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Stocks and Bonds

Are The Wall Street Bullies On Your Side?

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When did you first learn about the stock market? And what did you learn? From an early age many Americans are taught to trade stocks or pick the right stocks. Our school children are put into groups and given a hypothetical dollar amount and told to invest the money in the stock market. After a short period of time, perhaps as little as three months the winning group is given an award, an ‘A’.

Stock market of Brussels
Stock market of Brussels (Photo credit: Wikipedia)

This is contest or assignment is teaching our children to gamble and speculate with their investment dollars. They are taught that if they can pick the right stocks it will be a short cut to financial success. The media continually sends this message to everyone. Find the right stock(s) or real estate deal or hot asset class and focus all your resources on this and you will be able to buy anything you want.

The media tells us every day that someone is striking it rich by investing in the next great product or idea. If it happens to them it can happen to you. This message neglects to say that there is no correlation between past performance and future results. Not everyone strikes it rich even if they follow the same path exactly. Circumstances change, conditions are never exactly the same, the sequence of the events are seldom, if ever, the same,

There is no short cut to success, whether financial or career. It takes a solid plan and discipline to succeed long term. Granted some will ‘strike’ it rich but this is luck and not skill. For most of us it requires hard work and dedication.

During conversations with people I continue to hear questions like,

  • “is this a good time to invest in the stock market?”
  •  “what is the hot stock or asset class right now?”
  • “Isn’t real estate a better choice than stocks?”
  • “What if I invest in the stock market and it goes down?”
  • “What stock will double over the next three months?”
  • “Didn’t  (insert expert) say get out of the market?”

These are all questions which really are asking I want a short cut to my financial goals. I heard of someone who struck it rich over night and why not me. I do not want to save for retirement because I can strike it rich over night. These questions are looking for someone to predict the future.

Although it is possible for this to occur, this outcome is highly unlikely.

There is no short cut to success. It takes work and discipline to achieve anything worthwhile. There will be times when your strategy will look like a bad idea. You will question whether remaining disciplined is the right answer for YOU right now. Your emotions may get the best of you.

The media and the financial institutions will feed your fears.

For most of us it will require the assistance of an investor coach or fiduciary adviser. This coach will help you develop the right strategy for YOU. And most importantly will coach you through the ‘tough’ times to keep you disciplined and focused on the long term.

You need someone to help you protect the future you from the current you.

To succeed long term requires you to:

  • Own equities and fixed income in the right mix for you.
  • Globally diversify
  • Rebalance

Remember there is no short cut to success.

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It Has Been 25 Years Since the October 1987 Stock Market Crash.

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October 19, 2012 was the twenty fifth anniversary of the 1987 stock market crash. On October 19, 1987 the S&P 500 dropped 20%.  It was a gut wrenching time for all investors.

The New York Stock Exchange, the world's large...
The New York Stock Exchange, the world’s largest stock exchange by market capitalization (Photo credit: Wikipedia)

Coincidentally or perhaps not, the prognosticators are predicting a similar crash will happen again. Granted we are experiencing some very turbulent times in the global economic environment. And we will experience a sharp downturn at some point, however, I nor anyone else can tell you when.

What these prognosticators are trying to do is strike fear into the investing public. These Wall Street bullies are looking for an increase in trading. These bullies want you to move your money from one asset class to another. Remember they make money on every transaction, whether you make money or not.

Wall Street has a product for every situation. And they know the investing public is constantly searching for the next big ‘thing’.

Investors’ real goal is stock market returns with Treasury bill risk.

This is unattainable. Remember, where there is no risk there is no reward. This is true in all other areas of our lives, not just the stock market.

What we must remember is that stock market or equity risk is only part of the problem. Inflation risk is the most destructive to your savings over the long term. It is constant and unrelentingly eating away at your purchasing power.

Owning equities or stocks may be the best way to combat inflation risk.

The most successful investors of all time have one strategy, a strategy that does not always look great, but over time leads to success. These successful investors are not always looking for the next great strategy. At times they will look like they do not know what they are doing.  These successful investors know risk is unavoidable.

It has been proven time and again that market timing DOES NOT work. This is evident during the 2008 crisis, there was a number of advisers who took their clients to cash. You must ask yourself.  Do you really believe these same advisers will be right again? Not only must they be right on getting out of the market, they must also be right about getting back in. Research has proven that this is NOT done consistently.

Investing for a long term goal such as retirement requires patience, a prudent strategy and discipline. This, in most cases, requires the assistance of a good coach. A good coach will guide you in following these three simple investing rules.

Own equities….globally diversify…..rebalance.

To succeed in reaching your long term financial goals you don’t need to know everything about investing, but you do need to know the right things

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Love Your Company, Not Its Shares

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Loyalty is a very admirable trait, one which is seldom seen in our society as much as it should. However, when investing diversification is a key element to success. Sure, if you are lucky you can win big, however if something happens at you company you could lose big as well.

Stock certificate for 10 shares of Birmingham ...
Stock certificate for 10 shares of Birmingham Motors automobile company (Photo credit: Wikipedia)

The key is to open your mind to negative news concerning the stock you’ve loaded up on and stay objective. This negative news may end as a tsunami, but it doesn’t start that way. It starts as one ripple after another. Savvy investors are attuned to these ripples, watching for the point where they turn into rising waves. Any winning portfolio contains losing stocks; it’s the average performance that counts, relative to the weighting of different stocks.So when you get ready to load up on your company stock, look inward to see if you are doing so out of behavioral bias. If your knowledge of the company or your identification with it were the same as it is for the typical stocks in your portfolio, would you be inclined to buy so much of it? If you’ve already pulled the trigger and bought a lot of this stock and it has been sliding for too long, be willing to admit that you’re human.

via abcnews.go.com

The danger of owning too much of your company stock is if something happens you could lose both your job and your investments. Diversification remains one of the most powerful investing tools available.

Please comment or call to discuss.

Posted via email from Curated 401k Plan Content

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Advisers often offer bad advice just to keep good clients happy: Matson

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Mark Matson shows how investors don’t need to know everything about investing they only need to know the right things. Mr Matson talks the talk AND walks the walk. Investors will reach their long term financial goals by following a prudent investment process.

Asset Allocation on Wikibook
Image via Wikipedia

My experience in watching a lot of advisers is they will do what the client tells them, even if it is imprudent, just to keep the client,” said Mark Matson, chief executive of Matson Money, a Cincinnati-based investment advisory firm that manages just over $3.1 billion. After the 2008 market crash, “what I saw most advisers do is co-sign dysfunctionality and go to cash.”

Mr. Matson believes that advisers “panicked” right along with their clients after the market crash that brought common market indicators down about 50% between September 2007 and March 2009.

He has written a book promoting a return to asset allocation with regular re-balancing, and is launching a television program on PBS to educate investors on the issue, which he says is a problem for advisers almost as much as for investors. Over the long run, most investors need to allocate some of their portfolio to stocks or they will miss out on market gains, he said.

Asset allocation “sounds really simple and easy to understand, but it is almost impossible to do” for both investors and advisers, Mr. Matson said. “It is because of emotions, instinct and perception biases, multiplied by the media.”

He added: “I had one adviser with $25 million who called us in March of 2009 and said ‘this is Armageddon, we have to go to cash,’” he said. “I called it market timing.”

Lately, the same mentality has advisers overweighting their clients in gold, trying to make money on the precious metal’s surge, he said. “It is like tech stocks in 1998, when they took off for four years in a row” before they ended up crashing, he said. “So many people are trying to prognosticate.”

And many investors still are stuck in cash, with advisers who are fearful of pushing too hard to return to the market. “The client said, ‘If you don’t move me to cash, I’ll leave,’” Mr. Matson said. “But the investor is the one who gets hurt.”

via investmentnews.com

This is a great article on why most investors dramatically under perform the market. Mark Matson has been leading investors and advisers to a truly successful investing process. It’s not about predictions it’s about implementing a prudent process and remaining diligent to that process.

Please comment or call to discuss how this affects you and your company retirement plan.

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Can You Beat The Market?….NO!!

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When dealing with investors I have heard a number of questions.  The most frequently asked is; what will the market do next?

Investor-Relations-auf-FacebookEvery one of them believes someone knows what will happen next. Investors are in constant search of the ‘expert’ that will give them the answers and ‘beat’ the market. Unfortunately, there are no answers to the question; what will happen next? While investors are searching for the right answer they lose money unnecessarily.

This is evidenced by the Dalbar research study which looks at individual investor performance over a 20 year period. The latest study revealed that the 20 years ending December 31, 2010 average annual performance S&P500 earned 8.20% while the individual investor earned 4.34%.

Why the difference? It can partially be explained by the investors search for the ‘best’ manager. This is called track record investing and it doesn’t work.

The invisible hand of the market sets prices more efficiently than any other process known to man.  Is it perfect?  Indeed, No.  There is no perfect price; only what a willing buyer and seller negotiate.  The market instantly incorporates the collective mind of every market participants.  Markets work.  Unfortunately, most investors never tap their real power.

Stop trying to beat the market and let the market forces work for you. This will be accomplished by owning equities….globally diversify….rebalance.  These 3 simple rules will lead to a successful investing experience.

Related articles
  • Why Investors Lag the Market (money.usnews.com)
  • The True Enemy of Every Investor. (401kplanadvisors.com)
  • Diverisification Is Your Buddy (401kplanadvisors.com)
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Diversification Is Your Buddy

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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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Why Wall Street likes dumb investors

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The occupy Wall Street movement would be better served by avoiding the marketing schemes cooked up by Wall Street. Wall Street makes money when money moves from one broker to another and one asset class to another. Wall Street also makes money regardless of market direction. Your retirement plan should be risk adjusted and own equities, globally diversify and rebalance. Avoiding the Wall Street hype will increase your return dramatically

The corner of Wall Street and Broadway, showin...
Image via Wikipedia

.

Daniel Kahneman, a Princeton psychology professor and Nobellaureate, says we “would be better investors if we just made fewer decisions.” But we don’t. Even professionals, the “people who are specifically trained to bring” rational decision-making skills “to problems, don’t do so even when they know they should.”You simply cannot rewire and reprogram an irrational brain and make an investor “less irrational.” And yet, as well-intentioned as they are, the financial-literacy idealists keep fighting a losing battle. They’re like Don Quixote tilting at windmills.

Luck vs. skill in investing

 

I was involved in a federally funded program following the Enron-era stock-scandal settlements. While advising a congressional committee on fund reforms, I looked at the many problems with promoting financial literacy. I reviewed the long history of failed attempts, including the Mutual Fund Educational Alliance, which has been around since 1971. Guess what? The fund industry was exploiting those educational initiatives as a clever marketing opportunity to manipulate investors.

7 ways we’re getting taken

In spite of the hype about financial literacy, the programs all have a fatal flaw: Wall Street doesn’t want smart investors. Wall Street makes its billions off investors who are clueless.

Here’s how a leading neuroeconomist, Richard Thaler of the University of Chicago, put it: Wall Street “needs investors who are irrational, woefully uninformed, endowed with strange preferences or, for some other reason, willing to hold overpriced assets.”

Bottom line: The last thing Wall Street wants is 95 million investors wise to Wall Street’s con games. Wall Street revenues would drop substantially if financial literacy really did work.

Like a chess master, Wall Street will always be several steps ahead of the Main Street investor. Here are tools that stack the deck:

  • Commission brokerage plans that work to Wall Street’s advantage.
  • Cleverly crafted marketing and sales systems that mislead naive investors.
  • Favorable Securities and Exchange Commission regulations won by Wall Street lobbyists.
  • Deceptive portfolio alternatives, practices and advice that skim fees.
  • Systemic data manipulation with stocks, bonds, mutual funds and derivatives.
  • Psychological profiles of investors that are used against them.
  • High-frequency trading algorithms that run circles around individual investors by making thousands of trades in hundreds of milliseconds.
via money.msn.com

Wall Street has the marketing muscle to keep investors in the dark.

Please comment or call to discuss.

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Trying To Time The Market Is A Mistake.

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Exponential smoothing: Prediction of stocks
Image via Wikipedia

Trying To Time The Market!

When assets are moved in the portfolio, based on a forecast or prediction about the
future, this is market timing. For example, you’ve become convinced by economic
forecasts that the market is heading down over the next twelve months. You
decide to sell your stocks and put all of the money into cash. That is market
timing!

Market movements are random.

No one knows what the market will do tomorrow or over the next twelve months.

It bears saying again: Nobody knows with any degree of certainty what the future
will bring and if they did they wouldn’t tell you. Let’s look at another example.
Because of a war, you or your stockbroker predict that international stocks are
going to lose big, so you move all of your stocks into the United States.

Once again,this is market timing.

This doesn’t “feel” like speculating. It often feels like
wise stewardship of your assets. If over the last two years, you have watched
your portfolio take large losses in any one asset category, and every news
program, investing magazine and stockbroker says this is the time to get out –
it feels like prudent investing.

Nothing could be further from the truth. In
many cases, if not most, staying disciplined and staying the course is the best
thing to do. That assumes that you currently have a prudent mix of assets. This
is a huge assumption, because most people don’t.

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How to Manage Your 401(k) Through Market Down Swings

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The New York Stock Exchange, the world's large...
Image via Wikipedia
Reaching your long term goals requires a long term strategy. Treat your retirement funds like your own personal pension fund, which it is. Getting caught up the emotions of the day will prevent you from retiring when you choose to. Your retirement plan is not ‘fun’ money its there for your future.

We all remember the big recession in late 2008 and 2009 that took a big bite at the time from our retirement savings.  According to data compiled by the Employee Benefits Research Institute (EBRI) for The Associated Press, 64 percent of middle-agedlong-term workers had more money in their accounts as of August 8th than at the height of the market in 2007 (pre-recession).  At the beginning of July before the recent declines, at least 80 percent of that group had more money than they did in 2007.It’s why regular investing combined with a diversified portfolio of stocks, bonds and cash are essential for your retirement accounts.  It’s a very good thing that most 401(k) plans are built on diversified portfolios.  While the S&P 500 (a good benchmark or the US stock market) declined by 15% from June 30th to August 7th, 401(k) accounts measured by EBRI were not down nearly as much, ranging from 6.6% and 9.5% lower.

Stay the course as best you can and as global and economic environments change for the better over time, you will be in position to reap those rewards.

via forbes.com

There is no better advice than to continue contributing to a globally diversified portfolio.

Please comment or call to discuss.

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Should I Wait Until Everything Calms Down?

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Warren Buffett speaking to a group of students...
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Ideally, we should all just time the market cycles and only buy when the market is low and sell when the market is high. Unfortunately, few, if any investors are able to do this with any consistency.

We tend to make our investment decisions based on recent past events and how we feel about those events.

If the market has done well lately, we wish, we are comfortable buying stocks. If the market has done poorly, however, we avoid them. Unfortunately, this is the exact opposite of what we should do if our goal is to maximize our long term return. Once we feel “comfortable” with the market, we have usually already passed up large potential gains. The stock market is forward looking and usually starts trending upwards between 6 to 9 months ahead of the economy actually recovering from a down cycle.

Remember, Warren Buffet is a buyer and NOT a seller.

There is an unholy alliance between the media and the large financial institutions to convince the investing public to continue trading by spreading fear and panic. The large financial institutions make money when you trade in and out, making money on every trade. The media encourages sensationalism because it sells advertising. You should own equities…globally diversify…rebalance and believe that America and the capital markets will recover. We as a country have been thru much worse and we recovered and became stronger.

Not all sectors of the economy will recover or come back to where they were prior to 2008.  Other sectors will recover quickly and new sectors will emerge and thrive.  The problem is no one can consistently predict what will happen and when.

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