When Should You Get Out of the Equity Markets?

Well the government is open again….for now. The equity markets have now changed focus from the government to corporate results with favorable outcomes. Many investors were in a panic about a possible default of the U.S. government debt .This debate will continue and again come to a head in January. What will happen is anyone’s guess.

Finance (Photo credits: www.myhardhatstickers.com)

No matter what the current events, investors will be ill-advised to attempt any market timing. That is getting out of the market when the financial media tries to forecast the future. It is very difficult if not impossible to determine when to get out and then determine get back in. Even when someone is able to successfully do this once it is a matter of luck and not skill.  There is no evidence that anyone can consistently time the market.

This however does not stop the Wall Street bullies from marketing the few analysts that got it right. They try to convince the investing public that these same analysts have a special gift and will repeat their incredible performance. If it were true why would the Wall Street bullies have hundreds if not thousands of analysts on staff? These bullies know that in any given year a few of their analysts will get lucky and ‘beat’ the market.

Unfortunately for investors there is no way for them to determine which analysts will be the lucky ones in the future.

As I have said  many times in the past you are gambling and speculating with your money if you:

  • Stock pick.
  • Market time.
  • Track record invest.

If your investment portfolio is needed to last your lifetime, gambling and speculating will lead to disappointing results. Of course some will get lucky and hit it big but there is a high likelihood that they will continue gambling until they lose.

Investors who need their money to last a lifetime need to build a prudent portfolio at the appropriate risk level. There are three simple rules of investing:

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

If you follow these simple rules you will be able to take a prudent income with adjustments for inflation.

And inflation will be your main challenge in retirement.

For example, if you have $1,000,000 today and inflation averages just 4% per year. In ten years you will need more than $1,400,000 to have the same purchasing power.

Equities are the greatest wealth creation tool on the planet.

You need to ask yourself if the stock market goes down and stays down will the financial system survive? What will your money be worth? There are many unanswered questions and these questions are unanswerable.  No matter what happens to the financial system people will continue to demand products and services.

To reach your long term financial goals you will need the assistance of an investor coach. Your coach will help you build YOUR portfolio at the appropriate level of risk. When this is accomplished your coach will keep you focused on your long term goals. They will help you resist the hot asset classes or hot stocks. As well as keep you from panicking and selling when the equity market declines.

Finally at the risk of being a name dropper I like the quote of Dr. Eugene Fama winner of the Nobel Prize in Economics for 2013.

“Diversification is your buddy.”

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Are You Investing or Speculating?

When I respond to the question, What do you do? with financial or fiduciary adviser. The follow up question is typically What investment looks good now? or I heard gold is the thing to buy. or What do you think of (fill in an individual stock or industry or country) ? or isn’t the market too risky right now?

The image of American economist Merton Howard ...
The image of American economist Merton Howard Miller (1923-2000) (Photo credit: Wikipedia)

These are all questions gleaned  from watching shows like CNBC. The talking heads on these shows continually extol the next great investment, such as, gold, annuities, commodities, a hot industry or a cold industry. These heads may explain why the market is going up or down. It all ends up with a prediction of the future.  Since the markets are more efficient than not this is a useless exercise.

The markets are random and unpredictable.

Investing is not ‘get rich quick’ that is speculating.  This confusion leads many people to fear the stock markets. When a certain stock or industry ‘crashes’ investors are frightened and sell all their stocks. Vowing never to return. Events like the 2008-9 crash are not the norm.

This should not keep you out of the equity market.

You must maintain a long term focus on the markets. If there were no risk in the equity market the returns would not be there for you to enjoy.

Remember, the stock market is the greatest wealth creating tool in the world, IF properly used.

Your goal, as an investor, is to accumulate sufficient wealth to reach your financial goals. This goal must include investing to more than keep up with the real inflation rate. This is why stocks and/or equities must be included in your investment plan.

One of the best tools to accomplish this is develop AND follow an investment policy statement. This investment policy statement acts as your guide during the inevitable ups and downs of the market.

Patience and discipline are your most important attributes to accomplish any goal. Yet, when investing,  they are the most difficult to follow during economic and market extremes.

Accomplish your long term financial goals by doing the following:

  • Own equities
  • Globally diversify
  • Rebalance

Markets have 101 ways to remind us of Nobel laureate Merton Miller’s observation:

Diversification is the investor’s best friend.

Rather than attempting to ‘beat’ the market, focus on improving your career or improving your personal relationships. The rewards will be much greater with far less anxiety.

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Convergence Of Alternatives And Traditional Investments – It’s About Time!

The Wall Street bullies will continue to invent new products to feed the fear and greed of investors. Hedge funds are a way for the Wall Street bullies to generate higher fees. Don’t empower the Wall Street bullies, hire an investor coach.

Asset Allocation on Wikibook
Asset Allocation on Wikibook (Photo credit: Wikipedia)

As a result, it is important for financial advisors and their clients to focus on three key factors:1. Portfolio Diversification – Investors should focus on strategy diversification and not security over-diversification (di-worsification); diversification is not achieved by allocating to hundreds of stocks, or multiple managers expressing the same type of investment or investing a small amount to an “alternatives” bucket.

2. Risk Assessment — Investors should work to identify, embrace, and combine the risk factors that they find attractive and believe will collectively provide the performance they desire from their portfolios.

3. Return on Invested Capital — Every investment an investor makes will have some type of risk associated with it, and therefore investors must be comfortable that the return characteristics are fundamentally attractive.

Investors need to truly understand what diversification is. This understanding will lead to the reduction of conflict of interest generated by the Wall Street bullies.

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

Posted via email from Curated 401k Plan Content

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Don’t Overlook Advice for Your 401(k)s and IRAs

The need for a fiduciary adviser has never been more important to reaching your financial goals. Left on your own you will allow fear and emotions to guide your investment strategy. To succeed you must own equities, gloablly diversify, rebalance and most importantly remain disciplined.

English: The U.S. Securities and Exchange Comm...
English: The U.S. Securities and Exchange Commission headquarters located at 100 F Street, NE in the Near Northeast neighborhood of Washington, D.C. (Photo credit: Wikipedia)

Big Picture Needed

Yet, retirement planning should not involve solely relying on your 401(k).

“A comprehensive financial adviser should be looking at all of your accounts,” including a 401(k), said Peggy Cabaniss, a certified financial planner at California-based HC Financial Advisors and past chair of the National Association of Personal Financial Advisers.

Make sure you ask the adviser to look over all of your accounts or at least inform the adviser of the balances in the accounts that you own.

“A lot of times clients don’t know they should ask their adviser to review it,” Cabaniss said. “We may not charge for (401(k) advice), but at least we’ll review it once a year and make sure your 401(k) is invested in the best way possible given the limited choices the company offers.”

Diversification is still key. If you’re risk averse, you may not be taking on enough risk with your assets — and that’s one reason why you may need financial advice.

“How diversified are you in different sectors? How much homework are you willing to do and how much time are you willing to spend on it?” said Lori Schock, director of the office for investor education and advocacy at the Securities and Exchange Commission.

These are some of the key questions to ask yourself, said Schock. “If you’re not willing to do this, it may be worth having a financial professional at least give you a check up every three years or so.”

Just make sure you don’t overpay for the advice.

“If you’re just dealing with a 401(k), I would look for an adviser who would charge me hourly or a one time fee,” said Schock. “You don’t want to pay an exorbitant amount for stock picking advice, when there are only 10 mutual funds to choose from in the 401(k) plan.”

Investors need the guidance of a fiduciary advisor to control their emotions and stay disciplined to a prudent strategy. Reaching your long term goals requires the objective advice of a fiduciary adviser.

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

Posted via email from Curated 401k Plan Content

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Diversification Is Your Buddy

Given the events of the past few weeks, many investors are considering moving their money out of the stock market.


Since no one can predict the future, this is a huge mistake.


You must decide if you are a gambler/speculator or an investor. Gamblers believe they can out guess the market and avoid all losses. The gamblers have proven numerous times to be wrong in the long run. One may get ‘lucky’ but no one can consistently market time.


In markets like these diversification is your buddy.


Proper diversification spreads risk across various asset classes with varying return characteristics or dissimilar price movement. Simply said: they don’t do the same thing at the same time. Most investors are narrowly diversified into top performing funds or classes of the last five to ten years. They often feel diversified but aren’t. To be diversified means including classes or types of funds in your portfolio that did poorly over the last five to ten years. If you do this, your portfolio will look and perform very differently from your neighbors’ or friends’. Those of you which are my clients own portfolios which are professionally diversified and rebalanced much like the large pension funds.


Over time these portfolios will help you successfully accomplish your investment goals.


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

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