What Investors Can Learn From the Election

The Wall Street bullies will promote gambling and speculating because this is how they maximize profits for their firms. These actions are not in your best interest and should be avoided when saving for a long term goal such as retirement. With a prudent strategy and discipline financial goals can be met consistently.

English: Nate Silver in Washington, D.C.
English: Nate Silver in Washington, D.C. (Photo credit: Wikipedia)

Data Matters: As everyone knows, Nate Silver, in his New York Times blog, predicted the results of every state election for president. His data consistently gave Obama an overwhelming electoral vote advantage. Nevertheless, as reported in an article in Forbes, the pundits derided his results, accusing him of everything from being an “ideologue” to running a “numbers racket.” On the date of the election, Silver had the probability of an Obama win in excess of 90 percent, yet CNN and others continued to hype a race that was “too close to call.”Even post-election, the myth of a close election continues. Dick Morris, in a limp effort to justify how he wrongly predicted a landslide for Romney, explained that he “… predicted a Romney landslide and, instead, we ended up with an Obama squeaker.”

The reality is the final electoral count of 332 for Obama and 206 for Romney is hardly “a squeaker.” Morris not only got it laughably wrong, but he can’t even admit the reality of Obama’s overwhelming win.

I confront the same issue with investors daily. The data supporting the wisdom of investing in a globally diversified portfolio of low management fee index funds, in an appropriate asset allocation, is overwhelming. In its mid-year 2012, Scorecard, Standard and Poors calculated the number of actively managed funds outperformed by benchmarks over various time periods. Here’s one significant finding: For the one-year period ending June 30, 2012, 89.84 percent of all domestic equity funds were outperformed by their benchmark. Yet, even with these daunting odds, the majority of investors continue to purchase actively managed funds.

As with elections, the pundits in the financial media (and most brokers and advisers) ignore or spin the data. The moral is clear: You need to ignore the pundits and focus on the data.

Beware of “Experts: The financial media engages in a charade remarkably similar to political pundits. Its daily grist consists of the views of “experts,” who discuss the direction of the market, “hot” fund managers and “stocks to watch.” Like political pundits, these “experts” often dispense misinformation because it suits their agenda to do so. “Buy index funds” is not compelling television. A daily dose of that advice would cause ratings to plummet. It would also lead to massive outflows from actively managed mutual funds which are major advertisers of these shows.

The underlying premise that financial pundits have the ability to make predictions more accurate than you would expect from random chance is fatally flawed. In a moment of candor, the chief executive of a large asset management firm conceded that the economists at his firm got it right “about three times out of ten.” In his excellent book, The Fortune Sellers, William A. Sherden lamented the dismal track record of “experts”, noting: “Even with all the advances in science and technology that are available to them, the experts are not getting any better at prediction. In some respects, we are hardly better off than the Romans or Greeks, who read animal entrails to make major decisions regarding the future.”

Investors need to stop listening to the financial pornography published by the Wall Street bullies. Success in investing, not gambling and speculating, requires a prudent strategy and discipline. This usually requires the help of an investor coach, not a salesperson.

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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Former Brokers Say JPMorgan Favored Selling Bank’s Own Funds Over Others

After all the negative publicity these bannks and financial services firms have received over the last ficve years. Why does the public continuously look to them for conflict free advice? If these institutions do not agree, in writing, to be a true fiduciary to you,

NEW YORK, NY - MAY 14:  Flowers stand in front...
NEW YORK, NY - MAY 14: Flowers stand in front of a Chase sign at a bank branch inside the JPMorgan Chase headquarters on May 14, 2012 in New York City. Following a $2 billion trading blunder, JPMorgan Chase's chief investment officer Ina Drew retired and will be succeeded by Matt Zames, an executive from JPMorgan's investment bank. At least two others are also being held accountable for the mistake. (Image credit: Getty Images via @daylife)

run do ont walk away from them.

These financial advisers say they were encouraged, at times, to favor JPMorgan’s own products even when competitors had better-performing or cheaper options. With one crucial offering, the bank exaggerated the returns of what it was selling in marketing materials, according to JPMorgan documents reviewed by The New York Times.

The benefit to JPMorgan is clear. The more money investors plow into the bank’s funds, the more fees it collects for managing them. The aggressive sales push has allowed JPMorgan to buck an industry trend. Amid the market volatility, ordinary investors are leaving stock funds in droves.

Brokers at banks are under tremendous pressure to meet their sales quotas. Enough said.

Please comment or call to discuss how this affects You.

Posted via email from Curated 401k Plan Content

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Does Wall Street Have Your Best Interest in Mind?

There has been increased attention paid to the financial brokerage industry with regard to a non-fiduciary mindset on Wall Street. Investors are continually looking for the answer to one question. “How can I beat the market?” Not only is it a matter of increased return, but bragging right to their friends on how much money their broker makes them. These same braggers neglect to tell when their broker loses their money. Wall Street is more than happy to accommodate this greed.

Image representing Goldman Sachs as depicted i...
Image via CrunchBase
It is much like gamblers at a casino, you never hear about the losses only the wins. Investors are continually moving to the hot broker. As I call it musical brokers. Yesterday’s article in the New York Times brings this out in the open again. This is what most of us suspected.

On Wednesday, the Goldman Sachs executive Greg Smith resigned his job by writing a scathing op-ed in the New York Times. In that column, written as an exit letter, he accuses top management of encouraging predatory sales practices that actively hurt customers:

“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.”

While he insists that he’s seen no behavior that’s actually illegal, he explains that:

“People push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Everyday, in fact.”

To be a successful investor find an academically proven scientific strategy to investing and remain disciplined to it. Three simple rules will help you succeed. Own equities……globally diversify………rebalance.


Please comment or call to discuss how to protect yourself from Wall Street and inflation.

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After Occupy Wall Street, Occupy 401(k)?

Image representing New York Times as depicted ...
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The ‘Great Recession’ has awakened many Americans to the fact that they must prepare for their own retirement. Relying on the government will not allow them to retire with dignity.

Retirement plan sponsors, beware! The anger that fueled Occupy Wall Streetand, closer to home, Occupy Sacramento and Occupy Stockton, could spread to the 401(k) world.You may think Smart Investor is kidding. But we’re not.

Consider this statement by respected financial columnist Ron Lieber: “…people who are lucky enough to be employed and have a retirement plan ought to be staging a sit-in in the office of the person who runs that 401(k) plan. He made this comment in “5 Ways to Think About Nuisance Fees” in The New York Times (Nov. 18).

401(k) Plan Fees Worse than Bank of America Debit Card Fees

Lieber was comparing the impact of excessive 401(k) fees with the impact of Bank of America’s unpopular monthly fee for debit card users, which was ultimately cancelled in response to protests. From Lieber’s perspective, “However symbolically irritating Bank of America’s move was, we focus on smaller fees at our peril. The biggest potential hit on the fee front probably comes from your investments, where mutual fund fees can quietly rob you of enormous piles of moneyover time.”

We don’t believe Lieber is fomenting a new Occupy movement. But he makes a good point. Most consumers and retirement plan participants aren’t aware of the high mutual fund fees that sap their investment returns. Once they learn, they may get riled up.

Retirement Plan Expenses to Be Revealed in 2012

Right now it’s hard to cut through the verbiage obscuring the fees that plan participants pay for their 401(k)s. But that will change in 2012 when plan sponsors will be required to share expense information with employees in an easy-to-understand format.

Employees are likely to be upset when they learn they’re paying high fees and earning subpar returns. This is a good time for employers to clean up their 401(k) plans, so they get ahead of employee outrage.

There is no such thing as free. Many plan sponsors will realize this when their employees begin asking about the fees the employee is paying.

Please comment or call to discuss how to proactively deal with this issue.

  • 89% of 401(k) Investors Want Allocation Help (401kplanadvisors.com)
  • An Employer’s Guide in Choosing which Retirement Plan to set up (401kplanadvisors.com)
  • Is a Roth 401(k) Right for You? (money.usnews.com)
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Real Financial Experts Won’t Go on TV

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Did you ever notice that the same experts are seldom if ever on TV repeatedly. This, of course, would exclude employees of the TV station. The ‘experts’ we see are those which got lucky in the moment. There is no evidence that they will repeat.

David Swensen gave us an insight into what he would say in a recent article in The New York Times. He has little confidence in the mutual fund industry, noting that it “…has employed market volatility to produce profits for itself far more reliably than it has produced returns for its investors.” He has less regard for brokers and advisers, noting that: “Most understand too little about financial marketsto make informed decisions, intervene too frequently in counterproductive ways and gather too little information about portfolio holdings to evaluate results.”He advises individual investors “…to embrace low-cost index funds and shun the broker-driven churning of high-cost, actively managed funds.”

Every minute you spend trying to beat the market is time wasted as well as money wasted. Your time should be spent on your most valuable asset, your career. If you are retired your time would be better spent helping others.

Please comment or call to discuss.

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