Tuesday, January 31, 2017

Being Smart with $$ -- A Gain is a Trade and a Loss is an Investment

The words of an amateur stock market speculator: "If the market goes up it's a trade, if it goes down it's an investment."  Many investors love to gamble on stocks and if their pick rises they are quick to take their profit before they give it back. But if it goes against them they hate to realize a loss and refuse to sell until they get their money back. This is how they make a win into a short-term trade and a loss into a long-term investment. The problem is that their upside may be their target of say 5% while their downside could end up being 100%. What a crappy upside/downside risk! Instead, stop gambling and buy a diversified portfolio of stocks and let time do its thing. Your brilliant decision to buy "Newfangled Enterprises Inc." may net you a total loss. But if you put that money into a large-cap Index fund and hold it for 10+ years, you are likely to be a big winner.
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com

Thursday, January 26, 2017

Being Smart with $$ - Letter to investors - Dow 20K So What's Next

Dear friends:

Many of you have seen the news that the Dow Jones Industrial Average has hit a new milestone of 20,000. Before the presidential election, many people anticipated a falling stock market if Donald Trump were to be elected President but instead the market has rallied quite a bit since election day. So now many people ask what can be expected next.

The stock market is unpredictable and volatile in the short term and every day on TV business channels you will see respected analysts telling you that the market is set to fall while 10 minutes later on the same channel you will also see other respected analysts telling you that the market will surely rise. But none of them have a crystal ball and are only making their best guess. Who will be right? We can only know that in the future.  However, what we do know, is that the stock market has historically risen over the long-term. Investors who are buying stocks to gamble on this week's results may suffer substantial losses. Those that are investing for long-term goals are likely to be rewarded with substantial gains but they may have to suffer quite a bit of volatility along the way.

The companies making up the U.S. stock market have earned hundreds of billions of dollars per year in most recent years. You may hear warnings that corporate earnings will be lower or higher and the stock market reacts accordingly but we cannot forget that companies as a group aren't suddenly losing billions of dollars; they are just earning a little more or a little less. Where a stock trades often seems to be disconnected with the fundamental value of a company. But over the long term, it generally catches up. As companies earn these hundreds of billions of dollars each year, it is reasonable to believe that long-term investors will be handsomely rewarded with gains in their stock portfolios if they have the patience and will to ignore short-term volatility.

The key to being patient, is to be invested properly for your personal circumstances such that a drop in the stock market does not affect your ability to meet your near-term needs. One should not be gambling with next month's mortgage payment. A prudent investment plan includes holding conservative assets for short-term needs, higher-yielding but only moderately risky assets for medium-term needs and then riskier assets such as stocks for only longer-term needs.

So if you have a proper investment plan and are invested appropriately for your circumstances, then where the stock market is going in the rest of 2017 should not be a concern. If you are invested properly, you can sleep well at night knowing that stock market volatility is the gamblers' problem but not yours.

I am happy to discuss your personal financial picture and help you be someone who can sleep well at night.  And as always, I do not receive commissions or high, recurring fees so my advice always makes the Client the Priority.


- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com

Monday, January 23, 2017

Being Smart with $$ - Index funds: Low fee but usually better performance

Unmanaged U.S. stock index funds returned 2.2% more than their higher-fee, actively-managed peers over the last year.  The same index funds returned 0.5% more per year on average over the last 10 years.  (Through 11/30/16 per Money Magazine Jan/Feb 2017.)  That’s about $9,000 extra earned with the index fund over 10 years on just $100,000 invested.  Let me get this straight.  I pay a much lower fee for the index fund but usually get higher returns on average?   What’s the catch?  (Hint: Perhaps there isn’t one.)
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com

Sunday, January 15, 2017

Being Smart with $$ -- How Much Do You Pay for Financial Advice?


You pay $2500 to a lawyer for an estate plan.

You pay $500 to an accountant for tax preparation.

You pay $1,000 to your insurance agent for term life insurance.

Why are you paying $10,000 every year to a financial advisor who likely spends less time helping you than some of the others above?

Instead, consider an hourly, fee-based financial advisor who gets paid when they work with you and not when they don’t.  And ask your advisor if they receive commissions or incentive payments from their company for recommending certain investments.  Independent, hourly, fee-based advisors don’t.
(Assumes $10k annual fee on $1M portfolio.)
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com

Tuesday, January 3, 2017

Being smart with $$ - Did your portfolio underperform in 2016?


Another year ends, another chance to measure your investment portfolio against others.  A model portfolio of large, small and international stocks, bonds and REITs returned 8.5% in 2016. Did you do this well?  Or did high fees paid to your investment advisor and subpar performance by their in-house products hurt your total return?  If your investment performance was disappointing, consider an hourly, fee-based advisor instead who does not receive commissions or recurring fees and can offer low-cost index funds that outperform 75% of their actively-managed peers over the long term.  Call me for details.

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com