Being Samrt with $$ - Investment Managers are Overconfident

 

Managers on the financial channels speak with such conviction about their expectations for future investment performance. They very convincingly predict which stocks will do best and which ones will lag. It would be easy to turn your money over to these advisers with hopes of getting these superior returns and they are hoping you will do just that so that they can charge you a high fee.  One very confident investment manager on CNBC discusses the buys and sells in the ETF he manages.  With all his confidence, you might expect that his fund would do well in exchange for the fee you pay him but in reality, his fund has trailed a low-cost, unmanaged S&P 500 Index ETF over the last 1-year and 3-year periods.  Over the last 3 years, owning his fund would have cost you over 1.5% per year in returns (per Morningstar).  And if that doesn’t sound like a lot, consider that a $500,000 starting portfolio might grow by $140,000 less over 10 years with that performance difference. The moral of this story is to take investment advice from the pros with a grain of salt no matter how confident they seem and stick with a low-cost portfolio allocated in an appropriate investment mix for your needs.  (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

Hourly, Fee-Only Financial Planning and Advice.

No Commissions.  No automatic, annual fees.

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.

Being Smart with $$ - Why do Retirement Plans Choose Bad Funds?

 

Why do so many 401(k) plans choose terrible investments when they have the ability to choose good ones? Research suggests that lower-cost funds mostly outperform higher-cost funds over the long run. I helped a client reallocate their portfolio and was disappointed to see that their 401(k) plan only offered one high-cost fund in the mid-cap stock category while they separately offer a low-cost index fund in the small-cap category. The mid-cap stock fund that they offer has underperformed a low-cost, mid-cap index fund by over 4-1/2 percentage points per year over the last three years and by over 3 percentage points per year over the last five years. If they offer a small-cap index fund then they must be able to offer a mid-cap index fund but they chose not to. It would be understandable if they chose to offer a fund that has been outperforming its benchmark but not one doing poorly.  Perhaps they selected it right after it had a few good years.  If this is the case, they may not know that many funds which do well one year do not do well the next.  This is not an isolated case as I so frequently see retirement plans that only offer underperforming, high-cost funds.  When you buy an index fund, you know you will match the market. When you buy an actively-managed fund with higher internal fees, you never really know what you will get because it is up to the decisions of the manager. In the case of the mid-cap fund in this 401(k) plan, the manager made bad decisions and the fund investors have lost quite a bit of money over the last several years because of it. 401(k) plans have many legal protections for retirement savers. But the legal protections don’t prevent the selection of poor funds that too often cost the investor money. 

(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 $$ - Managers Guess Wrong Again

Is it any wonder that the majority of actively-managed investment portfolios do worse than their benchmarks?  For the first half of this year, all I heard on the business channels was how the market is overpriced and it is definitely going to fall, and the portfolios of these analysts were heavily in cash instead of being fully invested. These analysts claimed they would get back into the market when it was lower. If they could get back in when it is down 15%, they could save their clients from losing $150,000 on $1 million held in cash.  The problem is, they got it wrong. Instead of being down and giving them a chance to buy in a lower price, the U.S. stock market is up 19% year to date. Instead of saving their clients $150,000, they cost their clients $190,000. Did they do their clients a favor by using that crystal ball they claim they have? Apparently not. The markets are unpredictable and very few successfully time the market. Sitting tight with an appropriate long-term portfolio would have made you a lot more money than following these overconfident portfolio managers. But their job is to convince you that they do have a crystal ball so that you might pay them $10,000 a year to manage your $1 million portfolio. Don’t be fooled into believing that high fees give you more. Investment managers that know how the markets work know that you can’t time the market and creating a portfolio and sitting tight with it is your best course of action. With 93% of actively-managed, large-cap mutual funds doing worse than their S&P 500 benchmark over the last 15 years, it should be clear that portfolio managers do not have the crystal balls they claim they have. (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. Investments in stocks can rise or fall in value, especially in the short run, and should only be the part of your portfolio intended for your long-term needs and not for money you may need in the short term.)  Research: SPIVA Scorecard.

Larry Pike, CFA

Client Priority Financial Advisors LLC

www.clientpriority.com 

Being Smart with $$ - Boring Builds Wealth

 

When you invest for your long-term plan, you have choices. You can add a little bit each month to investment & retirement accounts from paychecks and never sell what you have previously added (until you need it for retirement living or another goal). Or you can follow the advice of many professionals in the news and dart in and out of certain stocks and the market overall based on certain technical indicators. Staying in the market through thick and thin gives you long-term market returns. And darting in and out gives you whatever added value you can get from the pros who believe they know what is coming next. For example, you could have followed one of the largest investment banks who suggested their clients stay out of the stock market in 2019 and 2020 when the markets went up over 50% in those two years. You could have followed the advice of a major investment firm CEO who recently had to explain why their favorite stock pick fell 30% when the rest of the market was going up. Or you could have listened to the majority of analysts this year who all seemed to tell you the market is overvalued and you should stay in cash only to watch the stock market rise 11% year to date. Most investors who dart in and out of the market do worse than those who buy and hold for the long run. Most investors who believe they have the knowledge to do the right things at the right times are regularly schooled by those who do nothing but stay the course. The markets will always face corrections now and then but predicting exactly when to sell and then when to buy is something very few investors have done successfully over the course of their lifetimes. When you are fully invested in an allocation appropriate for your needs, you face the risk that a drop in the market could cause you to lose money. When you sit on the sidelines, fearing that a drop may come, you face the risk that you will be out of the market when it goes up.  You can lose money either way. But long-term wealth is generally built from staying the course. Be boring and be wealthier for it.

(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 $$ -- It's Never a Stock Picker's Market

 

“It’s a stock picker’s market!”  That’s what you can hear constantly from overconfident pundits on the financial TV and radio channels.  But is it really?  When the market is volatile, they say it is a stock picker’s market.  When the market is highly priced, they say it is a stock picker’s market.  When the market is falling every day, they say it is a stock picker’s market.  If you believe them, it is always a stock picker’s market even though they imply that this time it is particularly true.  But if it is a stock picker’s market now and many other times, why is it that most stock pickers perform worse than their benchmarks after fees over long periods of time?  The SPIVA Scorecard from S&P Dow Jones Indices keeps track of how actively-managed mutual funds perform against their unmanaged index benchmarks.  Actively-managed mutual funds are the kings of stock pickers.  However, the SPIVA Scorecard reveals that over 91% of large-cap stock managers performed WORSE than their unmanaged benchmark over the past 10 years (as of 12/31/22).  Why?  Because they couldn’t add just a small amount of extra value per year to offset their high fees.  If we are constantly in a stock picker’s market, then why didn’t they pick the best stocks and beat their benchmarks?  Maybe they just want to scare you into paying them 1% of assets when times are volatile even though in actuality, they are unlikely to provide you with added performance.  When they will collect $10,000 from you on each $1 million in managed assets, even if they perform far worse than the market overall, it is no wonder they want to convince you to pay big money for a false promise.  What to do?  Keep your fees low, stick with your long-term plan, and tune out the false hype being sold daily from speakers with a vested interest in talking you into something that’s good for them but bad for you.

(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 Pros Don't Know

 

Every day on the business channels, commentators argue with each other over whether a certain stock or the overall market is cheap or expensive. These are professionals who each manage hundreds of millions or billions of dollars of assets. But if they disagree with each other, who are we to trust when making investment decisions? Many people who don’t understand investments believe that the pros have a secret sauce that lets them pick the good assets and sell the bad ones and get in and out of the market at the right times. But when the pros are regularly disagreeing with each and doing the opposite of their adversary on the news, it shows that none of them really know. And when the SPIVA Scorecard (a research report that studies fund performance) reveals that the vast majority of actively-managed funds do worse than an unmanaged fund in the same category over a decade or more, it should be quite obvious that the pros know very little about which asset will outperform or when the market will go up or down. It’s not that they are phonies without substantial knowledge of the markets; it is that the markets are so efficient and reflect all known information that it is extremely hard to add value to a simple buy-and-hold portfolio. The pros do worse than unmanaged, market-tracking index funds because they take a large fee out of their investments every year and don’t add enough value to offset the fee. Of course, a small percentage outperform their benchmark over the long run but good luck predicting in advance which one will do so. Many celebrity fund managers have gone from hero to zero after failing to keep outperforming. The one way to give yourself a very high chance of outperforming the vast majority of mutual funds is to own the unmanaged ones, with very low internal costs, in the percentage allocation suitable for your individual needs. An adviser can help you with this allocation but don’t let that adviser convince you to pay high additional fees for promises of outperformance they are unlikely to deliver. Always ask a prospective adviser if they are likely to put you in commission-based investments, or if they will take 1% of your assets each year, or if they will primarily put you in mutual funds with internal fees of 0.5% or higher.  If the answer is yes to any of these questions, you may want to keep looking.  (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 $$ - Recency Bias may have killed your portfolio in 2022

 

Did “Recency Bias” kill your portfolio in 2022?  In investing, many people load up on sectors that have recently done well believing they will continue to do well.  These investors fail to follow the common advice to regularly rebalance your portfolio.  Growth stocks have soared to high levels in recent years making big growth companies the daily topic of conversation on the financial channels.  Many investors weighed their portfolios heavily towards growth stocks hoping that infinitely higher stock prices are possible even as corporate earnings can only grow by so much.  This past year taught a harsh lesson to those who ignore valuations and keep chasing the highest flyers.  In 2022, an index of growth stocks fell by 33% while an index of value stocks only fell by 2%.  Those who fell into the “recency bias” trap may have lost a lot more than if they regularly rebalanced their portfolio.  Many people have avoided international stocks for the same reason but equities from other parts of the world lost 2% less than U.S. stocks this year (and 17% less than U.S. growth stocks.)  It is easy to fall into this trap when analysts on TV tell you to keep buying the most expensive stocks.  When the big growth name goes from $100 to $120, they now tell you they have moved their target to $140.  When it hits $140, now they tell you it will go to $160.  There is rarely sound logic based on fundamental factors for why the price target is raised just because the stock price is higher when the company didn’t change much.  Maybe you loved Tesla stock and didn’t diversify as it rose.  Tesla fell 65% in 2022.  Maybe you loved Amazon after everyone stopped going to stores in the Covid era.  Amazon fell 50% in 2022.  No one knows which stock sector will outperform in the coming year.  Rebalancing your portfolio at least annually will allow you to lock in some gains from the sector that did best in the past year and ensure that you have some exposure to the sector that will do best in the coming year.

(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 $$ -- Big Mistake Buying Whole Life Insurance 40 Years Ago

 

Forty years ago, my dad opened a whole life insurance policy for me saying that no matter what, I’d always have some insurance.  With a $10,000 death benefit, it may not have saved my family from financial ruin if I died but the gesture was nice.  But the financial impact of this decision may have been very, very costly.  For forty years, we have paid $75 per year in premiums.  The policy has a cash value today of $4,200.  If we keep making the premium payments, which could be for roughly 25 years based on my life expectancy, it will some day pay out $10,000 to my heirs.  But what was the alternative?  If $75 per year had been added to a balanced investment account of stocks and bonds, it may have earned an annualized 7% over the last 40 years.  These annual premiums would have grown to around $15,000 today.  In 25 years when I reach my life expectancy, this money could grow to over $80,000 if it earns a similar 7% moving forward.  But I also still need to pay $75 per year to keep the policy going.  If these annual payments were instead added to the investment account, they might add another $4,700 to my value in 25 years for a total value of almost $85,000.  If I live five extra years beyond age 83, this alternate-universe account could grow to $119,000.  But the whole life policy will always pay me $10,000 at the end. Let me think for a minute which I would rather have: $10,000 or $85,000.  I will have to sleep on it.  (Critics will point out tax advantages of the insurance which is a weak argument in this case given the difference in value and the stability of the whole policy which ignores the fact that while stocks are volatile in the short run, they are not very volatility over a 40-year period.)  Be very careful of turning money over to someone with a slick sales pitch when it may be very costly to do so.  And imagine how costly this would have been for a $100,000 policy instead of a $10,000 contract.  I’ll do the math for you.  It would cost you three quarters of a million dollars.

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.

Being Smart With $$ -- Thoughts on the Difficult Markets

 

A few thoughts on the difficult financial markets:

We can pick an historical period that makes our returns look good or we can pick one that makes our returns look bad. We can painfully consider that the US stock market is down 24% year to date. Or we can happily recall that even with the terrible year we are having, the US market has given us over 50% in total returns since the beginning of 2019.

Here are a few things we know about the financial markets:

1. The stock market goes up over the long run due to profits generated by global companies most years (but with no guarantees that the future will be like the past).

2. No one expects the stock market to rise in a straight line.

3. Investors overall are very bad at timing the market so it is not easy to just get in and out at the right times and avoid the big declines. Most large mutual funds do worse than their benchmarks over long periods of time and this would not happen if these managers and teams of analysts knew when to get in and out.

Sitting through a bear market like we are facing might make you question how risky you want your portfolio to be.  Risk is sometimes considered to be volatility in your portfolio but being too conservative over the long run is another kind of risk if you lock in low returns that barely beat inflation.  But your portfolio should be suitable for your horizon.  If your horizon is short and your portfolio is too risky, waiting for a recovery before adjusting your risk can be very dangerous.  And don’t believe you know more than the rest of the world’s investors.  Markets are priced at a level where global investors believe risk and reward is fairly balanced.  If a stock or the whole market were obviously cheap or expensive, investors would quickly trade on that until it was no longer true.  

Please let me know if you would like to receive an email of my full letter to investors.

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.

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.

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.

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

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

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.

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 

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.

Being Smart with $$ -- People Say the Stock Market Makes No Sense

 

“The stock market doesn’t make sense,” is what I often hear from clients and friends. In the short run I can understand why people feel that way. In fact, I have heard people say the same thing each year for decades. The market moves in sometimes unpredictable directions in the short run, but over the long run, it almost always goes higher as all the profits generated by global companies almost every year have to eventually appear as positive returns for a diversified stock portfolio. There are no guarantees of course but long-term wealth generally comes from staying invested through good and bad times since people can’t predict when the big moves up in the market will occur. Markets often go up at the most unlikely of times because many investors look beyond the current mess towards what the economy will be in the future and they buy now so they don’t miss it. And those that time the market often get out to avoid risk but then never get back in and then watch the market provide profits to everyone else but not to themselves. So stop trying the understand the market in the short term. It may never make sense to you. But look at how markets have done over any 10 or 15 year period and you’ll understand why staying invested and ignoring the short-term will help you get the high returns you deserve. (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. Investments in stocks can rise or fall in value, especially in the short run, and should be the part of your portfolio intended for your long-term needs and not for money you may need in the short term.)

Larry Pike, CFA

Client Priority Financial Advisors LLC

www.clientpriority.com