This cartoon highlights how your behavior as an investor strongly influences your success. Investor behaviors that likely contribute to reducing your returns include:
- The tendency for investors to sell underperforming investments and then replace them with others that performed well; a pattern of “buying high,” and “selling low.”
- Emotionally driven decisions that may cause trading at inopportune times.
- Investment activity motivated by media hype, financial news networks, or televised “experts.”
- Poor market timing decisions resulting in missed opportunities.
Avoid being the subject of this cartoon! Great investors throughout history have understood that building long-term wealth requires the ability to control one’s emotions and avoid self-destructive investor behavior.
The infographic below refers to advisors using the acronym “RIAs” which stands for Registered Investment Advisors.
NorthStar Capital Advisors is an RIA. Note that we have no minimum investment requirements so we win Round 4 below as well! We hope this information will help you understand the role that we play in helping our clients.
(Click on the graphic to enlarge for easier reading)
Exchange-traded funds (ETFs) trade daily on exchanges like stocks. Leveraged versions use complex futures and derivatives to amplify the daily returns of an index, often times trying to double or triple the return. Inverse ETFs strive to return the opposite of the index.
When ETFs are held for longer than a day, the effects of compounding can produce results that vary significantly from the one-day outcome. This makes leveraged and inverse ETFs unpredictable and risky to hold for longer periods.
Citi, Morgan Stanley, UBS and Wells Fargo have paid $9.1M to settle allegations on leveraged ETFs. These banks were fined $7.3 million and they agreed to pay $1.8 million in restitution to some customers who were sold leveraged and inverse ETFs. Industry regulators allege the banks sold billions of dollars of these volatile investments without properly assessing their risks and whether they were suitable for retail customers. (“Retail” customers are individual investors versus “institutional” investors like pensions and hedge funds).
The Financial Industry Regulatory Authority (FINRA) and the Security & Exchange Commission (SEC) have previously warned the investing public about the risks of leveraged and inverse ETFs, particularly for those investing for the long term.
Investors very often buy at high prices when the market is hot and attractive, and sell at low prices after observing periods of poor performance.
This leads average investors to severely trail both the S&P 500 index and the Barclays Aggregate Bond Index over long time periods. This is why investors are very often their own worst enemy.
CBS MoneyWatch author Larry Swedroe recommends in this article that you ask yourself if you believe that you’re best served by being your own advisor:
- Do I have the temperament and the emotional discipline needed to adhere to a plan in the face of the many crises I will almost certainly face?
- Am I confident that I have the fortitude to withstand a severe drop in the value of my portfolio without panicking?
- Will I be able to re-balance back to my target allocations (keeping my head while most others are losing theirs), buying more stocks when the light at the end of the tunnel seems to be a truck coming the other way?
One Day in Mainstream Media Market Headlines…
6:00 AM MarketWatch US Futures Down As Euro Pressures Mount
6:30 AM TheStreet.com US Stock Futures Recover on Amazon Tablet Expectation
7:15 AM MarketWatch Stocks Fall in Pre-Market Amid Global Concerns
8:00 AM Minyanville Stocks Buoyant Ahead of August Durable Goods Orders
8:10 Wall Street Journal US Marts Down Briefly, Techs Remain Higher
9:15 AM TheStreet.com US Stocks Mixed Ahead of Open After Durable Goods Orders
9:45 AM MarketWatch Stocks Decline Slightly On Economic Concerns
10:15 AM MarketWatch US Stocks Fall on European Woes
11:00 AM Minyanville Stocks Up After Morning in Which They Were Slightly Down
11:30 AM TheStreet.com Stocks Exist at Half Past 11 AM this Morning
12:00 PM MarketWatch Stocks Slightly Higher at Mid-Day as I Pick Up My Dry Cleaning
12:15 PM Bloomberg Markets Stabilize as Japanese PM Explains Proclivity for Vending Machine Pornography
12:30 PM Minyanville US Markets Rally Modestly as Stocks Don’t Be Down
1:00 PM TheStreet.com Stocks Off Slightly After Cloud Passes Briefly in Front of the Sun
1:30 PM Reuters We are Better than You and You Probably Realise that by Now
1:50 PM Wall Street Journal US Stocks Extend Advance after Not Extending Decline
2:15 PM Minyanville Markets in Retreat as Euro Pressures Threaten Global Recovery
3:10 PM TheStreet.com US Stocks Unchanged, We Are Seriously Running Out of Reasons for Random Things You Guys
3:11 PM TheStreet.com US Stocks Still Unchanged, We Just Checked For You
3:34 PM Bloomberg Markets Neutral Into the Close
3:37 PM MarketWatch Neutral Markets Into the Close
3:50 PM Wall Street Journal Stocks Set to Close Flat on Session as European Woes Continue to Cause Concern
3:56 PM Reuters US Stock Market Flat on Close
4:01 PM MarketWatch No Change in US Stocks Today on Excessive Nonsensical Headlines, Tune in Tomorrow
Avoid getting caught up in the hype and drama of media’s talking heads.
This year’s turkey dinner will cost you 22 cents less or -0.4% compared to last year. The average cost of a classic Thanksgiving Dinner for 10 people is $48.90 according to the American Farm Bureau Federation’s survey. The very mild decrease in the turkey index is not too different than the the government’s Consumer Price Index for food eaten at home which increased slightly 0.1% over the past year.
The bird soaks up the lion’s share of the budget at 44% of the meal’s cost. The 16-pound turkey came in at $21.71 this year or $1.36 per pound. The price of most ingredients was quite stable compared to last year. Biggest losers: turkey down $0.67 (-3.0%) and sweet potatoes down $0.13 (-3.7%). Biggest gainers: miscellaneous ingredients up $0.29 (10.7%), fresh cranberries up $0.22 (9.1%), and pumpkin pie mix up $0.12 (3.7%).
This is the third consecutive year that the average cost of a turkey dinner decreased and it’s the lowest cost in six years.
- Acting as if they know exactly what the financial markets are doing and why.
- Not being quickly and easily accessible via phone or email.
- Not continuing to research a client’s financial situation for a better solution.
- Not recognizing a total solution by ignoring the client’s portfolios managed by outside firms.
- Not speaking to and working deeply with both members of a couple.
- Limiting recommendations to the products provided by the advisor’s firm.
- Failing to address the risks associated with an investment.
- Failing to give ancillary and holistic advice on a client’s financial issues once the portfolio is established.
- Talking over a client’s head and using jargon.
- Managing client assets without knowledge of the client’s comprehensive financial plan.
Tis the season to select your health insurance plan either through your employer’s offering or the private insurance market. If you’re considering a high-deductible health plan (HDHP), keep in mind that many (but not all!) come with the fantastic opportunity called a Health Savings Account (HSA).
We love HSAs because they do two things:
- They help you pay for your medical costs either today or in the future
- They are triple tax advantaged
The government makes these accounts triple tax-advantaged because they want to incentivize you to save for your future medical costs. We know as the nation greys and gets older, we need to have a pot of money set aside to cover our potential out-of-pocket costs.
Here’s the triple tax saving advantage:
- When you have an HSA account attached to a high-deductible plan, you get to take a tax deduction on your current your contribution. For families, it’s $6,900 in 2018 ($7,000 in 2019). This means you get to lower your adjusted gross income by $6,900, a tax savings of potentially around $2,000 if you take into account state and federal income taxes. That’s $170 of savings each month if you do a little rounding. That’s pretty incredible. That’s step 1 – you get a tax deduction in current year. If you’re age 55 or older, you eligible for a $1,000 “catch-up contribution” so your can lower your AGI by $7,900 (thus lowering your tax bill by ~$2,300 or $190 a month).
- Layer two of the triple tax advantage is it grows completely tax deferred meaning it is growing without taxation on any appreciation, any dividends, or any income that’s going on a long as that money is sitting in the HSA account.
- Here’s the third layer and really the knockout that makes it an awesome savings tool for the future. If you use the money in the future for medical expenses, your HSA distributions are completely tax free.
(Here’s another cool thing. Once you reach retirement, you don’t have to use your HSA for medical expenses, but if you want them to be tax free, it needs to be medical expenses.)
Be careful when you select a high-deductible health plan (HDHP) to make sure it qualifies for HSA eligibility:
- HDHP minimum deductibles: self-only $1,350; family: $2,700
- HDHP maximum out-of-pocket amounts: self only $6,650; family $13,300
HSAs can be one of your best friends for the future.
At a 100,000-ft level, we do two things in our financial advisory practice: Asset Management* and Financial Planning. Although these two functions are distinct, they are very much interrelated. Both are essential components for our client families’ long-term success, but it’s important to understand and appreciate the differences:
(* Asset Management also falls under the monikers of “investment management” or “portfolio management”)
Asset management is about asset allocation, expected returns, risk tolerance and time horizons.
Financial planning is about making wise choices about the use of debt, setting up college savings plans, tax efficiency, estate planning and ensuring your insurance needs are taken care of.
Asset management is about managing investments.
Financial planning is about managing investors.
Asset management is about portfolio construction and risk management.
Financial planning is about comprehensive planning and emotional management.
Asset management is about measuring portfolio performance by comparing results to predetermined index benchmarks.
Financial planning is about measuring your performance against your true benchmark — your goals.
Asset management is about allowing your money to work for you to help you reach your financial goals.
Financial planning is about helping people define their goals, dreams, desires and fears.
Asset management is about creating a process that guides your actions in a wide variety of market environments.
Financial planning is about implementing a plan and making corrections along the way as life or market and economic forces intervene.
Asset management is about creating a portfolio that can survive severe market disruptions.
Financial planning is about creating a financial plan that can survive severe life disruptions.
Asset management deals with financial capital.
Financial planning deals with human capital.
Asset management is about growing and/or preserving your wealth.
Financial planning is about understanding why money is important to you personally.
Asset management is about where to invest a lump sum.
Financial planning is about how and when to invest a lump sum.
Asset management is about asset allocation.
Financial planning is about asset location.
Asset management is about creating policies to guide your actions in the face of economic and market uncertainty.
Financial planning is about helping people make better decisions with their money in the face of uncertainty that is impossible to reduce.
Asset management helps you understand how much you need to earn on your investments to meet your future spending needs.
Financial planning helps you understand how much you need to save meet your future spending needs.
Asset management helps you figure out where to take your money from when you need to spend it.
Financial planning helps you figure out where to spend your money in a way that makes you happy.
Asset management helps you grow your savings to meet future consumption needs.
Financial planning helps you plan and budget for future consumption needs.
Asset management is about creating a long-term process to guide your actions in the markets.
Financial planning is about creating systems that allow you to spend less time worrying about your money.
Asset management is about reducing the anxiety that comes from the volatile nature of the markets.
Financial planning is about reducing the anxiety that comes from making important decisions with your money.
Asset management involves growing your wealth so some day you can become wealthy.
Financial planning involves figuring out what a wealthy life means to you.
To get the most benefit from asset management, you really need comprehensive, well thought-out financial planning.
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