Are you paying your financial advisor $10k to $20k in fees every year because you think they can beat the market? Research firm DALBAR studied whether market timing works. Their results showed that the S&P 500 UNmanaged stock index returned an average annualized 11.1% over 30 years while the average U.S. stock market investor earned just 3.7% annually with most of the underperformance coming from market timing. Wow. Market timing cost these people almost 7/8ths of their money due to the power of compounding. This study is mentioned in a Motley Fool article (5/28/14) and their conclusion is that market timing is detrimental to your financial health. Do ya think? A buy-and-hold strategy avoids the mistakes that market timers make. Speak to an hourly, fee-based planner who can help you create a portfolio that's right for you without the exorbitant, recurring annual fees that many advisors charge and without market timing.
Wednesday, June 21, 2017
Tuesday, June 20, 2017
Being smart with $$ -- Lock in Your Mortgage Now?
Lock in your mortgage now? How many times have you heard that the Fed is
going to raise rates so you should buy a house now or refi your mortgage
quick!? The Fed did raise the Fed Funds Rate last week, by 1/4 of a percentage point,
and may raise it more. But that doesn't mean 30-year MORTGAGE rates are rising.
In fact, 30-year mortgage rates are the same today as they were the day before
the Fed increased rates. That's because the Fed only changes very short
interest rates, actually the interest rate used for one-day loans. Fixed-rate
mortgages on the other hand, use long-term rates that are more affected by
economic factors. Other long-term rates are actually lower today than they were
the day before the fed increased short rates and that's because some economic
data was weak. Mortgage rates and other interest rates are historically low and
it is entirely likely they will rise at some point. But before someone
convinces you that you have to act today before the Fed raises rates, remember
that that person may not understand how market interest rates work.
Larry Pike, CFA
Client Priority Financial Advisors LLC
Wednesday, June 7, 2017
Being smart with $$ -- The painful bite of fees
You don’t think fees matter much in your investments? Money Magazine (May ’17) highlighted what two
accounts look like 30 years after two friends retired, with each account worth
$1 million on the day they quit working, each having actual returns from a
50/50 stock/bond mix over the last 30 years and each of them taking $40k out
the first year and increasing that amount each year for inflation. The account with 1% in fees is worth $3.3
million today. Sound good? Well, the
other account had fees of only 0.25% and it’s worth $4.6 million today! Fees don’t matter? Tell that to the first guy’s kids who have $1.3
million less inheritance to split! Hourly,
fee-based advisors can help you invest with low investment fees and without the
detrimental effect of high commissions, loads or annual, recurring advisor
charges.
Larry Pike, CFA
Thursday, June 1, 2017
Being smart with $$ -- Do you really want to trade like Cramer?
Financial planning is often best kept simple. I regularly meet doctors, plumbers and
lawyers who tell me they actively trade stocks for their own account. Often I
hear they follow Jim Cramer's recommendations on CNBC. So how does Cramer
actually do? In a May 2016 paper by Hartley & Olson of the Wharton School,
Cramer trailed the S&P 500 over the prior 15 years. So if the doctor had
bought and held an S&P 500 index fund rather than trading he would have
been richer. And if he used all that time researching stocks to instead see
more patients he would have been far richer! But many people find it fun to
listen to Cramer (and others) to try to beat the market, so go have your fun.
But if history is a guide, don't be shocked if the cost of that fun is
underperformance vs. a buy-and-hold index fund strategy, especially after the
tax bill from all that active trading.
Larry Pike, CFA
Subscribe to:
Posts (Atom)