Does Wall Street Have Your Best Interest in Mind?….Not!!!

There has been increased attention paid to the financial brokerage industry with regard to a non-fiduciary mindset on Wall Street. Investors are continually looking for the answer to one question. “How can I beat the market?” Not only is it a matter of increased return, but bragging right to their friends on how much money their broker makes them. These same braggers neglect to tell when their broker loses their money. Wall Street is more than happy to accommodate this greed.

It is much like gamblers at a casino, you never hear about the losses only the wins. Investors are continually moving to the hot broker. As I call it musical brokers. An article in the New York Times in 2012 brings this out in the open. This is what most of us suspected.

A Goldman Sachs executive Greg Smith resigned his job by writing a scathing op-ed in the New York Times. In that column, written as an exit letter, he accuses top management of encouraging predatory sales practices that actively hurt customers:

“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.”

While he insists that he’s seen no behavior that’s actually illegal, he explains that:

“People push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.”

Recently I learned that 1 out of 25 people or 4% in the U’S. is a sociopath. The definition if a sociopath is a person with a personality disorder manifesting itself in extreme antisocial attitudes and behavior and a lack of conscience.

In contrast the ratio of sociopaths on Wall Street increases to 1 out of 10 or 10%.

This is alarming news for investors relying on Wall Street representatives for investment advice. Is their advice in your best interest or theirs?

To be a successful investor find a academically proven scientific strategy to investing and remain disciplined to it. Three simple rules will help you succeed. Own equities……globally diversify………rebalance.

Markets are Random …..Get Over It!!

I just read an article that many Americans are afraid of stocks. They are afraid they will lose all their money. Many expect to earn stock market returns with treasury bill risk.

Many investors I talk with each day have different reasons for not investing in the equity markets. Including ‘the market is at an all-time high of 21,000 that is too high’.  Or ‘I am about to retire and I cannot afford to take a loss in the equity markets’.

These investors believe equity risk is their greatest risk. In fact, it is inflation risk that is their relentless enemy. They need to at least maintain the purchasing power of their money. This is best accomplished with equities.

Then there are those that believe there is someone out there who can and does know when to get in and out of the market to maximize return and avoid all losses.

After two decades of research I can tell you this person does not exist.  You will find someone who makes a correct prediction. The problem is there is no evidence that their predictions will be correct going forward.

For example, the market crashed when there was a terrorist attack just three years ago. Over the last two months there has been terrorist attacks in the United Kingdom and the markets barely moved.

Like I said random and unpredictable.

You cannot consistently predict market movements based on past events. There rarely is any cause and effect that repeats.

If you invest in stock markets no one can predict “save” you from the down periods—NO ONE.  If markets were not random and unpredictable, they wouldn’t offer higher expected returns.

Markets randomly and unpredictably go up and down.

Perhaps we should have faith in the free markets and allow them to work. And worry about something fun like ‘will it rain this weekend?’ Or ‘Will my boat start?’ Or ‘ how will I clean up the huge tree that this weekend storm took down? Or ‘Why can’t the Brewers win a close game?’

As we age our situation gradually changes from growing our money to taking an income stream that keeps up with inflation. To succeed in this, we must reduce the level of risk in our portfolio as we grow older.

We will succeed in our investing when we own equities, globally diversify and rebalance.

That if we fire our broker/agent and hire an investor coach/fiduciary adviser.

Are Your Decisions Based On Your Emotions?

We all believe that we make important decisions based on fact. Our research, typically, is quite limited. We ask our friends, neighbors, co-workers, family or a trusted adviser their opinion. If it aligns with what we believe our decision is made.

Many times, we make decisions based on current events. These short-term based decisions are very emotional and are not evidence based.

You can never overcome your own humanity. As much as we would prefer to think that we make investment decisions based purely on logic, advertiser and journalists are well aware that emotion ultimately drives most investment decisions.

As a quick demonstration, consider the statements below. See if you can match each statement with the emotion being expressed. (Answers listed in the key below.)

greed regret trust loyalty envy

  1. “It doesn’t matter how sophisticated his charts are or how much sense he makes, I just don’t feel comfortable letting him handle my money.”
  2. “I’m not sure I should have put my money in that fund. It lost 15% already. Maybe I’ll sell some of it tomorrow.”
  3. “My boss got 25% on his money. I only made 8%! I wish I got 25%.”
  4. “I’d wish I’d known that stock was going up, I would have bought more shares.”
  5. “My dad worked in that company all of his life and he left his shares to me in his will. It would be wrong to sell it just to diversify my portfolio.”

Answer key: 1. Trust 2. Regret 3. Envy 4. greed 5. Loyalty

We as people are naturally predisposed toward or against specific investing tactics. What is interesting is that no matter what our emotional tendency maybe, we can almost always find what looks like purely factual data to support our view.

It is easy to overweight information that validates our perspective while minimizing any information that goes against what we inherently believe.

The Good News: Simple awareness of your emotions when it comes to financial and investing matters can make the difference between good and bad investment decisions.

The recent up and now down markets have many investors on edge, asking….should I get out of the market for good? This is really, what the financial institutions want…they make money when money moves.

Because we make emotional decisions with our investments. We need the help and guidance of an investor coach/fiduciary adviser.

Together you and your coach will develop a customized plan for YOU. Then going forward your coach will keep you disciplined to your plan.

This is where a true adviser really, earns their fees.

As an investor you must remain disciplined to your strategy…you must own equities…globally diversify…..rebalance.

Where’s The Fire?

There has been numerous discussions about what the role of a fiduciary adviser is.

The financial services industry has been fighting the fiduciary standard for years. Well the fight appears to be over. Anyone working with someone’s retirement funds will be held to the fiduciary standard.

But what is the fiduciary standard? The answer to this question can be quite complex. Its definition is to always act in the best interest of the client. In the past the majority of the financial services industry was held to the suitability standard.

This suitability standard essentially puts the best interest of the brokerage/insurance firm first. Many in the industry have been basically financial salespeople. In that they give the client whatever they want. Regardless of whether it was in the client’s best interest.

These ‘advisors’ could sell anything as long as it was suitable. This opened the door to keep selling the latest hot product.

A true fiduciary adviser will develop a game plan for their client and provide the discipline to follow that plan.

Dan Wheeler of Dimensional Fund Advisors has a great analogy to explain what a fiduciary adviser does. Let’s assume the fiduciary adviser puts your best first.

Many investors question the value of any advisor when the market is going up. What do I need you for? They might say. And then when the market does go down. Why don’t you do something? Change something?

This is where Mr. Wheeler’s analogy comes in. Most municipalities have a fire station manned by firemen/women. When there are no fires these people provide no value. But when there is a fire these professionals go into action. They are trained to follow a process. To safely put out any fire.

This is the same for a true fiduciary adviser. When the markets are charging ahead investors wonder how their advisor adds value to their portfolio. But when the markets are declining or in a full bear market is when the fiduciary adviser adds value.

Your fiduciary adviser will keep you focused on the long term and ignore short term volatility.

This becomes a very difficult task when markets are declining or flat for many months.

It seems like the down or flat markets will never end. But they will end. When no one knows.

Keep in mind the S&P 500 has average an annual rate of return of around 10% over the last 80 plus years. And there are more up years than down years.

To succeed long term in investing you need to

  • Own equities and high quality short duration fixed income
  • Globally diversify.
  • Rebalance

This requires the help of an investor coach/fiduciary adviser to keep you disciplined when there is a fire.

Is Capitalism Evil?

Free markets are under attack. The media along with liberal politics have made capitalism the evil empire. They cast capitalist as greedy and unfeeling.

In fact everything that made America great is under attack. Our liberal leaders are trying to change everything that made us a great society. Many even say the facts prove that capitalism is wrong and socialism is the answer. I know as I am sure many of you are that ‘facts’ can be skewed to prove any viewpoint.

Taking the blubber off, Nantucket Harbor by Jo...
Taking the blubber off, Nantucket Harbor by Josiah Freeman, ?1867-?1890. (Photo credit: Wikipedia)

Capitalism and the free markets promote growth. Unfortunately the free markets do not ‘guarantee’ success. Some ideas flourish immediately, while some flounder. Some take time and require persistence.

There is a myth that pro capitalism is the same as pro business. This is a myth because capitalism promotes competition. While businesses want to limit competition. Businesses have to work harder to maintain their profits and grow.

Remember the more competitive the environment is the better and cheaper their products become.

The end beneficiary is the consumer with better products at a cheaper price. And of course added jobs.

Recently I watched the movie ‘In the Heart of the Sea. It is about the legend of Moby Dick the giant white whale. By the way I understand now why this movie was only in the theaters for a short time. Not very good.

Back then in order to power their lamps and stoves they needed oil. Well the oil then was derived from whale blubber. Can you imagine today if someone were killing whales or anything else for a profit? There would be protests everywhere.

But then it was there only source of power. So it was acceptable.

Because of capitalism another source of fuel was discovered and the business of killing whales stopped.

Capitalists are always looking for a better, more efficient way. The people working in the whaling industry were not happy. The business owners lost money and the employees lost their jobs.

As I have said some win some lose. But overall the consumer wins.

Today as it was in Moby Dick’s time no one could predict the future. If we invest our capital in a diversified manner we will succeed in the long term. However if you concentrate your assets in a single asset class, like whale blubber you will lose in the end.

The only thing that doesn’t change is that things change. However no one can tell you what will change and when.

There will be ups and downs. But patience and persistence will allow us to succeed.

Most if not all of us need the guidance of an investor coach/fiduciary adviser to find long term success.

Your coach will help you follow the three simple rules of investing..Own equities and high quality short duration fixed income…Globally diversify…Rebalance.

Stop Trying To Beat The Market.

About three weeks ago I received a call from a reporter/writer for the U.S. New and World Report. She asked me a number of questions regarding my business and my investment philosophy. She said she had looked at my website and found the posts very interesting. We talked for about twenty minutes and finally she told me the article would be published for the online version of the magazine.

After I read the article it was apparent that she read a few of my weekly posts and used the material. The link to the article is below. Please enjoy.

For those of you who have been regular readers of my blog posts you know what I stand for. I believe the markets are efficient, in that, all knowable information is already reflected in the current price. Therefore, trying to predict future stock movements is not a prudent strategy.

This article points out the need for investors to avoid the Wall Street bullies. These bullies continue to lure investors with their ability to ‘beat’ the market. They want you to believe that they have a special talent to find the right stocks to buy, or get into and out of the market at the right time. They will show you the track records of the current ‘hot’ money manager.

All informed investors know that past performance is no indication of future results.

So please take some time and read the article. If you have any questions or comments please send them over.

Are You Investing with Peace of Mind?

What is investing with peace of mind? What does this mean? Is it the same for everyone?  Should it be the same for everyone? Hopefully over time we can learn the answers together.

Right now let’s focus on what I believe investing with peace of mind means.

1 Wall Street
1 Wall Street (Photo credit: Wikipedia)

Many believe peace of mind means no risk. If we expect to earn any real return there must be risk. Even if there is no risk of loss of principal there remains a more dangerous risk, a risk we cannot see in our statements and that is inflation risk.

Aside from this I believe investing with peace of mind means avoiding the tactics of the Wall Street bullies.

The Wall Street bullies continue to convince you to gamble and speculate with your money. They do this by bringing out the next great strategy or hot asset class or hot stock.

They make a compelling reason for you to buy right now (or sell right now) or risk missing out on getting rich quick.

If you want to invest with peace of mind avoid the following:

  • Stock picking
  • Market timing
  • Track record investing

There is and has been an alternative to the Wall Street bullies. This alternative is not about predicting the future or ‘betting’ on a future event. Academic and scientific research has taught us that the markets are efficient. In that all the knowable information is in the price of the asset right now.

The Free Markets are Random and Unpredictable.

Admittedly the markets are not perfectly efficient. There are examples of this inefficiency daily. However, it is impossible for anyone to consistently take advantage of the inefficiency and ‘beat’ the market.

When an ‘expert’ provides an example of how they ‘beat’ the market you can be assured that this is a matter of luck and not skill.

During your search for an adviser to help you invest with peace of mind make certain the adviser can articulate their strategy and back it with academic research.

Seek the help of an investor coach to help you determine the correct level of risk for YOU. Develop a prudent portfolio and keep you disciplined through the good and bad times.

Your coach will not sell you the next great strategy of hot asset class or hot stock.

A true investor coach will provide you with the correct information to invest with peace of mind. So that when the markets do go down and they will go down, you can be assured you are invested correctly.

A true investor coach will tell the investor they need to go elsewhere if they insist on gambling and speculating.

By acting as a fiduciary, an investor coach will NOT go after the sale at all costs.

To succeed long term and invest with peace of mind you must:

  • Own equities and fixed income
  • Globally diversify
  • Rebalance

You do not have to know everything about investing but you do need to know the right things.

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Americans Want New Pensions

Employees are looking for guidance in regard to their 401(k) Plan. This study confirms the need to offer professional managed portfolios. In addition the portfolios should range in risk level from aggressive to conservative. When each employee chooses their risk level the accumulated plan will represent a pension plan. Ideally your plan will only include these professionally managed portfolios. With the guidance of an investor coach your employees will experience improved results and less anxiety.

thmb (Photo credit: Wikipedia)

Eighty-three percent of Americans report favorable views of pensions, and 82% say those with pensions are more likely to have a secure retirement, according to a research report, “Pensions and Retirement Security 2013: A Roadmap for Policy Makers,” issued by the National Institute on Retirement Security (NIRS). In addition, 84% of survey respondents say all Americans should have access to a pension to be self-sufficient in retirement.

Support was strong from both men and women (83% and 82%, respectively). Pensions may also play a factor in choosing an employer—if considering a new job, Americans report being nearly twice as likely to pick an employer with a pension than one with a 401(k) plan.

Eighty-seven percent of Americans polled contend that policymakers do not understand how hard it is to save for retirement. Millennials are highly dissatisfied, at 94%. Three-fourths of Americans say a new type of pension plan described in the survey is a good idea. More than 90% would favor a new pension plan that is available to all Americans, is portable from job to job and provides a monthly check throughout retirement for those who contribute.

Even though retirement is in the distant future, virtually all Millennials agree that the retirement system is under stress and needs repair (95%), and that lawmakers need to make retirement a higher priority (90%). They also believe that those with pensions will have a more secure retirement (89%) than those without, and 94% say the lack of pensions for Baby Boomers is creating stress for families and the economy. Millennials are especially supportive of a new pension system (84%), with 88% saying they would consider participating.

Employers can provide a more pension fund like plan within the 401(k) plan model. This includes offering ONLY professional managed portfolios. Take away too many options and improve results.

Please comment or call to discuss how this you and your employees.

Posted via email from Curated 401k Plan Content

  • Employers Making Retirement Readiness a Top Priority
  • Managed Portfolios and Your 401(k)
  • Fiscal trouble ahead for most future retirees
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Managed Portfolios and Your 401(k)

The ideal retirement plan will provide professionally managed portfolios only. By providing this type of plan your employees and yourself will realize improved results and less investment anxiety. This combined with investor coaching will result in a more pension fund like plan.

Common Sense on Mutual Funds: New Imperatives ...
Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor (Photo credit: Wikipedia)

How important is choice in your 401(k) options? Do you want to have a set of 10 or 20 mutual funds and investments from which you get to choose your retirement portfolio allocation?There’s a concept gaining momentum in the retirement planning sphere that reduces 401(k) investor choice. This old, revitalized idea is the managed portfolio.

Simply, it’s a portfolio comprised of several investments managed by someone else. The idea is that an expert is changing your retirement investments, as needed, when economic tides call for a reallocation. All you have to do is contribute money, and it’s managed for you.

The industry may be looking at this model because, statistically speaking, investors don’t fare as well on their own; the average 401(k) investor will benefit, in the long-term, from using expert advice in one form or another. Still, some investors enjoy spending time researching their investment options and setting their own allocation. These people may not react favorably to a 401(k) plan that eliminates their ability to self-manage.

Some employers already offer 401(k) managed portfolios, but current incarnations generally allow employees to choose whether to use the option. If you lost the option to select your own investments, would it bother you? It’s unclear whether self-management could ever be edged out.

I have to be honest. I like the idea of managed portfolios. But–and this is extremely important–it must be done well. A good managed portfolio 401(k) plan must:

–Have well-managed underlying investments. It requires good mutual funds that have performed well through market ups and downs relative to their peers in the same asset class, and a fund manager has been with the fund through these ups and downs and has managed the fund in accordance with the parameters of its prospectus.

–Only offer portfolios that are diversified across several asset classes. Retirement investors need to protect their nest eggs with investments that span multiple asset classes so that, when one class experiences volatility, the retirement portfolio can glean stability from the other asset classes.

–Offer several portfolios in order to provide appropriate options for all employees.

–Help employees to select the appropriate managed portfolio based on the individual investor’s risk tolerance, timeline to retirement, retirement goals and personal preferences. This shouldn’t be a guessing situation. Your employer or the financial services company providing the portfolios should provide a questionnaire that helps you pinpoint the appropriate portfolio for your current needs.

Employers can provide a more pension fund like plan by following these principles. This alone will improve results and reduce anxiety.

Please comment or call to discuss how this affects you and your employees.

Posted via email from Curated 401k Plan Content

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Why bad funds stay in your 401(k)

When you are dealing with actively managed mutual funds you will always have some bad funds in your portfolio. The thought that someone can predict which fund managers will beat the market seems attractive. The problem is the Wall Street bullies have convinced you that it can be done when in fact it cannot. The markets are random and unpredictable. You should invest accordingly, with the help of an investor coach.

Reach Skilled Volunteering
Reach Skilled Volunteering (Photo credit: Wikipedia)

Among funds whose trailing 3-year performance was in the lowest-ranking decile, “non-trustee” funds were almost three times as likely to be removed the following year (29.6%) as trustee funds (11.9%). Did the keeper funds reward their administrators’ faith by rebounding? Not in the short run: The researchers found that, on average, those trustee funds went on to underperform their benchmarks by 3.6% in the year after they survived the cut.What keeps slacker funds from getting expunged? As MarketWatch’s Ian Salisbury has reported, many trustee firms offer employers pre-packaged rosters of funds, an arrangement that can keep individual funds from getting closer scrutiny; the trustees also often cut employers a break on administrative costs if the employers let the trustees have more leeway in picking funds.

But there’s another factor in play: The bad funds don’t seem to bother employee-investors that much. Plan members, of course, could vote with their feet and leave these funds behind (ideally, in favor of index funds where underperformance would be less of an issue). But according to the NBER study, while 401(k) investors tend to chase good performance and pour money into hot funds, they’re less likely to pull their assets out of a poor performer—unless, of course, the trustees take it out of the plan. Evidently, inertia trumps disappointment.

Most employers do not realize that they are accountable for the funds in their 401(k) plan. These same employers, mistakenly believe the person selling them the plan are accountable for the funds in the plan. To find an adviser willing to accept responsibility for fund choices, you must have them agree, in writing to serve as the ERISA 3(38) investment manager.

Please comment or call to discuss how this affects you and your emplyoees.

Posted via email from Curated 401k Plan Content

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