What Does Move The Equity Markets?

Posted on May 5, 2014 by Tony — No Comments ↓

When I am out in public many times I am asked about the market and what made the market go up or down that particular day. People love stories. And they need/want to know why something happened. The media is great at giving them what they want. This is their job. Answer a question for a particular event going on right now.

Wise Investments Holiday Card (Photo credit: pjchmiel)

Let’s say a journalist calls up a prominent advisor or trader or financial executive on a day the market is down 2%. The answer might be ‘the market is down due to unrest in Ukraine’. Sounds reasonable right? But is this the real reason for the down market? Perhaps it was due to any number of different ‘reasons’. Often far too complex for a journalist to write about.

I believe that most trading days that you can go to the Wall Street Journal and find five reasons why the markets/sectors/individual stocks should go up and five reasons it should go down. Every day.

Like I mentioned in the beginning people are looking for a story to validate a decision to buy or to sell. And every day they can find a reason to do both.

Let’s say you are watching CNBC or reading about some expert and you learn that the Fed will make a change in monetary policy and the market goes down 2.2%. You will then conclude that any time the Fed makes a change to monetary policy that you should sell your stocks. Only the next time when the Fed changes monetary policy the market goes up 3%. Ooop!

Remember the markets are extremely complex. There are thousands of variables affecting investments around the world. Any time an advisor/broker tells you a story about why a particular asset class/sector/individual stock will be a good investment going forward, be wary. Their story is a sales pitch. Because no one can predict the future.

The markets are, although not perfectly efficient, far too efficient to take advantage by anyone on a consistent basis.

Successful investing needs to be long term focused. Any short term noise is meaningless. Any predictions about market/individual stock direction are meaningless.

If your advisor/broker truly has a long term focus, they will show you your investment policy statement (IPS). The IPS is your guide, it tells you the plan going forward. It tells you what to do when the market is down and when the market is up. Consistency leads to success.

The need for stories leads many investors to believe that if they study the markets and watch CNBC and scour the internet for answers they can beat the market. This requires a lot of agonizing work and a great amount of time. Many believe that there is a broker/advisor who will do this for them or they do it themselves. In nearly all cases this assumption leads to disappointing results.

A much more efficient approach is to build a globally diversified portfolio around the dimensions of higher expected returns and applying them consistently. These dimensions are derived from data over long periods of time and across different countries and multiple markets.

To succeed in investing for the long term you need to maintain a long term focus. Avoid the short term noise and STORIES.

Fire your broker/agent and hire an investor coach/fiduciary adviser.

The Graveyards are Full of Investment Gurus.

Posted on January 21, 2013 by Tony — No Comments ↓

January of each year is the time for new predictions by the gurus of the past. Some made masterful trades, such as, exiting the market prior to the 2008 market crash. The investing public eagerly awaits their ‘wisdom’ on the market direction and what asset classes to invest their money. It could be stocks or real estate or gold or cash etc.

What the public does not realize is that these past trades/recommendation were a matter of LUCK and not skill.

The most notorious of these gurus includes Bernie Madoff. At one time Madoff was the money manager to the wealthiest and most sophisticated investors in the world. One investor said that “if you were not invested with Bernie Madoff you were a loser”. This trading scheme like many which relied on an accurate prediction of the future eventually failed. Madoff was only able to stay on top due to fraud.

If the investment strategy your broker recommends relies on an accurate prediction of the future you are speculating with your money.

The media loves to promote the wisdom and insights of managers with “hot hands” or the “Midas Touch”. They gleefully put them in advertisements and on magazine covers. These gurus are often featured one of two years later in derogatory articles about how their investing prowess has mysteriously disappeared. They die in the pages of the Wall Street Journal or Money Magazine.

Stock pickers and market timers, getting in and out of the market at the right time, need you to believe that they can predict the future. The markets are far too efficient to allow this. The markets are random and unpredictable.

This really means that all the knowable information is in the price of the security right now.

There will always be stock pickers and market timers that outperform for the short term. The problem for investors is that there is no correlation between past performance and future results. In other words past success by a money manager is short term and not sustainable.

The Wall Street bullies use these short term successes to market the next great strategy. Remember the bullies make money when money moves/trades.

To succeed in reaching your long term financial goals requires you to

Own equities.
Globally diversify.
Rebalance.

The market returns are there for the taking. With an investor coach at your side you can reach your long term financial goals.

401k Retirement Plans Are Under Fire: What Could Replace Them?

Posted on June 7, 2012 by Tony — No Comments ↓

The 401(k) plan must be provided to employees with the employees interest first and foremost in mind. This must change from a supplement to a pension plan to a primary source of retirement of most Americans.

We’ve come full circle on retirement saving. Just 15 years ago 401(k) plans were widely embraced. Workers enjoyed managing their own money, believing that 10% annual returns for life would be a layup. Employers were happy to match contributions, giving them cover to shift away from costly traditional pension plans. Policymakers thought they had found an answer to the fraying social safety net.Today it all looks like a big mistake. Numerous reports in places like the Los Angeles Times and Wall Street Journal have chronicled the 401(k)’s shortcomings. They are legion. Too many people don’t contribute enough, don’t diversify and don’t repay loans from the plans; too many take early distributions and try to time the market.

via moneyland.time.com

The primary reason for the shortcomings of the 401(k) plans is how they are sold to employers. Brokers and banks see the 401(k) plan as a cash cow, with little interest in the welfare of the plan participant. These plans were originally implemented as a supplement to a pension plan. They have become the sole source of retirement for most Americans. We must provide a 401(k) plan with the plan participants best interest as the focus.

Please comment or call to dicuss how this affects you and your company.

Posted via email from Curated 401k Plan Content

What Is A 401k Retirement Plan?(answers.com)
401k Plans Can Move to 3.0 Level(401kplanadvisors.com)
Choosing The Right 401k Retirement Plan(answers.com)

5 retirement blunders of 2011

Posted on December 27, 2011 by Tony — No Comments ↓

Whenever politicans get involved in a discussion on retirement saving watch out. One question must be, can you rely on the government for your retirement? You must be accountable for your own future.

1. Fuzzy math on tax reforms Remember the Obama-backed “Gang of Six” and the subsequent run-up to the supercommittee epic fail? Somewhere in the midst of the country’s biggest embarrassment of 2011, lawmakers considered eliminating, or at least scaling back, one of the biggest savings incentives for 401(k)s: tax benefits.

Number crunchers at ASPPA estimate the real potential savings of slashing this so-called “tax expenditure” comes in at almost 75 percent lower than figures from “budget hawks.”

Brian Graff, ASPPA’s executive director and CEO says the association’s analysis, “takes the same long-term view that economists employ in evaluating other forms of investment,” and it shows that “the short-term window used in Washington budget scoring overstates the cost of retirement savings incentives – and therefore the savings that would result from slashing these incentives. 401(k) plans and similar plans are the best way for Americans to save for the future. If we reduce the incentives for workers to save through these plans, we will send millions of low- to moderate-income workers into retirement with little savings.”

2. Auto enrollment gets a bad reputation

As a journalist, I can’t stress enough the power of a headline. The Wall Street Journal’s July story, “401(k) Law Suppresses Saving for Retirement,” elicited an alarming angle based on the most pessimistic assumption of a highly researched topic.

The article suggests the Pension Protection Act of 2006 was a catalyst – a legislative side effect, if you will – for a savings shortfall. Though the law encourages companies to automatically enroll participants, the default 3 percent deferral rate traps investors into an inertia that undermines their eventual retirement income.

Still, “The headline of the article reports that auto-enrollment is reducing savings for people. What it failed to mention is that it’s increasing savings for many more-especially the lowest-income 401(k) participants,” says Jack VanDerhei, research director for the Employee Benefits Research Institute – the same think tank that WSJ sought out to provide research on the subject.

EBRI isn’t the only thought analysis that proves auto-enrollment is more of a boon than bust for participation, and in turn, for retirement security. Fidelity reports half of their 401(k) participants are now in plans that offer auto-enrollment, up from 16 percent five years ago.

And, let’s face it, most people wouldn’t be saving at all if it weren’t for their 401(k). Fidelity also reports 55 percent of plan participants wouldn’t save without it and 20 percent have no savings outside the workplace plan.

via benefitspro.com

The financial media does have a powerful influence on how plan sponsors view their company retirement plan. A view point can be skewed in either direction, many times to the detriment of the plan participants.

Please comment or call to discuss how plan design impacts the success or failure of your company retirement plan.

After a two-year hold on 401(k) matching, employers come back from recession ready to help plan participants save. – (401kplanadvisors.com)
Fee disclosure facts every plan sponsor should know (401kplanadvisors.com)
New Survey Reveals How 401k Plan Sponsors Rank 8 Hot Topics (401kplanadvisors.com)

Madoff Whistleblower Markopolos Slams Banks Over Pension Fund Fees

Posted on August 30, 2011 by Tony — No Comments ↓

Bernard Madoff's mugshot — Image via Wikipedia

Bernie Madoff whistleblower Harry Markopolos is back in the news, this time taking on the banking sector over the fees they charge in retirement plans.

Appearing on The Daily Ticker on Friday, Markopolos (left) says BNY Mellon (BK) and State Street (STT) are taking about “three tenths of a percent from every forex transaction for pension funds” by back-timing the trade to benefit banks at the detriment of their pension fund clients. “It’s almost the exact same scheme as the market timing scandals of 2003,” according to a transcript of the interview.

The comments came in response to a Wall Street Journal article, published on Aug. 12, that said “Attorneys general in Virginia and Florida filed civil suits against BNY Mellon alleging that the bank cheated pension funds in those states by choosing improper prices for currency trades the bank processed for the funds.”

The Journal goes on to report, “The Virginia lawsuit, filed in a Fairfax, Va., state court, cites internal bank emails allegedly showing that senior bank officials knew about, and endorsed, a currency-trading method that hurt state pensioners. In addition to Virginia and Florida, California and Tennessee are also suing BNY Mellon and State Street Corp. over the alleged fraud.”