Category : investing

Keep It Simple

The biggest trick in all of finance: simple is often the most sophisticated thing you can do.

It is counter intuitive, but we as humans are trained to believe that the more we pay for something the better it must be. We assume that there is a correlation between high prices and high quality. But when it comes to your personal finances, the opposite in fact usually turns out to be true. Researchers have shown over and over again, that the higher you pay for an investment, the worse-off you do, net of fees. So why do we pay for complicated and expensive financial products and strategies if they almost always do worse than simple, transparent ones? Large companies are spending billions of dollars on advertising to convince you that expensive and complicated must be better and more exclusive. Don’t buy the hype. Let’s dispel a few scarily common myths that an entire your-money-as-entertainment industry is trying to convince you of (Think of: every show on CNBC, every E-Trade commercial, new apps for your phone advertising free stock trading).

Here is the hard truth: 90% of professional money managers fail to beat the market over any sustained period. That’s right: those people who have spent their entire careers, and in fact get paid (by you and the investing public), get it wrong 90% of the time over sustained periods. Why would you even try to buy and sell stocks, and “time the market” if experts lose 90% of the time?

We have been trained as a culture to believe that stock trading is a skill, like being an engineer or a doctor. We know by now that it is not a skill. By all means, buy and sell stocks, but do it as a fun game with very small amounts of your money, recognizing that it is for fun. Do not do this with your nest egg. Anyone telling you that you or they can beat the market is selling you false hope, and perpetuating a myth that this is even possible over the long run. For the most part you would be way better off watching the History Channel than CNBC. You will certainly learn more.

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BREAKING NEWS: This is Normal…

Not exactly a catchy, attention grabbing headline is it? Traditionally, BREAKING NEWS headlines have implied something out of the ordinary or unexpected. But in 2016, almost anything can be breaking news, including the things that should be no surprise to us. The headline above could be completely wrong. Maybe there’s an asteroid heading right for us that I just don’t know about, or maybe I’m just unaware that the Sun is supposed to randomly burn out in the next few months. If that’s the case, your investments aren’t going to do you any good anyway. I’ve seen the movies. But in the far-off chance that those things DON’T happen any time soon, I think it might be good for us to cover something EVERY long term investor must understand. The Market goes up AND down. And it happens ALL the time. So often in fact that at some point investors saving for retirement owe it to themselves to stop paying so much attention to [insert major news network].

I can’t tell you how many times I’ve seen something similar to these following headlines over the years:

“Expert: Crash is Coming, Time to Sell”
“2008 All Over Again?: Analysts Think So”
“Dow Sheds 300: Pros Say Get Out!”

And the very next day…

“Dow Rebounds 350 Points: Bull Market Marches On”
“Analysts: This Year Could Be the Best Year in Decades for Stocks”
“Risk On: Never a Better Time to Buy!”

You get the point. In a world where we now have a 24-hour news cycle, the very existence of any news outlet is highly dependent upon one thing: RATINGS. There is simply nothing better for ratings than fear and panic, which is why those first three headlines will catch more attention than the last three. It’s also why you will never hear what I’m about to tell you by watching your TV: Negativity is the lifeblood of the news.

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Flu Shots to 401(k)s

Flu Shots to 401(k)s: It’s Time to Bridge the Gap Between Health and Wealth in the Workplace
It’s no secret that your local pharmacy loves this time of the year. As temperatures cool and the year begins to wind down, over-the-counter drugs start flying off the shelves. It’s the start of flu season, and for employers, that means more employee absences, poor productivity, and higher healthcare costs.

Although the flu is a highly contagious virus that nearly every workplace will be exposed to in the next few months, there are ways to limit the flu’s impact – like the flu shot. Encouraging employees to get flu shots is one basic example of a way to improve employee wellness. Offering incentives that encourage healthy living can also limit the flu’s impact. This is not news. In fact, most companies fully understand the value of promoting healthy lifestyles for employees and have therefore introduced wellness programs. Better employee health means lower healthcare costs, better morale, and better productivity. It all makes sense. But as wellness programs focusing on physical wellness have been around for a while now, it’s the financial wellness programs that have often been neglected. But that could be changing…

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I Guarantee that….

In the financial industry, most advisors are trained at a very early age to essentially remove the word “guarantee” from their vocabulary. For obvious reasons, when investors are dealing with managing portfolios that have any exposure to the stock market, there is never such a thing as a guaranteed return. If you want guarantees, you generally look to a Certificates of Deposit (CD) with FDIC protection or US Treasury Bonds that are guaranteed by the full faith and credit of the US Government (all jokes aside). So uttering the word “guarantee” anywhere in the same vicinity as a discussion about stock market investments is totally off limits.

Well, I am going to run head-on into the forbidden term and come right out and guarantee you something. I GUARANTEE THAT IF YOU HAVE A PROPERLY DIVERSIFIED PORTFOLIO THAT YOUR ACCOUNT WILL LOSE VALUE OCCASIONALLY.

That’s right, I said it and I will say it again. I GUARANTEE THAT IF YOU HAVE A PROPERLY DIVERSIFIED PORTFOLIO THAT YOUR ACCOUNT WILL LOSE VALUE OCCASIONALLY.
When you have a properly diversified portfolio, it means that a portion of your account will be invested in the stock market (likely both US and International markets). There has never been a period greater than a few months where a diversified portfolio didn’t lose value. Markets never just go straight up. And while historically the decline in value is temporary, it does happen and will continue to happen. Over the years, I have often told our clients that it isn’t IF your account will lose value it is WHEN and HOW MANY TIMES it will lose value over an investor’s lifetime.

Now before you start to panic I want to digress and point out that there is a difference between losing value v. losing money. As stated above, your 401k will drop in value from time to time. But for you to actually lose money in your 401k takes an additional action on your part. It is only when you sell while the market is down that you are taking the temporary decline and making it a permanent loss. That is when you lose actual money in your 401k, not simply when the market declines. (For further explanation on the difference between losing value v. losing money read my blog, If You Don’t Sell You Don’t Lose.)

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The Royals and your 401(k): What the AL champs and MLB can teach us about Investing

“The future ain’t what it used to be” – Yogi Berra, New York Yankee Legend

Like many kids, I learned from an early age that a game can teach us more about life than most realize. Baseball is adversity. Baseball is success by way of failure. Baseball is discipline and perseverance. Sounds a lot like life doesn’t it? Or dare I say…investing?

For decades, one of the biggest complaints with Major League Baseball has been the wealth gap between small and big market teams. Teams in bigger markets have more money. More money equals better players. Better players equal more championships. The little guys start every single season at a disadvantage. While that may have been true over the last few decades, times are changing. And it’s no fluke.

In 9 of the last 10 years, at least half of all playoff teams fell in the bottom half of all MLB payrolls. In the 10 years prior, that only happened 3 times. Both World Series teams have proven that it doesn’t take a fat wallet to have success anymore.

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