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Friday, April 26, 2013

Myth: The Stock Market will always out-perform all other investment options

Yours truly used to spout this myth when I worked for  broker-dealers, before I became an independent Registered Investment Adviser (yes, regulations dictate adviser be spelled "'er" not "'or").  And in practically the same breath we uttered the caveat, "past performance is no guarantee of future results".  That's how we were trained to mislead the public.  But can anyone tell me how in the world those two statements fit together??  What if I am looking for guarantees?  Are there any left that are worth examining?  Of course there are.  But here's the key:  ethical risk transference.
I added that pesky word "ethical" because the vast majority of risk is transferred to those unwilling to assume it.  Taxpayer bailouts of the wealthiest people and companies in the world are a good example.  Profits are privatized.  Losses are socialized. 
Taking on risk should be voluntary.  Fortunately, there are entities and individuals still willing to take all market risk off your shoulders.

Thursday, April 25, 2013


Is the economy recovering?  I don't think so, not as evidenced by a market buoyed primarily by a couple trillion dollars of newly printed money.  But judge for yourself.  Pattern recognition is supposed to be one sign of cognitive intelligence.  What do you think of this pattern?

S&P 500 Since Inception

Note the peaks just before the big crashes in 2002 & 2008.  And this peak is even more artificial than those.    Wouldn't it make sense to prepare for the possibility that we're due for another even more severe burst bubble?  It is possible to lock in your gains and even participate in continuing market growth should that unlikely prospect occur?  Yes, it is not only possible but quite easy.  But not if you stay fully invested in today's foamy, smoke & mirrors, yeehah market.  Recent studies indicate that retirees should have, at most, 10-15% at risk in securities, which includes stocks, bonds and mutual funds investing in them.  How should your retirement assets be positioned?

Wednesday, April 10, 2013

MYTH: Celebity investment "Advisers" outperform the rest

I am severely biased on this topic but recent research shows that "retirees who work with financial planners can get more mileage from their retirement portfolios - approximately 1.82% higher returns during retirement."  Even though that is true, on average, investment returns are the least important value we advisers provide to our clients!
In an excellent summary of the issue in Advisor Perspective, Bob Veres opines,
"Jim Cramer, Suze Orman and other so-called investment pundits and gurus are constantly telling consumers that they can do a great job of managing their portfolios on their own.  Why pay a fee for professional asset management when you can turn on the TV and get Cramer's stock-picking expertise for free?"
Veres goes on to quantify the huge value that holistic advisers (as opposed to product pushers masquerading as "planners" or celebrity "advisers" peddling financial porn) generate for their clients, ranging from annualized 4-8% better long term performance.  Yes.  4-8%!  On the other hand, the average investor costs himself 2% per year versus unmanaged indexes.  Granted, exceptions abound.  But if you're "average" why not employ a planner?  Most of us pay for ourselves many many times over.  Here's how, according to Veres:
  1. We keep you from chasing the next hot stock or fund just before it tanks.
  2. We make sure you stick with your asset allocation by employing at least twice yearly rebalancing
  3. We help define and implement diversification on many levels.  Veres only discusses investment diversification but it is also important to have health, interest rate and inflation diversification, to name a few other risks in addition to volatility.
  4. We consider and prepare for taxation.  The types and timing of assets acquired and income taken must be framed in your unique current and expected tax picture.
  5. On average, we compel you to not only save more but smarter (usually with tax advantages).
The best reason to avoid Cramer's Action Alerts and use a real adviser, who is held to a fiduciary standard like yours truly?  Veres continues, 
"Mark Hulbert has compared the overall performance of Cramer's Action Alerts with the Wilshire 5000 index for the calendar years 2009, 2010 and 2011.  (You can find the chart here).  Hulbert found that over the three-year period, Cramer's recommendations would have delivered an investment performance of roughly 9.9% a year – and this did not account for trading costs or tax obligations that accumulate when you're buying and selling 10 or 11 times a day.  During the same time period, the Wilshire 5,000 [unmanaged] index delivered an average annual return of 14.9%."

Yes, I'm more boring than Jim Cramer.  But I'll bet you'll be better off in the long run.  Even the short run!