The American Dream Is Not Dead.

The current equity market downturn has, predictably, brought out the annuity salespeople selling fear. This is an example of the Wall Street bullies encouraging people to move their money. These bullies will find some obscure evidence that ‘this time it is different and the equity markets will not recover’.  They use fear to sell the ‘safety’ of annuities.

The Statue of Liberty front shot, on Liberty I...
The Statue of Liberty front shot, on Liberty Island. (Photo credit: Wikipedia)

With the help of the media these bullies will entice people to sell their equities, thereby locking in losses and buy annuities.

The bullies will find ‘predictions’ that justify moving to safe investments like annuities or CDs or cash or maybe alternatives like gold. These predictions might sound something like “3 reasons the pullback could become far worse”. Although possible, yes it could get worse, NO ONE can consistently predict what will happen in the future. Anyone who correctly predicted an event cannot be relied upon to correctly predict future events.

In other words there is no correlation between past performance and future results.

Remember the reason the equity markets provide a superior return over the long term is because of the volatility (risk) both up and down. As a point of reference from 1926 through 2012 the Standard and Poor’s 500 has earned approximately 9.82% per year on average. During this time there has been downturns of 10% or more 87 times. So to earn a superior return over time we need to deal with downturns.


Hopefully I am wrong about this but perhaps Americans have given up on the American Dream. They might believe that it is hopeless and they need someone to take care of them, like the government or an insurance company. I do not believe that you can rely on the government or any insurance company for your financial future.

There is no such thing as a ‘free lunch’.

I do not believe the American Dream is dead. In fact I believe this is a great time to be an American. If we work hard and remain disciplined we will succeed in the long run. Of course, there will be bad times but these bad times will pass.

There is a tendency for people to believe that when times are good they will always be good and when times are bad they will always be bad. This past winter has been a great example of this. It seemed like it would never end. But as I look outside today the snow, what’s left of it, is melting fast. Spring is finally here. The ‘bad times’ are ending. Ok, as I write this there is a snow storm predicted for Sunday April 13, but still it will end.

Most people do not understand, including most ‘financial advisors’, how to engineer a mix of assets (portfolio) to capture the return premiums that are available to them in the market—and to do it consistently over time. Understanding risk/return dynamics is essential to seeking market rewards.

Because we are emotional beings we need the help of an investor coach to build the right portfolio for us and remain disciplined. We need constant reinforcement of the academic principles that will lead to financial success that coaching provides.

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Want to Gamble With Your Investment Money…..Go to Vegas!!!

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.

Las Vegas
Las Vegas (Photo credits:

He does realize that he is gambling and speculating with his money. He can justify each trade with some signal or trend change or some other indicator.

Unfortunately for this trader his 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.

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 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.

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Is Now The Time To Panic?

The situation in the Ukraine and Russia has the global markets spooked. Uncertainty rules the day. Of course with over six billion people on earth there will always be uncertainty. This inevitable uncertainty allows the Wall Street bullies to predict what will happen next. There are hundreds of new ‘predictions’ every day.

Stocks (Photo credit: LendingMemo)

These predictions include …..the President’s actions will cause the markets to crash…you should seek the safety of gold…the financial collapse is near…the U.S. dollar will crash and on and on. The talking heads on the financial networks are continually selling fear. This includes the talking heads on the conservative talk shows. Have you ever noticed who is advertising on these shows when the host recommends selling stocks and buying gold?

If they really knew what would happen next why would they tell you?

Is this a coincidence? I have my doubts. These talking heads are there to make money for themselves. And the advertisers are paying the bills.

As I have said many times in the past the Wall Street bullies make money when money moves. When money moves from one ‘hot’ product to the next ‘hot’ product. This movement also includes moving from stocks to annuities or CDs or gold or commodities or whole life insurance, etc. It may also include moving within stocks from on hot sector to the next hot sector. These bullies want you to believe that they have some special ability to know when to move.

This is market timing and studies have shown it to be very ineffective, long term. The following quote by William F Sharpe Nobel prize winning economist. “If one compares a market timer’s return to that of a portfolio of stocks and cash weighted to have the same standard deviation as the market timer’s portfolio, the result is that the market timer must be correct 74% of the time in order to perform better than the passive portfolio of the same risk.”

This means that a market timer to be successful must be right in getting out of stocks and getting back into stocks at the right time nearly three quarters of the time.

Keep in mind that market timers results are based on luck and not skill.

Remember returns do not come from the manager, returns come from the market.

So is this the right time to panic and sell your stocks? The short answer is NO. Now is the time to:

  • Own equities and short term, high quality fixed income.
  • Globally diversify.
  • Rebalance on highs and lows.

Because we use emotions to guide us in many decision we need the assistance of an investor coach/fiduciary adviser. Your coach will keep you disciplined to your strategy and help you thru the short term ‘noise’ of the markets.

There have been bad markets in the past and there will be bad markets in the future. We can use bad or down markets to rebalance.

Rebalance to our original asset allocation.

In this way we are buying low and selling high, automatically.  We need to remain disciplined throughout to earn the market premiums.

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Well Now We Know That Equity Markets Don’t Always Go Up.

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

English: Performance of the VIX index as a vol...
English: Performance of the VIX index as a volatility predictor (Photo credit: Wikipedia)

We have enjoyed a great return year in 2013. Many of us now believe 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 87 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 2013 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. 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.

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The Equity Markets Are Down…Now What?

Well the equity markets around the globe have experienced a down performance over the last week. The pundits which predicted a down turn are now ‘thumping’ their chest and proclaiming their ability to predict the future.

Investors (Photo credit: LendingMemo)

What most investors don’t realize is that these predictions are a matter of luck and not skill. Most of these lucky predictors neglect to mention that they were unable to specify when the drop would occur. What we know about equity markets is that in order to realize the long term superior returns we need to experience the down turns. There are up markets and there are down markets. Over the long term investors will realize a superior return because the assume risk. Of course the regulations require me to say that past performance is no indication of future results.

That said I believe the equity markets will recover and disciplined investors will realize a superior return over the long term. Investors are rewarded for taking on risk. Without risk there is little chance of any reward.

Below is an excerpt from  Mark Matson’s Main Street Money

“Remember, nothing in life moves in a perfect straight line. Up market enthusiasm will eventually fade, and down markets will turn around eventually even if it feels like they never will. Recognize that your brain is lying to you. After all, you are only human. Recognizing the patterns and biases of your own mind is the first step to defeating them.”

I believe it is important to remember that most people believe that when times are good they will always be good and when times are bad they will always be bad. This is NOT how it works. The equity markets are volatile which means the markets go up and the markets go down. For this volatility investors rewarded.

Most if not all investors lack the knowledge and skills to build a prudent portfolio. A great analogy, at the risk of repeating myself, is if I go to Menards or Home Depot or Lowe’s, etc, and ask the clerk to deliver everything I need to build a house. That clerk will oblige and deliver all the necessary materials to any location I request. Once delivered I would have no idea where to begin.

The same holds true for investors all the tools and materials are available to build a prudent portfolio however most if not all lack the knowledge and skills to build the proper portfolio.

Once built these same investors lack the discipline to ‘stay the course’ in good and bad times. These investors, left on their own, will rely on the financial media and the other Wall Street bullies to make investment decisions.

Stop being a victim of the bullies and fire your broker/agent and hire an investor coach.

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Can You or Anyone Beat The Market?

The quick answer is no, at least not consistently.

Most of Wall Street wants you to believe that there is someone out there who has the ‘right stuff’ to predict the market. This is due to most investors desire to beat the market. Unfortunately Wall Street knows that most investors make their investment decisions based on emotions. Both fear and greed come into play. These emotional decisions make for unsuccessful results long term.

Upper Wall Street with Trinity Church and Fede...
Upper Wall Street with Trinity Church and Federal Hall (Photo credit: SheepGuardingLlama)

If these Wall Street wizards really knew the best investments, why would they tell you?

If you believe that all knowable information is already in the price of securities, as I do. You will stop trying to ‘beat’ the market. As I have said in the past. Investors continue to search for stock market returns with Treasury bill risk and what they get is Treasury bill returns with stock market risk.

When you try to outwit the market you are trying to beat the collective knowledge of ALL investors. This is a formidable if not improbable task to accomplish consistently. There will always be someone who beats the market over the short term. Unfortunately there is no way knowing who if anyone will repeat their superior results.

Investors will increase their returns with less anxiety by harnessing the power of the markets. Use this knowledge to develop a portfolio designed for you and your circumstances.

By working with an investor coach/fiduciary adviser investors will be taught the right way to invest. Remember you don’t have to know everything about investing but you do need to know the right things.

One thing many investors are unaware of is survivorship bias in the mutual fund industry. Mutual fund families will state how their funds beat the market over a period of time. What they do not tell you is the funds which were closed due to poor performance. The regulations do not require these fund families to report closed funds therefore the overall performance of the fund family will appear much better than it really is. The manager of the closed funds will typically be absorbed into the surviving funds. Try…Try Again.

This is just one example of how Wall Street can mislead investors.

Stop being a victim of Wall Street and hire an investor coach. Your coach will help you build a prudent portfolio designed for you and your circumstances. And more importantly your coach will keep you disciplined to your plan.  True investing is not a short term process but rather long term in nature, unlike gambling and speculating.


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What Is Safety in Investments?

Safety continues to be the word of the day. Investors continue to say what if? What if the stock market goes down? How will I live? What will I do?

Lehman Brothers Rockefeller centre
Lehman Brothers Rockefeller centre (Photo credit: Wikipedia)

This is not the first time I have discussed this and it will not be the last. We are emotional beings and are affected by what we hear in the media both financial and political. Therefore this will be a hot topic for some time to come.

Can you really find safety in investments? Remember even insurance companies cannot say guaranteed but rather backed by the insurance company. What does this mean? It means if the insurance company goes out of business you lose. Since 2008 there has been at least twenty life insurance companies that have gone out of business.

What would happen if the stock market went down and stayed down? No one can tell you for certain.

  • Would more insurance companies go bankrupt?
  • Would more banks go bankrupt?
  • Would the entire financial system collapse?
  • What would happen to the value of real estate?

There are predictions that these things can happen. In nearly all  cases these predictions are a marketing gimmick to sell books or the latest hot investment.

It wasn’t that long ago that if I had told you that GM or Lehman Brothers or Bear Sterns or Worldcom or ……..would go bankrupt you would have told me that it was impossible. All these things happened and yet the free markets continue to work.

In my opinion over the long term equities are the greatest wealth creating tool on the planet. It doesn’t matter if our currency is based on gold or platinum or silver or shark teeth people will need goods and services. These goods and services are provided by companies.

Because the equity markets are random and unpredictable.

It is unlikely if not impossible that anyone can tell you which specific investments will outperform with any consistency.

Again as I have said in the past your real risk going forward is inflation or loss of purchasing power. For a retiree this is a real concern. The Wall Street bullies may promise you an insurance policy which will be adjusted for inflation. What they neglect to tell you is that the inflation adjustment excludes food and fuel and soon health care. Now what are a retirees top expenditures in most cases? The answer I’m guessing here is food, fuel and health care.

The 2008 crisis has made many baby boomers make the switch from 100% equities to 100% fixed income. This is a typical reaction or should I say over reaction.

The answer, in my opinion, is somewhere in between. With the help of an investor coach you can determine the right mix of asset classes for you. Remember investing is not a game as the Wall Street bullies would hope you believe.

There are even insurance strategies which will avoid taxes. This sounds appealing to many investors unless you look at the details. If you consider the additional fees these strategies include your total returns will be lower and over time much lower.

The question you need to ask is do you want to pay the insurance company or the IRS? This assumes that the tax code does not change for insurance proceeds.  If the government decides to change how insurance proceeds are taxed you could lose twice.

Given this knowledge there are three simple rules of investing:

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

Your investor coach can help build the right portfolio for you and help keep you disciplined to your plan.

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Managed Futures…Annuities….MLPs…What’s Next?

The Wall Street bullies have a product of the day for every situation. Every week I receive calls from wholesalers to recommend their ‘products’ to my clients. The list has included managed futures, fixed and variable annuities and recently MLPs or Master Limited Partnerships. Each of these ‘products’ feeds a fear of the consumer. After each ‘crisis’ a new ‘product’ emerges and the fad builds until it bursts.

Finance (Photo credits:

Currently investors are seeking better yield and safety. They believe the MLP fits the bill. There has been a large number of these MLPs brought to market, most commonly transport and store oil and gas.

One of the most crucial criteria that must be met in order for a partnership to be legally classified as an MLP is that the partnership must derive most (~90%) of its cash flows from real estate, natural resources and commodities.

The advantage of an MLP is that it combines the tax benefits of a limited partnership (the partnership does not pay taxes from the profit – the money is only taxed when unit holders receive distributions) with the liquidity of a publicly traded company.

If you recall in the 1980’s the real estate limited partnership was the product of the day until Congress changed the tax code eliminating the tax benefits.

The results were devastating to those invested in these products. I am not suggesting this situation will repeat but it might.

Each time the stockbroker/salesperson makes a compelling and very convincing reason why this time it is different. This time their product will solve all the investors’ problems. They might even become rich over night.

In many cases the end result is the bursting of the bubble.

The real message is that there is no ‘answer’ to successful investing. You cannot earn superior returns with low or no risk. Of course there are examples of those that do but this a matter of luck and not skill. NO ONE can consistently repeat this success long term.

Perhaps you are actually looking for ways to gamble and speculate with your money. If that is the case buying into these fads may be a way to feed your ego.

However if you are an investor looking for a more secure financial future these fads are NOT for you.

Find an investor coach to help you develop a lifelong strategy. Your coach will guide you in developing a prudent portfolio at an appropriate risk level for YOU. A coach will provide you with the right information for you to achieve your long term financial goals.

Most importantly, your investor coach will keep you disciplined during volatile markets both up and down.

Many investors will watch the financial media or listen to a friend/colleague/relative, where success was found with a specific investment/asset class. Or during market down turns will panic and sell.

To succeed in reaching your long term financial goals start by following three simple rules:

  • Own equities and fixed income
  • Globally diversify
  • Rebalance

This and working with an investor coach will lead to a successful retirement or any long term financial goal.

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When Stock Markets Go Down Investors Should Be Happy….WHAT????

Did I read that right? When Stock markets go down investors should be happy.  Tony you must be going crazy. Why would I be happy if my investments go down? I panicked during the 2008-9 crash. The experts said this was the end of the capital markets. Stocks are too volatile. I cannot afford to take any losses in my portfolio. I worked too hard to earn it. What about real estate or gold or commodities or cash or annuities………???

These are all good questions, statements and concerns. However you cannot

Stock Market
Stock Market (Photo credit: Tax Credits)

earn the superior return of the stock markets without taking on risk.  As I mentioned in past messages the Standard & Poors 500 earned 9.75% from 1926 to 2012. I also mentioned that there were 22,040 trading days during this time and only 52% or 11,461 days were up days. This means that there were 10,579 down days.

In order to earn this return you needed to stay in the market. Just a few of the crisis periods include the 1929 stock market crash and subsequent depression in the U.S., World War 2, the Cold War, The Korean War, the Vietnam War, the Cuban missile crisis, the 1987 crash, the Gulf War, the technology bubble and the housing bubble. This of course does not cover all the events which shook the markets around the globe but represents a good sample.

The reason we earn a superior return within the stock markets is we assume some risk that the markets reward us for. In other words if there were no down markets there would be no ‘good’ returns realized.

Please keep in mind that I mention the S&P500 only for illustration purposes. I am not suggesting that you buy the S&P500 and just wait out the down turns.

Diversification is vital to your investing success. This requires an in depth knowledge of the dimensions of returns.

Recently I was told that real estate offers better return with less risk. The real reason many believe this is because they cannot look up the value of their real estate every day. In fact, they cannot look up the value of their real estate minute by minute on their cell phones like stocks.  A hypothetical question might be how much could you have sold your real estate, any real estate during the market low March 2009? One can only guess however I recall one example of a 60% discount from the 2007 high. Of course, you would not sell at that time, unless you absolutely had to. You would hold on until the prices recovered. Why then would you sell your stocks at their low? Why not wait until prices recovered which they did.

Like real estate there are examples of picking the right stocks for high returns. Unfortunately like real estate there is no correlation between past successes in stock picking and future results. This is exactly what the Wall Street bullies are hoping for. The bullies are hoping you will continue to gamble and speculate with your money. You are gambling and speculating if you are:

  • Stock picking
  • Market timing
  • Track record investing

Everything that I have discussed requires investors, whether real estate or stocks, to control their emotions. Not only during down markets but also when certain market sectors are charging ahead.

For most if not all it will requires the guidance of an investor coach.

Your investor coach will help you develop a prudent portfolio, provide the necessary knowledge and keep you focused on the long term.

Part of that knowledge is the following three simple rules

  • Own equities and fixed income
  • Globally diversify
  • Rebalance

So the next time the stock market crashes, be happy.  Because you know in the long term this will result in superior returns you need to realize your financial goals.

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Are You a Long Term or Short Term Investor?

Are you a long term or short term investor? Many of us try to look at the big picture. However, when the equity markets have a losing day many of us become short term investors. There is a tendency for humans to believe that when times are good they will always be good and when times are bad they will always be bad.

English: The corner of Wall Street and Broadwa...
English: The corner of Wall Street and Broadway, showing the limestone facade of One Wall Street in the background. (Photo credit: Wikipedia)

Many people did not realize that the equity markets were up in 2012. In fact many people believed that they equity markets were flat or down for 2012.  When they learn that the equity markets had a very good year they are very surprised.

Is this because they believe we continue to be in a poor economy?

In other words since times are bad, economy-wise, the equity markets must be doing poorly.  History has proven this assumption is not necessarily the case. Perhaps the economy is not nearly as bad as many believe.

The Wall Street bullies want us to move our money from equities to ‘safe’ investments and then back when they can convince us times are good.

On a side note be careful of some ‘safe’ investments because some brokers and agents will not reveal all the conditions necessary to realize the attractive rate of return. For example, when a rate is quoted it is before fees and expenses are deducted. You will NOT earn anything near the quoted rate. Buyer beware.

During periods when the markets are down the Wall Street bullies will offer you ‘safe’ investments and your emotions will justify their purchase. This is when you become a short term investor.

Short term investors allow their emotions to control their investment decisions.

Unfortunately, some of these purchases cannot be reversed without substantial penalties. Often these penalties will make reversing the purchase imprudent.

Remember no one can tell you when to get into and out of the equity markets or specific asset classes.  When you begin to focus on the long term and allow yourself to be coached you will reduce your anxiety and improve your overall results.

There is an academic and scientific method to investing which requires a long term focus. Forget the short term volatility because it will only raise your anxiety levels. We all need to focus on the future and trust that the free markets do work.

No one can tell you whether the next equity market move will be 20% up or 20 % down. However I can tell you that the next 100% move in the equity markets will be up.

When saving for retirement our goal is to keep ahead of inflation. For inflation is one of your top risks going forward.  It silently and relentlessly eats away at the purchasing power of your money. One of the best ways to keep ahead of inflation is to own equities.

The most efficient way to invest is to stay invested. The equity markets are random and efficient. Take advantage of this by working with an investor coach. Someone who will work with you as a fiduciary.

To succeed long term you will need to follow three simple rules of investing. These rules are however difficult to follow consistently…

  • Own equities
  • Globally diversify
  • Rebalance


Follow these three rules and focus on the long term and success will be yours.

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