Many potential clients ask me about the past performance of ‘funds’. This is not unusual, because most of us have been taught by the Wall Street bullies that the investment choices makes all the difference. We have been taught to believe that there is someone out there who will lead us to investment success through savvy trading. We believe there is someone out there who can tell us

• What stocks to buy and or sell?
• When to get into and out of the equity markets?
• Who is the best money manager right now?

What the Wall Street bullies won’t tell you and don’t want you to know is that there is no such person or entity. No one can consistently predict any of the above. There are two groups when it comes to predicting the direction of the equity markets.

Those who don’t know where the market is going and those who don’t know they don’t know where the market is going.

The way these bullies make money is when money moves. Trading generates fees regardless of whether you make money or not. The bullies make money on every trade.

There is a better way to invest. It does not involve:

• Stock picking
• Market timing
• Track record investing.

If you are working with an adviser who does whatever you tell them fire them now and hire an investor coach/fiduciary adviser. Your adviser should help you build a prudent portfolio and keep you disciplined during market ups and downs. Your coach will help you follow three simple rules

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

Most importantly your adviser should keep you disciplined. I believe the following quote from the Father of our country will make the importance clear.

“DISCIPLINE is the soul of an army. It makes small numbers formidable; procures SUCCESS to the weak, and esteem to all.” -George Washington

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

It did not take long after the new administration took office for the raising of taxes to become a hot topic. I just read that there is a proposal to raise the capital gains tax for over $1million to 39.6% plus the 3.8% already in place. That totals over 43%.

While most investors will not pay at this level, they will realize an increased rate.

The real focus of the article is that raising the rate to 43% will cause the selling of growth stocks. The article stated this would make dividend and value stocks much more attractive.

Portfolios build with primarily growth stocks looks great right now. But will that continue?

As an example, during the dot.com crash starting in 2000. Growth stocks went into a 3-year downturn. During this time dividend and value stocks increased in value.

Did this article use this as evidence that this would repeat? I have no idea and I believe neither does the author.

Many of you that have been reading my emails know I do not believe there is anyone who can predict the future, consistently. Any advisor that appears able to predict the hot sector or asset class will not be able to repeat.

The real message is that you will invest with less anxiety with a globally diversified portfolio at your appropriate level of risk. Unless of course you enjoy higher anxiety.

You will also realize better long-term results.

With the excessive spending going on here in the U.S. and the rest of the world has inflations worries are growing. At a relatively low inflation rate of 4%, it only takes 18 years for your wealth and its buying power to be cut in half. One of the primary goals of your portfolio should be to stay well ahead of inflation.

Inflation can suck the lifeblood out of your portfolio.

Many investors are looking to avoid the volatility of stocks. They see this equity risk as too much to bear. The uncertainty of the economy brought on by the child-like antics going on in Washington DC. The concerns that the USA will be unable to repay their ever mounting debt has investors concerned about the future. There is nothing but bad news in the financial media. Nothing leads investors to a place of optimism.

All these concerns lead investors to seek out ‘safe’ investments. Investments such as CDs, annuities, cash, treasury bills or even bonds are sought because there is no apparent volatility.  What investors don’t realize is that these ‘safe’ investments have risks of their own.

This risk is even more dangerous than equity risk to your long term wealth.

Regardless of your investments there is risk involved. In the case of equity risk we see the effects every time we look at our statement or watch the daily news. We know that when the markets are down our account balances are down. This risk is visible and unwavering.

With regard to inflation risk we cannot see it daily, weekly or monthly. Unless we are paying attention to our rising food bill or utility bill or when we fiil our vehicle with fuel. These risks are losses in our purchasing power.

Remember with a small 4% inflation rate, in 18 years our cost of living will double.

Although we are in ‘safe’ investments and our account balances only show positive gains we are losing value every day, month, year.

The trade-off between equity risk and inflation risk will always be there.  If we view our portfolio including stocks on a long term basis we will stay well ahead of inflation. The end result is building our wealth for a secure future and retirement.

To succeed in reaching these goals we must:

• Own equities
• Globally Diversify
• Rebalance

With the help of an investor coach we can stay focused on our long term goals. We will avoid the emotional panic selling during down markets. We will also avoid emotional euphoric buying of a hot asset class in up markets. We will follow the investment policy statement developed jointly.

All of us have said, ‘But it’s different this time’ ….’This Time This Expert is Right for Sure’……’I’m due’…..

A necessary lie is a rationalization to justify self-destructive behavior. Some additional examples:

• I will start my diet tomorrow…..
  so I will pig out today.
• I’ll just gamble until I get even…..
  so I will let it ride.
• This time I really do know what the market is going to do….
  so it’s all right to speculate with my money.

Many of us believe that the ‘experts’ at the large wire house firms like Merrill Lynch, Morgan Stanley, Edward Jones, LPL, or even the large insurance companies can tell them what will happen next in the market. These Wall Street bullies use their large marketing and public relations budgets to convince investors that they have the answers. One only has to look at the 2008 crisis to realize that these bullies do not have the answers.

For example in 2008 some of the well-known and trusted investment firms went bankrupt and some needed the assistance of others to avoid bankruptcy.  These bullies could not even manage their own investments. What chance do you have of succeeding with them?

Th capital markets are random and unpredictable. There are thousands of variables that are constantly changing. This moving target makes it nearly impossible to predict the future. If some ‘expert’ does get it right it is a matter of luck and not skill.

Remember if you do not know two numbers you are speculating with your money. They are expected return and expected volatility (risk).

One important question you need to ask when you are deciding which adviser to work with. That is….will you agree to be a fiduciary to me?

Many times I analyze an investor’s portfolio and do not find an investment policy statement. This statement is your roadmap going forward. A fiduciary adviser will have that roadmap and work with you to remain disciplined to that roadmap. It is your blueprint to investment success.

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

We continue to experience civil unrest here in the United States. The intolerances displayed are hateful. During these turbulent times there will be ‘experts’ telling you what is the best place for your money. 

It could be gold, annuities, real estate. bitcoin or even a pyramid scheme…….. Whenever there is fear in the air someone has the answer for your investments.  This is a very dangerous time to be speculating.

If an investment strategy is on the cover of every magazine, and all of your friends and associates are doing it, it’s reckless to follow suit.  Only hot, sexy, and speculative techniques make the cover.  Don’t follow your friends!

Remember the most successful businesses have one strategy and they stick to it. Such as McDonald’s, if you visit a McDonald’s anywhere in the country they are all set up the same. They know there may be a better way to run a restaurant but their systems works.

Warren Buffet is another example, he has one way of investing and it has made him the most successful investor of our time. There are times when he losses more money than most but over the long term he wins. He does not fall for the latest fad.

U.S. stocks continue to outperform, well, all other asset classes. The large U.S. stock more specifically is the number one asset class.

Many clients are looking at their globally diversified portfolios and asking themselves. Why if the U.S. Large stock is doing so well is my portfolio lagging behind? If I just invested all my money in the S&P 500 I would be beating my portfolio.

Why am I paying my adviser/coach to earn a poorer performance than the S&P500?

As investors, we have very short memories. In the late 1990s U.S. Large Cap Growth stocks were outperforming all other asset classes. Four straight years this was the case.

Then the bursting of the tech stock bubble devastated the investors with concentrated portfolios in U.S. Large Cap Growth.

No one can consistently predict the future. They may get lucky, but that’s what it is Luck and not skill.

But right now, we are seeing the re-emergence of value and small equities. Whether it continue is anyone’s guess.

As an investor, you may be tempted to change your investment mix to accommodate current events. This is called market timing and it has been proven not to work. You may get lucky in the short term but you will eventually fail.

To succeed in investing for the long term you should own equities….globally diversify….rebalance.  The key is to remain disciplined to this strategy.

Well, the Green Bay Packers draft is completed. How it went is anyone’s guess. However, the drama created by QB Aaron Rodgers continues. Will he stay or will he go?? Really nothing I can do to control.

Much like investing in the equity markets. We have no idea what will happen in the short term. We have no control of any of it. We can only look at the long term and realize there are strategies that work long term.

 For example, we know that over the long term there is a premium to owning value stocks as well as small stocks. We know that over the long-term value and small will out-perform large growth stocks.

Unfortunately, over the last 5 to 6 years both have under performed the S&P 500 and by substantial amounts. As a side note I just read that 20% of the S&P 500 stocks account for most of the gain. Talk about lack of diversification.

However, there is hope that value and small stock are ‘coming’ back. Please read the link below from Dimensional Fund Advisors DFA founder David Booth.

https://www.thewealthadvisor.com/article/dfa-founder-david-booth-value-stocks-comeback?mkt_tok=NDQ2LVVIUy0wMTMAAAF8zn-WPxDModRL3RcEDenWSyJVbQipegbfrR75KFMQbZZuLWAv1DJwMEEbKd8euawy1K9rKSRza7pnhszl0umTf7dgmtfygRw1mUUrXWf6fSgs

There was also an article from Vanguard predicting that value stocks will out-perform over the next decade.

OK OK I don’t believe in anyone’s ability to predict the future. Regardless many continue to look for predictions.

The real benefit is that with discipline, diversification pays off in the long run.

You must ask yourself, are you looking for maximum return? Or are you looking to control risk? Most studies say investors fear loss more than they enjoy higher gains.

Only you can answer this question.

Let me know if I can help- answer any questions. Except whether Aaron Rodgers will be the Packers quarterback in 2021. Because I have no idea.

There have been many investors asking do I need an adviser? The answer to this question would be ‘no’ except for one fact ….you are human. And humans are emotional beings.

If your broker/agent takes your order and does whatever you ask. You don’t need an adviser. But if you are looking for advice and someone to help you through the maze of investments. You need an investor coach/fiduciary adviser.

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 overweigh 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 has many investors looking to concentrate in the hot sectors.

Unfortunately, this leads to buying high and selling low. This breaks the number one rule of investing. Warren Buffet never fell for this mistake.

This is really what the financial institutions want…they make money when money moves.

This is a great example of why investors need an investor coach/fiduciary adviser. Your coach will help you build a prudent portfolio designed for you AND keep you disciplined to that strategy in both up and down markets.

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

During discussions with potential clients. I have learned most people have a very short time horizon. Most people are looking at short term results. They want to know what the best strategy is for right now.

In fact many advisers are guilty of this same thing. They are constantly marketing the latest ‘hot’ strategy or ‘hot’ investment class. These ‘advisers’ are actually investment salespeople. Constantly looking to market what people want right now.

True advisers show you what is right for you over the long term. While investment salespeople show you what is hot ‘right now’.

This is the result of everyone’s short term thinking. We base our decisions on short term emotions. We believe the truly successful investors are always in the investments that are always profitable ‘right now’.

This is far from the truth. Successful investors find a strategy that they believe in and stick with it. There will be times that their strategy will underperform others or even underperform the market in general.

A great example of this is Warren Buffet. Mr. Buffet has a strategy that he has stuck with throughout his very successful career.

During the late 90’s the tech stocks were earning extraordinary returns. In 1999 many funds were earning 80, 90% I even recall one fund earning 200% in 1999. At this same time Mr. Buffet stuck with his strategy and earned a negative 15%. That’s right while everyone else was doubling their money. Mr. Buffet’s fund LOST money.

As an investor with short term thinking. You would avoid his fund like the plague. Subsequently, the tech bubble burst and investors were devastated losing substantial amounts of money. Mr. Buffet on the other hand flourished.

Long term Mr. Buffet was proven correct.

Part of what I believe is a successful investment strategy includes the Three Factor Model developed by Doctors Eugene Fama of the University of Chicago and Kenneth French of Yale.

To make it short the Three Factor Model states that over the long term

1. Equities have a premium over fixed income
2. Small stocks have a premium over large stocks
3. Value stocks have a premium over growth stocks.

Remember this is over the long term which is how investors should be thinking. Short term investing is really speculating and not investing.

Both small and value are making a significant comeback. Over the long term, in my opinion, these premiums are real.  As true investors we must remain disciplined to our strategy and not seek out what is working for ‘right now’.

Ultimately you have to decide whether you are an investor or a speculator.

Because finding the strategy or investment class that is good for ‘right now’ will result in short term gain and long term pain.

To be a success investor, Long Term, you must own equities along with high quality short term fixed income…globally diversify….rebalance.

Like everyone else I receive numerous unsolicited emails every day. Most, if not all, are unwanted.

This weekend, on a rainy Sunday afternoon, I decided to look at an email from an investment company. More specifically, a seller of investment strategies.

This particular firm stated it average 16% over the last 10 years. This caught my eye, like it was intended to do. Digging deeper I found they used passively managed ETFs. Even deeper used 12 different asset classes, ie, large cap growth, large cap value, small cap growth, small cap value, international, etc.

Each month they stated how to allocate to the different asset classes. Based their technical analysis they were able to earn the previously stated 16% but with a maximum drawdown of 12.9%. WOW!! Now they had my attention.

Until I looked at their disclaimers. It was stated in the email that these were hypothetical results. In other words they designed the strategy based on historical data. Which is called optimized trading. They continued on stating they would not guarantee the same results in the future.

The statement all investment managers must use. Past performance is no indication of future results. This rings true time after time.

Because as I have said in the past the equity markets are random and unpredictable. Sure, you could get lucky. But that’s what it is LUCK!

The future cannot be consistently predicted.

We must own equities with high quality shorter term fixed income, globally diversify and rebalance.

We may not look good for periods of time but over the long term this strategy will prevail.

This is because we are controlling risk. Most investors have no idea how much risk they are carrying.

The email with the unbelievable results can only be repeated historical data. This may or may not repeat. Your investment dollars do not and should not be used gambling and speculating.

Recently I have heard someone say to me “I hope you are doing well in the market because I am’.  I did not respond to his proclamation nor will I in the future. This self-proclaimed trader obviously has made some good buys and sells.

They do not realize that they are gambling and speculating with their money. They can justify each trade with some signal or trend change or some other indicator. (The trading platforms like “Robinhood” make this speculating quite easy). These platforms advertise the successful trades made on their platform.

What they don’t tell you is that most of the traders that lost everything. Get rich schemes like these end up hurting most of those that participate.

Typically, traders with short-term success will be met with long term failure. Successful investing is NOT gambling and speculating. Successful investing involves following a prudent process and remaining disciplined to that process.

There will be periods when the gamblers will outperform a prudent portfolio. However, over the long term the prudent portfolio will outperform.

OK I am going to say this with the risk of repeating myself. There are three simple rules to successful investing:

• Own equities and fixed income.
• Globally diversify.
• Rebalance.

Each of these rules sound very simple and should be very easy to follow. Until one of your friends or someone you know tells you something that scares you into panicking and selling. Or even convinces you that the next hot stock or asset class will make you rich.

Successful investing is just that investing which means long term. One of the reasons the equity markets provide an excellent return long term is the volatility both up and down. We need to live with the downturns in order to experience the upturns.

Stock picking and market timing may be more fun to talk about because it is exciting, especially when you win. But like a gambler market timers and stock pickers get a high off their trading.

It’s ok to gamble and speculate with fun money but not money designated for a long term goal, like retirement. If you really want to gamble and speculate go to Las Vegas, at least you will have more fun when you lose.

To successfully investor you need to fire your broker/agent and hire an investor coach/fiduciary adviser.