What You Should Focus On

What-you-should-focus-on-1200x914We all want to live a great life.  The path to achieve that life relies, in part, on knowing what to focus on and what to ignore.  Focusing on the things you can’t control is a waste: a waste of time, energy, and often, money.  Here’s a list of things that matter, things you can control, and the things you should focus on.

Things that matter:

  • Health
  • Human progress
  • Long-term market returns

Things that you can control:

  • How you treat people
  • Feeling good about yourself
  • Making smart financial decisions

What you should focus on:

  • Living a happy, productive life
  • Surrounding yourself with good people
  • Not letting a long-term plan be derailed by the current market environment

 

Source: Carl Richards, Michael Batick

Two Deadly Assumptions

false-assumptionWe live in a world that is replete with financial scams. Here are two classic and deadly assumptions that can rapidly separate you from your money.

Deadly Assumption #1 — The guy belongs to my church / temple / country club / ethnic group, of course he’ll look out for me. 

Maybe he will, but is affinity a good enough reason to trust a financial advisor? Quarterback Mark Sanchez found out the hard way that this sort of thinking can easily lead one into the arms of a predator…

From ThinkAdvisor:

Former New York Jets quarterback Mark Sanchez and other professional athletes said they were cheated out of millions of dollars in a Ponzi-like scheme orchestrated by an investment advisor who appealed to their Christian faith.

Sanchez and Major League Baseball pitchers Jake Peavy and Roy Oswalt were defrauded out of about $30 million, according to a recently unsealed U.S. Securities and Exchange Commission lawsuit in Dallas federal court. The athletes all used the same broker, Ash Narayan, formerly of RGT Capital Management. The advisor gained their trust through religion and their interest in charitable works, the SEC said.

Deadly Assumption #2 — This advisor works for a big, prestigious firm and the product is very sophisticated, I deserve this special access. 

Structured products are a minefield for the wirehouse wealth management client because the firms’ “producers” are highly incentivized to sell them. Anything being pushed on the brokerage sales force by the home office is, by definition, perilous for the client. Because if it were so good, then no commission would be necessary – the product would be found by savvy investors and there would be no need for extra compensation. But structured products are unnecessary for most investors, although profitable for the firms that create them, hence the degree to which they’re sold to people.

As proof of this, you almost never hear of a fiduciary advisor recommending this stuff. It’s not even in the lexicon for a client-centric practice or an unconflicted advisor.

Source: TRB

 

The Best Advisors Will Tell You “NO”

As a fiduciary we’re obligated to put our clients’ interests first. This essential mandate can on occasion run into direct conflict with what a client wants.  There are circumstances where an advisor knows that what the client is requesting defies common sense and is at odds with his or her long-term interest.

What kind of things are we talking about? Here’s a short list courtesy Barry Ritholtz:

• Taking on more risk than is prudent.

• Buying the hot new thing.

• Participating in an expensive, underperforming private investment (e.g., hedge funds, venture capital).

• Using excess leverage.

• Following the advice of pundits or talking heads.

• Overtrading.

• Pursuing the latest media fixation.

• Speculating in commodities.

• Allowing emotions to steer investments.

• Buying low-quality, high-yield “junk” fixed income paper.

• Buying non-liquid investments (private equity, gated private investments).

• Market timing.

• Buying IPOs.

• Cherry-picking portfolio allocations.

Our gently communicated but firm response to all of these is “NO.”  All the academic research in the world suggests these are a bad bet.  As Barry says, “if you want to make an expensive gamble, enjoy a lovely vacation to Monte Carlo, but please leave your retirement plans out of it.”

That’s our stance on this issue and we take it from a position of deep care and protection for our clients.  But what’s your opinion?  Should advisors do what a client wants, even when the advisor knows it is not in the client’s best interests?

P.S.  In case you’re wondering…here’s what a big “YES” is in our book:
We invest through a broadly diversified set of indexes via a robust asset allocation model. It is global, inexpensive and primarily passive. It is statistically what is most likely to generate the highest returns for the least amount of risk over the long-term.

10 Signs You Own the Right Portfolio

ten

The following elegant observation comes courtesy of Jonathan Clements.

  1. You’re so well diversified that you always own at least one disappointing investment.
  2. Your livelihood isn’t riding on both your paycheck and your employer’s stock.
  3. If the stock market’s performance over the next five years was miserable, you wouldn’t be.
  4. You can remember the last time you rebalanced.
  5. You have no clue how your investments will perform, but a great handle on how much they’ll cost you.
  6. You don’t have any hot stocks to boast about.
  7. For every dollar you’ve salted away, you have an eventual use in mind—and the dollars are invested accordingly.
  8. Jim Cramer? Who’s that?
  9. A year from now, you plan to own the same investments.
  10. You never say to yourself, “Wow, I didn’t expect that.”

Source:  JC

10 Cognitive Biases That Affect Your Investment & Everyday Decisions

Research suggests that we make up to 35,000 decisions every single day. Emotions, experiences, and environment can strongly influence our decision making process. Enjoy the cartoons below and learn more about common cognitive biases that impact your everyday life and your investing behavior.

cb01Bandwagon Effect: Believing or doing something because people around you believe or do it

 

cb02Availability Heuristic: Overestimating the importance of information that is easiest to recall

 

cb03Dunning-Kruger Effect: Unskilled individuals overestimating their
 abilities and experts underestimating theirs

 

cb04Framing Effect: Drawing different conclusions from the
 same information presented differently

 

cb05Confirmation Bias: Seeking and prioritizing information
 that confirms your existing beliefs

 

cb06Curse of Knowledge: Struggling to see a problem from the perspective of someone with less knowledge than you

 

cb07Reactance: The desire to do the opposite of what is requested or
 advised, due to a perceived threat to freedom of choice

 cb08The Sunk Cost Fallacy: Refusing to abandon something unrewarding because you’ve already invested in it

cb09Hindsight Bias: Believing that you could have predicted an event after it has occurred

 

cb10Anchoring Effect: Excessively focusing on the first piece of
 information you receive when making a decision

Source:  Towergate

ABOUT US

We are a fee-only, independent fiduciary advisor. Our allegiance rests solely with our clients and their best interests. We are headquartered in Charlotte, North Carolina and serve client families across the nation.



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