You Have to Look Different To Succeed Long Term.

Many times, when I meet with investors I am asked ‘where is the best place to put my money?’  The financial institutions have taught investors that there is someone who can tell them what to do in every circumstance.

These institutions lead you to believe they know what you need. In fact these institutions sell you ‘product’ to feed your fear in every environment.

A true adviser will often tell you things you do not want to hear. Remember if your adviser only provides the product you ask for they are not an adviser but rather a salesperson or broker.

These salespeople are really facilitators. You tell them what you want or what scares you and they provide the product.

The result is, in many cases, a portfolio that is concentrated in the ‘hot’ asset classes of the day.

To succeed in investing being diversified means looking different.

Most investors are narrowly diversified into top performing funds or asset classes of the last five to ten years.  They often feel diversified but aren’t.

It might be gold or annuities or cash or commodities or insurance guarantees or U.S. large cap growth or large cap value or small cap and then even internationals equities. The list is endless as Wall Street continues to generate new ‘product(s)’.

Gambler and speculators are always looking for the next ‘hot’ investment. These speculators are looking to get rich quick. They want to substitute disciplined savings and a prudent portfolio with a get rich quick scheme.

Remember the Wall Street bullies make money when you trade. They need you moving from one asset class to another. This makes the bullies money and costs you big.

To be truly diversified means including asset classes or types of funds in your portfolio that did poorly over the last five to ten years.  If you do this, your portfolio will look and perform very differently from your neighbors’ or friends’.

Don’t empower these bullies and be different. Act more like you are managing a pension fund. Pension funds control risk and prudently diversify. That means some of the funds are poorly performing now or in the recent past.

From worst to first many times applies here.

Of course, there are examples of pension funds ‘juicing’ up returns to avoid contributing the necessary funds. This often has disastrous results.

To succeed in investing you must own equities…globally diversify …rebalance.

Think long term and avoid making emotional decisions during short term volatility.

This is best accomplished with the aid of an investor coach/fiduciary adviser. Not a facilitator bit rather a true adviser.

Does Your Portfolio Care Who The Next President Is?

Well it is finally election day..all the back stabbing and fighting will finally end….RIGHT!!

At the end of this day we will know who will be the leader of the free world. Will it be Hillary Clinton or Donald Trump? Regardless the fighting will continue.

There are those that believe that the markets will go down regardless of whoever is voted our next president.  And we should exit the market. At least until things calm down.

Since there are over six billion people on this planet. There is always conflict somewhere. And there always will.

During these times of uncertainty, we have a tendency to make emotional decisions. Decisions that are NOT in our own best interests.

Ideally, we should all just time the market cycles and only buy when the market is low and sell when the market is high. Unfortunately, few, if any investors, are able to do this with any degree of consistency.

We tend to make our investment decisions based on recent past events and how we feel about those events.

If the market has done well lately, we wish, we are comfortable buying stocks. If the market has done poorly, however, we avoid them. Unfortunately, this is the exact opposite of what we should do if our goal is to maximize our long-term return.

Once we feel “comfortable” with the market, we have usually already passed up large potential gains. The stock market is forward looking and usually starts trending upwards between 6 to 9 months ahead of the economy recovering from a down cycle.

There is an unholy alliance between the media and the large financial institutions to convince the investing public to continue trading by spreading fear and panic.

Many investors mistakenly believe that the big brokerage firms make money by trading in and out of the ‘right’ investments

The large financial institutions make money when YOU trade in and out, making money on every trade.

Remember the equity markets around the globe are random and unpredictable.

You should own equities…globally diversify…rebalance and believe that America and the capital markets will recover and prosper. We as a country have been thru much worse and we recovered and became stronger.

The problem is no one can consistently predict what will happen and when.

During times of uncertainty should we cut and run or should we stand and fight? Historically the fighters are the ones that profit and prosper. Those that cut and run grasp unto their ‘guarantees’ and wonder why they are always behind.

To best deal with the inevitable ‘bad’ times fire your broker/agent and hire an investor coach/fiduciary adviser.

What Is Your Number?

There continues to be predictions about market direction. Particularly if certain events occur. There are those that predict a market ‘crash’. And those that predict that it will continue it’s up move.

Well both are right. At some point the markets will do down. The problem is no one can tell you with any degree of consistency when.

Businessman presenting financial analysis with charts generated by big data displaying international success and dollar signs
Businessman presenting financial analysis with charts generated by big data displaying international success and dollar signs

The Wall Street bullies find new and very inventive ways to keep people trading. These bullies have convinced everyone that gambling and speculating are investing. They can make their pleas to trade very convincing.

But not you. I am so proud of you. You have not lost sight of your long-term goals and time horizons. Investing is hard in times like this. We are investors, not speculators or gamblers.

Remember gambling and speculating with your investment dollars only benefits the bullies and not you.

Short-term volatility is to be expected, and doesn’t mean that the risk part of your portfolio isn’t working. While it goes against all of our human instincts, this is the time to remain disciplined and rebalance.

Each one of my clients has different levels of risk or volatility in their portfolio, from very low risk, to balanced or moderate risk, to aggressive. And somewhere in between. Customized to your goals and desires.

It is very important that you are in a portfolio according to the level of risk you can sustain for your lifetime (or a strategy that slowly reduces risk over time), which will allow you to remain disciplined and ride through the upside and downside volatility, while allowing us to rebalance your portfolio on highs and lows.

Know your risk measurements.

If you know your risk measurements you will know what to expect, and won’t be caught off guard when downside volatility occurs. Greater peace of mind comes from knowing your risk and knowing what to expect in down periods and up periods.

The longer term average returns include both upside and downside volatility. Upside and downside volatility can be reduced but not eliminated in the risk part of the portfolio. Investors that tend to take too much risk, or worse, take too much risk and don’t know how much risk they are taking, tend to panic and lose large sums of money with market timing issues.

IF markets go down (as they always do from time to time), you/we have a plan. We will rebalance the portfolios. Because of the diversification in the portfolios, we have the bonds to rebalance into stocks when stocks are down.

To succeed we must own equities….globally diversify…..rebalance.

What’s Your Long Term Goal?

When investing many people hear their friends or colleagues talking about their investing successes. In many cases this involves investing in high risk ‘penny’ stocks or startups.  Or just the ‘hot’ asset class of the day.

The lure of the high return is compelling to most of us. Some may even have early successes.

We must remember that this is speculating and gambling with your money. When these investments do work out it is the result of luck and not skill.

Over the long term, using this strategy, the investor will be lucky to match the returns of the overall market.

Psychologists Kahneman and Tversky showed that more people would prefer to make $70,000 per year when others were making $60,000 than to make $80,000, when others were making $90,000.

There will always be “others” with more assets, money, or larger portfolios. We are doomed to disappointment because comparison destroys the joy of having and using what we already have.

Most people would agree to make or have less as long as others were even poorer. Resist the impulse to compare yourself to your “neighbors”.

This includes comparing your portfolio or 401(k) account balance to your colleagues. In some instances you may be better in others worse. The goal of your investments is to attain your long term goal. This would include a strategy and savings discipline.

Developing a prudent strategy and remaining disciplined to it are very difficult, however in the long term will lead to success. No one can predict what asset class or sector will outperform in the future.

Warren Buffet has one strategy which he remains disciplined to. This is the primary reason for his success.

You are speculating if you stock pick, market time or base your investing decisions on track record performance.  Keep in mind speculating is ok, but not with your retirement funds or any funds needed for a long term goal..

To succeed in investing you should
own equities…globally diversify….rebalance.

While it sounds easy these three tasks have proven very difficult for investors to follow. Especially during market extremes.

Because we are emotional beings we need someone to keep us disciplined. To resist panicking during severe downturns. As well as resist joining in on a ‘huge’ upswing in a specific asset class.

Find an investor coach/fiduciary advisor and learn how to invest with more confidence. Your coach will help you ignore the short term volatility and focus on your long term goals.

Free Markets Work…

It seems like every day an investor will ask me about my prediction for the stock market. Well anyone who works with me knows I do not believe anyone can predict the future movement of stocks with any consistency.

I believe no one can tell you whether the next 20% move will be up or down. But the next 100% will be up.

Each day the media focuses on a new prediction. Their audience is continually searching for new predictions. What will happen next? What is the new hot asset class? Where is the best place to put my money?

NASA Sunspot Number Predictions for Solar cycl...
NASA Sunspot Number Predictions for Solar cycle 23 and 24 (Photo credit: Wikipedia)

This is why people continue to watch the talking heads on the business channels. And why shows like Jim Cramer are so popular.

Everyone wants to have the best investments, only making money and avoiding all losses. This futile exercise will only add anxiety to your life.

To repeat…..No one can consistently predict the future.

When someone is right on a prediction it is a matter of luck and not skill or knowledge. Free markets are random and unpredictable.

Free markets left to their own devices set prices better than any individual or committee. They incorporate all of the knowable and predictable information in the present, as well as knowable information about the future.

Only unknowable future news and information can change prices going forward.

Rather than attempting to predict the future use your time and resources to improve your skills, either career or life.

Your investments are best allocated by owning equities, globally diversify and rebalance.

Follow these three simple rules and you will succeed in reaching your long term goals.

The problem really is when a stock picker or broker gets hot. People pour money into them to join the ‘party’. Problem really arises when the hot picker or broker cools off and lose money.

As an example Bill and Hillary Clinton’s son-in-law started a hedge fund less than 2 years ago and has since closed it. Why? Because the fund lost 90%. Hot then Not.

I call this musical brokers.

If you are serious about making your money last and grow with a certain degree of consistency. You need to fire your broker/agent and hire an investor coach/fiduciary advisor.

Your fiduciary advisor will help find the level of risk you are comfortable with and that helps reach your goals.

Your portfolio will be globally diversified. In my case the portfolios also have a small cap and value cap tilt. Regardless of this, a globally diversified portfolio will underperform at times.

This is where many investors stray off course. They then believe the globally diversified portfolio is no longer working. Or some broker shows them an outperforming strategy.

There is no strategy that will always outperform. But switching from one strategy to another will lead to poor results in the long term.

To remain disciplined during underperforming periods work with an investor coach/fiduciary advisor.

Process, consistency and discipline work. Free Markets Work.

What Will Happen Next??

Our country, as well as the rest of the world is going through some very contentious times. I personally have never seen our country more divided than it is right now. There have been sadly, a large number of police killed by ‘protestors’.

Each time there has been a call for gun control. More regulations is not the answer. Perhaps we should just enforce the ones already in place.

It seems no one is accountable for their own actions. It is always the fault of someone else or something else.

There have been horrendous and cowardly terrorist attacks around the world. And there does not seem to be any effort to stop them.

Is this a lack of leadership? I believe it is. There has really been a lack of leadership in our country for quite some time. It seems everyone has their own agenda.

Many of the people I talk with remain pessimistic about the future. What if this happens or that happens? They ask. I’m not sure what will happen either short or long term. What I do know is that things will change. The only thing that doesn’t change is that things change.

Rather than trying to predict the future, which no one can consistently do, I follow my investment philosophy, which is that markets are efficient.  In that, all the knowable information is in the current price of securities. Any predictions made are a guess. The markets going forward are random.

I believe that free markets work. I believe that economies around the world will continue to grow. What I do not know is what sectors or industries or products will grow.

Therefore we must remain diversified and disciplined.

There will always be short term volatility. My role as an investor coach is to keep investors focused on the long term. Trying to time the markets or pick the right stocks will lead to poor results, long term.

Your goal as an investor is to reach your long term goal. This is not done by earning the highest return possible. Earning the highest possible return can be accomplished in the short term, however it cannot be accomplished long term.

UNLESS, you believe that earning the market rate of return is the highest possible return.

The markets may not be perfectly efficient at all times, however they are far too efficient to take advantage of and improve returns.

Let’s reduce your anxiety and improve returns, long term.

Let’s begin to become accountable for our own future.

The poor results of many investors is not the fault of someone on Wall Street. But rather our own lack of discipline and our fear of the future.

To succeed long term you must own equities…globally diversify..rebalance.

Does History Repeat Itself?

Well not exactly. No situation ever repeat itself perfectly. But there certainly can be similarities.

In the mid 1990’s a diversified portfolio under-performed the U.S. Large Cap Growth asset class. In fact they under-performed by substantial amounts.

English: Enron Complex in Houston Texas
English: Enron Complex in Houston Texas (Photo credit: Wikipedia)

The ‘dot com’ equity market was hot, very hot. Everyone wanted technology stocks. Money poured in. Enron was riding high. From 1996 to 2000 NASDAQ stock index went from 600 to 5000. That’s over a 700% cumulative return in five years. WOW!! Tech stocks were the only thing to won. It was called the new economy, a new paradigm. The world was changed forever.

Those that recommended and defended diversified portfolios were considered ‘old school’ or ‘out of touch’. Their portfolios underperformed and underperformed badly.

In fact, as I have written many times before. Warren Buffet at the height of the craze had shown a loss.

Below is an excerpt from a article by Jesse Colombo depicting the sequence of events.

By early 2000, reality started to sink in. Investors soon realized that the dot-com dream had devolved into a classic speculative bubble. Within months, the NASDAQ stock index crashed from 5,000 to 2,000. Hundreds of stocks such as Pet.com, which once had multi-billion dollar market capitalizations, were off the map as quickly as they appeared. Panic selling ensued as the stock market’s value plunged by trillions of dollars. The NASDAQ further plunged to 800 by 2002. One former high-flier, Microstrategy, slid from a lofty $3500 per share to a pitiful $4 per share. At this time, numerous accounting scandals came to light in which tech companies had artificially inflated their earnings. In 2001, the U.S. economy experienced a post dot-com bubble recession, which forced the Federal Reserve to repeatedly cut interest rates to stop the bleeding. Hundreds of thousands of technology professionals lost their jobs and, if they had invested in tech stocks, lost a significant portion of their life savings.

Needless to say, the New Economy theory was proven wrong and traditional economic principles still hold. What is sadly interesting is how bubbles will continue to occur in the future. When they do occur, foolish investors will continue to convince themselves that “this time is different!

Many investors with portfolios concentrated in tech stocks were decimated.

Today with the ‘Brexit” volatility the majority are avoiding international equities. The U.S. large stocks have been outperforming over the last couple of years. I assume that the Brexit subject has been around for much longer than the media has said.

That means that a globally diversified portfolio has underperformed for the last couple of years.

Will this continue? Will history repeat itself and international equities outperform in the near future? I have no idea. But I do know that over the long term a globally diversified portfolio will result in great results.

Find a fiduciary adviser/investor coach who will keep you disciplined to a globally diversified portfolio. And take the guess work out of your investing experience.

Try to ignore short term volatility.

Market Timing….Luck or Skill?

Investors continue to market time. This attempt to get out of the market when it is going down and get back in when it will go up is futile. Dalbar Research is an independent think tank that studies investor behavior.

Dalbar’s annual study of investor behavior shows that self-directed investors work against themselves largely by chasing the market

Barclays Global Investors headquarters on Howa...
Barclays Global Investors headquarters on Howard Street in San Francisco, California. (Photo credit: Wikipedia)

Investors are their own worst enemy, or so is the conclusion of Dalbar’s 22nd annual Quantitative Analysis of Investor Behavior study that compared equity fund returns of directed investments versus the market benchmark. This year’s study found that in 2015, investors returns came in at -2.28% for equity funds while the S&P 500 benchmark had incremental gains of 1.38%, thus the average equity investor underperformed the S&P 500 by 3.66 percentage points. The good news is that’s better than 2014, in which investors left 8.19 percentage points on the table.

The bad behavior wasn’t limited to equity funds, Dalbar found.

For the full article go to
http://www.thinkadvisor.com/2016/05/31/market-timing-costs-investors-big-dalbar?slreturn=1465224055

The selling point of all market timers is that they will get out of the market during down markets and buy on the way up.

This is an admirable goal however the Dalbar study illustrates that no one succeeds in the long term. Even those with illustrious credentials and diligently study the market patterns cannot beat the market rate of return in the long term.

NO ONE can predict the equity markets for the long term.  Those that do pick the market tops and bottoms are the relying on luck and not skill.

After the 2008-9 investors were and still are looking to avoid repeating any pain. These investors are getting out of the equity markets all together, a huge mistake. Volatility and risk are part of the reason the equity markets experience a return premium over the long term. Without this volatility your return would be much lower and you will be unsuccessful in keeping up with inflation. In other words the purchasing power of your money will not be maintained.

This is what I call the invisible loss.

Another group of investors is seeking out those analysts/advisers who avoided the down turn. Thus avoiding pain for the investor. The problem is that these analysts/advisers are unable to repeat their success over the long term as illustrated by the above article.

If investors are seeking to reduce their investing anxiety and improve long term results they need a prudent strategy and discipline. These investors will be unable to do this on their own. Therefore, the need for an investor coach is greater now than ever.

Reaching your long term financial goals cannot be accomplished alone.

Your emotions will not allow it.

Stop looking for the next great investment class or fund manager. Their ability to repeat is near zero. There are three simple rules of successful investing:

Find a coach who will help follow these rules and you will reach your long term financial goals.

When you do find your coach listen to them. It has been said that advising investors not to market time is like advising fish not to school together. It would be against human nature not to market time because ‘this time is different’.

Is Cheaper Better??

There has been a huge amount of attention from the financial media and advertisers that costs are the number one enemy of investors. While this is true in many cases. Buying investments based solely on cost is a mistake for most if not all investors.

These advertisers tell investors that they have all the tools they need to build a successful portfolio. All this at a very low cost to them. These advertisers say ‘why pay of an adviser when we can do it for you much cheaper.

The result is you keep more money for yourself. You eliminate the ‘unnecessary’ middle person. These advertisers say these advisers do not have your best interest in mind. They want you to believe all advisers add no value to your portfolio, just added costs.

Again while this is true in many cases a true fiduciary adviser can guide you to a successful financial goal. In most cases this would not be possible doing it yourself.

As an example. If you wanted to build a new house. You could go to any discount retailer, like, Menard’s or Home Depot or Lowe’s or any of the other ‘do it yourself’ retailers.

You can find everything you need to build a house in these retailers. You can even talk with their onsite ‘experts’ and learn what to do. But if you have all the necessary materials delivered to your home site. What do you think would happen? Where would you start? You could google it. Can you imagine the finished product? How long do you think it would take to build your house?

Let’s disregard the fact that your bank would probably not approve the loan if this were your plan. Even though it is cheaper.

Some construction friends of mine tell me that having a good general contractor is vital in building the structure on time AND on budget.

A general contractor is one responsible for ordering the right materials and delivering in the right sequence. They are also responsible for arranging the right contractors to do the various duties. Like plumbing, excavating, electrical, mason, carpentry, etc..

You could do this yourself and save money in the short run but in the long run it would cost more. And in some cases much, much more.

With regard to investing finding a good fiduciary adviser/investor coach is vital to reaching your long term financial goals. Like the general contractor your coach is responsible for putting the pieces together in the right order.

And more importantly supplying the necessary discipline to stay on track to your financial goal(s).

In both cases general contractor or investor coach/fiduciary adviser, find one you trust. One that understands your goals.

Is It Really Free??

There has been a movement in America that socialism is ok. Especially among the younger Americans. These young people have been promised among other things..free college education…free health care..free everything it seems like. It sounds great until they learn that they will be paying for all these ‘free’ things for the rest of their lives.

These young people believe that corporate America is evil. These corporations have some kind of privilege not available to everyone. They believe that corporate America is corrupt.

Former British Prime Minister Margaret Thatcher
Former British Prime Minister Margaret Thatcher (Photo credit: Wikipedia)

Along comes Bernie Sanders to the rescue. He will ‘give’ to everyone everything these corporations have unfairly taken from them. The Federal government will come to their rescue and make everything ‘fair’.

These young people believe there is no need to work because the government will ‘protect’ them. Somehow these liberals believe all corporations are corrupt and Bernie Sanders and his followers are not.

Socialism to them is the answer. However there are costs to socialism. As former UK Prime Minister Margaret Thatcher said ‘The problem with socialism is that eventually you run out of other people’s money’.

What seems ‘free’ now will be paid back in the form of higher taxes for everyone. Each taxpayer will be paying back for these ‘free’ benefits regardless of whether they used the ‘free’ things or not.

As an example Denmark has the system Bernie Sanders wants to install in America. The result is a minimum income tax rate is 40% which goes up to 80%. The tax to buy a car is 150%. That means a $20,000 car in the U.S. will cost someone in Denmark $50,000. As a result few people in Denmark can afford to buy a car.

Just to do a little more math, if you buy a truck for $45,000 in the U.S. it would cost $112,500 in Denmark.

What appears ‘free’ ends up costing you and your fellow citizen’s big time over the long term.

Capitalism has brought more people out of poverty than any ‘social’ program ever developed. Of course, capitalism is not perfect, no system is. However Capitalism represents and develops motivation, innovation and prosperity.

With capitalism some win and some lose. Most successful people lose many times before they win.

The problem for investors is that no one can tell you who will win and when. Because someone has failed in the past does not mean they will fail in the future. Conversely, if some succeeded in the past there is no assurance they will succeed in the future.

In the financial services industry I am required to add this phrase to any performance results. ‘Past performance is no indication of future results.’

Morningstar rates mutual funds by giving 5 stars to the best performers and no stars to the worst. Morningstar has said their 5 star funds system does not mean these funds will repeat. The star system has no predictive ability.

Let’s embrace the capitalist and enjoy its long term benefits.

Investors can take advantage of this by investing and not speculating.

Remember if your adviser has you stock picking or market timing or investing with managers with the best performance.  You are speculating and gambling with your money.

Find an investor coach/fiduciary adviser and learn how to take advantage of great long term market returns. Without the need to predict the future.

If you understand how markets actually work. You can invest with less stress and less anxiety.

Regardless of who wins the White House this strategy works.

Save and invest with confidence over the long term. Learn to ignore short term volatility.