Investing: Tuning Out the Insanity

February 22, 2012 RSS Feed Print

Einstein defined insanity as “doing the same thing over and over again and expecting different results.” I don’t know about you, but I think Einstein was a pretty smart guy. While Santayana was no Einstein, he was probably best known for a quote that is complementary to Einstein’s definition of insanity. As he put it, “Those who cannot remember the past are condemned to repeat it.”

[See top-ranked ETFs by category ranked by U.S. News Best ETFs.]

Is the person managing your hard-earned investments heeding the sage wisdom of Einstein and Santayana? Even if that person is you?

Probably not. Here’s why: You have been told to invest 60 percent or more of your irreplaceable wealth into stocks or mutual funds—at quite possibly the worst time historically. Brokers and advisers regurgitate the same mantras. You’ve heard them before. They say things like: “The market always comes back.” And you know what? They’re right. The market does come back—given enough time. But why subject your retirement dreams and lifestyle to this insanity? It’s time to remove the insanity from your investing and investments.

Boom and bust market cycles over the last 80+ years

From a market historian’s perspective, it’s uncanny how the market has provided evidence of a series of boom/bust cycles every 20 or so years.

During the Great Gatsby era of the roaring 20s, America was in a growth mode like never before. People bought furs, more could afford these new-fangled contraptions called cars, and even more poured money into the stock market. Of course, The Great Depression changed all of that in 1929.

[See Preparing For Market Panic]

WWII ended in 1945 and Americans got busy again both at work and at home. Enter the baby boom generation and a 20-year period of growth and prosperity.

Following this 20-year period of growth was a polar opposite market. During the 60s, The Beatles invaded the U.S. The Vietnam War greatly escalated and “flower power” flourished as peace, love, and happiness took hold, and the markets went into hibernation once again for an 18-year period.

The 80s and 90s marked a new age in the United States. The age of information exploded as Microsoft, Apple, and IBM introduced personal computers and Internet companies such as Google and Amazon.com became household names. The technology bubble seemingly developed overnight and out of sight.

The year 2000 was marked by the bursting of the bubble, which kicked off another uncannily timed bear market. This lost decade of growth was further propelled by the mortgage collapse in 2008.

With close to 100 hundred years of market data pointing to boom and bust cycles every 20 years or so, do you think now is the right time to load up on stocks and funds? Before you answer that, remember what Santayana said. Maybe it’s time to stop the insanity. Maybe it’s time to rescue your wealth from this secular bear market.

I think alternative investments offer the best insulation while we wait out this volatility. The largest and most successful institutions, such as Yale and Harvard, agree. Yale’s 2012 allocation to U.S. equities is a measly 7 percent, and they’ve averaged 10.1 percent over the last 10 years while the market has been basically flat.

[See Should You Have Alternative Investments In Your Portfolio?]

I believe they know what you now know. While we continue in this stagnant bear market, it’s vital to look for alternatives that provide little or no market correlation.

Robert Russell is CEO & CIO of the Ohio-based Russell & Company, a private wealth management firm specializing in helping affluent individuals ages 45 and up create and preserve their wealth. He co-hosts a radio show, authors The Rob Report blog, and is a frequent contributor to FOX Business and CNBC.

Securities offered through Kalos Capital, Inc., Member FINRA, SIPC. Investment Advisory Services offered through Kalos Management, Inc., 3780 Mansell Rd. Suite 150, Alpharetta, GA 30022, (678) 356-1100. Russell & Company is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.

Tags:: investing,; mutual funds

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Here's what the cherrypicked cheerleaders for Yale and Harvard won't tell you:
Pensions Find Riskier Funds Fail to Pay Off (NYT 4-2-2012)
Searching for higher returns to bridge looming shortfalls, public workers’ pension funds across the country are increasingly turning to riskier investments in private equity, real estate and hedge funds.
But while their fees have soared, their returns have not. In fact, a number of retirement systems that have stuck with more traditional investments in stocks and bonds have performed better in recent years, for a fraction of the fees.
Consider the contrast between the state retirement fund for Pennsylvania and the one for Georgia.
The $26.3 billion Pennsylvania State Employees’ Retirement System has more than 46 percent of its assets in riskier alternatives, including nearly 400 private equity, venture capital and real estate funds.
The system paid about $1.35 billion in management fees in the last five years and reported a five-year annualized return of 3.6 percent. That is below the 8 percent target needed to meet its financing requirements, and it also lags behind a 4.9 percent median return among public pension systems.
In Georgia, the $14.4 billion retirement system, which is prohibited by state law from investing in alternative investments, has earned 5.3 percent annually over the same time frame and paid about $54 million total in fees. The two funds represent the extremes, with Pennsylvania in a group of pension systems with some of the highest percentages of investments in alternatives and Georgia in a group of 10 with some of the lowest, according to groupings of funds identified by the London-based research firm Preqin.
An analysis of the sampling presents an unflattering portrait of the riskier bets: the funds with a third to more than half of their money in private equity, hedge funds and real estate had returns that were more than a percentage point lower than returns of the funds that largely avoided those assets. They also paid nearly four times as much in fees.

FOX IS REALITY TV DISGUISED AS NEWS 7:54PM April 02, 2012