Proper Expectations!!

There is never a shortage of predictions on where the markets will go next. These predictions are typically based on current events.

Who will win in Washington DC?

What will happen tomorrow….next week….next month…..next year……?

Will the stock market crash? When should I get out to avoid losses?

Should I buy gold and when?

Will inflation take hold? Or is deflation around the corner?

And the list goes on and on…

The talking heads on television need these predictions to keep viewers watching, which in turn increases advertising revenues.

Everyone wants to know what will happen next. In many cases, we make emotional decisions based on the latest short term predictions.  These decisions will in most cases result in very disappointing performance.

If you wish to succeed long term in reaching your financial goals, you need to develop a prudent strategy and remain disciplined to that strategy. Most important you must have realistic expectations.

Proper expectations are the key to investing with Peace of Mind.

Do not expect to predict or forecast stock prices and movements.

Do not expect to pick winning stocks and beat the market. In the long-term stock picking will lose.

Do expect to achieve close-to-market returns over time and to see daily, weekly and yearly volatility. Reduce your costs, use diversification, and sit tight. If you expect the impossible you will be frustrated, unhappy and fearful.

All of us would like to get rich quick. However, if this is your strategy, odds are you will be very disappointed. As I mentioned earlier, develop a lifelong game plan and stick to it. The only adjustment you should make is to gradually become more conservative as you get older.

To succeed in reaching your long term financial goals you should:

Own equities….globally diversify….rebalance.

Leave the predicting to the talking heads and if you do watch see it as entertainment, not strategy.

Absolutely Nothing!!

It seems everywhere we look there are predictions of the future. Many are the top experts in their field. Many have been right in the past. Some just keep trying to convince us that this time they are right because…… Despite the dismal record of these ‘expert predictions’ we continue to seek out answers regarding their future. I’m sure why? But we do. Myself, included.

As to investments here are some of the predictions I have recently read:

  • ‘The bull market is 10 years old and due for a correction’
  • ‘Five reasons the market will go down’
  • ‘Five reasons the market will continue going up’
  • ‘The economy is showing signs of weakness’
  • ‘The economy is stronger than ever’
  • ‘these 10 stocks are ready to advance strongly’
  • These 10 stocks should be avoided’

Well guess what. One or more of these will be true. The problem we have is we have no idea who it will be.

We will see the headline prediction and if it is in line with our thinking, we will read it. We do this to reinforce our beliefs.  But what good is it? Absolutely nothing.

These predictions are made for gamblers and speculators. These individuals are interested in short term movement. They want to avoid all downturns and participate in only the upturns. The seek stock market returns with treasury bill risk. What they end up with is treasury bill returns and stock market risk.

Well if you want stock market returns you need to deal with stock market risk. You cannot have one without the other. And you need stock market returns to grow your money and keep up with inflation.

To reach your financial goals you need a plan or process and discipline. We are unable to accomplish this on our own due to our emotions. As I said we are bombarded with daily predictions from multiple sources.

So in order to successful invest for the future, we need to fire our broker/agent and hire an investor coach/fiduciary adviser.

Treasury Bill Risk with Stock Market Returns!!

Investors are continually asking what is the main determinant of investment success? 

Wall Street and the financial media would like you to believe that.

  • Timing when to get in and out of the market
  • Picking the right stocks and bonds to own.
  • Using track record investing to find the next hot manager, will help you succeed in investing.

This is wrong! All the above factors actually negatively impact your portfolio in the long run. Any time you spend on the above activities is time wasted. 

Allocating your assets based on your acceptable level of risk is the main determinant of investing success.

More importantly time spend with your family and friends is much more valuable than time spent trying to beat the market.

It seems odd that crashes of the past are seen as buying opportunities. While current and future crashes are seen as risk.

In most cases the reason we look to beat the market is our emotions. When the market has down turns, we become nervous and scared. When there are markets upturns we become greedy and jealous.

During prolonged up markets Warren Buffet said it best FOMO. Fear of missing out.

We believe that when the market is going down it will always go down. Conversely, when the market is going up, we believe it will always go up.

The real problem is most investors are looking for stock market returns and Treasury bill risk. What they end up with is Treasury bill returns, (if they are lucky) and stock market risk.

Most investors miss out on market returns because they lack discipline. This is the main determinant of long-term investment success.

This recently became evident when a large number of investors got out of the market around Christmas time. And subsequently missed the January and first half of February rally.

This is where a true adviser can help. If your adviser allows you to panic during downturns or concentrate in the latest hot market. Any price you pay them is too much.

Fire your broker/agent and hire an investor coach/fiduciary adviser.

To be successful in reaching your long term goals you must own equities…globally diversify…..rebalance.

Actively Trade Your Portfolio to Nowhere…

Through many discussions with investors I have learned that when things go against them they want to take control.

Stock pickers and day-traders who are actively trading their investments have perceived control over their portfolio. Similarly, people who jump in or out of the market during up or down swings also mistake their activity for control.

In reality, the more activity and trading you generate in a portfolio, the more out of control the portfolio becomes. When an investor trades in their portfolio trying to time the market or find the “best” investment they are doing nothing but add costs and decrease return.

Actively trading your account by picking individual stocks or market timing or picking funds based on past performance is exactly what the Wall Street bullies want you to do.

Stop empowering Wall Street.

 Remember, no one can predict the future, no matter how convincing someone is in the media they are only guessing.  In most cases the predictions are never broadcast by the same ‘experts’.

The “best” strategy is to have a prudent process and discipline in place   Stop trying to study the market to find bargains, statistics prove that it cannot be consistently done. You might get lucky in the short term but long term your results will suffer.

With the case of market timing, getting in and out of the market at the right time requires being right when you get out of the market AND be right when you re-enter the market. This again will result in lower returns.

To succeed long term and reach your financial goals you should
own equities…globally diversify …rebalance.

There Will Always Be Uncertainty In The Equity Markets!!

We are experiencing, among other things, some very tense and violent situations around the world right now. The situation in Ukraine, including the downed airliner, the Israel and Gaza battle. As well as our own battles within our country. There is uncertainty all around us. But OMG what should I do with my investments? Or is this a good time to invest? This are typical reactions to a short term down swing in the markets. Many of us forget to keep ourselves focused on the long term. We forget that the stock market does go down. It is the price we must pay for the great returns we realize, long term. Please remember a fact from Frederick C Taylor.  From 1926 thru 2012 the Standard & Poors 500 has earned a 9.75% average annual return. There have been 22,040 trading days during this time. Only 52% of those days were up days or 11,461 days. That means there were 10,579 down days. The down days are admittedly more painful, but necessary to earn the great market return. It is also important to remember that

There ain’t no such thing as a free lunch

(alternatively, “There’s no such thing as a free lunch” or other variants) is a popular adage communicating the idea that it is impossible to get something for nothing. We read or listen to the financial media telling us why a downturn is occurring. I’m not sure what the answer really is. Perhaps, it’s just the market looking for a reason to correct.  Again I do not know the answer. I do know that downturns are inevitable. They happen.

Dealing with these downturns is part of the reason the long term returns are so attractive.

For long term investors these downturns mean nothing. Anyone who tells you they can predict the market turns are gambling and speculating with your money not investing. In fact you are gambling and speculating with your money if you:
  • Pick stocks
  • Market time
  • Track record invest.
During a downturn in the markets if you become overwhelming uncomfortable. You should talk with your investor coach about reducing the level of risk in your portfolio. If the both of you decide a reduction in risk would be right for you then do it. However, do not expect to increase the risk level when market conditions improve. This would be market timing and therefore imprudent. Those of you that are already clients know that you are globally diversified with the right amount of risk for YOU. Each of you know the three simple rules of investing:
  • Own equities and fixed income.
  • Globally diversify
  • Rebalance
Keep in mind no one can predict the future with any degree of consistency. My suggestion to all of you is to relax and enjoy the summer weather. Stop watching all the ‘bad’ news. Do not allow the Wall Street bullies to make you do something you will regret long term. Selling or panicking during a downturn will result in  “Short term gain ….Long term pain’. Stay focused on the long term and with the help of an investor coach/fiduciary adviser your financial goals are attainable.

the True Enemy of Every Investor…

This subject remains an investor problem. Despite repeating the same message over and over. 

 

Successful investing is not, per se, a portfolio problem, but rather a people problem. No matter how well designed and engineered a portfolio is, it can easily be destroyed by imprudent investor behavior. 

 

Unfortunately, the true enemy of every investor lies within. 

 

The instincts, emotions, and even biochemical makeup of human beings drives them to gamble and speculate with their money, even when they don’t mean to.  

 

This problem is multiplied exponentially by financial institutions that profit from this self-destructive cycle. You will see that this cycle is hard wired into every human being in the world. No one is exempt. 

 

After studying the collective behavior of thousands of real world investors over the past decade, several truths have made themselves clear. It is my belief that many, if not most financial product sponsors are aware of this dilemma, 

 

but either don’t care that the investor is harmed by it, 

 

or are ignorant of the damage that they unknowingly perpetrate on the American investor.  

 

Most, if not all of us, need help and guidance during times of market stress. These stressful times are inevitable and need to be dealt with without panic. 

 

This guidance is best found with an investor coach/fiduciary adviser. Your coach will help you protect the future you from the current you. 

 

As individuals, investors have a tendency to believe that when times are good, they will always be good. And when times are bad, they will always be bad.  

 

To take full advantage of the great returns available from the equity markets we deal with the negative volatility. Many believe there is someone who can avoid the negative times and only participate in the good times. This is unsustainable consistently. 

 

I call this market timing and it is gambling and speculating. Which, as I mentioned, we need to avoid. 

 

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

He Who Trades Less…..Wins!

Prior to the new fiduciary rule. The Wall Street bully brokerage firm would use their payout structure to their brokers to generate more trading. They would pay a higher fee for the stock portion of a clients portfolio. For example, pay 1% on the stock portion and 0.50% on the fixed income portion.

This would result in their brokers using higher risk portfolios for their clients. Naturally they get paid more for a riskier portfolio. When there was a downturn in the market their clients realized more volatility than was right for their situation.

This issue may have been corrected with the fiduciary standard. However, right now, there is debate about ‘watering’ down the fiduciary standard

Not sure where the fiduciary standard is going within our industry. But I believe the Wall Street bully brokerage firms will find ways to generate more fees by trading more stocks within their clients’ portfolios.

A broker’s “job” is to get you to buy and sell as much as possible.  That is the primary way he or she gets paid.  This is a huge conflict of interest because what is good for you is bad for the broker.

The Wall Street bully brokerage firms do not make money buying the right stocks at the right time. This is a great misperception by the investing public. They believe the brokerage firms have the right information to ‘beat’ the market.

This is wrong. Because, like you, they cannot predict the future.

These brokerage firms make money when you trade stocks. There is a spread that they earn on every trade plus a commission. For example the bid is the amount someone is willing to pay, say $10 and the ask the amount someone is willing to sell, say $12. When the trade is completed the brokerage firm earns the $2 difference plus commission.

Therefore being an active trader in the long run will cause you to lose money.

By employing a scientifically designed strategy and remaining disciplined to that strategy, over the long term you will win.  Remember you portfolio is like a bar of soap, the more you touch it the smaller it gets.

Own equities….globally diversify…….rebalance.

Do You Have All The “Facts”?

When you read a daily financial publication like the Wall Street Journal you find an enormous amount of facts.

These facts can lead to vastly different conclusions. I wager that each day, with the exception of 2008-9 (even then I could find some facts supporting an up day), I can find 5 reasons the market will go up and 5 reasons it will go down. All of these facts occur in the same day.

Have you ever had someone tell you something and they told you the reasons why? Only to find out they left out something that changed the entire situation. Well the financial media does this every day.

These Wall Street bullies play on our emotions every day.

You can justify almost any imprudent investment decision with “facts.”  Information is filtered by our emotions to create “fact” that support our decisions or beliefs. Without outside guidance, it is impossible to tell when and how this happens.

Truth in the field of investing is elusive.

Remember the Wall Street bullies make money when we, the public, move money from one investment to another. Your broker has a vested interest in moving your money. They make more commission each time you move. The banking system loves to feed the fear.

If you are really interested in earning a good return on your investment dollars stop empowering the Wall Street bullies. Develop a sound, prudent portfolio, based on YOUR risk tolerance level and remain disciplined to that strategy. Jumping from one investment to another will cost you money and make tons of money for Wall Street.

As I have mentioned a number of times, NO ONE can predict the future. When you ask your broker what is the best stock for now? Or, when should I get in and out of the market? Or, who is the best fund manager(s)?  You are essentially asking them to predict the future.

A globally diversified portfolio eliminates the need to predict and allows you to relax and be assured you are properly invested to reach your long term goals.

One of the main attributes investors need as well as advisers is discipline.

Equities are one of the greatest wealth creation tools available, if properly used. To reach you long term financial goals own equities…..globally diversify….rebalance.

Spring Has Sprung…Oh Wait..

This last weekend Northeast Wisconsin was hit with a record snow storm. The measurement last I saw in Green Bay was nearly 24 inches. Second most in recorded history.  It beat a record set in 1889. I also saw that Shawano received 33 inches this weekend. WOW!

I for one, have had enough snow and cold and wind…

This can teach us something about investing. Over the years we can expect the S&P 500 to earn an average of a little less than ten per cent. These facts also say that most of the time the return will vary from -6% and +22%. There are of course exceptions, 2008 saw a -40% loss.

This is comparable to the snow event we experienced this last weekend. They give us average snow falls for Wisconsin. Some years are below and some are above the stated averages. Then there are the exceptional years, like April 2018.

During years of exceptional snow we experience inconvenience, we probably need to stay off the roads, we probably need to wait longer for the roads to be cleared. There is also power outages to deal with. The list goes on for many.

The question becomes should we prepare of these rare events by investing in more snow removal equipment? Or keep more people on staff? Or should everyone invest in personal power generators?

The answer, in my opinion, is no. These rare events are part of life. Soon the roads will be cleared, our lives will go back to normal. Since it is April this snow will soon melt. OK it may not seem like winter will ever end but it will.

Like the economic downturn, we will recover. During 2008 many said this was the end. Our finances would never be the same. Many felt the downturn would never end. They panicked and sold.  But eventually the economy did recover. The pain went away for those that remained disciplined.

Unfortunately those that panicked locked in their losses and lost out on the eventual recovery.

It is April 2018 and we are digging out. There is a light at the end of the tunnel.

Will there be another event such as 2008? I have no idea. However I know if you work with an adviser that builds a prudent portfolio designed for you. You can go ahead with confidence that eventually the bad times will disappear.

Remember you don’t have to know everything about investing but you do need to know the right things.

In most cases this means the adviser you hired needs to keep you disciplined and focused on the long term.

Are You Asking The Right Questions?

Every week I talk with investors about how they invest their money. While listening to many I can hear the influence of the Wall Street bullies by the questions they ask.

The Wall Street bullies have an ongoing marketing campaign to convince investors that they have the answer to investing success.

These bullies have trained you to ask the following questions:

  • What stocks or investments do you like? These bullies need you to believe that there is some investment advisor who can consistently and predictably add value to your portfolio by exercising “superior skill” in individual stock selection.
  • Who are the best fund managers? In other words track record investing is finding the funds or managers that did well in the past is a reliable method of indicating which funds will do well in the future.
  • When should I get into and out of the market? Market timing is any attempt to alter or change the mix of assets in a portfolio based on a prediction or forecast about the future.

When investors ask these questions what they are really asking for is a prediction about how our investments will do in the future.

All studies done on the success of these strategies have indicated that they do not work.

You cannot predict the future because the markets are random and unpredictable.

Rather than trying to predict what the markets will do next investors would be better served by developing a prudent portfolio and remain disciplined.

The questions we should ask are something like:

  • What is your portfolio’s expected return?
  • What is your portfolio’s expected volatility?
  • Have you defined your investment philosophy?
  • How do you measure diversification in your portfolio?

An investor coach can help you answer these and other relevant questions.

Remember you are investing to reach a long term financial goal. This goal cannot be achieved if you continuously change strategies. Or try to get in and out of the market at the right time.

These tactics very seldom lead to success in the short term. Over the long term you will not reach your financial goals because they rely on ‘luck’ and not ‘skill’.

Most pension funds are  managed to control risk through proper diversification. Why shouldn’t you?

The fundamentals of successful long term investing involve:

  • Own equities
  • Globally diversify
  • Rebalance

It is more about controlling your emotions during both down AND up markets. Controlling your emotions cannot not be done alone.