You have a choice. When looking back on your life, you can attack yourself for the mistakes you made, or you can celebrate your progress.

Please don’t misunderstand me. It is certainly advisable to reflect on what you have done and learn from your mistakes. That is how we learn and get better.

Yet all too often, we engage in personal self-attacks. We see ourselves as stupid, undisciplined, and as a failure. When we beat up on ourselves, we feel discouraged, have a hard time seeing new possibilities, and find it challenging to move ahead.

Change your internal dialogue. Substitute self-compassion for self-attack. Talk to yourself as a loving, nurturing parent would talk to a child who had just suffered a setback. Remind yourself that everyone makes mistakes, and yes, you too are human.

Celebrate your progress. Reflect on what you have accomplished and what you have learned. Give yourself credit for all the hard work you have done.

Amazingly, when you treat yourself with compassion and celebrate your progress, you will open yourself to exciting new possibilities. Your discouragement will fade away. In its place, you may find you feel confident, energized and empowered to take the next step forward.

Can you celebrate your progress and open your eyes to new possibilities?

As Republicans won control of the Senate and expanded power in the House in last week’s midterm elections, the snapback rally continues, pushing many indices to all-time highs. Some pundits have gone so far as to say that the impending Republican victory was the reason stocks rallied and volatility retreated in October.  Although voters overwhelmingly chose red, there’s a rainbow of interpretations about what the election means for the markets.

We have heard some investors say the election results have made them bullish about the markets – they want to invest more.  Some pundits have taken the other side, fearing that the dysfunction between Congress and the Administration will create uncertainty and restrict corporate growth.  Still others are concerned that a divided government will make the regulatory environment uncertain and intensify gridlock, thereby making them bearish on the markets.

Who’s right?  More importantly, will the election results have a long-term impact on your portfolio?

Do you remember the 2012 Presidential elections? The political debacles of 2013, the government shutdown and the debt-ceiling crisis? The plethora of political issues we faced, ranging from Fiscal Cliff Crisis, to monetary policy and regulations, among others?  While those events were unnerving to investors and caused Congress’ job approval ratings to plummet, stocks soared despite them.  Including dividends, the S&P 500 Index returned 32.39% in 2013 – one of its best years ever!  Source: Morningstar.

While markets are unpredictable over the short term, it is hard to see the midterm elections having a major impact on the financial markets or the stock market over the long term.  Elections may indirectly influence the equity markets, but we believe they are far less important than the state of the economy, the direction of corporate earnings, valuations levels, and fundamentals that ultimately determine a company’s stock price.

If you are a true long-term investor, perhaps you should try to do what many are trying to do anyway – ignore the election altogether. Political and media drama can inflame our fears and anxiety or our greed, distracting us from our Life Priorities and leaving us vulnerable to poor decision-making. Recognize the media’s vested interest in fanning the flames. Recommit yourself to making investment decisions driven by evidence and devoid of emotion.  Remember that a properly diversified portfolio is designed to see you safely through short-term challenges so you can reach your long-term goals and meet your needs for income and growth.

Don’t change your focus and more importantly your hard-earned portfolio. Win or lose, the midterm elections are now complete, which historically has been a victory for investors in and of itself.

When we work, we all sell our time for compensation.  We agree to show up and work hard, and our employer, or our clients, agree to pay us.

If we are fortunate, we have choices about where we work. The challenge is figuring out which job to take.  Which job will pay the most?

It is easy to compare salaries, and relatively easy to compare benefit packages.

Yet, our total compensation package is more than our salary, health insurance, and the company’s retirement program. Part of our compensation package has nothing to do with money, and everything to do with the company’s culture.

Some company cultures are toxic. They encourage people to seek credit and blame others.  They push us to stretch the limits of ethical behavior.  Because we don’t trust our colleagues, we are constantly forced to watch our back.  A toxic corporate culture not only distracts us from our work, it makes us fearful and miserable.

Some companies have supportive cultures. Credit is shared among the team. Rather than looking to pin blame on its employees, some companies focus on fixing mistakes and learning from the experience. High ethical standards are built into the fiber of the company, and we are never asked to put profits before principle. We spend less time worrying and more time working, and we’re generally happier.

Supportive cultures encourage us to develop close relationships at work, give us the opportunity to do what we love, and often allow us to work as part of a team that is looking to change the world for the better.

Which job would you prefer?  More money but a toxic work environment, or less money and a supportive work environment?

Which job pays more?

You have a good life. You are among the fortunate few. Yet sometimes, maybe with a tinge of guilt, you wonder if this is all there is to life.

You want to be excited, even passionate, about something, anything. You want to wake up feeling energized about the day ahead of you, excited to be alive. Yet, you struggle with finding your passion. So, you journey on, stay busy, and hope that somehow your passion, your purpose will find you.

It probably won’t. It is rare that we get hit by the passion lightning bolt.

Your passion and purpose is inside of you, waiting for you to discover it. Your challenge is accessing your inner wisdom. You might exclaim, “This is wonderful! What can I do to discover my passion?  Can I take a weekend course? Can I watch a TED talk?”

No, you can’t.  Surprisingly, the answer is not to do more; it is to do less. Reduce the distractions of daily life, pause and let your wisdom emerge. Take a long walk, spend some time gardening or just sit outside and relax.

Be patient. It takes time to connect with your inner wisdom. Be brave. Sometimes when you pause, uncomfortable feelings arise. Exercise self-compassion. As you get in touch with what you want, you may regret some of your prior life choices. Don’t attack yourself for not making better choices.  Acknowledge that you are human and made the best choice you could at the time.

Are you willing to discover your inner wisdom?

We all face them. Difficult, gut-wrenching realities. Someone we love is diagnosed with a terrible illness. Our aging parents need financial and emotional support to live with dignity. Our spending has spun out of control, and if we continue, we could run out of money.

It is tempting – oh, so tempting – to look away from these difficult realities. Tempting, and ultimately disastrous. We lose the chance to spend time with an ill friend or family member. Our parents struggle with daily life. Our precarious financial situation grows ever more insecure.

Accepting and dealing with reality is hard, often heart-breaking. We feel scared, anxious and overwhelmed. To navigate through these turbulent waters, we need the support of a compassionate friend who will listen to us without judgment and encourage us with a caring heart. A friend who will not tell us what to do, but who will let us express all our thoughts and feelings about our difficult reality. A friend who will help us connect with our own inner wisdom about the next right step for us to take.

Many of us don’t have enough friends like these. Our lives are so busy we neglect these crucial relationships. We miss opportunities to create, cultivate and enjoy close friendships. When the personal crisis erupts (and life has a way of making sure that they do), we may find we lack the support we need.

Are there enough people in your life who will listen to you with compassion and without judgment? Are you spending enough time building and nurturing these relationships?

Has the stock market gone a little bonkers lately?  During the week of October 7th, the Dow Jones Industrial Average plummeted 272 points on Tuesday, rocketed back 274 points Wednesday and tanked more than 330 points on Thursday.

Since 1928, the S&P 500 has averaged 19 separate 2% moves in a single day. There were 35 such moves in 2011, 56 in 2009, and 72 in 2008 during the worst of the financial crisis. A record 140 moves greater than 2% took place in 1932. To put those numbers in perspective, so far in 2014, we have had just four 2% moves. Source: Wall Street Journal.  If it is any consolation, the wide market swings in 1997, 2008, and 2011 led to market surges within six months, so an increase in volatility does not necessarily mean that the market is poised on a precipice. Source: Navellier and Associates.

Still, what is causing October to be so spooky and crazy?  Even if we eliminate the possibility that the markets could be haunted, there are various reasons being touted for the volatility, such as the Fed “taking away the punch bowl” by ending its bond buying program, falling oil prices, global slowdown particularly in Europe, rising dollar, or the Ebola outbreak, just to name a few. Whatever the reason for the selloff, the market goes down if there are more people wanting to sell than those wanting to buy.

So what should you do?  Probably nothing. Professional traders would love to see you panic into dumping stocks from your portfolio. Don’t be that person. If you have constructed a well-diversified portfolio, remember that your portfolio – by design – has assets that historically do well when other assets decline. And if you have alternative funds in your portfolio, they should help sustain your portfolio during this volatility. As most of you know, when markets get emotional, hitting highs and lows on a daily basis, we at GV get back to fundamentals. Our opportunistic rebalancing process uses market dips as buying opportunities. In this environment dominated by high-frequency robots and complex algorithms, the rule tends to be sell first and ask questions later. Panic and program selling could lead to overreaction on the downside, but markets are often irrational over the short term.

So where do we go from here?  Today’s virtually nonexistent inflation pressures, decent corporate earnings, continued share buybacks, and massive financial liquidity could all propel stocks much higher in a flash. The recent news of a drop in September retail sales seems to have sparked a sudden panic in the markets about the outlook for domestic demand in the U.S. But that decline needs to be put in its proper context. Yes, auto sales declined in September, but only after spiking to a nine-year high in August. The trend in underlying sales growth remains strong as well. Remember, too, that this is an economy that created nearly 250,000 jobs in September. Source: Bloomberg.

As Burton G. Malkeil, said in his recent WSJ op-ed, “Are Stock Prices Headed for a Fall?”, Don’t think you can time the market and sell your stocks now, hoping to get back in later after there is a correction. No one can consistently time the market, and you are more likely to get it wrong than right.”  We couldn’t agree more.

Those who try to exit the market’s scary roller coaster are more likely to discover it’s a trick not a treat.

As Americans, we cherish freedom. Our culture values each individual’s right to live their life as they choose.  Freedom, however, is always tied to capabilities.  You are not free to do what you are incapable of doing.  For example, you can’t save a drowning child in the middle of a lake if you don’t know how to swim.

The good news is that we each have the capacity to learn and grow in almost any area we desire, but growth takes focused effort.  We can improve our capacity to do almost anything we want, but we can’t improve our capacity to do everything we want.

So, where should you focus your efforts?

Each of us must answer that question for ourselves. I have decided I would rather spend my time learning how to be a better cook than learning how to paint.  Why?  Because I enjoy cooking with my wife, Heidi, and I enjoy having friends over for dinner. For me, painting is a more solitary engagement and I already love to take long walks by myself.

Cooking is certainly not better than painting.  Both can be lots of fun.  Cooking is just a better choice for me.

Where do you want to expand your freedom? How do you want to expand your capabilities?

We cherish our freedom, our ability to live our life on our own terms.  We resent being told what to do.  As Billy Joel said, “This is my life.”

Yet, we unconsciously forfeit our precious freedom.  To be free, we also must be aware.  We are not free to connect with someone we don’t see or to capture an opportunity we haven’t noticed.

We pride ourselves on being busy.  We are often so busy doing that we fail to notice the world around us.  We don’t notice that our child is unusually quiet when we come home from work, and we lose the chance to connect with her.  We want to be there for our best friend, yet we are working so hard we don’t realize he is struggling at work and at home.

Freedom is valuable because it allows us to focus our time, attention, and spirit on what is really important to us.  But without building time into our hectic lives to pause and notice – really notice – the world around us, it is impossible to focus our resources on what matters most.

If we are constantly busy, are we really free?

I was on my porch one morning this summer, and I noticed a cardinal a few feet away.  He looked right at me, but didn’t fly away.  I watched him for several minutes, and felt very lucky about the rare opportunity to see the cardinal in my back yard.

And then it hit me.  The cardinal is probably a regular visitor to my yard.  What made the moment exceptional was not the cardinal, but the fact that I had paused long enough to notice him.

A few years back I took a trip to Hawaii.  I spent most of the time either thinking about work, or focused on making sure the trip went smoothly for the family.  What I didn’t do enough of was to stop, look around, and appreciate the amazing beauty around me.

My body was in Hawaii, but I wasn’t really there.

Life is lived in the moment.  We live in a world that offers us infinite opportunities to distract ourselves from living in the moment and focusing our attention on what matters most to us. Don’t take the bait.

Take a moment to pause, open your eyes, and appreciate life.

Last Monday, the largest U.S. public pension plan, known by the abbreviation Calpers, announced its decision to exit hedge funds, saying they are too expensive and complex.  The pension fund disclosed it paid $135 million in hedge fund fees in the fiscal year ending June 30. Calpers’ investment return goal is 7.5 percent, yet over the last ten years, the average annualized rate of return on its hedge fund investments was just 4.8 percent.

The Wall Street Journal reported other pension funds were debating whether to follow Calpers’ lead and avoid hedge funds altogether. Last week, the San Francisco City & County Employees Retirement System delayed for another 90 days a decision on whether to allocate 15% of its money to hedge funds. It is the second such delay this year.

Could this decision be the start of a trend? Has the magic gone out of hedge funds?

We don’t think hedge funds do anything different than normal investment funds, except that they are not subject to any constraints on their investment activities. The mystique surrounding hedge funds may stem in part from their secrecy, as many are reluctant to share their investment formulas. The typical hedge fund fee structure – 2% of assets plus 20% of any profits – also may contribute to the misconception that hedge fund moguls are magicians.

We don’t believe in fairy tales.  Last year, GV’s Investment Committee researched extensively looking for hedge funds, hedge funds platforms that could add value to the client portfolios. We decided against investing in them given their complex structures, lack of liquidity, and most importantly, their high cost structures.

Hedge funds are certainly a viable strategy for some. Obviously, not all hedge funds are created equal, and some are actually generating some excess returns. However, we also hear about hedge fund clients plagued by high fees, complex legal structures, poor disclosure, and potentially meager investment returns. We think it seems virtually impossible to identify which hedge funds will be winners and which ones will be losers in advance. Our decision to avoid hedge funds has nothing to do with ego or emotion. We always go back to the maxim: only invest in what you understand and if the potential reward is worth the risk.

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