NorthStar Capital AdvisorsNorthStar Capital AdvisorsNorthStar Capital AdvisorsNorthStar Capital Advisors
Start Here
  • How We Help
  • Who We Serve
  • Who We Are
  • Fiduciary
  • Learning
  • Start Here
  • How We Help
  • Who We Serve
  • Who We Are
  • Fiduciary
  • Learning
  • Start Here

Chasing Past Performance is Expensive

  • October 5, 2017/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Best Practices, Mutual Funds, Performance, Seeking Prudent Advice

A rigorous study from Vanguard  demonstrates that chasing the hot mutual fund is an inferior investing strategy compared to good, old-fashioned buy and hold.

Vanguard analyzed a decade of data ending December 31, 2013 across nine asset classes.  In every case the investor would have been significantly better off just sticking with the index.  On average the indexes generated 50% higher returns than the performance-chasing strategy!

Buy and hold may not be perfect, but it can be a lot better than flitting from mutual fund to mutual fund.

 


Investors are Still Their Own Worst Enemy

  • May 12, 2017/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Best Practices, Mutual Funds

Our core belief is that the dominant factor in long-term, real-life financial outcomes is not investment performance, it is investor behavior.  Therefore, our true value as a trusted advisor lies in establishing and guiding our clients’ investor behavior, not in managing investment performance.

This philosophy of advice is data driven as many academic and industry studies demonstrate a perennial pattern that investors on average fail to capture the returns that their own investments offer, largely because of behavior.

In the recently released DALBAR study for the 30-year period ending December 30, 2016, the S&P 500 stock index produced an excellent annual return of 10.2%, while the average stock fund investor earned only 4.0%, a gap of 6.2%.  Bond investors did not fare any better. During the same 30-year period, the Barclays Bond Index yielded an annual return of 6.0%, while the average bond fund investor earned just 0.6%. Note these three decades include the crash of 1987, the tech boom-bust of 2000, the Great Recession crash of 2008, and the current bull market run — in other words a very fair sampling of good and bad times.

These results, illustrated above, reflect the fact that we experience powerful emotions when markets move up and down that cause us to make investment decisions that are not in our best interests (e.g., panic selling, euphoric buying, performance chasing, etc.).  This is a profound observation of the “behavior gap” that exists between investment and investor returns.  Investors are more often than not their own worst enemy when it comes to investing.

When we welcome new client families to our firm, we hand them a card.  The front consists of a bear market chart designed to prepare them for the fact that the market pulls back on average about every five years or so and not to panic.  The back of the card is a summary of What We Do / How We Earn our Fee:

  • 20% — Quantifying goals, crafting a long-term plan, funding the plan with a long-term portfolio
  • 80% — Coaching clients to continue working the plan through all the cycles of the economy, and all the fads and fears of the market
  • 0% — Analyzing/interpreting the economy and current events
  • 0% — Timing the market, calling tops and bottoms
  • 0% — Identify consistently top-performing investments

 

 


10 Truths Mutual Fund Firms Won’t Admit

  • November 6, 2014/
  • Posted By : admin/
  • 0 comments /
  • Under : Fees, Mutual Funds, Saving Money, Scams & Schemes

mutualfunds

  1. “Cheap funds often outperform pricey ones.”
  2.  “We can’t beat the market.”
  3.  “When skill fails, we just double (or quintuple) our odds.”
  4.  “People aren’t buying our product…”
  5. “…except when we pay them kickbacks.”
  6.  “Hedge funds are our idols.”
  7.  “Our boards are rubber stamps.”
  8.  “Blame us for runaway CEO pay.”
  9.  “We played a starring role in the financial crisis.”
  10.  “Our lobby crushed bipartisan efforts at reform.”

Source: MarketWatch


Chasing Past Performance is Expensive

  • September 18, 2014/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Best Practices, Mutual Funds, Performance, Seeking Prudent Advice

vanguard-chasingA new study demonstrates that chasing the hot mutual fund is an inferior investing strategy compared to good, old-fashioned buy and hold.

Vanguard analyzed a decade of data ending December 31, 2013 across nine asset classes.  In every case the investor would have been significantly better off just sticking with the index.  On average the indexes generated 50% higher returns than the performance-chasing strategy!

Buy and hold may not be perfect, but it can be a lot better than flitting from mutual fund to mutual fund.

 


75% of Americans get the Most Important Investing Question WRONG

  • August 21, 2014/
  • Posted By : admin/
  • 0 comments /
  • Under : Bonds, Mutual Funds, Performance, Personal Finance, Seeking Prudent Advice

Powerful observation from Vox.com regarding public perception versus reality when it comes to how to best invest your money:

Which of the following do you think is the best long-term investment?

  1. Real Estate

  2. Gold

  3. Stocks/Mutual Funds

  4. Savings Account

Don’t feel bad if you didn’t get the answer right. You’re in good company.

Recently, Gallup asked Americans what they thought their best investment bet was over the long run. 24 percent of Americans named stocks and mutual funds — but the same share named gold, and even more (30 percent) named real estate. The trend lines are actually positive, as in 2011 a baffling 34 percent of Americans named gold as their top pick:

gallupThere’s a right answer here — and it’s one that about two thirds of respondents who answered the question got wrong. If history is any guide, stocks are the best bet in the long run, and gold and real estate certainly are not.

siegel_returns

Source: Vox.com


Running in the Wrong Direction (CHART)

  • February 14, 2013/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Mutual Funds

Click to zoom

The S&P 500 has more than doubled since March 2009 but individual investors have been selling stocks almost the entire time!

In January 2013, equity funds took in $19.6 billion. This was the largest inflow since ICI started tracking the data six years ago. During the prior 4 year rally, outflows exceeded $435 billion.

This is a very visual example of how emotions can wreak havoc on an investor’s ability to build long-term wealth.  Investors allowed fear to control their investing behavior and entirely miss this 4-year bull run.

This negative behavior is nothing new. Over the 20-year period from 1992 to 2011, the S&P 500 returned 7.8% annually, while the average stock investor in the U.S. earned only 3.5%. 

Source:
David Wilson

Chart of the Day, February 14, 2013
Bloomberg


Investors Continue to Avoid Stocks Despite Strong Performance

  • October 4, 2012/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Market Outlook, Mutual Funds

The recent buoyancy in the stock market hasn’t won over mutual-fund buyers. August marked the 16th consecutive month in which investors pulled more cash out of U.S.-stock mutual funds than they put in.

The painful bear market of 2007-09 has left investors with a skewed view of U.S.-stock performance. In investor surveys conducted in early 2010, 2011 and 2012, at least 48% of respondents each year said the stock market had been down or flat in the preceding year. In fact, the Standard & Poor’s 500-stock index was up strongly in 2009 and 2010 and eked out a 2.1% return (including dividends) in 2011.

source: Wall Street Journal


Facebook: You may have passed, but mutual funds loaded up!

  • August 23, 2012/
  • Posted By : admin/
  • 0 comments /
  • Under : Mutual Funds, Seeking Prudent Advice

The Facebook stock offering has been an unqualified debacle.  Many investors got lured into the hype, while others smartly passed.  The stock price is down nearly 50% from the initial offering price as of yesterday’s close at $19.44.  By the way, the S&P 500 has gained more than 9% during the same time period.

What’s a bit more surprising is how some mutual funds dove in without abandon.  For example, Morgan Stanley funds took big bets on Facebook.  Eight of their funds have >5% of their assets invested in Facebook.

In June, a commentary on Morgan Stanley’s fund website reported that Facebook and other tech stocks were “the leading detractor in the portfolio this quarter,” discounting the decline in Facebook shares “to post-IPO volatility.”


Myth Buster: Individual Investors are NOT Fleeing Stocks

  • June 28, 2012/
  • Posted By : admin/
  • 0 comments /
  • Under : 401(k), Mutual Funds, Retirement, Seeking Prudent Advice

The reports of my death are greatly exaggerated — Mark Twain

Stocks may be feeling a lot like Mark Twain once felt — discounted prematurely!

The financial media would have you believe that retail investors have been running, not walking, away from stocks. However, a massive, new study of U.S. investors shows the cold, hard facts say otherwise.

A recent Vanguard study sheds light on how individual investors are approaching stocks.  Vanguard reviewed the retirement accounts of 3 million Americans.  As of 2011, the average individual investors had an asset allocation that consists of

  • 65% in stocks
  • 17% in cash
  • 10% in bonds
  • 10% in balance funds
    (these add up to >100% because of rounding in the components)

Retirement savers have two-thirds of their money riding on stocks.  This allocation has declined only 8 percentage points since peaking in 2007.

Moreover, 71% of new contributions are going to purchase additional stocks, up 1% from 2010 and 3% from 2009.

What has changed significantly is how investors are purchasing their stocks.  Purchases directly through diversified stock funds is only 38% of contributions — down sharply from 51% in 2007.  However, stocks purchased via target-date funds are up.

So investors may be thinking they have been selling stocks but they continue to invest in them indirectly.

To quote Jason Zweig:
the public’s infatuation with stock funds isn’t dead. It’s alive and well, but it’s going in by the back door.


“Shelf-Space” – Another dirty little secret about big brokerage firms

  • April 12, 2012/
  • Posted By : admin/
  • 0 comments /
  • Under : Mutual Funds, Seeking Prudent Advice

Cereal companies pay grocery stores to place their products at eye level on the shelves.  Higher visibility leads to higher sales.

Mutual funds do the same thing.  They pay big brokerage firms big money to tout their products.  So when you call up a firm like UBS or Morgan Stanley Smith Barney and ask for an investment recommendation, they have a list of preferred mutual funds that they want you to buy so they can make more money.

These “revenue sharing” payments can be very big revenue sources for brokerage firms.  For example, nearly one-third (33%) of Edwards Jones’ $481.8 million profit in 2011 came from “revenue sharing” fees.  Note that Edwards Jones is forced to disclose more information on sensitive matters like this than its competitors thanks to a 2004 regulatory settlement.

Though “revenue sharing” payments are legal, many critics question if they are ethical since it calls into question whether recommendations are based solely on what’s in the best interest of the client.  Brokerages are not fiduciaries and have no requirement to put client’s interests first.

“It’s an unholy alliance between mutual-fund firms and brokerages to exploit their customers,” says John Freeman, emeritus professor of business and professional ethics at the University of South Carolina Law School.

Investors who want to avoid questionable practices like “shelf space” and “revenue sharing” should seek advice from a fiduciary such as a registered investment advisor.

source:
Wall Street Journal: Brokers Raise Fees, but Not For Investors: Why You Should Care

12
Recent Posts
  • SVB and bank collapses March 14,2023
  • 529 Rollovers (coming soon) February 6,2023
  • SECURE Act 2.0 (2023 changes inside) January 5,2023
  • Time-sensitive planning (action needed) November 2,2022
  • Market lessons you should know (inside) October 18,2022
Archives
  • March 2023
  • February 2023
  • January 2023
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • December 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • November 2019
  • October 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • November 2010
  • October 2010
  • September 2010
  • August 2010
Categories
  • 401(k)
  • Annuities
  • Behavior
  • Best Practices
  • Bonds
  • Charitable Donations
  • Economy
  • Fees
  • Fiduciary
  • Financial Planning
  • Investing 101
  • Live Well
  • Market Outlook
  • Mutual Funds
  • NorthStar
  • Performance
  • Personal Finance
  • Planning
  • Retirement
  • Saving Money
  • Scams & Schemes
  • Seeking Prudent Advice
  • Tax Planning
  • Uncategorised
  • Uncategorized
  • Weekly Market Review
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.



CLIENT TOOLS
CONTACT
  • (704) 350-5028
  • info@nstarcapital.com
  • 521 East Blvd, Charlotte, NC 28203
    (by appointment only)
  • fax: (704) 626-3462
FROM OUR BLOG
  • SVB and bank collapses March 14,2023
  • 529 Rollovers (coming soon) February 6,2023
  • SECURE Act 2.0 (2023 changes inside) January 5,2023
Nothing on this website constitutes either the provision of investment advice or solicitation to provide investment advice. Investment advice can only be provided through a formal investment advisory relationship. Copyright © 2023 NorthStar Capital Advisors - Charlotte, NC. All Rights Reserved.