Thursday, February 3, 2022

Being Smart with $$ -- Don't Fall in Love...With a Stock.

 


Don’t fall in love…with a stock.
Many people develop an unhealthy obsession with one company and own far more of a stock than they should.  Stocks are risky as we know.  The market can fall 30% almost overnight.  But each individual stock can also fall by a lot even if the rest of the market doesn’t.  When you diversify your portfolio and hold small amounts of many different stocks, which is what you get when you buy stock mutual funds, you get rid of the risk that any one company’s problems will impact your wealth too much.  Many people fell in love with Netflix which is down 24% in the last year, and Facebook (Meta) which is down 10% in the last year, and Peloton which is down 83% in the last year.  But what makes these returns worse is that mutual funds that hold a diversified portfolio of all U.S. stocks are UP 12% in the last year.  Investors should think more like robots.  Let’s say you own $300,000 of a particular stock in your retirement account and that is 30% of your $1 million portfolio. It may be something you invested $50,000 into a while back. Many people choose not to sell any of that holding.  Now ask yourself how much of that stock you would buy today if you didn’t own any of it but had $300,000 of cash in the account.  Very few people would spend all the cash on that one stock which shows that people make decisions irrationally since their desired position is based on a starting point that no longer matters.  A robot would just decide how much of the stock is right for its portfolio and buy or sell as necessary without regard for any historical data that has nothing to do with the right exposure today.  A diversified portfolio gives you market returns without the risks that come from owning too much of one company. (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.

Sunday, January 2, 2022

Being Smart with $$ - Did You Earn Enough in 2021


 

The books are closed on 2021.   So, how did your portfolio do?  Did your adviser boast that he or she earned you a 7% return on your investments, or maybe a more-impressive 10%?  Before you send out a thank-you note, those returns are less than you should have earned for most people.  A simple investment in the Vanguard Target Retirement 2035 Fund (for those in their early 50s) returned over 13-1/2% in 2021.  The 2045 Fund (for those in their early 40s) earned over 16%.  While your circumstances and risk profile may be somewhat different than others who are in their 40s or 50s, this comparison may put your 2021 performance in perspective.  Are you 60? The conservative Vanguard 2025 Fund returned almost 10% in 2021.  And these are all static portfolios without a manager guessing what to buy and sell.  Many advisers claim they have a special ability to give you extra returns but much research suggests that the majority of advisers are unlikely to 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.  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 $35,000 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 an hourly, fee-only adviser who doesn’t time the market or make false claims that he 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. 2021 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.

Thursday, November 4, 2021

Being Smart with $$ - Don't Believe that You Need to Pay a Fortune for Financial Advice

 

If you are looking for a financial adviser, you may wonder if all those dazzling claims of brilliance by financial companies on TV advertisements can be true. The ads imply that if you pay the boastful adviser $10,000 every year (on a $1 million portfolio) then they will do all kinds of magic to add so much value to your portfolio that you will be glad you forked out more money than you pay for anything else in a year except maybe your mortgage or real estate taxes.  Advisers will claim they have a crystal ball that lets them time the market and outperform a boring buy-and-hold allocation.  They even say that they are especially talented in a volatile market like the one we have seen since Covid began.  The facts are very different than the claims.  Morningstar recently reported that far more than half of actively-managed portfolios did worse than a simple, boring, buy-and hold portfolio in the same category.  They further reported that over the past 10 years, the actively-managed funds as a group did abysmally.  Why? The managers couldn’t add just a small amount of value to offset the large fees they take from client accounts.  An adviser is useful to help you create a plan and invest properly.  But paying an adviser giant sums for false confidence is likely to cost you money compared to hiring a flat-fee or hourly adviser that helps you create a buy-and-hold mix of investments, tells you to sit tight and takes reasonable fees for their effort. 

Larry Pike, CFA

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

Hourly, Fee-Only Financial Planning and Advice.

No Commissions.  No automatic, annual fees.

https://www.cnbc.com/2021/11/01/in-one-of-the-most-volatile-markets-in-decades-active-fund-managers-underperformed-again.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

Monday, September 13, 2021

Being Smart with $$ - Will Your Mistake of the Last 10 Years Be the Same for the Next 10

 


Does this sound like you?  You are paying a financial adviser 1% of your portfolio which is $10,000 every year on $1 million in assets and your adviser puts you in a bunch of affiliated mutual funds that perform worse than low-cost index funds but he or she gets another fee stream for doing so and you earn 1% less than you should which costs you another $10,000.  And someone tells you about hourly, fee-only advice that does not recommend high-cost investments and does not take the high, recurring adviser fees but inertia keeps you from doing anything about it because your adviser is a friend from high school.  And this inertia costs you roughly $320,000 in lost growth over 10 years.  Does this sound like you?  If this is what happened to you over the last 10 years, will it be your next 10 years too?

(Actual results may vary and values are based exclusively on fees charged.)

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Friday, May 28, 2021

Being Smart with $$ -- Why Would You Pay So Much When You Don't Have To?


 

I am regularly amazed that people who choose store brand products to save $2 or skip a $2000 vacation due to the cost will not hesitate to pay $10,000 to $30,000 for financial advice every single year when flat-fee and hourly advisers offer the same service without gouging out your soul. The financial industry works hard to convince people that you need to pay these high fees in order to get high returns. In reality, many advisers offer similar advice even if their fee structure is designed to be fair to the client instead of extracting enough from your account to buy the adviser a Porsche each year.  And the ones that charge the highest fees often claim they have some magic formula for adding value when the opposite is often true.  Last year was a great example of why you shouldn’t pay someone to dart in and out of the market when buy-and-hold portfolios usually win in the long run. In exchange for the $10,000 in fees on a $1 million portfolio, many advisers earned their clients $50,000 to $70,000 less than they should have. If you have a managed portfolio and are paying 1%, ask your adviser what percentage return you earned in 2020 after fees.  If you are 50 and didn’t earn around 15%, ask your adviser why you are paying them $10,000 when you are eating store-brand tuna.  If you are 60, you may be looking to have earned around 14% in 2020. (Returns are based on Vanguard UNMANAGED target retirement funds.)  If every decision you make about spending considers whether you can afford something, why would someone pay tens of thousands of dollars for financial advice when an equal or possibly better service is available for a fraction of that and you get to keep the difference?  If $10,000 is taken from your account on an annual basis over 20 years, your portfolio doesn’t grow by that $400,000 that it should have including investment returns.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Hourly, Fee-Only Financial Planning and Advice.

No Commissions.  No automatic, annual fees.


Tuesday, March 30, 2021

Being Smart with $$ -- Women's History Month and Women Investors

 


As Women’s History Month comes to a close, I commend women for being more likely than men to take a buy-and-hold approach with their investments. Investors who trade frequently are less likely to earn high long-term returns than those who simply buy and hold. A Fidelity Investments report (5/18/17) revealed that men are 35% more likely to make short-term trades than women and women earn higher returns than men.  As the stock market rises over time, those who trade in and out often miss some important periods that account for a big part of a year’s gains.  According to Schwab Center for Financial Research, a buy-and-hold investor would have earned 7.8% annually in large-cap stocks between 1996 and 2011 but missing the best 30 days for the markets would have eliminated all your returns.  2020 is a case in point where a buy-and-hold, 50-year-old investor earned 14.79% in Vanguard’s Target Retirement 2035 Fund while many investment advisers gave their clients far inferior returns as they believed they could “navigate volatile times” as they often claim they can do.  As in many aspects of life, men learn yet another lesson from women.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 


Saturday, January 2, 2021

Being Smart With $$ -- Did You Get the Returns You Deserved in 2020?


 

2020 was an insane year in the financial markets.  So, after everything, how did your portfolio do?  Did you lose money?  Did you realize a 5% return on your investments this year? Or perhaps a more-impressive 10%?  Before you send your financial adviser a thank-you note, you should know that a simple investment in the Vanguard Target Retirement 2035 Fund (for those around 50 years old today) returned almost 15% in 2020.  While your circumstances and risk profile may be somewhat different than others who are 50, this comparison may put your 2020 performance in perspective.  Are you 60? The Vanguard 2025 Fund returned over 13% in 2020.  Many advisers claim they have a special ability to give you extra returns but much research suggests that the majority of advisers are unlikely to beat the markets after their high fees are taken out.  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 $50,000 less than it should have, not to mention the $10,000 in fees you may have paid for poor advice.  Those who tried to time the market this year mostly got a lesson in what doesn’t work.  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 or your adviser’s investment strategy. Consider speaking to an hourly, fee-only adviser who doesn’t time the market.  (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. 2020 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.