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.

Does Market Timing Work?

Many investors are wondering what to do with their investments. Although many have a prudent portfolio, globally diversified with the right amount of risk for them. Over the long term they will succeed. However, during short term volatile environments these portfolios may underperform.

Many investors seem to believe that there is someone out there able to correctly time the market. That is, get out at the right times and get in at the right times. Unfortunately, that someone does not exist. At least not consistently.

Below is a link to an article providing proof that market timing does not beat dollar cost averaging. Even if the market timer got it perfectly right each and every time. Which is we all know impossible to consistently do.

https://www.marketwatch.com/story/this-is-the-last-article-youll-ever-need-to-read-on-market-timing-analyst-claims-2019-02-06?link=sfmw_fb&fbclid=IwAR1Fqhgqix6y2EL0pDgb7VF0aKrUPmgAdAMdb9B85UObEJh6nfYFyu2NVYU

(Hope the link works)

We must all decide if we want to be investors for the long term or gamblers for the short term.

If your goal is a secure retirement. I recommend deciding to be an investor with a long-term focus. You could be successful by being a gambler. However, your risks are extremely high that you will not succeed.

To succeed long term you must own equities with the correct amount of high quality short term fixed income…globally diversify…rebalance.

In most cases this will require retaining the assistance of an investor coach/fiduciary adviser.

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.

Evidence Based Investing…

At this time of year experts are predicting what the equity markets will do for the coming year. We are continually looking for answers.

  • What will the future bring?
  • Where will the markets go in 2019?
  • Where is the best place for my investments?
  • How can I earn stock market returns with Treasury bill risk?

These are really all unanswerable questions. No one can predict the future with any consistency. However, we as humans continue to search. Many of us read our astrology message each day. Hoping we can learn what will happen to us each day. Even here there are times when these readings appear right but again there is no consistency. When these readings are right it is a matter coincidence rather than some psychic ability of the writer.

Investors continually look to someone on Wall Street or anywhere for that matter to tell them how and where to invest. This search continues regardless of the poor track record of these predictors. For example the prestigious magazine ‘The Economist’ made the following prediction at the beginning of 2013. The magazine noted that while investors were optimistic, the coming year was unlikely to be one to remember.

As 2013 came to a close the equity markets had a stellar year.

Regardless of these and other inaccurate predictions, investors continue to search for answers and continue to read and absorb these and other publications. Many investors tell me that the stock market is too risky for them. This is true when your strategy is to listen to the ‘expert’ forecasts and basing you investment allocation of those predictions. When you base your investment strategy based on a forecast of the future you are gambling and speculating with your money.

The real problem is when one of these ‘forecaster’ is right, which is statistically inevitable. These predictors will market this fact extensively.  What investors don’t seem to realize is that there is no correlation between past performance and future results. Like I said some of these forecasters will be right but there is no reliable way to know which one(s) will be right going forward.

Dr. Eugene Fama of the University of Chicago won the Nobel Prize in Economics in 2013

for his work on efficient markets. Dr. Fama essentially proved that all knowable information is already in the price of the security. There is no reliable way to predict how the markets will perform going forward.

Throughout my career in financial services I have also continued to search for the ‘answer’ with some success followed by poor results. I finally remembered by finance courses in both college and graduate school. In my studies I learned that there is an academic and scientific method to investing that has proven to be successful in the long term. The issue is that these methods do not eliminate risk but rather work to control it.

Investors would be more successful with less anxiety if they worked with an investor coach. An investor coach will teach you among other things where returns really come from. HINT: it does not come from the hot stock picker or market timer or the manager with the best track record.

Trying to adjust your strategy based on current conditions will result in poor and disappointing results.

When you have a prudent process and the discipline which an investor coach will provide, success will be yours WITHOUT the need for an accurate forecast.

Are You Investing or Gambling-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.

This individual does not realize that he is gambling and speculating with his money. They can justify each trade with some signal or trend change or some other indicator. They can even make a logical case for their stock pick or market timing trade.

Unfortunately for this trader their 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.

When Times Are Bad We Believe They Will Always Be Bad!..NOT!

As investors we know or should know that the reason stocks have historically returned more than fixed income over the long-term is because stock holders endure the volatility of the market. Without the volatility that goes hand-in-hand with stock ownership, the risk premiums associated with stocks would diminish, and so would the attendant wealth. Mark Matson

I wrote this message in the first quarter of 2018. And I believe it remains relevant. Please take time and read it now.

We enjoyed a great return year in 2017, in fact January 2018 looked pretty great.  Many of us now believed that the markets will continue going up. Of course, there are always those predicting impending doom.

As an investor coach now is the time that I really earn my fees. Each week I discuss building a prudent portfolio at a risk level that YOU are comfortable with. We discuss that we need to know the expected return and the expected volatility. This information will give us the tools to build the right balance of return and risk.

However, I also mention the most difficult task of an investor coach is keeping clients from making emotional decisions. The task sounds easy, remain disciplined. However, when we are bombarded with dire predictions of doom many cannot resist panicking and selling when markets correct.

This in fact is a great opportunity to buy at a discount price. I believe Warren Buffet said it best when he told of his investment philosophy ‘when they’re crying I’m buying when they’re yelling I’m selling.’

Some historical statistics might help with this. Since 1928 the S&P 500 has returned 9.8% on average. During this time there has been 89 drops of 10% or more compared to 23 drops of 20% or more.

Since 1946 it has taken the market 111 days on average to rise to its pre-crash levels. Of course, we must add that past performance is no indication of future results. However, I believe that since we have over six decades and more, of data we can assume that after all market downturns, regardless of how severe, the markets recover and go on to greater heights.

Now is not the time to panic and sell and seek safety, now is the time to implement one of our three simple rules which is rebalance.

At the end of 2017 when the equity markets flourished and fixed income lagged, we sold equities back to our original allocation and bought fixed income to our goal allocation.  We repeat this at the beginning of 2019. Buy low and sell high. We will again rebalance at the scheduled time.

If the down turn continues, we will sell fixed income and buy equities. Again, buy low and sell high. When we have a prudent process and the discipline to follow it we will succeed long term.

This is where the services of an investor coach become invaluable. Because with the right process and discipline you will reach your long-term financial goals.

Which Way Will It Go?

You will hear many ‘guesses’ and they are guesses. No matter what their credentials are or what their track record. Any predictions are simple guesses.

As we begin 2019 there are many questions about the future. The future of the equity markets, the future of the political arena and many other questions. Questions that cannot be answered with any degree of certainty.

I have so far heard we will be a recession within, a year, the markets be choppy for the entire year, the equity markets will soar with the S&P500 advancing 15% (Remember the 1990s when 15% would be scoffed at)

With this wide array of predictions someone will be right. The problem is for the investor there is no way of knowing who will be right.

As to investors predictions are abundant but accountability is rare.

John Bogle, inventor of the index fund and past chairman of Vanguard Investments was speaking at an advisor conference. Now 80 years young, Mr. Bogle, shared the best investing advice he ever got while a young man working as a runner for a brokerage firm, a fellow runner, about the same age as Bogle is now told him the secret ‘Nobody knows anything’.

During his interview Mr. Bogle warned attendees that “we give too much credence to past returns; past is not prologue,” saying instead “it’s the source of the returns” that is more important. He then quoted Samuel Taylor Coleridge that history is like “a lantern on the stern, which shines only on the waves behind us.”

Discussing investing opportunities, Bogle pooh-poohed private equity, saying that there are “a lot of sellers, but not many buyers.” He still believes that “performance chasing” is one of the most deadly of investing sins, that “I grow more concerned about target-date funds every day,” is skeptical about 130/30 funds–“it’s not that easy”–and on exchange traded funds, “my skepticism is increasing,” saying that his reading of the data shows that “ETF investors do badly relative to mutual fund investors.” The problem is not the product but the investor. They need a coach to guide them through the maze of financial media and hype.

Basically what Mr. Bogle is saying is that stock picking, market timing and performance chasing do not work.

Developing a customized portfolio, with regard to your comfortable risk level. Using a scientific approach and remaining disciplined will maximize your opportunity for a successful outcome. My clients understand this and will succeed in the long run.

We must remain diligent and stay focused. Own equities…… diversify…..rebalance.

You Need An Investor ‘Coach’!!!

Each week I talk with investors about their investments and how to reach their investment goals. The conversations nearly always focus around three things:

  • Stock picking…What are the best stocks for right now? What stocks should be sold right now?
  • Market timing…Is now a good time to invest in equities?  Or better yet is this the BEST time to invest in equities? What asset classes/sectors/countries are good or bad for investing right now?
  • Track record investing…This investment manager had a superior return over the last month, year or five years. Should we concentrate our investments with this manager?

Unfortunately, each one of these is a sign that the investor is gambling and speculating with their investment money. We are emotional beings and we are easily swayed by the Wall Street bullies continual media blitz. This blitz is make sure that we continue gambling and speculating with our investment dollars.

Right now, investors are looking for someone who will market time for them. “If the market is going down shouldn’t we get out of the market?” Is a popular question right now. This is market timing and will result in disappointing results over the long term.

Below is a quote by Mark Matson which I believe best describes the dilemma investors face every day.

“What an investor must eventually come to, before they’re willing to accept the free market, is this realization: I am spiritually, intellectually, and emotionally incapable of managing my own behavior and my portfolio. This is a big pill for many people to swallow. Most people realize that, if left to their own devices, they eventually slip back into speculating and gambling with their portfolios. Ironically, by admitting our own humanity and frailty, we can gain new-found strength and accept a better investing solution.” – Mark Matson’s Main Street Money ‪#‎MSMmonday

Many investors want to be in ‘control’ of their investments. Unfortunately, this ‘control’ means using the three signs of gambling and speculating described above. This can be very destructive to your portfolio as well as your confidence in the equity markets.

Sadly, most investors are looking for the ‘holy grail’ of investing which does not exist. The Wall Street bullies continue to send the message that they can predict the future. Despite the bullies very poor track record on predicting the future, investors continue to seek their predictions.

Investors continue to seek stock market returns with Treasury bill risk and what they receive is Treasury bill returns and stock market risk.

Stop empowering the Wall Street bullies and find an investor coach/fiduciary adviser. Your coach will help you build a prudent portfolio based on your risk level. Once this portfolio is built your coach will educate you and keep you disciplined to your plan.

As my friend Brad Nagel says ‘You manage your life and let your adviser manage your portfolio.’

Your adviser should protect the future you from the current you.

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.

You Don’t Have to “Beat the Market” to Be a Highly Successful Investor.

We have been taught from a very young age that we can ‘beat’ the market. In fact, there are stock picking contests in school. Remember the contest? You are given a hypothetical portfolio and told to invest to win. These contests were for a relatively short period of time, a semester.

The ‘winner’ was given a prize. This instilled in all students that you can ‘beat’ the market. The real lesson is that investing in this way is nothing more than speculating and gambling with your money.

These contests are often sponsored by a local stock broker. Their motivation is obvious, get them young and turn them into lifelong speculators and gamblers.

If true investing was taught in school, it would require a much longer ‘teaching’ moment. True investing takes time and discipline.

Although successful stock picking is possible it is not true investing. ‘Beating’ the market is possible but highly unlikely. And most people will be disappointed.

Market returns are enough. Almost every major equity and stock market has consistently outperformed inflation and all the hyperactively trading professional money managers trying to outdo the market.

Most investors aren’t aware they have another option. Chances are you will beat all your friends and the vast majority of managers with the market returns from index funds and structured market portfolios. There is evidence proving this statement.

To become a true investor, you must own equities with short term high quality fixed income, globally diversify and rebalance.

To guide you, seek the help of an investor coach/fiduciary adviser.