Being Smart with $$ -- Thank Yourself for the Gift from Your Financial Advisor

Everybody loves getting gifts!  That’s why your financial advisor may send you expensive cigars or wine for the holidays.  If so, I hope you send him/her a note of thanks.  Or wait, maybe you should send the note to yourself.  Your fees are paying for the gift.  Is your advisor charging 1% of assets every year?  If yes, on a $300,000 retirement account these charges may be adding up to as much as $50,000 in fees plus lost investment earnings on those fees over only 10 years!  On a million-dollar account it’s likely over $150,000!  No wonder they are sending you expensive gifts.  They should be sending you a new 60-inch TV or even a car!  And then the question is, are you getting $50,000 of service on a simple $300,000 starting portfolio?  Perhaps an hourly, fee-based advisor can give you equal or superior help but without the huge, recurring annual fees. Let’s discuss the difference.

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com 

Being Smart with $$ - How We Fall for Market Bubbles

How do smart people fall victim to market bubbles? It usually happens like this:

1. First we watch others make crazy money every day from investments in an asset class. Like Bitcoin. Fundamentals don’t seem to matter and we realize there is likely a complete disconnect between where it is trading and what it may truly be worth. But that doesn’t matter when it goes higher every day. It’s frustrating to watch others make such easy money while we sit on the sidelines actually working for a living. So we decide to jump in, but only until the bubble starts to burst. Because we think we can see it coming. 
2. We hear of people that sell when it pops higher and buy it every time it drops 10% or 20%. And then when it reaches new highs this strategy seems genius. So we start doing the same.  Or maybe we just buy and hold and ride out the brief dips. 
3. This buy-and-hold AND buy-low, sell-high strategies both seem to work. But then one day we buy low, but instead of moving higher it falls another 10%. We have been accustomed to these drops and believe it is just a chance to buy even cheaper before the next move higher. So we hold on or even buy more. 
4. As the asset class keeps falling, we keep holding believing that something that recently traded for $16,000 must surely recover from $10,000 (even though it was well below $10,000 only a month ago and below $2,000 at the beginning of the year.) 
5. As the asset class continues to plummet, it feels too late to bother to get out and we hang on hoping for some miracle recovery. This never comes.
6. Finally, we ask ourselves how we could fall for something that was so obviously a bubble. Didn’t we learn from the tech stock bubble which fell so much that 10 years after the bubble burst it was still down 50% from its peak?  And we walk away poorer. Hey, we can skip this year’s vacation. Next year we will make it back on some new trade that appears to be going unstoppably higher.

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com 

- Blog: www.clientpriority.blogspot.com

Being Smart with $$ - Eat Turkey and Invest in Turkey

This Thanksgiving, invest in Turkey. No, not the bird, the country. But not just Turkey, invest broadly across international markets. Investing internationally provides greater diversification and lower volatility to a portfolio. Shortsighted investors may point out that the US markets have outperformed international markets over a long period of time. But sectors perform cyclically and in many prior periods the opposite was true. Those who have shunned international markets have lost extra returns this year. One emerging markets international index fund, that has exposure to Turkey, has returned a whopping 36% year to date. Total international stock funds have returned about six percentage points more than the total US stock market funds so far this year. So while you’re eating turkey, consider investing in Turkey for the rest of the year and beyond. And have a HAPPY THANKSGIVING!

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com 

Being Smart With $$ -- Investment Fees Matter More Than You Think

Fees. Fees. Fees.  They will make you poor! Or at least less rich.  So many people pay too little attention to the effect of fees on their investment performance but it matters more than you think. If you lose just 1% to fees on a mutual fund investment over 20 years, you may end up with about 18% less money.  On a $100,000 investment, that 1% might cost you about $65,000 in lost earnings.  And you might think that paying a high management fee to own a certain fund will pay off.  However, Morningstar has studied this and found that the lower the management fee a U.S. stock fund had from 2010 to 2015, the greater its chance of outperforming its category and of not being shut down.  They found that the 20% of all U.S. stock funds with the lowest fees returned 3.4% more annually over that 5-year period than the 20% of funds with the highest fees. Let’s not calculate what that would amount to over 20 years.  It might make you cry.  “Fund Fees Predict Future Success or Failure” Morningstar May 5, 2016.

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com 

Being Smart With $$ -- Reacting to Predictions of Stock Market Crashes is a Bad Strategy

In early October, TheStreet.com headline shouted: “4 Reasons We Could Have Another October Stock Market Crash.”  Many investors know October claims ownership of well-known stock crashes in 1987, 1929 and others.  If you are the type to believe and react to every headline, you might have missed a 2.36% October gain in the stock market (S&P 500 index).  That’s a spectacular return if you realize that 12 months like that would give you a 32% annual return.  The actual return over the last 12 months is 21% which is still spectacular but you would have missed that too if you listened to last year’s doomsayers and they are always out there.  Can there be a crash that’s not in October?  Of course.  But predicting when or if it will come is great for headlines and not so good for your portfolio.  If your stock investments are for your long-term goals then you don’t need to predict a crash; you just need not to worry about it when or if it happens and know the market is likely to recover nicely over the years.  We all know people who have been on the sidelines for years waiting for the crash.  Now they need a pretty big crash just to get in where they could have 3 years ago.  And if a correction turns out to be 5% returns for several years instead of the higher historical average then they will continue to lick their deepening wounds.  Buying and holding and investing new cash regularly is how most successful investors achieve long-term wealth. Timing the market is not.

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com 

Being Smart With $$ — Money Spent Today Can’t Be Spent in Retirement

It’s so obvious that money we spend today can’t be spent in retirement. But do we really understand the true impact? Let’s assume you are thinking about a big family vacation that will cost $10,000. What is the real effect on your retirement of taking this trip?  Let’s say you are 55 and plan to retire at 67. Common financial planning models say this trip reduces the amount you can spend in retirement by $800 every year for the rest of your life. (Actually your spending will be even lower because of inflation; in your 2nd year you can spend $816 less and in your 3rd year $832 less etc.)  Take this trip AND buy a $10,000 fancier car than you need? Now you may be on target to spend $1600 less per year every year in retirement. If you have loads more money than you can spend in your lifetime then go ahead and splurge!  But if you are like most people and can’t seem to save enough for retirement then it’s critical that you understand you are making a trade off between today and your retirement years. 

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com 

- Blog: www.clientpriority.blogspot.com

Being Smart with $$ -- Thumbs Should Not Make the Rules

Thumbs should NOT be making the rules!

A month ago we were told that September is the worst month for stocks. Perhaps you want to wait out this month and wait for the better months, they said. Last month Kiplinger Closing Bell quoted Yardeni Research warning that September falls more often than it rises. However, if you followed this Rule of Thumb and sat out the last month you missed a 2.61% gain in the S&P 500. To put that in perspective, if every month rose that much you would earn 36% for the year. Maybe we better let those thumbs stick to hitchhiking instead of rule making and keep our financial plans on the right course. Stay invested in the asset classes that are right for your personal circumstances and avoid the temptation of timing the market.  Let me know if I can help you create a portfolio that is right for you.

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com 

Being Smart with $$ -- So many Ways to Get Scammed

So many ways the bad guys are trying to scam you!

Phone call:  “This is the IRS.  Send us money now or you will go to jail.” FRAUD!  The IRS will always mail you a notice of payment due first and will not demand payment over the phone by prepaid debit card on the spot.  Call the IRS directly if you have a concern.

Phone call:  “This is the IRS, we have a refund for you.”  FRAUD!  This scammer is likely trying to get you to reveal private information. 

Email from your bank:  “Your account has had a security issue.  Please click this link to change your password.”  FRAUD!  The security issue is the email itself.  Never click a link from what appears to be your bank.  Scammers create lookalike websites so you think you’re on your bank’s website when you click the fake link.  Open a new browser and go directly to your bank’s website if you have concerns.

Also:  - File your tax return as early as possible so scammers can’t file a fake one and make off with your refund.  - Set up your online Social Security account so fraudsters can’t.  – Freeze your credit at each of the 3 major credit bureaus to prevent fraudulent use of your credit.   

Be smarter than the crooks.  Don’t give out private information unless you know for sure who you are talking to, and if you didn’t initiate the call then you really don’t know who you’re talking to.  Don’t click links in emails when these could easily be viruses designed to invade your computer.  Even if it looks like a friend sent it, they may not have. 

Who wants to go back to the days of horses and buggies?
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com 

Being Smart with $$ -- How to Protect Yourself by Freezing Your Credit

The Equifax breach has us all concerned that we could be the next victim of identity theft.  We can check our credit reports periodically but that only reveals a problem after it has happened.  We can purchase credit monitoring but that comes with a sticker price of as much as $300 per year.  Or we can freeze our credit preventing anyone from applying for loans under our names which manages the problem before it occurs. Freezing your credit comes with inconveniences as you will need to unfreeze your credit files each time you want to apply for a mortgage, car loan or new credit card and it may even cost a fee to freeze and unfreeze your files (varies by state).  Additionally, you will need to plan ahead by a couple of days when applying for a loan to make your credit available to legitimate companies.  But if you consider that credit monitoring costs hundreds of dollars and you might not apply for credit more than once per year, perhaps in this age of cyber insecurity, it’s time to take the more aggressive approach. (Fees indicated are for Massachusetts residents and vary by state.  Victims of identity theft may be able to request a freeze without charge but documentation is required.)

Step by step instructions to freeze your credit.  This process must be completed with each of the 3 credit bureaus:

1.Equifax

https://www.freeze.equifax.com 

Page 1:  Fill in personal information including address and social security number plus a code displayed that shows you are not a robot.

Page 2:  Check the box:  Place a security freeze

Page 3:  Submit – to request the freeze

Page 4:  BE SURE TO PRINT THE PDF FILE THAT IS NOW OFFERED.  It contains a 10-digit PIN that will be required to unfreeze your credit in the future.

Note:  The Equifax website indicated that a $5 fee is required to initiate a freeze and to create a temporary lift or permanent removal of the freeze.  However, no fees were requested during the freezing process.  

2. Experian

https://www.experian.com/freeze/center.html

Click: Add a security freeze

Click: Apply online

Next page:  Fill in your personal information including address and social security number.

Next page:  You will be required to submit credit card information to pay a $5 fee for this process.

Next page:  You will be asked security questions, such as what bank you have used for a certain product, to confirm your identity.

Finally, a page will be displayed with your PIN needed to unfreeze the account in the future.  You can print this page but BE SURE TO NOTE THE PIN NUMBER.

Note:  The Experian website indicates that a $5 fee will be required to create a temporary lift of the freeze or to remove the freeze entirely.

3. TransUnion

https://freeze.transunion.com

Page 1:  Register – to create an account.

Page 2:  Fill in your personal information including address and social security number and click Continue.

Page 3:  Create a user name and password and fill in additional information. Agree to terms and click Continue.

(It may next ask you to confirm your current address.)

Page 4:  Click “Add Security Freeze.”

Page 5:  Accept terms and continue.

Page 6:  Provide credit card information to pay a $5 fee for this process and click Continue.

Page 7:  Create a PIN and click Continue.

Page 8:  You will receive a confirmation of your credit freeze.  BE SURE TO NOTE YOUR PIN to be able to unfreeze your credit in the future.  

Note: The TransUnion website indicates that a $5 fee will be required to create a temporary lift of the freeze but a full removal of the freeze is free.

Being Smart with $$ -- What to Know About the Equifax Data Breach

You have likely heard on the news about the Equifax data breach which may have caused important personal information to be released to online thieves and may affect virtually all adult Americans. The information released may have included Social Security numbers, birth dates, addresses and possibly even driver’s license numbers.

Equifax is offering free credit monitoring services for one year but this may not be enough. Thieves could easily hold onto your information and wait to use it a year or more from now. Additionally, signing up for the service may affect your ability to receive restitution from the company. Equifax has set up a website where consumers can see if their information was compromised, but the buzz is that the information provided may be less than useful or certain. Consumers need to remain vigilant. The free monitoring service is called TrustedID Premier if you would like to take advantage of it.

What to do:

Get your free annual credit report from each of the three major credit companies. Review one report every four months to verify that no unusual activity has occurred in your name. Experian, TransUnion and Equifax are the three major credit bureaus.

Regularly check your credit card and bank statements for any inconsistencies. Thieves may try small transactions first to see if they get noticed before going for larger ones.  Even without a data breach, anyone with your bank account and routing numbers (such as anyone with one of your checks) could try to transfer funds from your account.  

Set up an online Social Security account.  If you do it, thieves can’t beat you to it and apply for YOUR benefits.  www.ssa.gov/myaccount  

File your taxes early. If you do, then thieves can't file a fake return and steal your refund.

You have the option to freeze your credit files however each time you personally apply for credit you will need to unfreeze access and then refreeze it after the fact. And each time may result in a fee of $5 to $10. You will need to contact each of the three credit bureaus (possibly even a fourth called Innovis) and once you complete the process they can only release your information to companies that already have you as a customer. You will have to save a PIN number in order to unfreeze your credit in the future which can take 24 hours and may prove inconvenient when applying for credit. But also consider that as thieves may have quite a bit of information on you, it is not inconceivable they could find a way unfreeze your files so you must continue to monitor your credit and not be lulled into a sense of complacency.

You can also request fraud alerts from the three credit bureaus which will indicate when someone has tried to open up a new account in your name. When you contact one of the three credit agencies, they will notify the other two. A fraud alert will last for 90 days and can be renewed.

You may choose to sign up for a credit monitoring service such as LifeLock or Experian CreditWorks
which will alert you anytime there is a change to your credit report. However, these services can be very pricey costing $100 per year for a limited service and up to $300 a year for a premium service. Critics of the services say you can do the monitoring yourself for free by watching your credit card and bank statements and getting your free credit reports three times a year. Additionally, while freezing your credit may be inconvenient and result in a fee each time you freeze or unfreeze, the cost of doing so may be far less than paying the annual cost of a credit monitoring service. A plus to the credit monitoring services is the inclusion of insurance that may reimburse you for certain losses and pay for certain legal bills if you become a victim of identity theft.  It should be noted that this insurance is often secondary to other coverage you may already have like homeowners insurance and protection offered by credit card companies for fraudulent charges. 

It all comes down to personal choice and how much time you believe you can commit to the process of protecting your identity. Unfortunately, we live in an age where your information can be used against you and you must be vigilant to protect yourself.

Being Smart with $$ -- Do You REALLY Know What You're Paying in Fees?

Do you REALLY know how much you are paying in fees to your investment advisor? There are so many different ways your advisor may be collecting cash related to your account. Ask him/her:

How much money did you collect in fees from my account last year either directly from me or indirectly from others as payments related to my account holdings or activities? Say you want to know in actual dollars, not in percentages, as the real dollar amount may shock you. Ask how much your advisor received in commissions or loads for investments sold to you in the past and then wonder if those investments were best for you or best for the advisor. The amounts may be staggering and may be completely out of line with the service received or the portfolio returns achieved. The magnitude of fees paid are often obscured within confusing descriptions or hidden in the fine print. If your advisor doesn't give you a direct answer it should be obvious what that means and it's not good. Did your portfolio outperform a simple index-fund portfolio? Good chance it didn't. So why are you willing to pay $5,000 or $10,000 (or more!) every year? Demand transparency! And perhaps it's time to consider if an hourly, fee-based advisor can give you advice that is unbiased by complicated compensation schemes and without all the hidden costs. 

Larry Pike, CFA

www.clientpriority.com

Being Smart with $$ - Get Ahead of the Fraudsters with your Social Security

Protect Yourself from Fraud. 
If you haven’t done so, set up an online Social Security account.  If you do it, thieves can’t beat you to it and apply for YOUR benefits.  Doesn’t matter how far you are from claiming benefits.  Set up the account now.  And while you are there, make sure all your earnings have been correctly reflected so you don’t get cheated out of benefits later.  www.ssa.gov/myaccount  (Credit to Kiplinger’s Magazine, 09/2017, for this tip.)
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com

Being Smart with $$ - Look Rich or Be Rich

Do you want to be rich or look rich? The advice for getting rich is usually the same. Save more, spend less and invest the difference. In a Kiplinger's interview (09/2017), author Thomas Corley said the most common thing people do to prevent themselves from getting rich is to spend more when you start earning more.  If you save the new income, it can grow and compound and voila, you're rich!  In a study Morley conducted of the wealthy, they all save a big chunk of their earnings. So the question comes down to this: will you be happier if you have less stuff but more money or if you have less money but more stuff (looking rich)?  For most people it's one or the other. Go ahead and choose. 

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com 

Being Smart with $$ -- 10 Years into the Financial Crisis

News sources say today is the 10-year anniversary of the start of the financial crisis.  So it’s an opportunity to see how different forms of investing behavior served you.  Did professional investment management protect you from the huge downside in 2008 and then give you great returns in the strong periods thereafter?  If you have done nothing but own Vanguard’s Total Market Index Fund over the last 10 years, meaning you did not time the market and did not panic and sell when the market was falling, you earned an annualized 7.94% return on your money.  Not bad!  But what if you hired a pro such as a hedge fund to manage this period of turmoil; someone who should know when to stay out of the market and when to get back in?  Despite their very high fees you’d surely do better, right?  Well, results don’t paint the picture you might expect.  An index of Hedge Funds over the last 10 years has returned less than 4% annually and many of the most-respected names in hedge funds contributed to the mediocre performance.  After compounding, that’s a huge hit you took for trying to time the market. Buy and Hold wins by a mile.  You cannot predict that buy-and-hold will always win but for those who believe that you must pay someone big fees to avoid the bad markets, perhaps it’s time to rethink your strategy.

Larry Pike, CFA

www.clientpriority.com

Being smart with $$ - Are Market Bubbles Obvious

Don't stock market bubbles seem so obvious after the fact? Many of us pat ourselves on the back saying we knew it was coming. That's not to say we didn't participate in the upside and take losses on the downside. A few weeks ago I sat with a fellow financial advisor who said bubbles are easy to spot. I disagreed and posed this question: is Amazon.com at bubble levels? At $1000 per share it has nearly tripled over the past three years. It has a P/E ratio of 250 and a forward P/E ratio of 140 (approximately). But it is a great company and it seems like every analyst on CNBC loves it. And no matter how high the stock price goes they raise their target to a new yet higher level.  Perhaps they are right and we will only see the stock continue to skyrocket. But if it loses half its value, how many analysts will swear it was an obvious bubble ready to burst?

Larry Pike, CFA

www.clientpriority.com 

Being smart with $$ -- The Choices We Make

Can smashed avocado ruin your chance to buy a home? Australian billionaire Tim Gurner told Australian 60 Minutes that young people love $4 coffees and $19 smashed avocado (at trendy restaurants) and all this discretionary spending is keeping many from amassing a down payment on a new home.  The same would apply to older generations who aren't saving enough for retirement. Every dollar we spend is a choice though we often don't think it is. Avocado toast and lattes instead of ownership in a home? A Lexus in your driveway and European family vacations instead of an adequate retirement fund?  It's great to have the power to make these choices. But when you put your credit card on the travel agent's desk, that choice is yours. So no crying allowed later if you can't afford avocado toast in a retirement.

Larry Pike, CFA

www.clientpriority.com

Blog: clientpriority.blogspot.com

Being Smart with $$ - Index Funds Never Have a Bad Year Relative to the Stock Market

Index mutual funds that simply track their stock market benchmark have an important thing going for them:  They Never Have a Bad Year!  At least not relative to the stock market they are tracking.  Yes, they can fall and will when the stock market falls.  But the big difference between index funds and actively-managed funds is that every year a big number of actively-managed portfolios will have a bad year compared to the market they track.  And it’s very hard to tell in advance which of the funds will be the stinkers.  Since all stock investors make up the whole market, some investors have to have a bad year in order for others to have a good year.  And when you subtract out the management fee that active managers extract from their funds, more active managers trail the market than beat it, as history has shown.  What’s the effect of one bad year?  In Kiplinger’s Personal Finance (July 2017), columnist Kathy Kristof reveals that her results were average over most years but had just one bad year doing 20% worse than the market.  That one bad year caused her 5.5-year return to trail her index fund benchmark by 31 percentage points because of compounding.  I wonder if she will have to work an extra year before retirement to make up for that or perhaps drive a Toyota instead of a Lexus.  For your purposes, consider whether an index-fund portfolio will let you sleep better at night knowing that your investments have only stock-market risk to worry about and not the added risk that a fund manager might make the wrong bets this year.

Larry Pike, CFA

www.clientpriority.com

Being smart with $$ -- Are you paying a fee for market timing

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. 

Larry Pike, CFA

www.clientpriority.com

Blog: clientpriority.blogspot.com

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

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

www.clientpriority.com

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

www.clientpriority.com

Being Smart With $$ -- Don't spend $100k today if you can only spend $30k tomorrow

Are you living a $100,000 per-year life now with retirement around the corner that will be a $30,000 per-year life then?  Wouldn’t it make sense to create a financial plan so you know what to expect and then make adjustments accordingly?  Keeping your head in the sand is not a great way to prepare for the future.  Hourly, fee-based financial planners can help you make such a plan and get your head back to where it belongs with NO commissions and NO automatic, recurring fees.

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com 

Being smart with $$ -- Stock picking is hard! Just ask Warren Buffet

Stock picking is hard! Just ask Warren Buffet. The Oracle of Omaha started buying IBM 6 years ago and it became one of his biggest positions. The problem is, it didn't do so well. IBM is down about 9% from 6 years ago while an unmanaged S&P 500 index fund is up about 75% in the same time. And now he announced on CNBC he's cutting bait and has recently sold 1/3 of his position (possibly at an average price that's a little better than today's quote). That hurts! It should be noted that Buffet's overall performance which includes all his holdings has held in better. But it's no wonder that he doesn't want anyone picking stocks for his wife's portfolio after he's gone; he announced he wants her stock money in low-cost, unmanaged index funds. 

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com 

Being smart with $$ -- Retirement Requires Planning

Financial Planning, believe it or not, includes a plan.  Meeting goals requires having goals.  When you reach retirement age, you can retire.  But HOW you retire is the question.  Having the kind of retirement you envision may depend on setting goals and following a plan.  No planning may lead to….well, we don’t know because there’s no plan.  Now is the time to create that plan.  Simply wishing for the best is not enough.

Larry Pike, CFA

www.clientpriority.com

Being smart with $$ -- 82% of actively-managed stock funds do worse than their benchmark

82% of actively-managed stock funds did WORSE than their index benchmarks over the last 15 years, reports the Wall Street Journal today referencing the SPIVA scorecard.  That means you had a far better chance of maximizing your portfolio by leaving your money in unmanaged index funds than in funds where someone gets paid well to choose which stocks to own and which ones not to own.  How is this possible?  The fees extracted by the fund managers leave them at a big disadvantage vs. index funds that charge miniscule fees by comparison.  The moral? Chasing performance may leave you with underperformance more often than not.

Larry Pike, CFA

www.clientpriority.com

Being Smart with $$ -- Survivorship Bias Makes the Fund Industry Look Better Than It Is

The attack of Survivorship Bias! Did you know that the performance of existing investment funds as a whole is worse than it may seem on the surface?  That’s because the real stinkers are shut down out of existence and cease to drag down the average of the survivors.  When comparing active fund management against passive index investing, the active managers are boosted by the fact that only the successful ones are still around for comparison.  This generally makes active manager performance as a group look better than it is. 
This is one topic highlighted in my newly updated website: WWW.CLIENTPRIORITY.COM
Please visit my site for more interesting research articles.

Larry Pike, CFA

Being Smart with $$ -- Quarter update, but it's the decades that matter

First quarter update: U.S. stocks were up a healthy 5.8%.  But have you avoided international stocks because they have done worse than U.S. stocks lately? If yes, that cost you as international stocks returned 8.5%.  What will they do next? Turn on CNBC and you’ll hear some say the markets are going to roar ahead.  Others will tell you we are set for a fall.  Some will insist international stocks have started a run of outperformance.  Others will disagree.  It all depends which 5 minutes you spend watching.   Maybe best to leave the TV off and stick to a well thought out investment plan.  This quarter was great but it’s decades that matter when building a retirement account. (Vanguard “total” index funds used for returns above.)

Larry Pike, CFA

www.clientpriority.com

Being Smart with $$ -- More smart quotes

More quotes from Knight Kiplinger:

“Conspicuous consumption will make you conspicuously poor.”

“The key to stock market success isn’t your timing of the market. It’s your time in the market—the longer, the better."

“Keep a cool head when others are losing theirs.”

Again, true words!

(In Kiplingers Mag April '17) 

Larry Pike, CFA

www.clientpriority.com

Being Smart with $$ -- Intelligent Quotes

Quotes from Knight Kiplinger:

"Wealth creation isn't a matter of what you earn. It's how much of it you save."

"Your biggest barrier to becoming rich is living like you're rich before you are."

"Pay yourself first." Meaning put money into retirement accounts before other spending and don't spend more than what's left. 

True words!

(In Kiplingers Mag April '17) 

Larry Pike, CFA

www.clientpriority.com

Blog: clientpriority.blogspot.com

Being Smart with $$ - Is Stock Picking Easy?

Stock picking is easy, right? You just buy the good companies and don't buy the bad ones. Apparently strategist Tom Lee disagrees. He pointed out on CNBC that the stocks hated the most by Wall Street analysts are fairly consistently OUTperformers. So if I have this right, then the bad companies are actually the good companies? So what does that make the good companies? Before you go buying every bad company and selling every good one, something fairly consistent in the stock market is that just when you think you have a trend figured out, that pattern disappears. But you know what strategy HAS consistently worked? Buying a portfolio of all kinds of stocks and sticking with it for the long term. 

http://www.cnbc.com/id/104347060

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com

Being Smart with $$ -- Isn't it Good for Your Advisor to Act in Your Best Interests?

How can it be a bad thing when your financial advisor is required to do what is in your best interest (acting as a fiduciary)?  Currently, many advisors only need to recommend products to you that are “suitable” even if not best for you.  The Department of Labor has instituted new rules requiring advisors to act as fiduciaries when advising on retirement accounts but the new administration has put it on hold.  I attended a conference with the Massachusetts Securities Division yesterday who likes that the press coverage on this issue has improved awareness.  So you need to PROTECT YOURSELF even if the current administration won’t.  Working with an advisor? Ask if they are a FIDUCIARY (not all are).  Ask how they get paid for what they recommend, what are some alternatives to what they are recommending and how they would get paid for those alternatives.  Use the smell test to decide if an advisor is focused on YOUR best interests or their own.
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com

Being Smart with $$ -- Remove Your Information to Protect Your Identity

FRAUD PROTECTION ALERT

familytreenow.com provides extensive information to any would-be online thief about your personal information by simply typing in your name. The good news is that you can opt out and remove your information from this site before someone else uses it to bypass bank and investment company security questions. 

Go to: familytreenow.com/optout  

Thank you to Money Magazine (March '17) for pointing this out.

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com 

Being Smart with $$ -- Listen to Future You

You run into somebody who looks exactly like you but 20 years older. You realize it's you from the future. He's so glad to see you and begs you to start saving more money now.  He tells you he realizes how foolish he was spending so much money frivolously when he was younger and that life is full of unexpected and expensive surprises. And how much easier life would be if he had been smarter about money all those years. But you tell him you are having too much fun and it's hard to save, but maybe you’ll start next year, or the year after. Future You desperately wishes he could convince you that you could live quite happily on 10% less money and then save the rest. The next day, Future You sees somebody who looks exactly like him but 20 years older…
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com

Being Smart With $$ -- Take Some Chips Off the Table

Are you gambling and leaving those Chips on the Table? Doubling down and hoping for Blackjack?  Or are you happy to be a winner, shoving some Chips in your pocket and limiting your risk?  If you have a financial plan, you should have a target portfolio which includes a certain percentage of your money in stocks.  In the last year, U.S. stocks are up almost 23% while bond returns are barely positive.  If you haven’t done a portfolio review lately, chances are good that your actual portfolio and target portfolio no longer match up.  Time to act and remember that your retirement fund should not be brought to the casino.
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com

Being smart with $$ - Hire a JERK for your investment advisor

Choose a JERK for your investment advisor.

If you are choosing between two investment advisors where one is a jerk but looks at your whole financial picture before deciding what's best for you, compared to a "nice guy" that simply offers you a couple of high-commission investment choices, go with the jerk.

If one investment advisor is a jerk but seeks the best solutions for your needs while the other is a "nice guy" but seeks the best options for his own paycheck, go with the jerk.

I have known many cases of people needing financial help who were ready to sign on with a "nice guy". However, in many cases that "nice guy" did little to understand their client's needs while doing a lot to pay for their next car from the fees and commissions they were about to charge. Ask about fees and ask about investment alternatives and why recommendations offered are best for your unique circumstances. And if the jerk gives you the right answers, by all means, sign up with the jerk.
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com

Being smart with $$ - Ask a Prospective Financial Advisor:

Ask your prospective financial advisor:

How much money will you make in cash commission, now, if I select this product?  And how much will you make later, in any sort of ongoing or trailing commissions?

Are you earning more from selling me this product than you might from putting me in a similar product?

Is your company…running any contests that might lead to you getting…a free trip if I buy this product?  

All of these are questions posed in the Feb 10, 2017 NY Times article “The 21 Questions You’re Going to Need to Ask About Investment Fees.”  Other questions involve the myriad of complicated fees embedded in many investment products. 

The issue is whether your advisor is considering your best interests or their own when selecting investments for you.  The math may surprise you on how costly it can be to lose a few percentage points per year on fees and commissions.  Be careful selecting an investment advisor and probe as to whether their interests seem to be aligned with your own.  A new “fiduciary rule” was supposed to go into effect in April that would help protect investors but the new administration is delaying the start date.  So you need to protect yourselves by asking lots of questions!

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

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

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

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

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

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