Being Smart with $$ - Classic Investor Mistake

A classic mistake investors make:  Waiting to invest until “after the impeachment” or until “after the tariffs are put in place.”  I regularly hear investors express their view that these items must be bad for stock prices in the days following these events so it is best to wait until after they occur.  The problem with this logic is that if you know it is coming, then so does everyone else and the risk may already be priced into stock values.  Today the market is trading up despite the impeachment last night.  In fact, despite the impeachment that has been expected for quite some time, large-company stocks are up over 6% in the last 3 months.  One never knows which days or months the stock market will rise or fall but many of the assumptions people make about the forces impacting stock prices are flawed.  The best chance for making money in stocks is to buy and hold for decades and add regularly with each new paycheck.  Waiting out short-term events can be costly in the long run.  (Past performance may not be an indicator of what to expect in the future and your individual circumstances should be considered in any investment choice.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Being Smart with $$ - Year End Moves

There’s only one month left this year to take advantage of financial moves that may be in your favor.  Is your income low this year? If yes, you may consider converting some traditional IRA assets to a Roth and paying taxes at a low rate.  If your income is low enough, you may be able to sell stock at a gain and pay no Fed taxes.  If your income is high, you may want to give a gift of appreciated stock to someone who has little or no income and have them sell it (but maybe not to your minor or young-adult children because of the sneaky kiddie tax).  Or you may want to donate appreciated stock to charity instead of cash.  Do you have stock with unrealized tax losses?  Sell it before year end to offset gains or even reduce earned income.  Did you turn 70-1/2 this year or in a past year? You may need to take required distributions from retirement accounts.   Or maybe you inherited a retirement account? You may need to take a required distribution from this account even if you’re younger than 70 and even if it is a Roth IRA.  Do you have lots of cash? Consider adding more to retirement accounts from your paycheck and use the cash to pay bills.  Do you have money left in a flexible spending account? Spend it! But you may NOT want to spend money in an HSA.  Just beware many of the pitfalls of completing any of these actions incorrectly or it may backfire on you.  Speak to your adviser to make sure you are executing financial strategies properly. 

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

Being Smart with $$ - Not getting financial help can be more expensive than getting help

“It is much more expensive to make a mistake than the price you pay to have money properly managed.”  This is a quote from the attached CNBC article.  Most people don’t have an adviser because they fear it is too expensive or they think they don’t have enough money to warrant getting help, among other reasons.  If you need help, consider an hourly, fee-based fiduciary adviser where the fees are transparent and you can get service no matter what level of wealth you have. 

https://www.cnbc.com/2019/11/11/99percent-of-americans-dont-use-a-financial-advisor-heres-why.html

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Being Smart with $$ - New Required Fee Table Let's You See What You're Getting Charged

You probably don’t know how you are getting charged by your financial adviser.  That’s why Massachusetts will soon require advisers to provide a one-page fee table to all clients that is designed to simplify the different ways investors may be charged and make it easier for them to understand.  I attended a recent session with the Massachusetts Securities Division where advisers learned about this new requirement.  Many questions posed to the regulators addressed the fact that advisers charge so many different fees that they can’t see how they can get it onto one page.  When an adviser charges commissions and takes a percentage of assets for themselves and then takes a percentage of assets for an outside money manager and then takes referral fees and who knows what else, it’s hard to get it onto one page.  But what if an adviser charged a simple hourly fee and never received commissions or referral fees and doesn’t take a percentage of assets annually?  That would be how Client Priority Financial Advisors LLC charges clients and why one page is more than enough. This hourly model lets the adviser avoid conflicts of interest and be free to choose only the best solutions for your needs. 

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

Being Smart with $$ -- Money Not Earned is Money Lost

Is it worse to lose $100,000 in the stock market or not earn $100,000 that you should have earned? Most of us look at our financial statements and notice the money we earned or lost, but rarely do we notice the money we didn’t earn but should have. Each of us has a percentage allocation to stocks that is advisable for our own circumstances. But many advisers love to guess on the direction of stocks and gamble with your money. If your adviser loaded you up on stocks far beyond an appropriate amount and you lost $100,000, you’d be furious. But this year I have seen many advisers bet that a crash is coming and REDUCE their clients’ stock holdings below what is appropriate and this has cost clients a fortune since the market is UP over 20% year to date. If your adviser sold $500,000 of your stocks at the beginning of the year on a gamble, they cost you $100,000! It’s time to notice the money you should have earned as a loss and tell your adviser to stop gambling with your money. Or better yet, get a new adviser who won’t do it.

Larry Pike, CFA

Client Priority Financial Advisors LLC

www.clientpriority.com

Being Smart with $$ -- Save Now to Have More Later

Would you rather work in your 70s because you want to or because you have to?  If you are behind on your savings, it’s never too late to start making changes that will help us later. If you are 15 years from retirement and save an extra $1,000 per month while working, you may have an extra $1,000 to spend every month for a 30-year retirement. Start 20 years before retirement and you may have an extra $1,500 to spend every month in retirement.  There’s always a way to make choices and changes now. (Assumes 6% investment returns while working.)

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

Being Smart with $$ - Stocks Go Up Because Companies Make Money

Are you tempted to bet against stocks? It’s a little like betting you can win in a casino. You might win in the short term but will likely lose in the end.  A diversified portfolio of stocks provides a return from annual dividend payments or rising share prices because companies make money every year.  Yes, it is true stocks don’t go up every year even though companies are generating profits.  But how long do you want to bet against this annual creation of new value?  Many smart investors have tried to time the market and predict a crash and many of those found themselves sent to the loser’s table.  Similarly, casino operators know that when millions of dollars change hands at the tables, some gamblers will win but the house will ultimately collect a percentage of the total because the odds are in their favor.  Some people will be lucky in casinos and some will be lucky making short-term bets against stocks.  But most will experience what the odds predict: they will lose the bet.  This year alone, many financial advisers have gambled with their clients’ money and reduced stock allocations only to watch the U.S. market rise over 18% since New Year’s. They bet wrong and might need the market to fall quite a bit now just to get back in at the same price where they sold.   (Note that stock investments are appropriate for those with a long-term time horizon and the money allocated to stocks should be for your needs in the distant years ahead.  Investments earmarked for near-term needs should be invested in less volatile assets.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
Hourly financial advice.  No commissions,  No automatic, recurring adviser fees.
www.clientpriority.com
Blog: clientpriority.blogspot.com

Being Smart With $$ - Financial Advisers Act Emotionally and Shouldn't

Financial advisers buy and sell at the wrong time based on emotion says legendary billionaire investor Ron Baron and he takes advantage of this and increases his purchases when they are panicking.  Don’t let your financial adviser manage your portfolio with emotion rather than rationality.  A proper long-term investment plan does not include panic selling. 

https://www.cnbc.com/2019/08/20/ron-baron-says-he-tripled-normal-stock-buys-during-recent-wild-swings.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

Larry Pike, CFA

Client Priority Financial Advisors LLC

Timing was the subject of an old Steve Martin joke where he said it is the basis of success in comedy.  Of course, in his bit he said the word all wrong with the accent on the second syllable as if it referred to an ancient Chinese dynasty.  If you get timing wrong in comedy, the joke doesn’t work.  If you get timing wrong in your portfolio, you lose money.  The best timing with investing involves not timing the market at all and staying invested in a proper allocation for your needs.  Most investors will find that their total time in the market is what matters in the long run and not when to dart in and out of it.  Some investors believe they can jump out of the stock market before a crash and avoid losses.  The problem here is that expected crashes often don’t come and then you are sitting out the market as it marches higher.  Then it is hard to get back in when you intended to avoid losses but instead lost money by sitting it out.  And if you do dump stocks and the market subsequently falls, the next hurdle is to figure out when to get back in.  Investors often make the mistake of expecting further declines and then miss all the upside.  The long-term trend for stocks is always higher as prices will reflect all the profits generated by global companies every year even though there will be corrections now and then.  Many have been predicting a crash for years and they have been punished by missing a 3-year return in large-cap stocks of over 13% annually!  In comedy, you have to get your timing right and in investing the best timing strategy is not to time the market at all.

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

Being Smart with $$ -- Vape or Have $1 Million. You Choose.

Vaping or $1 MILLION.  You choose.  Maybe your kids will ignore your health warnings and sneak off to vape behind the school when no one is looking.  But what if they knew the true long-term financial cost?  An average user may go through a pod per day at $4 each.  So let your kids know that if they throw that $4 per day into the stock market, instead of vaping, from their senior year of high school through all their working years, it will likely be worth almost $1 MILLION which they can spend in retirement.   Lighter users might be looking at less but still substantial money. Vaping or $1 million.  It seems like an easy choice. (Assumes 8.5% annual stock-market returns which are below long-term averages, over 50 years.  Past results may not be a predicter of future results.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com
Blog: clientpriority.blogspot.com

Being Smart With $$ - Don't Let Your Get Adviser Get Cute with Your Money

Does your financial adviser time the market? Many do believing they can avoid losses when the market is falling or grab profits right before the market will rise. The problem is that so much research shows that market timing fails more than it wins. A new client of mine showed me their portfolio before they moved from another adviser and I asked why their stock allocation was so low compared to an appropriate position for someone with their profile. The answer was that their soon-to-be former adviser was predicting a market decline. Well guess what? The market is now at all-time highs and substantially higher than when that adviser sold all their clients’ stocks and that decision has cost the clients a fortune. Can the market crash in the weeks or months ahead? It’s always possible. But what if it doesn’t? Over the long term, the market marches higher as companies keep generating new profits.  The adviser is hoping to pick up a few percentage points in the short term but instead may potentially be costing their clients a quadrupling of their stock values over the next couple of decades if they keep waiting for a crash that never comes. Don’t let your adviser get cute with your portfolio. A steady and consistent long-term plan is the path to success.

Larry Pike, CFA

Client Priority Financial Advisors LLC

www.clientpriority.com 

Being Smart with $$ -- Unnecessary Investment Fees Can Cost You a Fortune

Three quarters of a million dollars!  That’s about how much you might lose on a million-dollar starting portfolio over 15 years if your fees are around a mere 2%.  More correctly stated, that’s about how much less you’ll earn, all else equal, if you earn 5% investment returns annually (after 2.2% in fees) instead of 7.2% without unnecessary fees.  2.2% may not seem like much until you realize it may cost you three quarters of a million dollars.  Keep your investment fees low!  They matter more than you think.  Investors hate to lose money.  But what about losing the money you should have earned?  Don’t let an investment salesperson dazzle you with tales of big performance in exchange for a few percent in annual fees.  They are usually false promises that line the salesperson’s pocket at your expense.  Did I mention it may cost you three quarters of a million dollars? 

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- Best Laid Plans

Best Laid Plans.  So often I hear from clients that a big part of their retirement plan is to work forever, or at least until 70.  Maybe they should have a Plan B.  A recent survey showed 8 out of 10 believe they’ll work in retirement but in reality, less than 3 in 10 do.  It’s usually due to a health or disability issue or an unexpected job loss.  Perhaps the advice of hoping for the best but planning for the worst is a good approach here.  If not working until 70 means cat food in retirement, best to make adjustments today to be safe.  (Source: Retirement Confidence Survey by Employee Benefit Research Institute 4/23/19.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- Advisers Want Too Much of Your Money

“I WANT YOUR MONEY!” was what my new client heard from many financial advisers when he came into some new wealth.  Some wanted to sell him annuities which would likely generate commissions for the adviser of over $80,000.  Some had “great load funds” that would generate commissions for the adviser of over $50,000.  Some wanted to manage the assets for 1% per year which would likely generate fees for the adviser of over $50,000 in the next 5 years.  All of the above also usually have an additional $10,000 or more in annual fees inside the investments.  All these fees and commissions come right out of the client’s portfolio and severely restrain his long-term growth.  How is the poor guy going to make any money with all these commissions and fees?   Fortunately, a professional contact sent him to me where he gets advice on an hourly basis that is not affected by what product pays the highest commissions and where he doesn’t pay fees so large the adviser could buy a Tesla with it.  You may think doubling your money sounds good over 20 years until you learn that you could have tripled it without all the fees.  (Numbers above are based on a $1 million portfolio.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- Roth or Traditonal IRA?

It’s tax day for most of the country. It’s the last chance to contribute to your IRA for 2018.  But should you choose a Roth IRA, where you don’t get a tax deduction for last year but all money grows tax free, or should you choose a Traditional IRA where you get a tax deduction now but all the money in the account will be taxable later when you withdraw it for retirement?  There are some different considerations but in simple math terms, it all depends on whether your tax rate will be higher or lower in retirement.  If your tax rate will decline, you may want to choose the Traditional IRA and get the deduction now.  If your tax rate might be higher in retirement, then you may choose to pay the taxes today and contribute to the Roth IRA.  But contrary to what people often tell me they believe, if your tax rate will be the same, then you come out equal.  It does not matter how long you own the assets.  If you assume the same investment in each account with the same returns, and assume that you can put the full pre-tax amount into the Traditional IRA but only the after-tax amount into the Roth IRA (because that’s all the cash you have left after paying taxes), then only the tax rate can cause a different result.  But hurry.  You’re almost out of time.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ - Firing Your Financial Adviser

When you fire your financial adviser, do you expect to be treated with respect and gratitude considering you likely paid him/her tens of thousands of dollars in fees over the last few years?  You may be surprised by the childish reaction you receive.  I have had multiple clients decide to work with me once they came to appreciate my hourly advice model where they are never sold a commission-based investment and they will not pay higher and higher automatic, annual adviser fees.  On multiple occasions when clients let their former adviser know they are moving to my client-friendly model, the adviser tells them to go…well, I can’t say it in polite company.   In some cases, these former advisers were considered good friends.  But if this is their reaction, are they really your friend or do they just like the $5,000 to $50,000 they take out of your account every year?  If you are paying thousands of dollars to have your account managed by a friend, but don’t think you are getting anything but average results, you may ask yourself whether you are maintaining this relationship just because you were classmates in high school.  But then ask yourself, how many other friends do you write a check to each year for $5,000 or more and since the answer is 0, you may consider that it’s time to move your account to a model that favors you rather than your adviser.  Then you will find out if this friend just sees you as an ATM machine.  And I promise you that if you fire me in the future, I will still want to be your friend.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- Hourly Advisers Can Help You Manage Your Own $$

Most people manage their own money according to CNBC/Acorns/SurveyMonkey with no help from a professional or online tools.  I understand the hesitance when many advisers want to take $5,000 from your half million dollar portfolio every year or sell you some suspect financial product.  But what if you could self manage your portfolio but still get advice?  That’s one of the great benefits of working with an hourly adviser.  Many of my clients love maintaining control over their money but having someone who can answer their questions and keep them out of trouble.  Most people realize the benefits of getting financial advice from a professional are greater than they expected but that doesn’t mean they want to be “sold” something or pay exorbitant fees.

https://www.cnbc.com/2019/04/01/when-it-comes-to-their-financial-future-most-americans-are-winging-it.html

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com
Blog: clientpriority.blogspot.com

Being Smart with $$ -- Top Performing Mutual Funds Should Often Be Avoided

Buying “Top Performing Mutual Funds” is often a way to lose money.  You might be tempted to buy the #1 name in large-cap stock funds for the last year listed in financial journals.  But wait, look closer at that fund listed as the top 1-year performer in Kiplinger’s 03/2019 issue and after some investigation you’ll find it did far worse than its benchmark over the last 10 years.  A $10,000 investment in this fund 10 years ago might have grown to around $30,800 today.  But if you instead just bought a low-cost S&P 500 fund (the benchmark it is tasked with beating), you would have over $45,000 instead.  A lot of funds can beat their benchmark for a year, but doing it over 10 years has proven to be very hard to do for the vast majority of actively-managed funds.  So ignore the exciting headlines and buy low-cost funds that keep you invested for the long term.  If you are going to take on stock-market risk, you shouldn’t have to add the risk that you won’t get stock-market returns.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- "I Don't Know" may be the best answer.

Where does your financial adviser think the market will be at year end? Here’s the answer you should be looking for: “I don’t know.”  Senior market strategists from major Wall Street banks disagree with each other every day on the near-term direction of the stock market.  And market prices reflect an equilibrium created by all those buyers and sellers.  Since the value of the stock market already reflects the views of all the bears and bulls, it really doesn’t matter if your adviser thinks the market is going up or down because he or she doesn’t know any better than all the other chief market strategists out there.  In fact, if your adviser is guessing on the direction of the market, then he or she may not be advising on an appropriate long-term investment plan, instead shooting for gains from market timing (which most research says is a losing strategy.)  So what’s a better answer from your adviser? He or she should advise you to stay invested in a portfolio suitable for your profile, add to it regularly and ignore all the so-called experts who as a group have a questionable ability to predict the short-term direction of the market.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Being Smart with $$ -- Get the Financial Advice You Pay For

“IGNORE YOUR CLIENTS” is the essence of messages I often get in marketing materials for how to be successful as a financial advisor.  Services offered let you automate and ignore all your clients except the ones who have at least a few million dollars.  After all, they ask, why waste time on small clients who “only” pay $5,000 per year when you can focus on clients who pay $50,000 per year?  Here are my questions: Doesn’t someone paying $5,000 deserve $5,000 of personal attention? (Yes, they do!)  If you are paying $5,000 or more per year, what are you getting for that money that could be in your portfolio growing to $65,000 over 10 years with 6% annual returns? (It better be a lot!)  Have you spoken to your adviser this year?  (Many will answer no or say they have spoken for less than an hour this year.)  Does he/she have you invested in mutual funds that have done worse than low-cost index funds?  (Too often the answer is yes and the cost to you over the years can be quite substantial.)  If this message hits too close to home, consider an hourly, fee-based financial adviser.  You will not pay to be ignored because the adviser only gets paid when actually providing you with service.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart With $$ -- It's Risky to be in Stocks & Risky Not to be.

The stock market is risky.  It’s risky to be in it and it’s risky not to be in it.  We all know what can happen in one bad year in the stock market.  But what happens over the long term if you play it too safe? An Ibbotson Associates study reported by Fidelity pointed out the bad news to those who avoid all risk. Over an average 30-year period going back to 1926, a $10,000 investment in safe, short-term assets would have grown to just over $27,000.  But if the same $10,000 were invested in stocks, it would have grown to more than $175,000.  That’s quite a penalty for playing it safe.  But what’s more is that if you were unlucky and picked the WORST 30-year period for stocks, you still would have seen your money grow to over $95,000.   Of course, past performance is no guaranty of future results and money you need in the next few years may be best kept out of stocks as you don’t have time to wait out the volatility.  But history has been unkind to those who play it too safe.  After all, consider that candy bars and houses double or triple (or more) in price every 30 years and then you’ll realize why you need those higher returns.

https://www.fidelity.com/viewpoints/financial-basics/guide-to-401k

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- Jack Bogle has Died, the Man Who Helped Investors Lower Fees

Vanguard founder Jack Bogle has died. 

“A lot of Wall Street is really devoted to charging a lot for nothing and Bogle charged nothing to accomplish a huge amount.” (Warren Buffet speaking to Becky Quick at CNBC.)  Jack Bogle “introduced the first index mutual fund for individual investors” and “drove down costs across the mutual fund industry.” (Vanguard.com 1/16/19.)  “Fees matter more than most people think and Jack Bogle gave individual investors a way to lower their fees.  The less an investor gives away in fees, the more their own money is working for them.” (Larry Pike, now.)

https://investornews.vanguard/a-look-back-at-the-life-of-vanguards-founder/

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com
Blog: clientpriority.blogspot.com

Being Smart with $$ -- Isn't the Stock Market Risky Enough?

2018 reminds us that some years you make money in stocks but some years you lose it.  In either case, you want to make as much as you can and not lose more than necessary.  Many think that buying the star mutual fund of the last few years gives you a better a chance of making money in up years and losing less in down years.  But often the opposite is true.  When you buy a market-tracking index fund instead of an actively-managed fund, you are sure to almost match market returns every year. When you buy an actively-managed fund, you don’t know what you’ll get.  Maybe you want exposure to Europe and are choosing between Vanguard’s European Stock Index Fund and Janus Henderson’s European Focus Fund.  Three years ago, you may have noticed Janus’s strong performance over the prior 3 years versus the Vanguard fund and paid their 5.75% sales commission to buy this fund. But unfortunately you would have paid the price for learning that past performance often doesn’t carry into the future.  The Janus fund went on to severely underperform the unmanaged, market-tracking Vanguard index fund over the next 3 years.  In fact, the performance was so bad that even including the great years the Janus fund had from 2013 to 2015, the total 6-year performance of the Janus fund was far worse than the Vanguard index fund.  This doesn’t even include the commission paid to buy it.  What is the lesson?  Chasing strong past performers is often a losing strategy and buying low-cost, market-tracking index funds lets you match a market benchmark and in the long run that can work out quite well. Isn’t the stock market risky enough without the added risk that your fund might trail the market itself?

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com