Wednesday, June 21, 2017

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. 

Tuesday, June 20, 2017

Being smart with $$ -- Lock in Your Mortgage Now?


Lock in your mortgage now?  How many times have you heard that the Fed is going to raise rates so you should buy a house now or refi your mortgage quick!? The Fed did raise the Fed Funds Rate last week, by 1/4 of a percentage point, and may raise it more. But that doesn't mean 30-year MORTGAGE rates are rising. In fact, 30-year mortgage rates are the same today as they were the day before the Fed increased rates. That's because the Fed only changes very short interest rates, actually the interest rate used for one-day loans. Fixed-rate mortgages on the other hand, use long-term rates that are more affected by economic factors. Other long-term rates are actually lower today than they were the day before the fed increased short rates and that's because some economic data was weak. Mortgage rates and other interest rates are historically low and it is entirely likely they will rise at some point. But before someone convinces you that you have to act today before the Fed raises rates, remember that that person may not understand how market interest rates work.
Larry Pike, CFA
Client Priority Financial Advisors LLC


Wednesday, June 7, 2017

Being smart with $$ -- The painful bite of fees


You don’t think fees matter much in your investments?  Money Magazine (May ’17) highlighted what two accounts look like 30 years after two friends retired, with each account worth $1 million on the day they quit working, each having actual returns from a 50/50 stock/bond mix over the last 30 years and each of them taking $40k out the first year and increasing that amount each year for inflation.  The account with 1% in fees is worth $3.3 million today.  Sound good?  Well, the other account had fees of only 0.25% and it’s worth $4.6 million today!  Fees don’t matter?  Tell that to the first guy’s kids who have $1.3 million less inheritance to split!  Hourly, fee-based advisors can help you invest with low investment fees and without the detrimental effect of high commissions, loads or annual, recurring advisor charges.

Larry Pike, CFA

Thursday, June 1, 2017

Being smart with $$ -- Do you really want to trade like Cramer?


Financial planning is often best kept simple.  I regularly meet doctors, plumbers and lawyers who tell me they actively trade stocks for their own account. Often I hear they follow Jim Cramer's recommendations on CNBC. So how does Cramer actually do? In a May 2016 paper by Hartley & Olson of the Wharton School, Cramer trailed the S&P 500 over the prior 15 years. So if the doctor had bought and held an S&P 500 index fund rather than trading he would have been richer. And if he used all that time researching stocks to instead see more patients he would have been far richer! But many people find it fun to listen to Cramer (and others) to try to beat the market, so go have your fun.  But if history is a guide, don't be shocked if the cost of that fun is underperformance vs. a buy-and-hold index fund strategy, especially after the tax bill from all that active trading. 

Larry Pike, CFA