designation. She will take a preparatory class in Denver from Oct. 18 - 22 and then sit for the exam three weeks later. We are keeping our fingers crossed.

  • Otto & Associates, Inc.

    P.O. Box 1203
    289 Main Street
    Norwich, VT 05055


    Printable Directions


    Directions to Otto & Associates, Inc.

    Take I-91 to Exit 13, the Hanover/Norwich exit.

    At the end of the exit, turn toward Norwich and away from Hanover. (From the north that is a right turn; from the south it is a left turn.)

    Proceed into town until just past Dan and Whit’s. The next left-hand turn is Beaver Meadow Road. Our building is the third on the right, the only brick building. Parking is available on the street or in the adjacent lot. Enter the door that faces the street and our office is in the back left-side corner (door number 2).

  • Form CRS and ADV

    Form CRS
    SEC Client Relationship Summary Form for Otto & Associates, Inc.

    Form ADV
    Click link, choose FIRM, enter Otto & Associates to see available forms.


    A recently enacted federal statute, known as the Gramm-Leach-Bliley Act requires us as a “financial institution” to take affirmative steps to explain to you what our specific policy is with regard to the usage of information about you which you may have provided to us or with regard to other information about you that we may have collected about you.

    We at Otto & Associates, Inc. collect nonpublic personal information about you from the following sources:

    • Information we receive from you on applications or other forms
    • Information about your transactions with us, our affiliates, or others; and
    • Information we receive from outside sources such as a consumer reporting agency.

    We at Otto & Associates, Inc. may disclose the following kinds of nonpublic personal information about you:

    • Information we receive from you on applications or other forms such as your name, your address, your social security number, your asset level and/or your income level.
    • Information about your transactions with us, our affiliates, or others such as your account balances, payment history, parties to transactions and credit card usage.
    • Information we receive from a consumer reporting agency.

    Third Party Vendors

    We may disclose nonpublic personal information about you to the following types of third parties:

    • Financial services providers, such as other investment advisers, outside custodians, broker/dealers, life insurance agents, banks, etc.
    • Non-financial companies such as direct marketers, publishers, etc.
    • Others such as non-profit organizations.

    We may disclose the following information to companies that perform marketing services on our behalf or to other financial institutions with which we have joint marketing arrangements:

    • Information such as your name, address, social security number, asset level or income levels and other data which we receive from you on applications and other paperwork
    • Information which we know about concerning your transactions with us, our affiliates or others such as your account balance, credit history or payment history.
    • Information we receive from a consumer reporting agency

    If you prefer that we not disclose nonpublic personal information about you to nonaffiliated third parties, you may opt out of those disclosures, that is, you may direct us not to make those disclosures other than those disclosures permitted by law. If you wish to opt out of disclosures to nonaffiliated third parties, you may call our firm at 914-232-5379 or you may fax us at 914-232-5378 or you may contact us by email at info@ottoandassociates.com

    We at Otto & Associates, Inc. restrict access to nonpublic personal information about you to those employees who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.

  • Otto & Associates, Inc.

    Comprehensive Financial Planning: Otto & Associates, Inc. is a fee-only financial planning firm. We provide a full range of financial planning services including investment management, retirement and estate planning, saving for college, insurance analysis, tax planning, budget and cash management, and charitable giving.

    Fee-Only: “Fee-Only" means that we do not represent any companies, receive commissions for selling particular products, or accept compensation from anyone other than our clients.

    Fiduciary Responsibility: Otto & Associates, Inc. adheres to the fiduciary standard. This means:
    • Acting in the best interest of our clients at all times;
    • Avoiding conflicts of interest and disclosing any potential conflicts of interest that cannot be avoided;
    • Providing oversight to assure that all aspects of a client’s financial life are in order;
    • Acting in good faith and with candor in every encounter; and
    • Not accepting referral fees or compensation contingent upon the purchase or sale of financial products.