Being Smart with $$ -- Stocks are Down. Now What?

Stocks are down.  Now what?  First of all, to put in perspective, the US market is really only down about 5% for the year (including dividends.)  It’s easy to feel whiplash when the market is so volatile but if you had the TV off for 2018, you’d look today and be annoyed that you lost 5% though you wouldn’t think of this as the 1920s all over again.  And if you look at the average return over the last 5 years, you’ve realized better than 8% annual returns.  But the question is: what’s next?  We can’t go back to early October and sell at the artificial highs.  So do you sell now when the market is at a much cheaper level than October 1?  And while cheaper, is it cheap?  Nobody knows the answers to these questions but many have opinions.  It seems that a few months ago when the market was high every analyst predicted the market would scream higher.  Now the market has fallen and every analyst seems to predict more declines.  So often these opinions are late to the party.  Every investment decision must start from today and yesterday’s results don’t matter.  Historically speaking, most families that have achieved long term financial success did so by tuning out the drama on the business channels and holding steady through volatile times.  Those that timed the market, more often lost the bet than won it.  Don’t keep more in the stock market than is appropriate for your profile.  But sit tight and remember your stock portfolio is supposed to provide for your needs in 2030 or 2040, and not in 2018.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ - Bad Behavior by a Financial Adviser May Be Hard to Spot

I just read an article about a client suing their financial adviser because they lost money on what was supposed to be a conservative investment.  It’s easy to spot bad behavior when you lose money.  But MOST bad behavior is less obvious.  When you make money, you are happy.  But would you be happy if you found out you should have made TWICE as much and the difference went to your financial adviser?  You probably know 10 people this has happened to.  It’s simple.  The earnings on money invested over 20 years at 5% net of fees will be DOUBLE of what that same money would earn if the annual fees were 2% higher.  Maybe you are even paying a big, upfront commission AND high annual fees.  This is far more common than you think.  Be careful of the sales pitch from that adviser who seems like such a nice man or woman.  If you don’t understand what you’re being sold, you are probably one of the 10 people mentioned above.

Client Priority Financial Advisors LLC is an independent, fee-only, hourly-advice company. 

NO COMMISSIONS. NO AUTOMATIC RECURRING FEES.  WE CHOOSE INVESTMENTS WITH ULTRA-LOW EXPENSE RATIOS WHENEVER POSSIBLE.
www.clientpriority.com 

Being Smart with $$ -- SELL if you need your money soon.

SELL SELL SELL if you need your money soon, no matter how much you are down in the past month.  If you don’t need your money that’s in the stock market for another 10 years then turn off the TV and ignore the headlines.  But if the money you plan to use to buy a house in 3 months is sitting in a stock fund then you’re taking a big risk with cash that should instead be invested in something safe.  In the short term, the stock market can be quite volatile.  If your account falls by half does that kill your plan to buy a house and do you really want to take that risk?  Are you hoping to make back a few percentage points by staying in the market with money you can’t afford to lose?  Consider the upside and the downside and you might realize the stock market is no place to invest the money you absolutely must have in the next months.  And if it helps to put it in perspective, if you sell today, you are locking in gains of around 10% per year over the last three years.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart With $$ -- Keep your head!

Dear friends and clients:

A day like today can make you question whether you want to be a stock investor. The Dow was down more than 800 points today which was over 3%. That will surely be the top story on all news channels until we find out what happens tomorrow when the markets open again.  Analysts say that rising interest rates are spooking investors.  But a day like today can sometimes make us lose sight of what is happening in the stock market over longer periods of time. We may all be pleased to know that the US stock market is up over 8% in the last year and that is after accounting for today’s rout and other poor days recently.

The one thing we know about the stock market is that it is very volatile on a day-to-day basis. It’s a very poor place to keep your investments if you will need the money in the short term because you could easily have 30% less when you go to access the cash. But over longer periods of time, the stock market has been consistently generous to investors. We have no way of knowing what the stock market will do moving forward but as stock investors are owners in America’s companies, they share in the massive profits generated by these companies every year. And patient investors will likely see profits in their stock holdings as most of these companies generate genuine new value on a consistent basis.

If you are properly invested in the stock market, that means you own stocks for your long-term needs and should keep your head when the markets get crazy. If your exposure to the stock market is not appropriate for your needs, you need to quickly reevaluate your investments.

Investors regularly tell me they want to wait for a buying opportunity when the markets fall or a selling opportunity when the markets rise.  But market timing has taken too many victims and the right time to make an adjustment to your portfolio that suits your personal circumstances is now. A 3% drop today is not very relevant compared to the large gains provided by the stock market over the past years. Yes, the markets can drop more in the near term. But those who are considering selling their stock holdings for a short period of time could possibly find that they missed the next big jump in the market and it’s likely they would be unwilling to reenter at that higher price. More likely, they would hope and wait for the next crash that may never come to the degree they need and they could be sitting out the market for years because they tried to time the market for just this week.

The financial pages and business channels give us endless opinions on what the markets will do next, some insisting the markets will scream higher and others demanding that the markets will fall hard.  Those kinds of contradictory opinions have been expressed every month of every year since the markets existed. I don’t envy you if you are a trader and need to make money this week.  I do envy you if you are a long-term stock investor because you are likely to be far wealthier in the decades ahead when you want to spend those profits.

Keep your heads!

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- It's Free to Freeze. Your Credit, That Is.

It’s 80 degrees out and I’m Freezing.  And the best part is that now it’s free to Freeze!

As of last Friday, we will no longer pay a fee to freeze or unfreeze our credit at the three major credit bureaus.  Freezing your credit may provide the highest level of protection against identity theft and should prevent anyone from accessing new credit in your name.  It may be inconvenient when you need to apply for new credit but the protection this action offers may be worth it.  Compare the inconvenience of freezing your credit to that of having your identity stolen.  And did I mention it’s now free?

1. Equifax            https://www.freeze.equifax.com

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

3. TransUnion     https://freeze.transunion.com

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart With $$ -- Your Choice: Smoke or Have $1,000,000

I saw someone spend $1,000,000 on cigarettes yesterday!!  Well, more correctly, yesterday I saw someone buy cigarettes and over their lifetime it will probably cost them about $1,000,000.  This 20-something smoker paid $11 for the pack.  If they smoke a pack daily between now and retirement, that is $11 per day not going into their long-term stock market account.  That cigarette money would likely be worth over $1,000,000 for them in retirement even at below historical, stock-market returns.  I hope that cigarette tastes REALLY good! Isn’t it time to make a plan for spending and saving?

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- Does Talent Get You Higher Mutual Fund Returns?

When choosing a mutual fund, it is often said that you should pick a manager with talent who has proven that he or she can stand above the pack and give you superior returns.  It is said that talented managers can beat an unmanaged low-cost index fund even if most managers in a category cannot.  Investors may have followed this rule when choosing Janus Henderson Global Unconstrained Bond Fund managed by legendary bond manager Bill Gross.  Some argue that talent is worth the extra fee paid to the fund manager (about 0.68% extra versus a 75%/25% mix of a US bond index fund and an international bond index fund, a similar mix to how Mr. Gross’s fund is invested.)  But that extra fee is a hurdle an active manager must overcome before his fund can outperform.  You may already have guessed that you would have done better by buying the low-cost, unmanaged index-tracking funds.  Buying the Janus fund instead of the index funds cost you about 3/4% of performance annually over the last 3 years, a loss surprisingly close to the extra fee paid to the fund manager.  It was much worse in the last year where you lost over 4% of performance in the Janus fund vs. the index funds.  Additionally, Mr. Gross’s fund was more volatile. When choosing a mutual fund, perhaps your better bet is to opt for the low-cost, index fund that has a head start right out of the gate because it takes less of your money out of the fund.  That advantage has allowed index funds to outperform more often than not, and even talented fund managers know that index funds are hard to beat.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com