On Wisconsin….

Like everyone else or at least most, I filled my bracket for the College Men’s basketball tournament. Every year I try to determine the ‘upsets’ some big some small.

I do not believe anyone has ever picked the perfect bracket. That is, pick the winners of all 64 games. In fact, Warren Buffet promised to give $1 billion to anyone that does. It is a safe bet. You have a much better chance winning the lottery.

Well it is Friday and I already have a miss. Oh well, there goes a $1 billion…..

But what does this have to do with investing. Well every day I am asked by people about the next great stock or strategy. The one that will make them rich overnight.  Of course, this needs to be done with little or no risk, they say.

Often, they will say well this guy did it, why not me?

Let’s look at managers that try to pick stocks they believe will outperform the market. They are no better than those that ‘seed’ the NCAA tournament. Who will win? Like stock pickers these pickers have no idea what the future will bring.

If they could pick the winners all four regions would No. 1 vs No. 4 and No. 2 vs No. 3. Then No. 1 vs No. 2. Then all four No. 1s would go the final four.  And the overall No.1 would win. Confusing, right?

The odds of some manager picking the right stocks is far greater than picking all 64 games right. But the odds remain quite low.

Besides, most people confuse gambling and speculating with investing.

Gambling and speculating involves being right in the short term. This means instant gratification. Perhaps, this is why casinos and Las Vegas are so popular. The lure of getting rich quick is compelling. There is no waiting. You know very quickly whether you won or not. Even though everyone knows most lose. And nearly all lose long term.

Investing is a long term, life long process.

If you need to invest for growth or just keep up with inflation you need a prudent strategy. One tested by time. A strategy based on scientific research and academia.

Investors that rely on this strategy do not worry about short term volatility. Markets go up and markets go down. But the long term trend is up. Since 1926 the S&P 500 has had an average return of nearly 10% per year. During this time there were downturns of 10% of more 89 times.

WOW. If you want to earn a great return you need to deal with downturns. In some instances, the downturns can be severe. However, over the long term you will succeed.

Find a fiduciary adviser/investor coach to help you through this process. Long term you will succeed.

Regardless of this I will continue to fill out an NCAA men’s basketball. Because it doesn’t cost anything AND you never know….

Portfolio Envy..What Is It Good For?

When investing many people hear their friends or colleagues talking about their investing successes. In many cases this involves investing in portfolios with a higher risk than is appropriate for them.  The lure of the higher return is compelling to most of us.

When investors compare their returns to anyone else they ignore the level of risk each is taking. If you are investing rather than speculating or gambling you need to know the expected return and the expected volatility (risk) of your portfolio.

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 retirement 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 with any degree of certainty.

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

As an example of portfolio envy. Imagine that it’s January 2000 and you are looking at your yearend statement. If you were invested in U.S. Large Cap Growth you huge returns. Now imagine that someone introduces you to a famous money manager who lost 15% in this same period.

What would you say about investing with this manager? Of course, your answer would be ‘no’. You would have said are you out of your mind? Your natural instincts would be to load up on U.S. Large Cap stock funds.

Well that money manager was Warren Buffet. During the subsequent ‘tech’ crash the U.S. Large Cap stock funds were devastated and Warren Buffet thrived.

Remember past performance is no indication of future results.

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.

To succeed in investing you should

own equities…globally diversify….rebalance.

What does all have to do with your portfolio?  Well before you compare results make sure you’re comparing apples to apples. Be certain you are comparing portfolios with similar levels of risk.

An aggressive portfolio will look great in up markets but in down markets will be devastating. This is ok if you are young and have time on your side.

However, if you are at or near retirement. You need to control risk and limit volatility.

Which Will Win Your Logical Mind or Your Emotional Mind?

Fidelity Investments just revealed that during the recent downturn 401(k) participants have been making a record number of calls, over 4 million. Many of those calls involved selling out of their equity based funds. This is further evidence that do it yourselfers do not have the discipline necessary to become successful investors.


As I have said many times in the past there are three simple rules of successful investing. Own equities along with the right amount of high quality short term fixed income for you…globally diversify…rebalance.


The problem with this formula is that most people are not emotionally equipped to deal with market turbulence, both up and down.


There is a study that states 70% of 401(k) plan participants that work with a retirement adviser are on track for a successful retirement. While just 28% of participants that do not work with an adviser are on track.


A good adviser will not allow their client(s) to panic and sell during the inevitable downturns of the equity markets.


Below is a great article that helps provide credibility to the statement that discipline wins.


Although many people will nod their heads after reading the tips in the article. Most will allow their emotions to take over and sell during down markets.


Are you one of the people to panic?


Or do you have an investor coach/fiduciary adviser to help you through the turbulent markets?


CNBC article by Fred Imbert

Investors thinking of selling amid the current market turmoil should resist the urge, Vanguard Group founder Jack Bogle said Wednesday.

“Just stay the course. Don’t do something, just stand there. This is speculation that we’re seeing out there, and you can’t respond to it,” the investing legend told CNBC’s “Power Lunch.”

Bogle made his remarks in the midst of yet another sell-off in global equities.

The Japanese Nikkei 225 tumbled nearly 4 percent and closed in bear market territory. In Europe, the pan-European STOXX 600 index fell more than 3 percent.

U.S. equities inched closer toward bear market territory, with the Dow Jones industrial average falling more than 450 points Wednesday, while the S&P 500 and Nasdaq composite fell about 3 percent.

At the center of the sell-off was U.S. oil, which plunged nearly 8 percent Wednesday, hitting a fresh 2003 low.

“Each bubble, for lack of a better word, is different from the previous bubble. The dotcom bubble back in 1999 into the beginning of 2000 was a whole lot of ridiculously overpriced new companies, only probably 15 percent of which made it,” Bogle said. “The mortgage bubble was because a lot of people had mortgages, and weren’t able to pay for them.”

The recent fall in stocks and commodities, particularly oil, has raised questions as to whether or not the economy is at risk of entering a recession. Bogle said the long-term relation between the economy and the stock market is very tight.

in the short term, however, Bogle said: “Nothing has changed.”

“In the short run, listen to the economy; don’t listen to the stock market,” he said. “These moves in the market are like a tale told by an idiot: full of sound and fury, signalling nothing.”

What’s The Weather Forecast?

This past weekend the forecast called for 90s and humid. Then Friday night it changed to rain early and continuing to rain throughout the day. Very disappointing for someone who was looking forward to floating on a pontoon boat Saturday afternoon.

As the day progressed the clouds gave way to sun. Before noon it was a beautiful day. I guess this time my grandpa was right when he said ‘rain before seven, sunshine by 11’. Thanks grandpa!! Will I rely on grandpa’s saying in the future? He has been right in the past however there have been times when he was wrong. So, the short answer is no.

By the way we had a great time on the boat, swimming and just hanging out with great friends.

Given the past performance of weather forecasters why does everyone, myself included, continue to watch the forecasts? It seems to me the weather forecasters are wrong more than they are right. Yet every day we watch for that days’ weather forecast.

WHY?? Because we want to plan our day. What we don’t know is that there are thousands of variables that must align for the forecast to become reality.

The same holds true for those that forecast future stock market moves. There are thousands of variables that must perfectly align to repeat past stock market moves.

Yet, investors continue to search for the ‘guru’ who will tell them what to do with their investment dollars. These investors are all caught up in short term volatility. If it’s raining right now we must assume it will continue to rain. And if the sun is shining we must assume it will continue to shine.

If the equity markets only went up there would be no or less reward.

I just read a forecast, ‘Fed may cause a full blown correction’. The key words are ‘may cause’. Many investors see this and react by selling their stocks. These investors are looking for a reason to sell and the big brokerage firms give them the reason.

Don’t forget these huge brokerage firms make money on every trade, whether you make money or not.

Investors would be better served by working with an investor coach/fiduciary adviser. Your coach will help you build a prudent, globally diversified portfolio. Your portfolio will be at the right level of risk for you and your goals.

Any adviser that cannot tell you in numerical terms your expected return and your expected volatility is speculating with your money.

This is followed by periodically rebalancing back to the original allocation.

Most importantly your coach will help you remain disciplined.

Your coach may even show you that downturns are a GOOD thing. If there were no downturns there would be little or no reward.

Patience is rewarded over the long term.

Too Many 401(k) Options Could Hurt You

The Wall Street bullies make money when money moves. Therefore these bullies have a vested interest in keeping you trading. Consequently 401(k) plans have been sold with many options to facilitate trading. By providing a more pension fund like plan employers will reduce employee anxiety and improve results.

Studying… (Photo credit: fanz)

Investment Options and 401(k) PlansIyengar found the same phenomenon applies to investing in retirement plans. Many people don’t participate in their company 401(k) plans. She conducted a study and concluded that once variables like age, income and company were controlled, the biggest reason for a decline in 401(k) enrollment was the over-abundance of choices.

When a 401(k) plan offered only two investment options, 75% of employees participated. When 59 investment options were available, however, the participation rate dropped to 61%.

Expanding on this study, Iyengar examined the impact that more investment options had on the 401(k) participants’ asset allocation. For every additional 10 investment options available, the average 401(k) participant’s equity allocation fell by 3.28%. Some neglected equities altogether.

This is significant because stocks usually generate better returns than bonds or cash over long periods. Lower equity allocations can be the difference between a well-funded retirement and a 401(k) plan that comes up short.

How to Combat Choice Overload

One of the easiest ways for companies to combat choice overload is to avoid offering too many different options. Procter & Gamble increased sales of Head & Shoulders shampoo by 10% when it reduced the number varieties available from 26 to 15

The best alternative for employers is to offer a more pension fund like plan to their employees. By providing an age appropriate portfolio you will not only improve participation but also improve results.

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

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Are Young Workers On Track For Retirement–Or Smoking Something?

Younger employees may benefit from watching the over spending baby boomer generation struggle with their finances. The boomers over spending and debt is prevednting many from retiring at 65. The younger generation realizes that they and they alone are responsible for their own financial future.

retirement (Photo credit: 401(K) 2013)

Yet for all their interest in a social media savings message, 50% of young workers (compared to 39% of all workers) said one approach that would likely work is: “Stop trying to communicate. Instead, automatically enroll me with a high enough savings rate so I don’t have to think about it.’’  Of course if employers did ramp 401(k) withholding up to that  level, young workers might be shocked at how much it reduced their take home pay and find it hard to save outside their retirement accounts—which takes you right back to the HelloWallet identified problem of workers lacking emergency funds and draining their retirement accounts. Plus,  let’s not forget the student debt many young workers carry or the fact that if the AARP has its way, these kids will be paying through the nose for the baby boomers’ retirement,  too.  Bottom line: To stay on track for retirement, Gen Y is going to have to run a marathon. 

All employees are looking for automatic, no decision, retirement plans. This includes automatically enrolled into an age appropriate portfolio. This makes your 401(k) plan more like a pension plan. This will reduce anxiety and improve results.

Please comment or call to discuss how to improve your company 401(k) plan.

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Bad and Good Advice About the “Fiscal Cliff”

CNBC.com - 1996
CNBC.com – 1996 (Photo credit: Wikipedia)

The Wall Street bullies want you to trade in and out of stocks based on financial pornography in the media. They create hype to encourage trading because they make money when money is on the move. A fiduciary adviser would discourage this kind of behavior, which is in your best interest.

If I hear “fiscal cliff” one more time, I will consider jumping off a real cliff. The financial media is in hyperactive overdrive, breathlessly dispensing what passes for investment advice. Here are some typical examples:Over at CNBC, Jim Cramer told his viewers to buy Cisco Systems (CSCO), Home Depot (HD) and PetSmart (PETM). He believes these stocks, among others, would be trading higher if the fiscal cliff was resolved. His logic is simplistic: These stocks are “recession proofers” and “big yielders.”

Yahoo!’s Breakout had Todd Schoenberger, managing principal of The BlackBay Group, as a guest on its Nov. 16 show. Mr. Schoenberger commented on the recent decline of Apple stock. He noted ominously that “[A]pple is a true proxy of the global economy.”

Sam Collins, the “Chief Technical Analyst” at InvestorPlace, believes “fiscal cliff confusion” creates a “buying opportunity” for CVR Partners LP (UAN). He notes the stock may be “… a temporary victim of fiscal cliff negotiations.”

I am sure you get the drift. Unfortunately, many investors will act on this advice, which is unfortunate.

In stark contrast to the musings of these pundits, Allan Roth provides sound advice in his Nov. 12, 2012 CBS MoneyWatch blog. Roth correctly notes that the approaching fiscal cliff is “not exactly a secret” and “thus the possibility is already priced into the market.” There is no reason to believe that stocks are mispriced or that self-styled “experts” could identify them even if they were.

Next, he observes that the market often acts in a way that is contrary to conventional wisdom. He uses the downgrade of U.S. debt in 2011 as an example. You would think lower-rated U.S. Treasury bonds would make it more expensive for the government to raise funds. In fact, bonds “soared” making it “much cheaper” for the government to borrow.

If you are really worried about what it going to happen in the stock market in the next month or two (or even over the next several years), you have no business owning any stocks.

The “fiscal cliff” is being used by the financial media and many brokers and advisers to justify short-term recommendations based on their purported ability to predict the future, time the market and pick stocks to buy or sell. Neither they nor anyone else has this expertise. Relying on their advice is not responsible investing. Don’t let the “fiscal cliff” turn into a financial disaster for you and your family.

Trying to pick stocks or market time is ok if you want to gamble and speculate with your money. However, if you are saving for retirement or any long term goal ignore the financial media and the Wall Street bullies. Your best strategy is to design a prudent portfolio and remain disciplined to that strategy.

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

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The 401(k) On Steroids

When the demographics of a business are right the defined benefit hybrid plan is a great option for many small business owners as well as professional service firms. Assets in a qualified retirement plan provide asset protection from creditors and an accelerated saving rate, up to $250,000 deduction. Many small business owners and professionals are guilty of not saving enough for retirement. This option gives them the opportunity to catch up.

English: Retirement savings for various period...
English: Retirement savings for various periods with squirrel and nut analogy (Photo credit: Wikipedia)

Would an extra $2.5 million come in handy at retirement? Would you like to defer taxes on over $200,000 of current income each year? Would you like to see a higher proportion of your retirement plan expense go to yourself, or your key people if you own a business?Whether you are a realtor, consultant, physician, attorney, independent contractor, sole proprietor, owner or a partner in a small or large business, you can turbo-charge your retirement with a cash balance plan on top of your existing 401(k) plan. You can be a one person shop, or highly paid executive or professional in a large firm.

While not for everyone, the cash balance plan or other hybrid plans are a great way to accelerate your retirement savings

Please comment or call to discuss how this might be a great solution for you and you company..

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Is Your 401(k) Up To Par?

Logo of the Internal Revenue Service
Logo of the Internal Revenue Service (Photo credit: Wikipedia)

The quality of 401(k) plans offered needs to improve or plan participants will leave the plan. These plans need to convert to a more pension fund like approach.

Here are some of the other key design features and the percent of plans surveyed with that feature, according to the IRS survey:No age requirement to sign up (20%)

No service requirement (minimum time on the job) needed to make contributions (13%)

Employees can change deferral elections at any time (41%)

Catch-up contributions allowed for employees at age 50 (96%)

Employer matching contributions program in place (68%)

Permit after-tax contributions (4%)

Hardship distributions permitted (76%)

Employee loans permitted (65%)

For a look at the “crucial” role that 401(k) plans will play in the future of Americans’ retirement readiness, check out this speech The Investment Company Institute President/CEO Paul Stevens gave earlier this month at Town Hall Los Angeles.

The 401(k) plan has become the sole source of retirement of most Americans. If plan sponsors do not take their 401(k) plan seriously someone else will.

Please comment or call to discuss how this affects you and your company sponsored retirement plan.

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Families That Cheat Investors Together, Stay Together

Financial author William Bernstein said it best: “…there is a third type of investor – the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.”

Actually, there is a fourth type of “investment professional.” They definitely know they don’t know. They make a living conning you out of your money by offering you the lure of outsized returns without meaningful risk. Their con is more blatant and despicable than the conduct of your typical retail broker, but both have the same goal: Enriching themselves at your expense.

The debate on the fiduciary standard for all recommending investments will continue because many in the financial industry benefit fro the conflicts of interest. Investors must come first if we are to regain the trust of the American public. There is a successful business model which puts the interest of the investor first.

Please comment or call to discuss.

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