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Why You Should Fire Your Investment Adviser Today
Tweet Share on Facebook April 7, 2011 CommentBurton Malkiel's famous tome, The Random Walk Guide to Investing, begins with the right exhortation for most investors: Fire your investment adviser today. Although it takes moxy to say "no" to that special someone who has earned your trust, the facts reveal that your investments will do far better with your wealth manager's hands no longer dipping into your cookie jar.
The facts are plain to understand. According to the U.S. Securities and Exchange Commission (SEC), the average adviser charges 1.11 percent in annual fees to manage your money. This same adviser is likely to put you into a portfolio of actively managed mutual funds that average more than 1 percent in fees. That places a more than 2 percent burden on your portfolio and drags down performance.
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Should You Pay Off Your Mortgage or Invest?
Tweet Share on Facebook April 6, 2011 Comment (9)Clients often ask if they should pay off their mortgage with their savings or take that nest egg and put it to work in the market. My answer: It depends, but in today's interest rate and market environment, I would likely suggest investing.
Yes, your house is an appreciating asset, but it is not appreciating as quickly as it once did, which may be true for a long time. The credit markets are generally dried up and it takes free flowing credit for the real estate market to boom, a phenomenon that may not happen again in our lifetimes.
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What if My 401(k) Plan Is Lousy?
Tweet Share on Facebook April 6, 2011 Comment (1)Many financial advisers (including yours truly) suggest that most people maximize contributions to their company's retirement plan. But what if your organization's plan is lousy? Lousy could mean a poor menu of investment choices, high expenses, low or no company contributions, or other deficiencies. Here are a few tips to help you make the best of a lackluster 401(k) plan:
Find the best funds in the plan. Even if your plan is sub-par, many times there are a couple of funds that are decent. Consider focusing your investments in those few funds and using investments outside of the plan to compensate in terms of your portfolio's overall asset allocation.
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6 Things to Expect From Your Financial Adviser
Tweet Share on Facebook April 5, 2011 Comment (1)Many people hire a fee-based adviser to help with their investments. Before you do, it's important to ask the right questions. It's also important that the adviser asks you the right questions.
Your first question: How do you earn the fees I would pay you? If you like the answer, be prepared to offer the adviser some guidance about your investment goals, time horizon, and risk tolerance. Only when an adviser knows your unique situation can he start to develop an investment plan for you. If you don't answer many questions, that can be a red flag about that adviser's intentions.
[See What Investors Can Learn From Fund Flows.]
And let him know you have the following expectations:
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What Is Asset Allocation Anyway?
Tweet Share on Facebook March 31, 2011 CommentYale professors studied money managers to uncover the source of their portfolio performance. They found that 90 percent of the returns came from the markets where they invested. Less than 10 percent came from the individual stocks they bought, and the timing of buying and selling investments. For example, if they owned small-cap value stocks and that group of stocks did well that year, the performance of that market was the source of their success, not the specific small-cap stocks they had chosen.
That's why sophisticated investors focus heavily on setting well-defined targets for how they allocate assets. To be an "asset allocator," you play by different rules. Every portfolio needs six or seven core asset classes. Conventional wisdom says you should have at least 5 percent of your portfolio—but no more than 25 to 30 percent—in a core asset class. A core asset class has three primary characteristics:
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Investors: Look at Risk and Return Equally
Tweet Share on Facebook March 30, 2011 CommentMany people say they look at the market and think about risk and return equally. Unfortunately, their words and actions often differ.
I have seen many portfolios over the years and have realized that people are very polarized. In other words, they are either very bullish or very bearish. Their actions prove it. When you see someone who is bearish, they are often completely out of the market. They take their chips and put them in a safe place like their mattress, or in a money market or certificate of deposit. When they are bullish, they are "all in." They find a stock or a certain niche fund (like technology companies or emerging markets) and put all their eggs in one basket.
[See top-rated funds by category ranked by U.S. News Score.]
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5 Considerations for Investing in Target-Date Funds
Tweet Share on Facebook March 30, 2011 Comment (2)Target-date funds are a staple of many 401(k) plans. Most target-date funds are funds of mutual funds. The three largest firms in the target-date space are Fidelity, T. Rowe Price, and Vanguard with a combined market share of about 80 percent. All three firms use only their own funds as the underlying investments in their target-date fund offerings. Some other firms offer other formats, such as funds of exchange-traded funds, but the fund of mutual funds is still the most common structure.
Here are a few considerations to think about when deciding whether to use a target-date fund option in your company's retirement savings plan:
[See top-rated funds by category ranked by U.S. News Score.]
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For Investors, Slow and Steady Wins the Race
Tweet Share on Facebook March 29, 2011 CommentIn the famous Aesop fable "The Tortoise and the Hare," a hare constantly teases a tortoise for moving so slowly. One day the tortoise replies he can beat the hare, so the hare challenges him to a race. The speedy hare is so sure he'll win that he takes a nap soon after the race starts. When the hare awakes, he goes to a nearby field to eat cabbage while the tortoise crawls his way on the race course. Tired from the meal and the sun, the hare falls asleep about halfway through the course. To the hare's surprise when he awakes, the tortoise has beaten him to the finish line.
The moral of this fable, slow and steady wins the race, is often used in investing. It reminds people that they can be rewarded if they continually invest money over a long time period—like the tortoise winning by staying on the race course. People who focus on getting rich quickly can make bad decisions and mess up their investment plan, and ultimately fail to reach their goal like the hare.
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Hate Bonds? Try This.
Tweet Share on Facebook March 25, 2011 Comment (1)The current interest rate situation makes purchasing bonds tricky at best. However, every complete and comprehensive financial plan will include an allocation to investments that provide a fixed-income stream.
So if bonds are not the greatest investment right now, but investors should still allocate to fixed-income investments, what's the answer?
Consider senior secure loans—loans secured by assets and senior in the capital structure of a firm—as a potential alternative.
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Why You Shouldn’t Listen to Wall Street
Tweet Share on Facebook March 24, 2011 Comment (5)Have you ever met the crazy conspiracy theorist who is convinced that a well-executed and malevolent plot lurks behind most events? These were the people whose eyes bugged-out during Y2K, who are convinced that Apollo 11 never landed on the moon, that the World Trade Center was actually blown up by the United States to garner support for invading the Middle East, and the list goes on. The conspiracy thread has woven a thick yarn throughout the ages. It would be worthy of a good belly laugh if it weren't for the sick feeling you get when you realize that some people actually believe that stuff.
There is one conspiracy theory, however, worthy of your attention: Wall Street doesn't want you to know that their industry is a sham. For Wall Street, the hypnotic malaise they cast over the unknowing investor is nothing less than an $11 trillion dollar shell game. Their gambit makes the baccarat table at the Bellagio look like the neighborhood lemonade stand.
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