Could Your Investments be the Next One to Crash?

Is your money invested prudently? Do you fully understand the risks associated with your investments and what it might take to cause a catastrophic event that could potentially destroy your hard-earned wealth?

Of course, we’d like to believe that events such as waking up one day to a message in your inbox informing you that your investments have basically evaporated overnight is too extreme or probably impossible because, after all, we have mutual funds which by their very definition are meant to offer some balance. Or perhaps we’d like to believe that those Enron and Lehman Brothers days are all behind us.

Think again. A few Tuesdays ago, people who had money invested in the mutual fund LJM Preservation and Growth Fund, which held about $500,000,000 (or one-half a billion dollars), received email messages notifying them that their fund had lost 82 percent, which effectively led to the fund disappearing.

Yes. Just like that. Without any warning signs whatsoever. Or might there have been a whiff of a warning? I’ll get to that in a moment, but for now let me point out the irony in this unfortunate debacle.

First, look at the fund’s name again. It’s supposed to be for “Preservation and Growth.” So as an unsuspecting every day investor putting your wealth into it, what would you be thinking? That you’re “preserving” and “growing” your money, when in fact that’s only wishful thinking.

This is one of the huge problems I see every day in my practice – what folks think their investments are comprised of (based on the fund’s name or so-called investment objectives) ends up being something entirely different.

In my opinion, very few funds have what, for lack of a better term, I’d call “structural integrity” and the discipline to stay true to what they purport to be. Buyer beware, for there’s baiting and switching all around.

Here’s a second irony. This mutual fund in question had posted positive returns in all but one year since it was formed in 2006. That’s pretty impressive and what most people would seek in a fund. But here’s the thing: the first rule of prudence in investing your wealth is not to focus so much on past returns. I’m not saying they are completely irrelevant. However, you shouldn't make life-altering decisions based solely on past performance. The focus must be on the underlying investments; how they are diversified and whether that aligns with your expectations.

Questions to ask include:

What story does the history of the mutual fund’s underlying investments tell? Has it stayed true to its stated objectives? Or, has it been all over the place, trying to invest in whatever is purported to be “hot” at any given moment?

Again, keep in mind that prudence goes beyond whether you’ve been making gains lately or what’s in the name of your fund.

So do you really – and I mean really – know that your financial advisor has the integrity, discipline, and know-how to guide you in investing your wealth the way that you want to invest it?

Obviously, I hope you never receive any communication resembling what LJM Preservation and Growth Fund owners received. Hopefully, you’re hearing me loud and clear.

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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. You’ll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation.

Are You Really Getting the Best Financial Advice? Really.

Are you really getting the best financial advice? Really.

Just this past week, an article by Michael Wursthorn in The Wall Street Journal caught my undivided attention. Here are some excerpts from the article, which was titled “Merrill Brokers Get Ultimatum: Refer New Customers or Face a Pay Cut.” 

“Merrill Lynch will require its brokers to make at least two client referrals to other parts of parent Bank of America Corp. next year to avoid a cut in pay…

“…brokers who fail to refer at least two customers in 2017 to other parts of Bank of America – including its online brokerage platform Merrill Edge, its retail bank and other units – will have 1% shaved from their take-home pay or deferred compensation …

“…That is up from one referral this year…”

You probably can now understand why this article immediately caught my attention, right? How crazy and out-of-this-world ridiculous could this be?

 
You roll up your sleeves and work as hard as you can to save money toward your future. You want to get the best possible advice, so you do what you believe is prudent: go in to talk to someone sitting in a nice office wearing a nice looking suit at one of the largest financial institutions on the planet. And what do you know? That person is under pressure to get you to buy a certain product or face a pay cut.

In that situation, how likely are you to get objective recommendations about what will best for you? In my humble opinion, no matter how you look at it, this is an all-around bad deal for unsuspecting consumers. No one should have to deal with a financial advisor who has strings pulling on them to sell any specific product. Because that’s what you’d be sold. Whether it’s best for your needs would be a different story altogether. Yet things like these are happening everywhere. Everyday.

My hope, though, is that you don’t fall for any of these shenanigans by ensuring that you take financial advice only from someone who is truly independent and who sincerely has only your best interests in mind. Please tell me that you will do so.

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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. You’ll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If you’re ready, we’re here to help.

Not Even the So-Called Geniuses Can Predict What the Stock Market Will Do!

Not even the so-called geniuses can predict what the stock market will do!

Well, let’s begin with some humor. In case you may have missed it, we just elected a new president.

Just a little after midnight on Election night, Dr. Paul Krugman in his capacity as a columnist for The New York Times wrote a column headlined, PaulKrugman: The Economic Fallout in reaction to the results of the of the Presidential election. Here are the first three paragraphs of that column:

It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?

Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear.

Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never.

Okay. Now hear me out. If you’ve followed my work for any amount of time, you may have heard me say what I am about to repeat perhaps a few dozen times already, so pardon the repetition, but it seems like I am going to have to keep making this point. 

When it comes to precisely what the investment markets are going to do, no one anywhere on this planet knows. It doesn't matter their level of education, net worth, eloquence, or which TV network, magazine or newspaper they write for – they can’t predict the future. Period. End of story.

Please don't fall for any of this prognostication nonsense, as it is indeed one of the fastest ways to destroy your hard-earned wealth.

Now back to Dr. Krugman’s column. According to him, the markets will “never” recover. Wow – how scary. Did you know that the very markets about which he made that comment recovered within a matter of hours? By the very next morning when the sun came up, they had rebounded. Not only that, but on top of it all, they’ve hit an all-time high since then.

Talk about ridiculous assertions without any real basis in fact that couldn’t be further from reality. Imagine those unsuspecting folks who woke up the day after the elections to this column by a man who, in many respects, is an accomplished academic – an economics professor who has taught at prestigious institutions and a Nobel Prize recipient – and based on his column took action with their investments. They would have made a terrible mistake, wouldn’t they? Exactly. That is what I am cautioning you against. 

There are many people like Dr. Krugman out there. They have very impressive backgrounds, have won many accolades, and have really loud megaphones. But you should never, ever lose sight of the indisputable fact that none of these folks has ever won an award for accurately (and consistently) predicting investment markets. All they do is state their opinions.

Do not confuse opinions for facts, and certainly never make investment decisions based on them.

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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. You’ll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If you’re ready, we’re here to help.

Here’s Why Purchasing a CD at Your Bank is NOT Risk Free

Here’s Why Purchasing a CD at Your Bank is NOT Risk Free

There’s an advertising campaign being run on television by a credit union in the Maryland area. The essence of the message they’re trying to get across is that by investing in this institution’s certificates of deposit (CDs), you’d get to earn interest rates that exceed the national average without any risk – the ad specifically uses the words risk free, which I believe is totally preposterous. Why so?

You might be thinking there’s nothing inaccurate here. CDs are known to be safe, and therefore have no risk. I can understand that train of thought. However, it’s not an accurate portrayal of the real situation, because when it comes to saving/investing your money, risk comes in various forms. So that I don’t get overly technical, let’s consider risk from just two perspectives.

First of all, there’s the risk that is associated with the stock market’s movements that could drop the value of your account at any particular time. You could even end up losing everything. For most of us, this is what we think about when we hear the word risk as it relates to our money. That is correct and a very real risk, I might add. It’s why many people choose to go with CDs in the first place. But there is more to the risk than that.

The second type of risk I want to bring to your attention involves a situation where you could end up losing your money due to impropriety or bad management of a company that could result in it going out of business. This is also very real and happens all the time (especially with banks and credit unions), doesn’t it?

Now here’s the million dollar question. While it’s true that the first type of risk associated with fluctuations in the market is avoided when you buy a CD at a bank or credit union, isn’t the second type of risk still present? While you are thinking about it, have you ever wondered why in the world banks like to proudly remind us of the fact that our deposits are insured by the FDIC? Would we need FDIC protection on something that is “risk free”? Of course not.

As I have always maintained, people are smart and know exactly what they want for themselves and their loved ones. The financial industry as a whole owes it to the hard-working folks who depend on us to make sound decisions to give them pure, straightforward, factual information without any semantics. Is this too much to ask?  

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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. You’ll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If you’re ready, we’re here to help.

What Every Retirement Investor Must See (and Take Note) from the Recent EpiPen Saga

What Every Retirement Investor Must See (and Take Note) from the Recent EpiPen Saga

Mylan Pharmaceuticals, the maker of EpiPen, has been in the news lately regarding some astronomical increases in the price of its life-saving drug. My mission with this column is not to opine about the details of that move one way or the other. No doubt, a lot has been said in recent days to that end.

What I want to point out is a valuable lesson that every stock market investor must glean from this story. There is a fundamental principle to building a prudent investment portfolio that we can all learn from this situation – and I really do hope that people will not get complacent and ignore this lesson.

What exactly am I talking about? What does a decision by some company fatcats to jack up prices have to do with your retirement portfolio? Allow me to explain myself. Since you do not and cannot control any bad business decisions and/or actions that company executives might take which could, in turn, lead to serious stock price and revenue repercussions, it behooves you to pay particular attention to the good old rule about prudently diversifying your investments. Most of us tend to get carried away and ignore this rule.

But the fact of the matter is that on any given day, we may wake up to news of some event that could potentially depreciate a company’s stock price or even wipe it out all together – and with it could go our hard-earned wealth. In this particular case involving Mylan Pharmaceuticals, you may have heard reports that the company’s stock value sank by somewhere in the neighborhood of 3 billion dollars in just a matter of days; what you must understand is that every cent of that loss represents somebody’s wealth. My hope is that those folks have properly diversified their portfolios, rather than dedicating significant portions of their investments to this one company’s stock.

Is your portfolio heavily dependent on just one or a few companies? No company is inoculated from an event that could be catastrophic for its stock price. It does not matter how large, smart, or long any such company has been around. And it certainly doesn’t matter whether several generations of your family have been employed by this company.

What do WorldCom, Enron, Global Crossing, Washington Mutual, and Lehman Brothers have in common? They were all wiped out. It is however extremely crucial to note that right up until the very day and very moment that each of them basically evaporated from this planet, they were considered large and stable.

I hope that I’ve made my case. My very best to you.

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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. You’ll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If you’re ready, we’re here to help.

Why Passive Fund Management Outperforms Active Fund Management

Why Passive Fund Management Outperforms Active Fund Management

In my most recent post,  I made a broad ten-thousand-foot-level argument as to why making frequent changes to an investment portfolio – whether in reaction to or in anticipation of what the stock market/economy might do – is destructive behavior.

Today, I would like to get a little more technical and specific, because I believe this is such a serious issue that is the main driver in determining whether you’ll see tangible results from your years of hard work and investing or you’ll end up otherwise, without anything to show for your efforts.

Active vs. Passive Management

One of the main choices you must make as an investor is deciding the manner in which you want your portfolio to be managed: actively or passively. In active management, a mutual fund manager attempts to predict what will happen next and which stocks/bonds are going to win, so to speak. This is called active management because it involves constantly selling and buying stocks/bonds and changing things up in an attempt to “beat” the market. Personally, I don’t support this form of investing because in order for it to work, you’d need a fund manager who could actually precisely predict what the markets will do in the future. Common sense tells me that’s impossible. But let’s just leave it at that for the moment.

The alternative is passive management which, in contrast, understands that since the market’s movements are random and unpredictable, the most effective thing to do is to invest in an entire asset class/index and leave the investments alone. The goal of this approach is to capture/duplicate the market’s returns, not attempt to beat it, as in the case of actively managed funds. 

Now let’s get back to the argument at stake. Is constantly trying to make changes to a portfolio based on day-to-day events (active management) really destructive for your investments?

The independent investment research firm Morningstar publishes a report called Active/Passive Barometer, which gives us a glimpse of how these two opposite approaches at managing investments hold up against each other. Here is a quote from the report’s executive summary:

…The report finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons, and experienced high mortality rates (that is, many are merged or closed)…

Now here’s my humble opinion: Attempting to actively manage investments hasn’t worked so far, which should not be surprising at all. Human beings cannot predict the day-by-day movements of a completely random and unpredictable market. As the report found, not only are these active funds failing miserably, but they also have “high mortality rates” – they have such bad results that they end up closing.

Think about it and invest your money prudently. My very best to you.

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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. You’ll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If you’re ready, we’re here to help.

Why You Should View Frequent Investment Portfolio Changes as a Sign of Serious Trouble

Why You Should View Frequent Investment Portfolio Changes as a Sign of Serious Trouble

Many unsuspecting investors do it all the time. Any time the stock market makes the news – good or bad – they react by making changes to their existing portfolios. Sometimes the changes are initiated by the investors themselves, but other times the advisor suggests the changes, convincing the investor to go along.

Am I implying that making changes to your investment portfolio is a bad thing? Essentially and for the most part, yes – except in the case of rebalancing your portfolio back to its targeted allocations, which technically speaking isn’t considered a change in your portfolio. Here’s why.

You visit an advisor. He or she helps you put together what virtually any financial professional would claim is the best possible portfolio to help you achieve your long-term financial goals, be it retirement or college funds for your child or grandchild. Then in a matter of just a relatively short period, without any significant changes in your life that necessitate altering your investing profile, you need to make changes?

Let’s think carefully about that picture. What does it tell you about an advisor if they are constantly moving funds around? I interpret it along these lines: they don't really know what they’re doing, where they’re going, or how to get there. They were hoping this portfolio they suggested might do the trick. But, now, based on what the stock market is doing, they think that other one will be better instead. Does this sound like what you want your advisor to be doing with your hard-earned investment money?

It’s interesting, but some people actually see this destructive behavior as a sign that a financial advisor is smart and on top of things. The opposite is true, in my opinion, simply because no one can predict what is going to happen tomorrow. So if your investment strategy revolves around reacting to short-term market movements, you should think twice. In fact, any time your advisor alters your portfolio in this manner, it is indicative of only one thing: that he or she got it all wrong previously. Isn’t it?

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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. You’ll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If you’re ready, we’re here to help.