Being Smart with $$ - Did You Earn What You Should Have in 2023?

 

With another year of investing coming to an end, did your adviser help you or hurt you?  Many advisers boast about a year where they achieved a 10% return on your investment portfolio, or maybe a more-impressive 12%?  Before you send out a thank-you note, those returns may be far less than you should have earned.  A simple investment in the Vanguard Target Retirement 2040 Fund (for those around age 50) returned over 18% in 2023.  The 2030 Fund (for those around age 60) earned around 16%.  While your circumstances and risk profile may be somewhat different than others who are the ages mentioned above, this comparison may put your 2023 performance in perspective.  These Vanguard target date funds are static, low-cost portfolios without a manager guessing what to buy and sell.  Many advisers claim they have a special ability to give you extra returns but quite a bit of research suggests that very few advisers beat the markets after their high fees are taken out. And what’s worse, many guess wrong on market direction and cost you a fortune in lost earnings.  This year, most advisers started the year telling you the stock market would fall and kept clients below their typical target allocation for stocks which has cost you money.  Money not earned for guessing wrong is just as bad as money lost when the market falls.  If you are 50 and paid 1% of your assets in fees to an adviser for a 10% return this past year, then your $1 million portfolio may have earned $80,000 less than it should have and then you paid $10,000 in fees on top of that for poor advice.  If you earned returns this year that were well below those provided by Vanguard target retirement funds matching your horizon, then you might want to question your adviser’s investment strategy and why you are paying such high fees for someone who shouldn’t be gambling with YOUR money.  Consider speaking to a new adviser who doesn’t time the market or make false claims that he or she has a crystal ball.  (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. 2023 market returns were higher than historical averages.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Hourly, Fee-Only Financial Planning and Advice.

No Commissions.  No automatic, annual fees.

Being Smart with $$ - Don't Pay for False Promises of Stock Picking Ability

 

Should you buy a portfolio of individual stocks recommended by the most-respected minds on Wall Street? Or should you buy a diversified portfolio of stocks that you can get in an UNmanaged, low-cost index mutual fund? One year ago today, a business channel ran a story about the top individual stock picks recommended by some major investment banks. When you look at the performance of these recommended stocks, it has to be compared to the overall stock market and what you could have earned if you simply bought all stocks instead of just one recommended stock. The US stock market is up around 20% over the last year. So how did these #1 recommended stocks do?  One giant investment bank chose Northrop Grumman as their top pick and this stock is DOWN 12% in one year. A different giant investment bank chose Bank of America as their top pick and this stock is up only 6% over the last year, 14% less than the U.S. market overall.  These major investment firms try to create an aura of knowledge to convince you to pay them 1% of your portfolio per year to have them manage your money. But you won’t hear them a year later tell you that an unmanaged index fund would have been a better investment. Some level of stock ownership is right for most people if you have a long-term horizon and even people on the verge of retirement have 30 more years of life to plan for. Hiring an investment professional to help you create the right portfolio for you and create a long-term plan can be very beneficial but you don’t have to pay tens of thousands of dollars per year for false promises of superior performance when many advisers charge a flat fee or by the hour.  (Past performance may not be an indicator of what to expect in the future and your individual circumstances should be considered in any investment decision.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Hourly, Fee-Only Financial Planning and Advice.

No Commissions.  No automatic, annual fees.

Being Smart with $$ - The Markets Already Price In What We Know

 

The stock market does an amazing job of quickly processing all the information available to us and fairly pricing assets each second. It is incredibly hard to find assets to buy that are cheap and sell assets that are expensive and profit by it. This is proven by the fact that the vast majority of actively-managed mutual funds underperform their benchmarks over long periods of time.  Stocks generally go up over the long run although you never know which days or months will give us strong returns. Research tells us that in order to succeed in the stock market, you need to sit tight so you are in it when the upward moves happen.  At the beginning of this year, we were told by most market analysts and business channel pundits that a recession was obviously coming and we should reduce our position in stocks. What they didn’t discuss is that the markets were already pricing in the expectation of a recession, and that prices were already lower than they would be if we believed a booming economy were coming. Well, guess what. All of those analysts and pundits were wrong and the economy never contracted in the way they predicted and the US stock market is now up around 20% for the year. Listening to the so-called experts would have cost you quite a bit of money by being out of the market. It is worth repeating that the markets always reflect what we already know so your actions to buy or sell will never get ahead of the existing data.  There are never any guarantees in the stock market, but someone with a long-term perspective will be best suited by ignoring the short-term expert advice, as proven by another year where the pros got it completely wrong. (Past performance may not be an indicator of what to expect in the future and your individual circumstances should be considered in any investment decision.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Hourly, Fee-Only Financial Planning and Advice.

No Commissions.  No automatic, annual fees.