Seeking Prudent Advice Archives - Page 11 of 23

Market Timing & Emotions ~ Afflictions of the Average Investor

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This chart of 20 years of market data vividly demonstrates a painful lesson. The average investor* badly trails all classes of investment assets.

The primary culprit for this deficit is ill-fated attempts to time the market and emotionally driven decisions to move in and out of the markets.

Most individuals claim to be long-term investor until their portfolio drops 10% and suddenly there’s panic.

Our primary role as an investment advisor is to help our clients have the discipline to ignore the gyrations of the markets and keep the long view when it comes to their investments.

* Average investor refers to individual investors across the United States

The Pitfalls of Investing

Pitfall? Get it? I couldn’t resist.

Ben Carlson has a great piece on how avoiding the crippling mistakes of investing will greatly improve your results.

Here is Carlson’s list of the biggest mistakes to avoid:

Making investment decisions based on your political views.
Confusing your risk profile and time horizon with someone else’s.
Consistently trying to time the market.
Losing site of your long term financial goals.
Paying high fees on investments.
Having high trading activity.
Letting fear and greed take over at the extremes in market sentiment.
Having the majority of your investments tied up in one asset (company stock, your house, etc.).
Basing your decisions on what you heard on CNBC or Fox Business News.
Following every tick in the market and constantly checking the value of your portfolio.
Making too many short term moves with long term capital.
Basing your investments on the most recent performance.
Not saving enough.

For the ultimate backstop, Jason Zweig of the Wall Street Journal has a piece of advice most investors would be wise to follow:

Approximately 99% of the time, the single most important thing investors should do is absolutely nothing.

Be safe out there!

University of North Carolina Rated Best Value in the United States

The University of North Carolina at Chapel Hill has been rated the top value in U.S. public higher education for the 13th straight year by Kiplinger’s Personal Finance magazine.

Kiplinger’s rates universities on quality and cost including metrics around admission rates, retention rates, graduate rates, sticker price, financial aid and graduation debt level.

UNC is the only school that meets 100% of students’ demonstrated financial need. UNC students graduate with an average debt of less than $17,000, far below the national average of $29,400 according to Kiplinger’s.

Other UNC system school that made Kiplinger’s top 100 include:

NC State University — 16th
UNC School of the Arts — 24th
UNC Wilmington — 28th
Appalachian State University — 30th
UNC Asheville — 58th

Source: Kiplinger’s Personal Finance; Charlotte Observer

Code Red! 8 Ways to Permanently Wipe Out Your Retirement Savings

Dana Anspach at MarketWatch recently wrote about 8 financially devastating mistakes (aka “Code Reds”) that must be avoided:

1. Believe in a stock
The company you work for is doing well. You understand the potential of the business. You should own a lot of company stock. After all, it shows your level of commitment, right?
WRONG! CODE RED!
You can lock in lifestyle by taking risk off the table. If trusted advisers are telling you to reduce risk, listen. You can’t take your “belief” in your company stock to the bank. Owning a lot of company stock doesn’t demonstrate a commitment to your company; it demonstrates a lack of commitment to your own personal financial planning.

2. Get reeled into real estate
Rental real estate is a good way to build wealth with someone else’s money, isn’t it? I mean, that’s what the infomercials say.
WRONG! CODE RED!
Investing in real estate is a profession in and of itself. With real estate prices on the rise again, don’t get reeled in with the lure of easy passive income. It isn’t as easy as it looks.

3. Follow a Tip
An opportunity to double your money is an investment opportunity worth pursuing. It could change your life, right?
WRONG! CODE RED!
Tips are great for your waiter or waitress. But where you family’s future is concerned, avoid the tips, and stick with a disciplined and diversified approach.

4. Change lanes — every year
Smart investors watch the market and frequently move money into the latest high performing investment, right?
WRONG! CODE RED!
You’ve probably noticed if you constantly changes lanes on a backed up highway, always trying to inch ahead, you usually end up farther behind. Driving this way isn’t effective; investing this way isn’t effective either. Pick a disciplined strategy and stick to it. Jumping from investment to investment is only going to slow you down.

5. Play the currency cards
Experts can deliver higher returns, right? Find someone who knows how to trade, and you’ll be set.
WRONG! CODE RED!
If experts could generate such high returns, why would they need your business? Don’t play the currency cards, the expert cards, or fall for any kind of outlandish promises. I’ve yet to see one of these programs work the way it was marketed.

6. Follow your ego
Better investments are available to those with more money, right? If you get the opportunity to participate in something exclusive, it is likely to deliver better returns.
WRONG! CODE RED!
If someone appeals to your ego, walk away. When it comes to investing, the only thing I’ve seen egos do is help someone lose money.

7. Follow their ego
You can trust prestigious people in your community. That’s why you should do business with them, right?
WRONG! CODE RED!
Checks and balances are good in government and in investing. One way to make sure checks and balances are in place is to work with an investment adviser that uses a third party custodian. The third party custodian sends account statements directly to you. The investment adviser can make changes in your account, but the transactions are reported to you directly by the custodian, who isn’t and should not be affiliated with the investment adviser.

8. Leverage up
Borrowing at low interest rates and investing in high growth assets is an excellent way to accumulate wealth, isn’t it?
WRONG! CODE RED!
Think twice before borrowing to invest. It causes ruin more often than it causes riches.

Visit MarketWatch to read Anspach’s full article.

Charity Navigator — The Smart Way to Give

‘Tis the season for giving, but how do you know if you’re contributing to a reputable organization that will make the best use of your donation?

Charity Navigator (charitynavitagor.org) features a rating system of 1 to 4 stars for dozens of charitable organizations. This non-profit provides key guidance on where it’s best to give and how these charities utilize the money that you give them.

A four-star charity has the following characteristics:

it excels at its financial health
spends most of its money on its charitable programs (not administration or fundraising)
completes an annual financial audit
guarantees donors it won’t sell their names to outside parties (i.e., it protects its donors privacy and respects their time)

The best way to donate is to give directly to the charity through their website.

The worst is donating to “cold calls” from a telemarketing firm. The middleman typically keeps 80% to 90% of your contribution and shamefully little actually reaches those in need. Also, avoid appeals delivered via social media because you don’t know who is behind them.

Sources:
Charity Navigator
NPR

Best & Worst Investing Advice During the Government Shutdown

Dan Solin wrote a good piece this week at the Huffington Post. Here are some key excerpts.

This is a busy time for financial journalists and advisers. The government shutdown and the looming prospect of an unprecedented default by the U.S. Treasury in meeting its obligations have rattled investors.

When looking for advice about investment-related subjects, it’s important to keep in mind the different obligations of the person providing it. Here’s a summary:

Brokers have an obligation to provide advice that’s merely “suitable” for their clients. They don’t have to act solely in the best interest of their clients. For example, a proprietary mutual fund may be “suitable,” even though it has a much higher expense ratio (management fee) and a lower expected return than a comparable, less expensive index fund.

Registered Investment Adviser firms have a fiduciary duty to always act in the best interest of their clients. In the example discussed above, advisers with an RIA firm would violate their fiduciary duty if they recommended the proprietary fund.

The financial media have no legal obligation to viewers or readers other than what is imposed by common law (such as laws relating to libel, slander and defamation).

The financial media’s lack of a high legal standard explains the wide swing in the quality of the information it disseminates.

Here’s the underlying problem. Many investors are unable to distinguish between sound, evidence-based advice disseminated by Swedroe (and others such as Carl Richards, Jason Zweig, John Wasik, William Bernstein and John Bogle) and the wacky entertainment provided by Cramer. Especially in times of crises, those who succumb to Cramer’s nonsense may find their retirement dreams seriously affected. For CNBC and Cramer, it’s apparently of little concern, as long as those advertising revenues keep rolling in.

Read more of this great short article here.

“Cockroaching” — 5,000 Stockbrokers from Expelled Firms Still Selling Securities

More than 5,000 stockbrokers who were still licensed to sell securities earlier this year after working for one or more firms that regulators expelled between 2005 and 2012, according to The Wall Street Journal.

The pattern of brokers moving from one problem firm to another, according to a former broker, is sometimes called “cockroaching.”

The Journal’s analysis reveals some of the nationwide migratory patterns of brokers associated with firms having troubled regulatory records. These brokers often remain in the industry after working at firms expelled by regulators, in some cases after the brokers accrued numerous arbitration claims or declared multiple bankruptcies.

58% of brokers from at least two expelled firms have at least one black mark on their records. This is much higher than the 13% average for all brokers.

Always check the background of any financial professional before doing business with him or her. It takes only a few minutes and can save you a lot of trouble.

Research brokers or brokerage firms here:
http://brokercheck.finra.org/Search/Search.aspx

Research investment advisors here:
http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_Search.aspx

Is Your Financial Advisor Close to Retiring?

Financial advisors as a group are growing old in a line of work with a very slow replacement rate. According to Accenture, the average age of a financial advisor in the U.S. is 50 and advisors above the age of 60 control $2.3 trillion of client assets.

Actions to take if you have an older advisor

Understand the coming transition. Ask your advisor about her or his retirement date and how your account will be handled. Do you want to stay with the firm or try some place new?
Look for an upgrade. You may like your current advisor but there’s always room for improvement. If you stay put, this is an opportunity for you to reset expectations and articulate your changing needs.
Ask questions. If you get notified about a transition in your retiring advisor’s office, you want to know all your options. The office staff will likely be very busy managing the various processes and may not give you the attention your deserve.

For the record, the advisors at NorthStar Capital Advisors are in their low 40s. In other words, we’re not retiring any time soon!

CNBC Core Viewership Drops to 20-Year Low — Why that’s a good thing!

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According to the latest Nielsen data, CNBC’s prime viewership (age 25-54 demographic) just tumbled to a fresh 20 year low of just 37,000, the lowest since March 1993. CNBC’s Fast Money (fell 32% vs previous year), Mad Money (fell 42% year-over-year) and Kudlow (fell 52% year-over-year) all had all time low ratings in the “all viewers” category in August 2013.

So why is this a good thing?

This is good news for individual investors and their advocates because it means less people are being negatively influenced by CNBC’s misinformation.

CNBC’s goal is not to make you money, but to sell advertising.They want you to live in fear and react to every little hiccup in the market so that you’re glued to their network in order to receive investment advice from their guests and anchors. But if you make just one move to improve your portfolio’s performance this year, it should be turning off CNBC. In fact, you should tune out most of the financial media.

If you’re invested for the long haul, it really doesn’t matter…

If inflation is up two-tenths of a percentage point this year,
Or if the Consumer Confidence Index dips 3%,
Or if the Bull Bear Sentiment Indicator switches from bullish to bearish.

Your portfolio should be positioned to withstand good times and bad. You shouldn’t be jumping in and out of the market or sectors based on news, politics, the economy, or any other event.

Focus On the Big Picture

Good infographic from Charles Schwab about the big picture…

Be sure to click to zoom up for a good view

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