Seeking Prudent Advice Archives - Page 3 of 24

Rich Dad, Poor Dad, Bankrupt Dad?

You’ve probably heard of Robert Kiyosaki through his best-selling book series, Rich Dad, Poor Dad. Kiyosaki holds himself out as a self-made wealth guru who is happy to share the secret money-making strategies of the wealthy.

The tactics that he has advocated range from silly to illegal and include things like insider trading, buying multiple real estate properties for no money down, and buying stocks on margin via unfunded brokerage accounts.

And you can add bankruptcy to Kiyosaki’s highly questionable list of strategies. One of Kiyosaki’s businesses, Rich Global LLC, filed for bankruptcy protection in 2012 after it was ordered to pay a $24 million settlement. Kiyosaki will not be putting any of his personal fortune toward the settlement.

There is no evidence that Rich Dad, the man who allegedly imparted all these money-making secrets to Kiyosaki, ever existed. Nor is there any evidence that Kiyosaki amassed any significant wealth before the publication of Rich Dad, Poor Dad in 1997. Nonetheless, Kiyosaki is now reportedly worth $80 million!

In all likelihood, Kiyosaki did not get wealthy using the schemes he pushes in his books, but through proceeds of his book sales and personal appearances. He got wealthy selling the dream and illusion of get-rich-quick schemes.

source: Forbes

Quick Check: Are Your Retirement Savings On Track?

The two greatest impacts on your retirement savings over time are starting early and saving consistently. Beyond that, how do you know if you’re on track to have enough set aside to retire comfortably? Fidelity Investments recently published convenient “rule of thumb” that provides convenient, age-based targets to help you gauge your progress.

What’s the end game look like?
If you’ve saved eight times your annual salary by your last year of work before retiring, you should have enough money to replace 85% of your annual income for a 25-year period, including social security.

Age-based targets for retirement savings. For example, at age 35 you should have saved one times your annual salary. By age 55 you should have 5 times your salary. Ultimately retire at age 67 with eight times your annual salary set aside in retirement savings.

Here are the key milestones for getting to 8x and beyond:

age 25: start saving for retirement beginning at 6% of annual salary and increasing this by 1% per year until it reaches 12%; employer provides a 3% matching contribution
ages 31-67: setting aside 12% of annual income for retirement savings with an additional 3% matching contribution from the employer
age 35: you should have saved one times your annual salary
age 45: you should have saved three times your annual salary
age 55: you should have saved five times your annual salary
age 67: retire with eight times your annual salary in retirement saves
age 67-92: live off your retirement savings

Recognize that this is a broad guide and each person’s requirements will vary by the specifics of their situation. Nonetheless, this provides a quick and easy reality check.

What if you check your actual retirement savings and you’re coming up short against these targets? Try to increase your retirement contributions to close the gap. Sit down with a financial planner to review your plans and your portfolios to make sure they are optimized for success.

Age-based retirement savings targets for an individual making $100,000 per year.

Source:
Fidelity Outlines Age-Based Savings Guidelines to Help Workers Stay on Track for Retirement

How Does the Stock Market Work?

Real Life Adventures by Gary Wise and Lance Aldrich

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.

Who Is Best to Manage Your Money?

As an investor, you are faced with hundreds of decisions on where to get your investment advice. Here’s a nice breakdown between advisors and brokers that can help steer your decision making process.

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)

Leveraged and Inverse ETFs — Most Investors Should Avoid Them

Leveraged and inverse ETFs are difficult to understand and are not a good fit for long-term investors.

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.

Temperament over Intellect

Warren Buffett once said, “The most important quality for an investor is temperament not intellect.”

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?

Tune Out the Noise…your portfolio will thank you for it!

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.

10 Ways Financial Advisors Fail Their Clients

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.

Asset Management vs. Financial Planning

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.

Pundit or Professional?

What’s the best source of financial advice? A pundit or a professional? Charlie Bilello, the Director of Research at Pension Partners, provides this perspective-building comparison so you can make the right choice:

Pundit (noun): A supposed expert in a particular field who is frequently called on to give opinions to the public. See also Dennis Gartman.

Professional (noun): A person competent or skilled in a particular activity. See also John Bogle.

***

The Pundit spends their days making subjective predictions.

The Professional spends their days making objective assessments.

***

The Pundit seeks self-promotion.

The Professional seeks self-improvement.

***

The Pundit exudes hubris.

The Professional exudes humility.

***

The Pundit is forever calling for the next big melt-up or crash.

The Professional is forever focused on avoiding the next big mistake.

***

The Pundit seeks out only opinions that confirm their views.

The Professional seeks out all evidence, even if it runs contrary to their views.

***

The Pundit believes they know everything.

The Professional knows they know nothing.

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The Pundit makes a living selling fear and greed.

The Professional makes a living helping to control these emotions.

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The Pundit has a sense of entitlement.

The Professional has a sense of gratitude.

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The Pundit seeks to inform.

The Professional seeks to educate.

***

The Pundit makes extreme forecasts to gain attention.

The Professional forecasts wide ranges of possible outcomes to gain respect.

***

The Pundit thinks in terms of long or short, this market or that market.

The Professional thinks in terms of asset allocation and the entire portfolio.

***

The Pundit believes in certainty, conviction, and precision.

The Professional believes in uncertainty, reservation, and probabilities.

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The Pundit reads the news and listens to financial TV.

The Professional reads books and listens to podcasts.

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The Pundit sees everything in markets as black or white.

The Professional understands there is often a gray area.

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The Pundit makes the simple sound complex.

The Professional makes the complex sound simple.

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The Pundit has a prophecy.

The Professional has a plan.

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The Pundit has an answer for every question.

The Professional is often saying “I don’t know.”

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The Pundit is an entertainer.

The Professional is an educator.

***

The Pundit gives recommendations.

The Professional offers guidance.

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The Pundit provides a reason for every wiggle in the market.

The Professional provides evidence of randomness and noise.

***

The Pundit believes their success is a result of their exceptional talent.

The Professional understands their success is a result of hard work and luck.

***

The Pundit lectures.

The Professional listens.

***

The Pundit is thinking about the next day.

The Professional is planning for the next decade.

***

Pundit or Professional? The choice is yours.

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