How The Investment Business REALLY Works!

How Spock Would Invest

2012-02-08T10:14:00.005-06:00

I'd like to think that Spock would have made a great investor. Why?

Simply because his unfailing logic would force him to look at the options and make the right choice.

Choice #1 - pay someone else to 'manage' your money and skim 1-2% off the top every year regardless of how they compare to the market averages

Choice #2 - 'manage' your account by trading constantly, making moves based on the daily news, buying into newsletters that claim they have the 'picks' you need to beat the market and/or buying some crazy software for thousands of dollars that can help you beat the market

Choice #3 - dollar cost average buy into a very low fee diversified ETF or mutual fund as often as you can

Spock would have no problem figuring out that the logical choice is #3. He knows that simple strategy will have his portfolio in the top 10-15% of all investors and will have achieved it without spending valuable time, money or stress.

Direct Stock Purchase Plans

2012-01-25T14:36:00.001-06:00

Most of the biggest companies are also the best performing stocks. While I'd rather see small investors dollar cost average into a diversified index fund, there are some people who insist on buying individual stocks and there is one solid advantage, virtually no fees at all.

One very under reported way to accumulate shares of your favorite company, $50 or $100 at a time is through Direct Stock Purchase Plans or DRIP's which is simply buying stock directly from the company itself. Actually you will be getting the shares through what is called a transfer agent who physically handles stock shares. No middleman. No brokerage account. You get your statement from the company.

DRIP actually stands for dividend reinvestment program which is exactly what happens to your dividends automatically, they buy more shares directly from the company.

This is a great way for investors to avoid the brokerage firms which is why you will never hear this from your stockbroker or financial adviser.

Almost every company in the S&P 500 has a DRIP program, Google for the toll free number, call for shareholder services and get started, you can do it online as well for some.

Let me know if you need some help, money coaching available or send me an email. Happy to help!

War Games - The Only Winning Move Is Not To Play

2012-01-09T16:17:00.002-06:00

Did you ever see the movie from the early 80's called War Games? Great movie about a computer geek who hacks into a government computer to play games and ends up playing the government computer called the WOPR a game called Global Thermonuclear War.

Fast forward to the end of the movie and the computer decides ultimately that the only winning move (in a nuclear war) is not to play.

This is a great analogy to trading the stock market. The only to way to win this game is not to play. Period.

Do not listen to someone who tells you that you can trade for a living or increase your returns by trading, by buying this and selling that. Its a losing proposition.

The only rational and logical approach to the stock market is to invest, that is to buy the indexes, not to trade.

This approach will land you in the top 10% of all participants in the market!

2011 Results Are In - How Did Your Financial Guy Do?

2011-12-31T11:52:00.003-06:00

2011 is now in the books and the S&P 500 lost less than 1%.

If you held some dividend paying stocks, ETF's and mutual funds (and you should have), you made a few percent in 2011.

Do yourself a favor, compare that with the results from your brokerage account to see if what you are paying your financial guy is worth it ?! See the dirty stockbroker trick here.

My guess is that it won't be. You'll see that your account probably lost a few percent. The difference? Commissions, concessions, churning and fees.

Make the move in 2012 to handle your own account, its a lot easier than the investerati would have you believe and you'll be certain that the person who cares the most about your money is handling it - YOU !!

Barrons Picks For 2011, Looking Back

2011-12-12T11:51:00.004-06:00

I love reading Barron's which is a weekly publication from Dow Jones. I look forward to it delivered to my house every Sunday.

Every year Barron's produces ten stock picks for the next year and the last issue gave us those picks along with the results for the picks from last year.

To their credit, Barron's doesn't shy away from their results (unlike your stockbroker).

Bottom line is that the picks for 2011 have produced a return of -6.9% compared to the S&P 500 return of -1.9% (as of 12/9/2011).

I bring this up because it shows yet again how hard it is to keep up with a simple index like the S&P 500. Imagine how your stockbroker is faring (after charging you some hefty fees) if the smart guys at Barron's can't beat the index!

Are Bond Funds A Good Idea?

2011-12-02T13:42:00.001-06:00

As most investors know, bonds are a good idea and in fact, if you follow this blog, listen to me on the radio or seen any article I've written, then you know I am a proponent of having your age as a percentage in fixed income some of which should be invested in bonds.

But bond funds are different. Bond funds typically buy bonds of different maturities from different entities, corporate, country, junk, etc and charge you a fee to manage it. It doesn't matter what type of bond fund it is, the commonality is that when interest rates go up, the bonds inside the fund will decrease in value and if you own a bond fund while interest rates are rising, it'll be hard for that bond fund to make you any money.

Take note that many bonds use leverage as well and while that works in your favor sometimes, when interest rates do rise, bond funds that have leveraged themselves to give investors a few extra basis points in yield will get crushed, as they did in 1994.

Bonds too will go down in value but not if held to maturity and that's where you have an advantage over a bond fund, you don't have to be fully invested in bonds whereas they do. When a bond matures, you can reinvest the principle back into a new bond paying a higher rate and not have to pay a percentage to do it!

Couples and Finances

2011-11-29T12:24:00.001-06:00

Your most important financial partner is not your stockbroker, its not your financial planner and its not warren buffett or the fed - its your spouse, remember, the one who owns half the assets!

Research tells us that just over 3/4's of spouses know what the others income is.

Research tells us that only one spouse knows the login/password to the power bill in just 2/5 homes.

Most families rely on one spouse to pretty much handle all the household bills and the other spouse to handle all the investing decisions. While this is surely democratic, its not healthy, nor wise. 9/10 times, the surviving spouse is the wife and more than half the time, she knows little about any of this!

Talking about budgets, saving, debt and investing is not all that comfortable a conversation but it has to happen. I suggest couples plan a meeting quarterly to discuss the following;

where all the assets are located; banks, brokerages, 401k's, IRA's, insurance, etc
how the investments are invested; get together on risk tolerance
what the logins and passwords are to all household online accounts
what the plans are for retirement; where, when, etc

This checklist is far from complete but will certainly go along way to getting you started thinking about your finances together. Two heads are really better than one and as you get older, the assets grow and the decisions become more important.

Don't wait. Start now. Remember, I am a money coach and would be happy to help. You can email me at scott@howtheinvestmentbusinessreallyworks.com.

Scared of the stock market? Try dollar cost averaging!

2011-11-28T10:16:00.003-06:00

The stock market is a scary place to invest your money these days, however there really isn't much of an alternative with fixed income paying almost nothing so what to do?

I suggest selling your stock mutual funds or etf's when you are feeling very uncomfortable or giddy with your investments and then jumping right back in via dollar cost averaging.

Dollar cost averaging is the process of buying on a regular basis or in increments so as to ideally get a good average price and dollar cost averaging works well with the volatility that we have been witnessing lately.

Sure you may miss out on some of a rally but you may miss out on some of the downturn too?! This strategy is not for everyone and does entail some fees but bottom line is that it'll keep you in the stock market to some extent and keep some of your sanity as well.

Of course, if you have any questions, remember that I am a money coach and am happy to answer questions or concerns you may have. Email me at scott@howtheinvestmentbusinessreallyworks.com.

Investment Myth That More Risk = More Return

2011-11-03T10:53:00.000-05:00

Some investment myths continue to persist no matter what the reality is and most investment myths are dangerous to your financial well being.

Here is an oldies but a goodie!

More risk = more return. The notion that you need to take on more risk to get more risk just isn't true. I know it sounds like it ought to be but it is not. Over the last decade or so, bonds have outperformed stocks. Obviously bonds have risk but certainly less than stocks yet they have outperformed.

Smaller cap stocks are always tauted as the answer to higher returns and indeed the data appears to bear that out however upon closer examination, you will see that only a handful of small cap stocks do extremely well and skew the averages. The fact is that without buying Google in the 90's, apple in the 80's and a few other obscure biotech companies, the smaller caps have pretty much done as well as their larger cap counterparts.

A little less than half of the returns that stocks provide investors are in the form of dividends again proving that you do not necessarily have to take on more risk to get good returns.

Can You Avoid The Next Financial Bubble?

2011-10-12T12:40:00.003-05:00

Financial bubbles are as old as finance itself. Examples include 1860's railroads (when people bought land anywhere just hoping the expanding railroads would buy them out), early 1900's car companies (more than a thousand went bankrupt and a handful survive). More recent examples include 1980's Japan, 1999 Internet, 2006 Housing and 2011 Gold?

The trick is to identify a bubble and not participate because while the idea of a fast buck is appealing, the downside is worse.

Remember the secret to making money in any market is not to lose money, your gains will come over time but losing is hard to overcome.

If I double my money this year and give back 50% next year, I didn't get anywhere, took on alot of risk and all for nothing and likely missed out on a real opportunity (we call that opportunity cost).

Most bubbles take on the form of the chart you see here when normal assets take on a life of their own and become something you must own ONLY because it has to go higher, right? wrong!

If you stick to a boring old investment strategy of adding to an index fund on a regular basis and putting any extra cash into paying down the mortgage (aside from six months of cash for emergencies) then you are likely to avoid all bubbles simply because you are disciplined and don't have silly cash around to participate. Good for you.

As an aside, I am not a prognosticator but I am willing to say that gold is in the bear rally part of the chart there and has already seen its best days.

Difference Between Gambling and Investing and your Financial Guy

2011-09-21T14:40:00.003-05:00

There is a fine line between gambling and investing which many people cross sometimes with the help of their financial guy.

A study not too long ago showed that the majority of those buying individual stocks lose money. I'd be willing to bet that a large percentage of those crossed the line.

Bottom line is that the odds are set against you as a gambler. That's why casinos have no clocks, pump in oxygen, its all to keep you gambling because eventually, the odds which are stacked against you will take over.

But as an investor, odds are in your favor as long as you are buying quality, not trading, etc.

Problem is that most people who say they are long term investors really aren't. Its human nature to want instant gratification and a few negative months in a row will test any investors confidence and resolve. That is exactly when many investors cross the line over to gambling by buying and selling often or trading or purchasing penny stocks or buying into a hot trend - none of which classifies as investing.

This problem is exacerbated by financial professionals who by chance make money when their clients are active rather than non-active.

I can look at a statement and tell you immediately if you have crossed over the line from investor to gambler. Feel free to email to set up a coaching call.

Why Preferred Stock IPO's Are Great For Your Stockbroker, Not You

2011-09-15T11:44:00.001-05:00

Preferred Stock is a special equity security that is commonly thought of as a hybrid between an equity and debt.

Dividends are usually higher than the common shares and are senior obligations to the regular shares which means a company would have to pay the preferred shareholders before they pay the common shareholders.

In this environment of low yields on most fixed income investments, investors are flocking to preferreds in search of higher yield.

As a stockbroker, I used to love the preferred stock IPO (initial public offering). WHY?

Because I could hide the commission, we used to tell the clients that there was no commission. I guess technically that was true but we got paid a concession, usually 3-4% of the total invested.

And almost always the IPO would fall below the offering price to compensate for the concession. There was a rule too that you couldn't sell your clients shares for a period of time.

My suggestion now is that if you want to buy preferred stock, go ahead and buy whatever you like in the secondary market, ie. something that has already been issued. Stay away from preferred stock IPO's.

Investing Advice or Education

2011-09-06T10:16:00.004-05:00

After you have decided you'd like to invest your hard earned money, next question is what to invest in, what to do. You could watch CNBC all day and listen to the talking heads discuss trading but not much on investing.

Or you could call a stockbroker who is very eager to help you with your investments. Stockbrokers are only too happy to offer investing advice for a fee!

The problem with investment advice is that you will slowly become dependent.

Investment education is different. Once you have educated yourself to become financially literate, not at a PhD level, just literate, you will have liberated yourself.

It is hard to take advantage of an educated investor.

Educating yourself is easy too and well worth the very small amount of time it takes. Read this blog and others. Go to yahoo finance or google finance and just read.

Email me if you have any questions too.

Gold versus Stocks

2011-08-22T16:21:00.004-05:00

A lot of noise around gold these days, it seems we are bombarded with ads reminding us to buy gold.

Here is the truth about gold. Gold is a commodity and as such is susceptible only to perceived supply and demand.

If you thought stocks are volatile, watch commodities for a while!

The chart compares the total real returns over the period, 1925 to 2010. Gold has climbed a great deal in the last year, not on this chart so I imagine the yellow line to be well above the red but still not above the blue which is stocks.

Sure, we'd all like to have sold all our stocks in 2000 before the bubble burst and bought gold but timing the different asset classes is just too difficult and commodities are dangerous. The average investor and yes, that means you, is better off staying the course with your mix of stocks, bonds, CD's and cash.

Rule of 72

2011-08-12T10:49:00.003-05:00

The rule of 72 is very important to you as an investor.

It works like this; take your expected rate of return, divided into 72 and the result will be the amount in years for your money to double. This is an approximation but its pretty close, certainly close enough considering all the other variables.

An example would be an expected return of 8% will mean your money will double in 9 years.

This is very important because I think that far too many investors expect their money to do too much and thus take on far too much risk which they regret later on when its obviously too late.

Remember that to double your money in say 4 years will require a 18% return which means you will have to take on massive risk.

Think logically like your friend Einstein there. What kind of investor do you think he'd be?

Cash is ok

2011-08-04T10:32:00.002-05:00

There are plenty of types of investments; stocks (either individual or through mutual funds or ETF's), bonds, real estate and commodities such as gold, silver and oil. There are others too like art, coins, etc.

One investment or asset class gets very little attention and is rarely mentioned - CASH.

The reason cash isn't mentioned very often unless it is to malign it, is because your stockbroker does not get paid when you have cash on the books.

Whether you pay commissions per transaction or are in a fee only account, cash pays your stockbroker, financial advisor or financial planner absolutely nothing which is coincidentally why you receive calls and emails to invest that money now.

Cash is ok, especially when you aren't comfortable buying into the market.

Sure cash pays virtually nothing these days but its better than losing and there is something to be said for sleeping at night. I remember telling clients that if they are losing sleep that they own too much stuff.

Stock Market Volatility, Debt and DC

2011-07-25T08:53:00.011-05:00

As the folks in Washington, try to work out a deal on the debt, I was curious as to what the Wall Street strategists have to say so I checked around and you know what I found?

The same old drivel, the stock market will be volatile and you're investments should be diversified. Really? No kidding.

Diversification is a given, everyone knows not put all your eggs in one basket.

Volatility is what the Wall Street boys say when they have no idea what to say (which is the bulk of the time) so what are you supposed to do as an investor with that kind of insight?

Exactly!

This underscores my point that it is virtually impossible to beat the simple S&P 500 and why over 90% of supposed financial professionals fail to do so.

And since that is the point, why do you listen to Wall Street anyway?

Are you paying for that advice? You shouldn't be, that's for sure.

Do you know what a fee of 'only' 1% over an investing lifetime is a fortune is costing you?

You can do this by yourself, you can and you should.

The difference between debt and deficit

2011-07-07T13:05:00.006-05:00

The DEFICIT is the difference between what the government takes in and what it spends, period. Historically, the US spends more than it takes in. For a while in the late 1990's, we had a surplus, not a deficit which meant the government receipts (taxes, fees, etc) were actually more than what we spent.

DEBT is a financial term. Companies, municipalities, cities and countries issue debt. When a bank issues debt, its usually a CD. The USA sells debt in the form of treasury bills and treasury notes and anyone can buy them, you, me, China, etc. Remember those old posters from WWII era to buy war bonds, that was debt. Parents used to buy savings bonds for their kids, that was debt. When an entity issues debt, they are obligated to pay back the principal and interest.

Currently the USA enjoys a AAA rating for its debt which means the govt can issue debt at the best possible (aka lowest) interest rate and this is a sign of strength. The deficit is a political football with both sides offering up solutions from cutting spending and increasing revenue (taxes).

If you have any questions like these that you think might affect you directly, feel free to contact me, I am available for coaching. Remember I do not sell securities, stocks, bonds, mutual funds, insurance, nothing so you can rest assured that the information I give is without any bias whatsoever.

Don't Throw Your Money Away

2011-06-27T11:00:00.003-05:00

Why are you throwing your money away? What do I mean? If you are still using a stockbroker or financial advisor, thats exactly what you are doing!

There was a time when access to the stock market was limited and if you wanted to participate, you paid a stockbroker, period.

In 1975, Congress deregulated the stock market by taking away the power the NYSE had to force its members (the brokerage firms) to charge fixed rates. This opened up the stock market to discount brokerage firms and Charles Schwab was the first. Fidelity was not far behind.

Still today, some 36 years later, some people assume that if they invest, they must pay a stockbroker or financial advisor basically the same rates they did decades ago. Wow.

Now with the aid of the Internet for research and access, there is absolutely no reason for anyone to pay someone else to invest on their behalf.

Just remember that a 1% fee on a portfolio of 100k will cost you over 200k over a thirty year span (thats with average growth of 8%). If you like your stockbroker that much, great, buy him a car !!! (and save yourself a fortune). Better still, hire the person who cares the most about your money - YOU !!! (and save even more).

Misleading Investors

2011-06-13T10:15:00.001-05:00

Misleading people to get them to buy is as old as the human race.

The investment business is no different. I remember the early 90's telling people that they needed to buy this particular stock because well, it wasn't microsoft but similar knowing full well that similar is not the same thing but I cashed the check anyway.

I just read a wonderful article on wsj.com stating that a great deal of newsletter writers mislead investors regarding their record by comparing their record to the Dow Jones 30 or the S&P 500 without dividends. That like me telling you I shot 68 yesterday playing golf which is true except I left out that I played only 15 holes!

Investors need to be very careful about who they allow to handle their money. I personally think the best person for the job is the person who cares the most about your money - YOU!

You can read the Wall Street Journal article here.

Investing is like dieting

2011-05-27T09:01:00.005-05:00

We all know how to lose weight and get in shape - take in less calories than your body requires for energy and walk / run / workout at least three times a week. Easy right - at least in theory but our emotions stop us from doing the right things. We eat junk late at night, don't eat enough fruit and vegetables and as for working out, I can always find something that must be done instead.

Investing is exactly the same in this regard. Its all very easy on paper and in theory but much harder in the real world.

We are told to buy low and sell high. The problem is that like dieting, our emotions take over and yes, that includes you :) We buy a stock or a mutual fund that has been doing really well, it turns on us, goes down and we buy more (it can't go down any further, can it?) and then well, it goes down some more, argh.

We rationalize it as people do, I'll start dieting for real after the weekend or I bought that stock for the long term anyway.

I am no dieting expert but I have been around investing for thirty years so hear me out. I have learned the hard way with my money and client money. Here is what I know to be true and how you can get off the investing treadmill and start making some money in the stock market.

buy index funds and etf's (not individual stocks or sector funds)
buy on a regular basis (you cannot time the market)
keep expenses super low (this is all you can really control)
fire your financial guy (this only adds to expenses)
hire the guy who cares the most about your money - YOU
invest with money you won't need for long time (invest long term)

With these simple tips you are likely to do much better in the future than you are now and as you can see, its a lot less time consuming and stressful too.

I love to coach people so feel free to contact me. Remember I used to be a financial guy but am no more so I do not sell investments. This is not advice, its education!

Why I won't invest in hedge funds

2011-05-17T16:02:00.003-05:00

I rarely post something someone else wrote but when I can't do much better, it only makes sense and give credit where credit is due. The following is from Brett Arends and MarketWatch. As in Vegas, the percentages are never in your favor. The rich and powerful of the hedge-fund world flew in here last week for a big confab. Nearly 2,000 managers, investors, advisers and hangers-on took over the Bellagio for three days. George W. Bush stopped by. So did Colin Powell, TV historian Niall Ferguson, SAC billionaire Steve A. Cohen, and former British prime minister Gordon Brown.Hedge funds don't offer the returns that you might think, according to Brett Arends, who has some ideas on alternatives. He talks with Stacey Delo.I didn’t make the poolside party on the first night, but it must have been quite an event. People looked pretty wobbly the next morning.For all the big-name plenary sessions in the grand ballroom, the real action took place in side rooms, where investors and money managers talked dollars. Investors came in droves to meet new funds and try to find the manager who’s going to make them rich.I wish them luck. But as I mingled with the money mavens, I did some thinking.Your typical fund manager takes 2% of your money off the top each year, just for showing up. Then he takes 20% of your profits — if any.So your returns are going to be net of these costs. They’re also net of any trading costs. To beat a basic index fund, a hedge fund has got to earn a lot more.How much more? Do the math. According to data from the New York University’s Stern school of business, over the past 80 or so years U.S. stocks have produced an average annualized return of 9.3%, and bonds 5%. So a portfolio of, say, two-thirds stocks, one-third bonds, would have earned an average return of about 7.9% a year.Over an investment horizon of about 30 years, that’s enough to turn an initial stake of $1,000 into $9,800.But after 2%-and-20% fees, you’d only keep 4.7% a year (It would probably be even less, because profits are uneven, and in a down year the manager doesn’t hand back 20% of the losses).At that rate, you’d only finish with $4,000. In other words, the manager would have eaten two-thirds of your profits!But that’s not a fair comparison, say the fund managers, because we’ll earn a higher investment return than the market.OK, some will. But how much more?If the market on its own earns 7.9% a year, a hedge fund with a 2%-and-20% fee structure has to earn 11.85%, gross, just to keep up.In other words it has to earn 50% more than the market each year. How likely is that?In these days of lower nominal returns, the challenge is even greater.And how much more do hedge funds really earn anyway?Some studies in the past have put the figure as high as 3% to 5% a year.But research just published in the Journal of Financial Economics blows this out of the water.Professor Ilia Dichev at Emory University and Gwen Yu at Harvard Business School studied investors’ returns for nearly 11,000 hedge funds over 28 years, from 1980 to 2008.Will Raj Rajaratnam's guilty verdict affect the hedge-fund managers? White & Case partner Greg Little weighs in on the legal implications of the ruling in the Galleon insider-trading case and what it could mean for the industry.Their main finding: Actual “dollar-weighted returns” — in other words, what investors really earned — were far lower than previously thought. That’s because we only tend to hear about the funds that do well. And because investors typically jumped into the good funds just after they had done well (and got out again after they had done badly).Over the entire period, they found, hedge funds appeared to earn an average return of 12.6% a year. But investors really only made about 6%. That, they note, was a lot less even than the 10.9% you could have earned in the Standard & Poor’s 500 stock index over the same period. Indeed it wasn’t that much more than the 5.6% your grandma earned in U.S. government bonds. They also found that the volatility of returns was greater.In other words, hedge-fund outperformance was largely a myth. And “the risk-return trade-off for hedge fund investors is much worse than previously thought,” they say.And here’s a final thought from Sin City.If a benchmark portfolio earns a typical 7.9% a year, then a hedge fund manager charging 2%-and-20% basically skims 3.2% of your money each year. As I listened to George Bush wow the audience, it occurred to me that the casino just down the corridor only took 2.7% on the spin of a roulette wheel. And if you played craps or blackjack, the house’s take is under 1%.Next year, the Vegas casino operators should hold their annual conference in Greenwich, Conn., the house of the hedge funds. They could learn a thing or two from these guys.

Tax Consequences

2011-04-18T08:14:00.007-05:00

One of the most important (and overlooked) components of successful investing is taxes.

I hope you know already that when you sell any investment; a CD, a bond, a stock or a mutual fund, you will pay taxes on any gain.

What you may not know is that when a mutual fund buys and sells stocks, etc on your behalf, you own the tax consequences! They will distribute the gains to you, even before you sell!!

This is called turnover rate which is the amount (in percentage) of the total portfolio that the manager buys and sells. Often times, turnover rate or ratio is well over 100%.

What this means to you is that two mutual funds can have the exact same return but after your tax consequences, can be very different to your bottom line.

Additionally, if you buy into a mutual fund near the end of the year, you will own the tax consequences for buys and sells for the entire year, even when you didn't own it!

The lower the turnover the better so in addition to looking for returns and expenses, make sure to look at turnover ratio as well (which is another reason no one should use a stockbroker but more on that in another blog).

Yahoo Finance does a great job and is a great resource. For an example, here is a link to Yahoo Finance for VTSAX showing you the turnover rate of just 5% (its on the right, scroll down).

There is a tax advantage to owning ETF's over mutual funds because of the way they are structured and classified by the IRS. More on this in a later blog.

As always, let me know if you have any questions or concerns.

Dow 2000, No Wait, Dow 25000

2011-04-13T13:54:00.006-05:00

Don't get me wrong, predictions for the stock market are warranted and welcome but only rational predictions which doesn't seem to be the norm, instead....

One day, its armageddon and you should sell, Dow Jones going to 2000!

Next day, all is well and you should buy, Dow Jones going to 25000!

Being a former stockbroker and now author, I know and you probably do too what these maniacs are doing. They are trying to create some kind of buzz in order to sell books. Ugghhh! Shameless!

Do yourself a favor, turn off the tv when these guys are talking, do not read the articles and most importantly, do not buy what they are selling, figuratively and literally.

If you are looking for simple and common sense advice, read this blog, go back and read older blog posts, all good stuff I know will help you.

If you need someone to chat with regarding investments, I will make time and am available for remote coaching which won't break the bank. Talk to you soon!

Realistic retirement 'plan'

2011-03-24T10:48:00.004-05:00

Planning for retirement is EASY, much easier than you have been led to believe by the investerati. Not to say that you don't have to save, of course you do, but planning for it is ridiculous more than a year or two out. There are just too many variables you cannot plan for; inheritance, death, divorce, kids, healthcare, tax changes, etc.

The best you can do is save the most you can via the lowest cost mutual fund or ETF that tracks the market / S&P 500.

Ok, now to the 'plan'. About one or two years away from retirement, you need to get out a pen and a paper and be honest with yourself. (I will use an example here but of course, you'll need to change the numbers for your situation).

Figure your total assets including house equity (If its not paid off, you cannot retire yet).
Find a house you want to retire to and it maybe the same you are currently living in.

Assume 750k total assets minus 250k for your retirement home = 500k.
Ok, you have 500k and I suggest you use the 4% rule which means you can take 4% out every year, in this case that is 20k. The reason this works is that even a conservative portfolio will return 2-3% and as we age, we spend less.

Now add any pension or known social security income you expect, say 15k for this example.

Thats it, your done. 20k + 15k = 35k.
If that number isn't satisfactory, you have two choices;
a) buy a smaller house
b) work a few more years and recalculate

Do not listen to supposed financial experts about taking on more risk, no way, in fact, the rule of thumb is your age (as a %) in bonds or for a 65 year old, that means 65% bonds or CD's and 35% in equities and I prefer a simple S&P 500 index fund or ETF.

Thats it. Sorry its not more detailed but I don't make a living selling financial advice or products anymore :) Over the last few decades, the brokerage firms have both confused and scared people regarding retirement so as to benefit themselves. If you need help, I offer coaching.

Japan Disaster and Investing

2011-03-15T09:18:00.002-05:00

The disaster in Japan reminds us that investing is never easy. This is a human tragedy for sure and to think of ones financial situation seems kind of petty.

The earthquake, tsunami and subsequent nuclear plant issues are just some of the absolutely unpredictable events that affect investors at every level.

This is a reminder that markets are indeed global and investing is never ever easy.

The best that we can do is have a long term strategy that includes saving the most that we possibly can and investing some of that in the lowest cost possible funds or exchange traded funds.

Every study on the subject conclusively proves that fees and costs are the number one factor in determining investing success.

Simple index fund investing will ultimately beat the 90% of people who insist on buying and selling trying to beat the market. Simple index fund investing by definition is easy too. Investing is truly one of the few things in life where less is more!!!

Mutual Fund Wholesalers

2011-02-28T21:59:00.001-06:00

Most people do not know about a very uncomfortable relationship, one that crys out for conflict of interest. It is the relationship between your stockbroker / financial advisor and mutual fund wholesalers.

Mutual fund wholesalers make money by promoting the fund family that he/she represents to stockbrokers / financial advisors. The more dollars that flow into that fund in a certain territory, just like any other salesman, the more money they make (and thats fine if you are selling widgets but not financial products).

Wholesalers will often offer incentives to stockbrokers / financial advisors in the form of higher commissions, sponsored events, etc, to have that stockbroker sell a particular fund to their clients.

Worst of all, wholesalers usually report a bump in sales at the end of every sales period or commission month proving conclusively that stockbrokers / financial advisors are not necessarily looking out for your best interest.

Many stockbrokers I worked with would hold on to cash to wait and see which wholesaler / fund family was offering them the best incentives that particular commission month and then park client money there.

It is a very unsavory relationship yet it continues to thrive.

The best way to know that all investments are made in your own best interest is to invest by yourself and for yourself.

An Old Stockbroker / Financial Advisor Trick

2011-02-15T11:06:00.005-06:00

Ok, the goal of any stockbroker or financial advisor is to get your money under their control and take a percentage off the top for 'managing' it.

An old trick that stockbrokers consistently use is to do that is to show you their own returns or mutual funds returns that 'outperform' the averages over a certain period, maybe last year, last three years, etc.

It looks great on paper, wow, this mutual fund has beat the index over the last three years so you need to buy it now (and oh, btw, I need some more commission). They will always show you exactly what makes that investment look the best and no more.

The problem is that to beat an ETF or fund that tracks an index, a mutual fund will have to take on more risk or have wild swings because no one or mutual fund can beat an index more than a few years in row. All you need to convince yourself of this is compare using a yahoo chart. Compare American Funds Growth Fund of America (agthx) and VTI which is an vanguard etf that mirrors the S&P 500. No surprise, VTI wins consistently and this is no slap in the face to the good folks at American Funds or the financial advisor that is trying to sell it to you. Its just impossible to beat the house and the house is the index itself!

Remember that indexes outperform people who try to outperform them consistently, around 90% of the time, largely because of fees. The reason it isn't 100% is because every year, you will have some who are fortunate enough, lucky enough to pick correctly, remember, the monkey who beat the S&P500 a few years ago BUT by the time you hear about it, its too late and the next few years are pretty much guaranteed to regress back to the averages and you have spent more money and time chasing returns :(

So don't fall for it, its a trick but you already figured that out :)

Biggest Commission

2011-01-28T12:17:00.004-06:00

If you've been reading this blog or my book, you know that I was a stockbroker or what is currently referred to as a financial advisor. You probably also know that I believe that you can invest by yourself for yourself and save a fortune over a lifetime.

If you still insist on using a financial guy to make your investment decisions, let me tell you about my biggest commissions.

There was a time, not too long ago that I was paid 8.5% for selling you a mutual fund. Thats $8500 of your hard earned money on every 100k that I placed! And get this, that fund was front-end loaded meaning that the 8.5% came out of your investment right away just to pay me and my firm. Believe it or not, there are still some very popular funds and stockbrokers getting paid this way and its still as high as 5.5%!

Times have changed and people have wised up however so did the brokerage and mutual fund industries. They migrated to B shares or back-end loaded funds which still paid me and my firm right away but you didn't see any commission unless you tried to sell within the next five or so years then of course, you were hit with the commission then.

As an aside, preferred IPO's and bonds are a great way for your financial guy to get paid a concession which is something paid directly to the broker without you being aware of it and thats on top of commission!

These days, there is no reason whatsoever to buy into a mutual fund and pay a fee or a load. Please check at yahoo finance which is a great unbiased website. Just put the fund symbol where it says 'get quote'. Then click on 'fund profile' and scroll down and you will see 'fees and expenses'. They will compare whatever you are looking at to the average in that category. Here is an example and you will have to scroll down to see the chart.

As always, I am available for coaching to answer any questions you may have.

Index Huggers

2011-01-20T09:35:00.004-06:00

Don't Waste Your Money

Index huggers are all around and getting paid to do nothing!

An index hugger is a mutual fund or stockbroker or financial advisor that basically buys the same stocks and or bonds that are in a particular index, usually the S&P 500 and then charge you to 'manage' your portfolio.

They may change some stocks here or there but in the end your portfolio will end up mirroring the index except one major difference - FEES !!!

These charlatans claim to be managing your portfolio when in fact, they are doing nothing more than you could do buy buying the index yourself and save a fortune in fees and commissions.

Most brokerage firms now provide you with detailed information on your statements. It should provide your annual and / or year to date results as well as what the indexs such as the Dow Jones or S&P 500 did over that same period. Don't be surprised if you results are the index minus the 1-2% fee that you pay. This means your financial guy is an index hugger.

Time to invest your own money for yourself !!!

Pay Off Your House

2010-12-16T16:33:00.001-06:00

You need to consider paying off your house before you invest a dime. Why?

Because to invest before your house is paid for (outside of a 401k or retirement plan) is basically borrowing from your house to buy securities, stocks, bonds and mutual funds.

You are borrowing at 5% to hopefully get a return higher than 5% and pocket the difference. The key word is hopefully. A lot of things have to line up for that to work.

Guess who is propagating this theory?

Thats right, the brokerage industry. They want nothing to do with you paying off a mortgage. They need assets so they can collect commissions and fees!

I know its not very sexy to pay off your house and its cool to talk about your stockbroker or investment portfolio at parties but if you think logically for second, when you pay off your house, you are guaranteeing yourself 5% (or whatever your current mortgage rate is) and you just may enjoy a slightly less stressful life knowing your house is paid for.

Additionally, some states offer bankruptcy and lawsuit protection for your primary residence so thats nice, just in case.

Yes, I know you'd be missing out on the mortgage deduction come tax time but it has always seemed rather pitiful anyway but I am no tax guy.

What is #1 for Stockbrokers?

2010-12-07T08:00:00.005-06:00

I came across a great article today which is exactly what I have been saying for years. Below is the headline.

What's No. 1 for Brokers?
Right now, securities firms don't have to put investors' interests first. New regulations may change that—and Wall Street isn't happy..

For those of you who have read my blog or book, this comes as no surprise but for those that haven't, I hope the title is a little shocking. You can read the entire article here.

Bottom line is that stockbrokers do not have to put their clients interests first, yes, you read that correctly and is why I have been pounding the table encouraging investors to learn how to invest for themselves.

Its actually quite easy and you'll know that the person who is handling your money is the person who cares about it the most, YOU!

Crazy Predictions

2010-11-30T18:56:00.003-06:00

I just finished reading another crazy prediction from a so called investment professional. This is really getting old. One day a guy says the Dow is going to 5000. The next day, another guy says the Dow is poised to go as high as 20000.

I'm pretty sure they make these outrageous predictions to get some press, which they sure seem to. No wonder I haven't sold as many books as I'd like :)

No crazy predictions here, just good solid rational thinking. Advice without an agenda.

It's really hard not to get caught up listening to all the noise so as Nike doesn't say, just don't do it :)

Remember, I am available for coaching, see here for more information or just keep up with this blog or buy my book.

Derivatives

2010-11-19T15:01:00.004-06:00

99.9% of investors have no business with derivatives. If a financial guy suggests one to you, hang up the phone.

A derivative is a financial instrument whose value is some percentage of the future value of the underlying asset which is usually a stock, commodity or currency.

There are few instances when a derivative is appropriate for non-speculators. A good example is a cotton farmer hedging or locking in the current price of his crop. This lowers his risk.

Derivatives have become increasingly complex and more and more stockbrokers, financial advisors and planners are recommending them to their clients. Ouch! All you are doing is taking on more risk.

As with most financial products, they sound great but they are not and you have no business 'investing' in them.

GM IPO (and all IPO's)

2010-11-12T14:26:00.011-06:00

The news today was that the GM IPO (Initial Public Offering) is going to happen sometime next week and that most average investors will not get to participate. Why? Because good IPO's in demand are never allocated to individual investors. Never have. Never will.

I was a stockbroker for a long time and in my experience, I learned simply that the best IPO's are held tightly by the Wall Street firms that do the underwriting. The worst IPO's are distributed to anyone and everyone. Interestingly, I could sell preferred stock via IPO all day and hide the commission, more on that in another blog post.

There is an old saying on Wall Street, ''if you can get your hands on an IPO, you don't want it''.

IPO's are usually priced low enough so that the initial owner takes on very little risk. The irony is that successful IPO's are flipped (sold) by their original and very temporary owner (hedge funds, mutual funds, etc) to average investors who are likely to hold and own the shares over a longer period of time which is ultimately what the underwriters (investment banks) like to see.

So why don't the underwriters (investment banks) sell to average investors? Its simply payback time, for all the commissions that the hedge funds and mutual funds have generated.

Presidential Stock Market Cycle

2010-10-25T09:29:00.001-05:00

History shows us that there is some correlation between the election cycle and stock market (S&P 500) results.
Typically, the 3rd year of the Presidents term, regardless of party, is the strongest, followed by the 4th, the 1st and the 2nd. There is a great deal of theory as to why this is so but nothing concrete. It should be noted that there are huge variances in these results as well.
Since 1942, the 200 days following the midterm elections have produced an average of 18% gain.
What does this mean to you? NOTHING.
If I told you that the first day of the month produces more than average returns (which it seems to), would you go out buy stocks because of that? I hope not.
Bottom line is that as tempting as it is to time the market, its just simply foolish to try.
Stick to buying a very low cost index fund or ETF and adding to it as often as you can and with that simple strategy, you will beat over 95% of investors and over 90% of professional money managers who try. Why? Because fees are everything, not timing the market and not which stocks you buy.

Leverage

2010-10-12T14:08:00.001-05:00

Leverage for the most part is bad, very bad. Leverage is simply multiplying the effects of what you are buying and it will cost you.

The most common leverage is the use of margin which is basically borrowing money from the brokerage firm who holds your stocks or mutual funds to buy more of the same. If stocks go up, you multiply the effects and can do very well however, the reverse is also true, and when stocks go down, you will not only have mutiplied that outcome but made it worse because you are paying to borrow money at the going rate, ouch.

Another common use of leverage is real estate and up until recently you needed 10-20% of the cost of the property and then borrowed the rest from the bank paying your mortgage and hoping the price of your house went up. This worked out well for years until the real estate bust of 2008. Before then, house prices slowly but surely always increased. We now know the painful truth that home price increases are not a guarantee and leverage in real estate can cause a terrible outcome.

Leverage can sometimes be great and we all know someone who bought land or real estate or margined stocks and did very well but quite frankly, those are rare instances. My advice is that leverage is not for everyone and if you can avoid it, do so. Pay off your house as soon as you can and do not borrow money against your stocks or mutual funds.

Mutual Fund Price Wars

2010-10-06T16:55:00.002-05:00

To keep up with competitors, Vanguard announced that its Total Stock Market Index Fund, symbol VTSAX has lowered its minimum from 100k to 10k. This is wonderful news for investors. Its no secret that I love low fees and because of that, I love the Vanguard series of funds and etf's.
VTI is the Total Stock Market ETF whose fees are .07%. Now, most investors can buy into the mutual fund version of the same, VTSAX whose fees are likewise .07%.

Check out what low fees mean to you in the long term. You can access this from the yahoo finance profile of VTSAX here. Scroll down and look for fees and expenses. Below is what you will see. A comparison between VTSAX and the average fund in the category.

Fees & Expenses

Expense                                VTSAX                        Category Avg
Total Expense Ratio:               0.07%                              1.11%
Max 12b1 Fee:                        N/A                                 N/A
Max Front End Sales Load:      N/A                               5.27%
Max Deferred Sales Load:        N/A                                2.50%
3 Yr Expense Projection*:         $23                                $700
5 Yr Expense Projection*:         $40                                $1,114
10 Yr Expense Projection*:       $90                               $2,224
* Per $10,000 invested

So the question to you is, would you rather pay $90 or $2,224 (for every 10k invested) ?????
And to add insult to injury, most stockbrokers and financial advisors will charge you another 1%-2% on top of that.

Jim Cramer Results Vs S&P 500

2010-09-23T10:08:00.001-05:00

Its very tempting to want to trade stocks. Its very natural to want to be an active investor. The irony is that the passive investor beats the active investor all the time over a reasonably timeframe.

Jim Cramer (Mad Money) is very informative and certainly fun to watch however I read recently that he has beaten the S&P 500 just a few years as a commentator and when you consider the amount of commissions, even at $7 per trade, you really don't end up making more following his trades versus the S&P 500. Additionally, the capital you would need to follow his recommendations is too large for most investors so you have to pick and choose and you know how that goes, you will invariably pick the losers :(

To be fair, Jim Cramer has claimed that his hedge fund beat the S&P 500 over its twelve year run, although, this has never been verified and its important to point out that he wasn't the only stock picker.

Its boring but buying the S&P 500 when you feel like it and adding to it over time is THE winning strategy, period. Sure, you can lose money that way too but at least you can sleep at night knowing that with that strategy, you will beat over 90% of the professional money managers over the long haul.

Cash and your Stockbroker

2010-09-03T09:25:00.005-05:00

Do you know why your stockbroker hates cash?
Because he doesn't get paid when you have cash on the books.

Its stating the obvious but stockbrokers and financial advisors get paid to invest your money, period. Not watch it. That's right, stockbrokers get paid only when you are invested, period. They get paid either by commission when they buy something for your account or as a percentage of invested assets. Neither of which is cash in your account.

This is a huge conflict on interest, in my opinion. Think about it. You send him some cash after a nice bonus and the market maybe looks tenious at the moment. What do you think happens next? Thats right, you get the call. We need to invest this right away, and if that happens near the end of the commission month, well, you know the rest of the story.

This is just another reason that you need to handle your own finances. Its not hard. Its easy. And you can rest assured that your account is in the hands of the person who cares about it the most, you.

Patience (Investing)

2010-08-18T19:23:00.003-05:00

It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! -Edwin Lefevre

This blunt warning was issued in Lefevre's 1923 fictional memoir, and treated by many financial advisers like the Bible. Some 77 years later, behavioral finance professors Terrance Odean and Brad Barber's research into transactions by some 66,000 households between 1991 and 1996 found that those who traded least earned seven percentage points a year more than the most frequent traders. Fast forward 10 more years and here we are, nothing has changed except that costs to own the market via an index are even more cost effective!
The moral: Once you arrange your assets into your ideal allocation, don't tinker. Rebalance once a year to keep your mix on track, but otherwise, sit tight.

A Lot Of Retirement Is Luck

2010-08-16T11:01:00.003-05:00

As a former stockbroker / financial planner, I hate to admit it but a lot of retirement is luck. Saving for retirement is extremely important BUT planning is not.

You can easily see what I mean. Imagine two people with basically the same incomes (adjusted for inflation) and one person retires in 1980 and parks the bulk of their retirement money in safe CD's paying 15%! Now that is good timing but is really just plain luck, not planning.

Imagine a second guy who retired just a few years ago, in 2008, ouch, first off, he likely lost some of his retirement money in his 401k or IRA and then had the unfortunate timing to choose between a stock market that is pretty darn scary or a CD or other fixed income paying virtually nothing. This is also luck, bad luck, but again, has nothing to do with planning.

The point is that while planning is fine idea and looks good on paper, its really a useless exercise with little value. Financial planning is propagated by the investerati to keep your assets under their control.

A better idea is to be fiscally prudent (buy what you can afford), save what you can when you can (set a goal of 10%-15%), don't stress too much about retirement and when it comes time to retire, then and only then can you truly plan.

Planning when retired (or within a year at most) is infinitely more accurate, you will know what assets you have, what liabilities you have and can adjust your lifestyle to match, its that simple. In my book, How the Investment Business Really Works, I offer a worksheet in the back of the book that will walk you through the simple steps to what I call Realistic Retirement.

Google or Wikipedia Index Funds

2010-08-06T10:55:00.000-05:00

If you were to google (search) for index funds, you will find a great number of answers. You will find some great companies offering what wasn't available just 40 years ago, an index fund.

If you search wikipedia for index fund, you will get a great explanation and a wonderful history lesson. It was only 1975 when John Bogle 'invented' and marketed the index fund to the public. Most thought he was crazy, why would investors be happy with 'average' returns. As it turns out, Bogle was crazy like a fox and now, some 35 years, investors are finally wising up to the fact that index funds routinely beat most mutual funds and certainly all stockbrokers and financial advisors.

The reason for the popularity of index funds is simple; ease of use and better performance. Add to that there is no conflict of interest as there can be utilizing a stockbroker or that you dont get caught up wasting time trying to chase the next best mutual fund, its easy to see.

Retirement Killers

2010-07-30T15:19:00.002-05:00

Retirement is the number one goal of investors. Yet, looking at the numbers, it's clear that many investors are undermining their good intentions with unfortunate actions. Here are five mistakes to avoid if you want your retirement dreams to become a reality.

1. Cracking your nest egg before retirement. A study by Hewitt Associates found that 45% of workers cash in their 401(k)s when they switch jobs. In other words, they take the money -- paying income taxes and a 10% penalty if they're not yet 59 1/2 years old -- rather than leave it in a retirement account. That's no way to build the retirement of your dreams. When you change jobs, you can transfer the money in your employer-sponsored retirement plan to an IRA.

2. Spending your retirement savings too fast. If you've made it to retirement, congratulations. You've amassed enough money to create your own portfolio-generated paycheck. Excellent work. But you can't take it too easy, because you'll receive a severe pay cut if you deplete your portfolio too fast. How much can you take out each year and be almost certain that you won't outlive your savings? Just 4% a year. That's the withdrawal rate that would have sustained a mix of stocks and bonds over most 30-year historical periods. Sure, if you retire on the eve of the next bull market, you can take out more. However, if you quit working right before the next bear market, then taking out more than 4% a year could have your portfolio beating you to the grave.

3. Trying too hard to beat the market. You basically have two choices: You can be a master stock-picker like Warren Buffett or Peter Lynch and try to find the next Wal-Mart. Or you can broadly diversify your assets, mostly via low-cost index funds. This way, you enjoy hefty exposure to all the great companies.

4. Paying too much for help. There's nothing wrong with getting financial advice. But I firmly, strongly, passionately believe that such help should be objective and affordable. Paying too much for advice (especially if it's bad or at least conflicted) does a lot for your broker's retirement, not yours. Paying just 1% a year on a $100,000 portfolio over 20 years could result in your forking over more than that amount in fees. That's a hundred grand that could have been in your pocket. Of course, if the advice you received had your portfolio performing better than what you could do on your own, then the price might be worth it. But if you're paying 1% or 2% a year to lose to an index fund -- as most mutual fund managers do -- then you're better off taking control of your own investments.

5. Retiring permanently when you really just needed a break. If you're in your 60s, you should plan on living at least another two decades. Can you stand full-time leisure for 20 years? Sure, it may sound good now, but many retirees find they get pretty bored after a while. But by then, they have already severed many of their professional ties. Before you decide to retire fully and permanently, discuss a phased or gradual retirement with your employer and/or business partners. Or the possibility of working on a project basis, allowing you to take several months off each year. Or maybe just a one-year sabbatical. Explore your options before you no longer have them.

Ten Stock Market Myths That Just Won't Die

2010-07-26T11:00:00.001-05:00

Here is a great article I just saw online from the Wall Street Journal, I couldn't say it better myself.

At times like this, your broker or financial adviser may offer words of wisdom or advice. There are standard calming phrases you will hear over and over again. But how true are they? Here are 10 that need extra scrutiny.

1 "This is a good time to invest in the stock market."
Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir — step this way!"

2 "Stocks on average make you about 10% a year."
Stop right there. This is based on some past history — stretching back to the 1800s — and it's full of holes.
About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.

3 "Our economists are forecasting..."
Hold it. Ask your broker if the firm's economist predicted the most recent recession — and if so, when. The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict "a slowdown, but not a recession." That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.

4 "Investing in the stock market lets you participate in the growth of the economy."
Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren't as rare as you've been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.

5 "If you want to earn higher returns, you have to take more risk."
This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, "risky" Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for "risk," your broker probably thinks that's "volatility," which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.

6 "The market's really cheap right now. The P/E is only about 13."
The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That's because earnings are so volatile — they're elevated in a boom, and depressed in a bust.
Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or "Tobin's q," which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap.

7 "You can't time the market."
This hoary old chestnut keeps the clients fully invested. Certainly it's a fool's errand to try to catch the market's twists and turns. But that doesn't mean you have to suspend judgment about overall valuations.
If you invest in shares when they're cheap compared to cash flows and assets — typically this happens when everyone else is gloomy — you will usually do very well. If you invest when shares are very expensive — such as when everyone else is absurdly bullish — you will probably do badly.

8 "We recommend a diversified portfolio of mutual funds."
If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice. But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.

9 "This is a stock picker's market."
What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns — for good or ill — has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?

10 "Stocks outperform over the long term."
Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."

And I would add given the above ten myths, that a person shouldn't even really consider investing period unless they have paid off their house!

Analysts Are Not Important to Investors

2010-07-20T12:49:00.003-05:00

Analysts are not important to you as an investor. Don’t get me wrong, analysts are important to the financial markets, just not to you as a longer term investor.

Analysts typically work for brokerage firms and express opinions and write reports on the public companies that they follow. They offer different ratings such as buy, hold and sell.

The analysts you regularly see on TV work for brokerage firms (sell side) or investment firms (buy side). They will often times mention their price target for a particular stock and sometimes more vaguely will issue a statement on how a particular stock will perform compared to the market as a whole which is quite weak to say the least. Talk about riding the fence.

Up until recently, analysts did not disclose that they held those stocks in their personal portfolio nor did they have to mention if the firm they work for had received some investment banking fees from that same company they are supposedly impartially reporting on!

You will no doubt have seen an analyst upgrade or downgrade a particular stock due to some important event. What is not widely recognized is that the analyst’s record does not reflect that day’s price action and therefore their record is entirely bogus and unreliable.

Studies show that during the height of the technology bubble in 1999-2000 that over 90% of brokerage firm analysts had buy or strong buy ratings on the stocks they covered at the peak or top of the market.

As a stockbroker, I often times wondered if analyst buy ratings were so the firm could sell inventory to clients? I and you will never know.

Just remember this. There isn’t really any correlation between what happens on Wall Street this morning and your long term investments so ignore the analysts and all the other noise and remain focused on the long term.

The Market Is Like a Yo Yo (and thats good)

2010-07-02T14:49:00.006-05:00

Ok, its now July and the first half of the year is in the books and the stock market is down over 7%. Thats not so great. Its worse if you paid some financial 'professional' some percentage or fee for those same results.

The stock market is like a yo yo and very long term, its like a yo yo you are holding while going up stairs. No one likes the downturns but they are necessary for you to make money (as long as you have been dollar cost averaging).

Just keep picturing yourself closer to retirement closer to the top of the stairs having reaped the benefits of long term investing, not being sucked in to short term trading scams or get rich quick schemes.

Stay focused and you will get there.

To Plan Or Not To Plan, That Is The Question

2010-06-30T13:52:00.002-05:00

You have seen the commercials on TV, what is your number? You read and hear about financial planning all the time. Here is the skinny.

Of course, you need to plan if that means being somewhat fiscally responsible enough to put money away for your retirement and your kids college.

It does not mean however that you need to sit down with some guy with very little if any experience and plan your life down to the last penny so you come up with an arbitrary number, good grief!

There are just too many variables for you to even remotely plan that well. It sounds good on paper and of course, the investerati, the brokerage and investments firms love it because they can charge you another fee and keep your assets with them because there is absolutely no way you are smart enough to do it on your own, did I already say good grief?

I provide workshops in this area and am shocked at what people think they need to do, how stressed they are and how many boxes they think they need to check. No. Dare I say that it is easy to plan, so much so that I wouldn't even call it a plan and certainly wouldn't charge anyone for the 'advice'.

Don't Assume That Time In The Markets Lowers Risk (because it doesn't)

2010-06-11T15:56:00.003-05:00

Many investors think that you make the risk of stocks magically go away just by owning them long enough which is simply not true. You hear it all the time, own stocks and think long term.

While everyone knows that since 1926, that stocks have returned approximately 10%, or 8% CAGR, that fact does not help someone who had their retirement invested 100% in stocks over the last few years. Assuming they didn't get scared out near the lows of last year, they are still down 20-30% and possibly as much as 50%.

The moral of the story is do not buy what the investerati are selling, that is, do not subscribe to the idea that you have to own stocks. If you do, be careful. Invest only a portion of those investable assets in stocks. Remember that bonds and CD's are just fine, not very sexy, but have to be a part of your portfolio, a big part of your portfolio, especially as you get closer to retirement.

Lower Fees = Money In Your Pocket

2010-05-25T09:50:00.014-05:00

I have always said that fees are everything. Here is a marketing piece from Vanguard. I am not a shill, nor do I work with Vanguard but I do like their mutual funds and exchange traded funds (etf's) largely because they are the lowest cost, period.

I
own
VTI
myself.

It may be hard to read but this is the comparison of $50,000 invested over twenty years in two funds, both with returns of 8%. The higher cost fund has fees of 1.19% (which is very normal) and is compared with 0.20% for the lower cost fund. You can see that the difference is almost $40,000! This is money in your pocket or not, your choice!
Now I know you like your stockbroker / financial advisor but you are paying him and his firm a ridiculous amount of money for the exact same product. If you like him that much, great, buy him a car because thats about what you are paying.

Go Away In May They Say, Good Strategy?

2010-05-20T08:38:00.000-05:00

Go away in May they say, keep your cash for another day. Thats a great old Wall Street saying which means sell in May and buy again in the fall.
Studies have shown that strategy to be mostly false.
There is a negligible difference as compared to buying and holding and besides, you will incur commissions, costs and fees to sell and buy again in the fall.
Additionally, just like trading, sure its nice when you are right but hurts when you are wrong and unless you have a crystal ball, you end up like the dog chasing his tail and get nowhere.
A great example would have been 2009, it sure looked like after a nice runup from the lows in March after the bear market of 2008-9 that selling in May might be a great idea, well, it wasn't and alot of people sold and missed a massive run since and some never got back in.
While its tempting to try and beat the market (aka S&P 500) just dont. Remember that over 90% of professional money managers can't so your chances are pretty slim.

Do I Really Need A Stockbroker Or Financial Planner?

2010-05-19T13:56:00.003-05:00

I am frequently asked the question, do I need a stockbroker, financial advisor or financial planner?

You'd be surprised at the 'training' stockbrokers are given before they start to handle your money, its really shockingly little. Most of the 'training' is on the job which is not ok with my money, maybe you are ok with that. Your decision of course.

Given the wealth of resources available online and the fact that even the discounters such as Fidelity, Schwab, TD Ameritrade and Scottrade have advisors that you can lean on for advice for free, it really doesn't make sense to pay anyone for something you can do for yourself. You pump your own gas right? You buy your own groceries!

People will say that it takes too much time which is simply not true. I think some people just don't want to make decisions for themselves and want to have someone to blame if things go wrong. That's fine as long as you don't mind paying 5-10 times for the same exact service and that you go into the relationship knowing what you are paying for. If you feel thats a value for you great then go ahead.

Make no mistake, the broker-client relationship is like other relationships, in that its hard to breakup which might make you stay after you realize there is little value which ends up costing you more and more.

Also, fees are the most important factor in investment success, not which investments you pick (something the investerati would have you believe they can do and you can't) and not timing (which some people believe they can do but have never proven it).

And stockbrokers and financial planners will be the first to tell you that they are not tax or legal experts and that you will need consult those experts as well as them so given that, what exactly does your financial guy do for you anyway?

So the answer to the question is that it depends on you but my opinion is that you do not need the advice of a stockbroker or financial planner. You can acheive the same or better results by yourself.

Personal Finances and Productivity

2010-05-04T08:02:00.002-05:00

There is an inverse relationship between time spent on personal finances and both productivity and investment returns. Have your cake and eat it too!

Most everyone has heard that people spent a lot of time at work goofing around. The number one time killer to no ones surprise is technology. Time wasted surfing the Internet, etc. But the number two time killer in the workplace is a surprise to most and that is the time employees spend on their personal finances. This can be time chatting with a friend about a hot stock, trading stocks online, filling out a mortgage application, debt consolidation, etc. I have even seen studies showing some people rebalance their 401k everyday!

Studies show that people spend as much as 30-45 minutes a day on their personal finances, thats as much as half a work day each week! Everyone understands that you have to have a life and that sometimes, personal stuff has to be done during normal work hours however few employers are ok with you trading stocks during the day.

The irony is that the more time spent trading, rebalancing your retirement accounts and talking to a stockbroker are all detrimental to your fiscal health. Every study on the subject conclusively proves that passive investing beats active investing. In the book, How The Investment Business Really Works and in my workshops, I go into much greater detail as to exactly what people should be doing and more importantly, what they shouldn't be doing.

Moral of the story is to place your investable assets in the lowest fee possible index fund and leave it alone. With that simple strategy, you will beat over 90% of the 'professional' money managers AND you will be more productive at work in addition to having less stress!

Still Paying Mutual Fund Commissions???

2010-04-26T21:53:00.001-05:00

I come across a myriad of investors in my workshops and the question of mutual fund commissions still arises and continues to amaze me. Don't take this the wrong way because I understand this is a business I understand well and most don't but please use common sense! Heck I'm no mechanic but when I go to get my oil changed and the guy says, that'll be $475, I know something isn't right.

As recently as the early 90's, stockbrokers got paid as much as 8.5% of the total investment to steer clients towards a particular mutual fund! Insurance guys still see those kinds of commissions.

Believe it or not, stockbrokers and financial advisors still get paid as much as 5% for some mutual funds and sometimes this fee is taken out of the original principle which means all of your money isn't going to work immediately, this ought to be a crime. When the 5% is not seen or 'hidden', clients are told not to worry, there is no commission, arrgghhh!

What happens is that the mutual fund wants the money back that they paid to the stockbroker or financial advisor. Either one of two things; that mutual fund will be charging you 1-2% a year more or there is a lock up period whereby if you sell that mutual fund, you will be assessed a fee. Neither is good and both are bad.

What to do? If you are convinced you need to own a mutual fund, ok, then, look for;

no load mutual funds
no lock up period whereby selling incurs a cost
very low fees lower than 0.5%

Buy through a well known discount brokerage firm which by the way will offer advice for free. That's it. Stay away from high fee mutual funds, loads, stockbrokers and financial advisors.

Dollar Cost Averaging Is Why 401k's Work and Buying Individual Stocks Doesn't

2010-04-21T10:15:00.000-05:00

Dollar cost averaging (and time) is exactly why 401k's are so successful. People mindlessly (in a good way) add to a diversified portfolio when its up, and when its down.

Buying more when your individual stock goes down is exactly why people rarely make money outside of 401k's. You know the scenario, you buy XYZ and it goes down, you buy more and more and again and again until your portfolio has ten or fifteen losers in it. You hold until breakeven (if you are lucky) and sell, whew, only to try again, most times with the 'aid' of a stockbroker.

Thats why I tell people to buy no load mutual funds or etf's and treat monies inside and outside of 401k's the same. Its a winning strategy so don't mess with it.

Emerging Markets and Overseas Investing

2010-04-06T10:23:00.002-05:00

I am asked on occasion about investing in emerging markets. While it is tempting to invest in markets such as China, India, Brazil, Korea, Russia, etc, it is also quite risky.

Risks inherent to investing in companies in countries outside the US include;

less stringent reporting requirements
currency fluctuations
government regulation and policy changes

I tell people that when you invest in a broad based US index fund, you are already getting some international and emerging market exposure since the companies within such as Caterpillar, IBM, McDonald's, Exxon & GE are already investing in those countries.

In my opinion, the reward does not outweigh the risk and besides that, the fees within mutual funds or etf's that deal in emerging markets and overseas markets are quite high and if you have been following this blog for any amount of time, then you already know what I think of fees. Arrghh.

Stick to a domestic index fund, keep your fees super low and emotions in check and you are doing about all you can. With that simple strategy, you will beat 90% of the people including investment professionals.

Mirror The Index's And Save Money

2010-04-01T08:21:00.008-05:00

Fact - over 90% of financial professional money managers cannot beat the S&P 500 nor the Dow Jones 30.

Fact - neither can you, your friend, your stockbroker, financial advisor of financial planner.

Fact - with a stockbroker, advisor or planner, you will pay a lot in fees, sometimes 1%-3% just to get the same or lower returns.

See the chart to the right, VTI (blue) and Dow Jones 30 (red). VTI is vanguards total market return etf which I own personally but any market based etf or mutual fund will do. They all mirror the indices as you can see which will outperform over 90% of the so-called financial professionals who will charge fees for that underperformance!

The fees on this particular etf are .07%, thats right, less than 1/10th of 1%.

Stop being the 'stupid money' stockbrokers refer to when you open up your account with them and start being the smart money who beats 90% of all investors and pays less to do it.

Approach To Investing

2010-03-24T09:58:00.004-05:00

Your approach to investing is everything. Bottom line is that a lot of what you have heard on TV or read is not true.

Your approach to investing has to change if you think you can time the market. I just read an article at yahoo finance which backs up what I've known for years, that timing the market is virtually impossible.

Research for the twenty year period 1983-2003 is below. Pay attention and learn something that you may not already know and certainly your stockbroker or financial advisor is not telling you.

1983-2003 period for S&P 500
Buy and Hold = 10%
Minus the 30 worst days = 19%
Minus the 20 best days = 5%

Moral of the story is that if you are willing to risk missing the best days trying to miss the worst days, go ahead but you will have probably wasted a lot of your time, and money and got nowhere. You need to change your approach to investing.

I have said it before and will say it again, buy a no-load mutual fund or ETF that tracks the S&P 500 and you are doing really all you can do.

If Its Too Good To Be True .........

2010-03-23T21:58:00.002-05:00

People will ask me about investing in pink sheet stocks (.pk) or over the counter bulletin board stocks (.bb) from time to time and my answer is always the same, I have yet to see anyone make any money buying them. So run, dont walk away from anyone who is offering to sell you anything like that.

I have been around stocks for almost three decades and the story is always the same, its a small company with a great product that just needs funding. Maybe something to do with China or India. Biotech and a cancer cure always generates some buzz. Homeland security is new. JUNK. I know the stories sound good but so does Dr. Seuss.

If the company actually had a real product, they would go the private equity route to fund their needs but those guys are far too smart for that junk. So the peddlers of pink sheet and otcbb companies have only the regular investing public to prey on. Stay away.

Saving For Retirement

2010-03-12T15:39:00.005-06:00

Saving for retirement is scary but its easy to understand. I know alot of financial advisors scare people but here is the scoop.

When you retire, you will be living on your savings and income from social security (hopefully). Thats about it. Hopefully you will have a lump sum from years of savings and its common thought that you can spend about 4-5% of your nestegg every year (without any growth, thats 20-25 years after retirement day).

I know there are a gazillion financial calculators on the Internet (I like yahoo finance as a source) but quite frankly, there are just too many variables to bother and do not let a financial advisor charge you for this. Will my kids need money? What will healthcare cost? What will taxes be? What kind of return can I expect? Divorce? Lawsuit? Inheritance?

Now, you can't and shouldn't count on any growth (ask a recent retiree) but very long term, the S&P 500 has returned just over 8% so if you have a portion in the S&P 500 and most in safe govt bonds or CD's, you will probably end up near 3-4%.

You may not touch the principle some years and of course, some years, you will. Again, its nice to plan but the large amount of variables outweigh any real planning you can do so don't stress too much.

Bottom line. Save the most you possibly can and keep fees very low (I like Vanguards S&P 500 exchange traded fund symbol VTI) and as you approach retirement, you will have a much better idea as to how much that 4-5% a year will be. It will then be time to plan and adjust your lifestyle to match what you have.

Same Old Story

2010-03-10T10:17:00.004-06:00

Turn on the TV, read the paper or talk to any financial advisor and you will hear the same people repeating the same old story over and over and over again. YAWN.

The market will be volatile until its not
This is a stock pickers market
You need to own this sector and not that one
We are buying the big diversified multi-nationals
The market is overpriced / underpriced

Do you know what the common theme is?

Not one of these guys can beat the S&P 500!!! Their goal is to appear more intelligent than you, get some exposure on TV for their firm so that you will continue to give them your money for which they receive some nice fees, only to underperform the market time and time again.

Are Mutual Fund Returns Really What They Say???

2010-03-02T12:54:00.003-06:00

Ok, you hear about this great mutual fund and you jump in. First year it returns 100%, nice, very nice. The second year isn't so good, down 50%. The mutual fund then claims an average return of 25% which is technically true if you just do the math and average the two years.
However, if you were a shareholder for both of those years, your return is 0%. Whatever you gained in the first year was wiped out in the second. Its called CAGR which is compound annual growth rate which is the 'real' or annualized return.
As an investor, you need to be wary of many things, only one of which is the 'return' a mutual fund or your stockbroker claims to have acheived.
Since 1990, the stock market (as judged by the S&P 500) returned 10.16% but a CAGR of 8.23%. That is a massive difference and is rarely discussed.

Productivity and Your Finances

2010-02-24T08:58:00.002-06:00

Too many people spend too much time on their personal finances, whether its rebalancing their 401k, talking to guy down the hall about a hot stock or worst of all, trading stocks.

This is wasted productivity, not only for the employer but for the employee since every study on the subject conclusively proves that the more time messing around with your finances lowers your returns.

Passive investing beats managed investing all the time.

90%+ of professional money managers cannot beat the S&P 500 so quit paying them fees for nothing.

Moral of the story, leave your 401k alone, dont trade stocks, dont try to beat the market. Get back to work because that 15-20 minutes everyday adds up, in fact, it works out to be a difference in productivity of plus (or minus) of 6%.

If your an employer and your employee asks for a 6% raise because they want to trade stocks on your time, would you say, yeah sure, no problem, of course not. But thats what you are doing by not addressing this problem.

1%

2010-02-18T15:39:00.001-06:00

1% may not sound like much but over time, its a huge cost which lowers your investment returns. Its ok to pay for advice but you must know what that advice is really costing you.

See the chart off to the right from the SEC.gov. This shows what the difference is between paying 1.5% and 0.5%. After 30 years (and we should all be long term investors) at average return of 8% with an initial investment of only $10,000. The difference is $22,634 in your pocket!

Many investors utilize a stockbroker or financial advisor for advice and of course, thats not free, usually the fees range from 1-3%. So now consider that for every $10,000 you hand over to a stockbroker or financial advisor, after 30 years, you will have given them well over $20,000.

Its a lot of money, a huge cost which lowers your investment returns in a big way so you better be sure you are getting something in return, some great advice, some hand-holding during the tough times, etc. but just don't expect higher returns.

Fact is that over 90% of professional money managers cannot beat the S&P 500 with any consistency.

So just keep it in the back of your mind that while paying for advice may seem like a good idea, and sometimes it is, just remember that 1-2% is a lot of money over time and only you can decide if the advice you are getting is worth it.

Trading is Gambling, Period.

2010-02-17T16:10:00.000-06:00

I was a stockbroker and a trader. The best clients, those that generated the most commission, were always trading their account, buying stocks they thought they knew something about only to sell them shortly thereafter. These days with flat fee accounts, there is no commission incentive but trading is still a terrible strategy.

Here's what happens. You buy a stock because you think you know something about a company, their products or services, the mgmt, etc. (all of which doesn't matter unless you plan to hold it for a long period of time, more than two or three years).

The stock then goes up and you sell for a quick profit, great.
Or it goes down and you hold it, waiting for it to return your buy price, sometimes it does and you sell.
Or it goes down a lot and you are stuck.
This is a terrible strategy. At the end of the day, your account is full of losers, not winners.

Trading is gambling, period.

Warren Buffett

2010-02-05T09:18:00.004-06:00

No thats not Warren Buffett but why not let him do the heavy lifting for you? I blog, write and speak about investing all the time. One common theme is that very few money managers can beat the S&P 500 with any consistency so why try? Buy the S&P via an ETF or no load mutual fund and forget it, you will end up beating 91% of investors and save a fortune on fees.
Unless you've been living under a rock, you know the name Warren Buffett who is one of the rare individuals / institutions that have beaten the S&P 500 with some consistency. If you like him, and its hard not too, you are in luck, you can invest side by side with Warren Buffett by owning his companies shares (Berkshire Hathaway) which is listed at the NYSE as brk-b.
Interestingly, Buffett obviously has a vested interest in his companies shares but for his personal account, he buys US treasuries!

Book Seen On TV

2010-01-11T10:15:00.012-06:00

How The Investment Business REALLY Works! is a ground breaking book long overdue.

The author came from a very successful career working for wall street's biggest firms and knows how wall street works and how the investment business really does work!

Barclay shares the 'secrets' of the investment industry as few can and fewer do.

Most speakers in this area are still compensated for selling products. Barclay offers investment advice without an agenda, ie. does not sell any investment products and receives no compensation from any advice or discussion presented.

Barclay is happy to give back and loves to educate people on how wall street works, how to invest for yourself, what to do and especially what not to do.

If you'd like a free eChapter, email free@howtheinvestmentbusinessreallyworks.com and check your inbox.

Emerging Markets

2009-12-14T10:31:00.000-06:00

I am asked on occasion about investing in emerging markets. While it is tempting to invest in markets such as China, India, Brazil, Korea etc, it is also quite risky. Besides the obvious risk inherent to investing in companies in countries outside the US that have much less stringent reporting requirements, there is also a currency risk.

I tell people that when you invest in a broad based US index fund, see VTI, then you are already getting some international and emerging market exposure since the companies within such as Caterpillar, IBM, McDonald's, Exxon & GE are already investing in those countries.
Stay tuned.

Lower fees = money in your pocket

2009-11-19T12:02:00.000-06:00

I have always said that fees are everything. Here is a marketing piece from Vanguard. I am not a shill, nor do I work with or for them but I do like their mutual funds and exchange traded funds (etf's) largely because they are the lowest cost, period.

Its hard to read but this is the comparison of $50,000 invested over twenty years in two funds, both with returns of 8%. The high-cost fund has fees of 1.19% compared with 0.20% for the low-cost fund. You can see the difference is almost $40,000, which is money in your pocket!!!

Now I know you like your stockbroker but you are paying him and his firm a ridiculous amount of money for the exact same product. If you like him so much, buy him a car because thats about what you are paying.

1929 and today

2009-10-20T07:55:00.000-05:00

I'll start out by telling you that I am not bearish, just cautious. I noticed this article by ETF newsletter, good stuff on the parallels between 1929 and today.

When was the last time you saw stocks decline 54% followed by a 55% rally?

When was the last time you saw stocks, bonds and commodities move in sync for nearly two years?

When was the last time, a ten year investment in the stock market delivered negative returns?

Investors that care to harken back 80 years will find that the 1929 - 1932 era is the only period of time that compares to today. In fact, the parallels between now and then are bountiful and scary.

If there is one thing we should have learned from history, it's that the bear strikes hardest when least expected. The market always tries to inflict the maximum amount of pain.

Black Monday's or Thursday's wouldn't be called 'black' if they were expected. Market tops are always marked by extreme levels of optimism.

From 2007 to 2009, the major indexes declined some 50%. Following the 1929 highs, the Dow Jones declined 48%. The market rallied 50% in 1929/1930 and today.

Following the initial 48% decline in 1929, the Dow Jones rallied 48% within a period of six months. This rally was powerful and retraced 52% of the Dow points lost in the initial decline. Even though the market was far from its previous highs, investors had once again gotten excited about owning stocks and felt confident that the market would continue to move higher.

Once the bear market resumed, it erased another 86% of the Dow's value.

Did you know that the Great Depression was preceded by a great real estate boom centered in Florida? The Florida real estate bubble burst in 1926, three years before equities. Just as we've seen recently, investors took their leftovers from the real estate bust and poured it into stocks.

The bear market from the 2007 highs has humbled all markets: large cap stocks, mid cap stocks and small cap stocks. Defensive sectors such as consumer staples and aggressive sectors such a consumer discretionary. Global developed markets and emerging markets too. This unique 'red across the board' behavior has not been seen in the 70s, 80s or 2000 bear markets. The only other similar time period to be found is during the Great Depression.

If this sounds impossible, consider that the Dow Jones measured in the only true currency, gold, has already declined over 80%. To reset valuations, the Dow Jones measured in dollars will have to follow. Its already happened in Japan, the Nikkei has lost as much as 80% since its 1990 all-time high.

Can it happen again, possibly, the only way out is would be the growth/industrialization of China and India.

As people who attend my webinars or teleconferences know, I am wary of most people investing much in stocks anyway but this is a period in time where even savvy investors need to be extra cautious and lighten up on equities. As I always say, there is nothing wrong with a nice safe CD at your local bank.

S&P 500 is comfortably above 1000

2009-09-09T14:27:00.000-05:00

Well the S&P 500 is over 1000, in fact, its comfortably above 1000, near 1030. For those that aren't keeping track, during the recession that is coming to an end, the S&P 500 got down to an ominous reading of 666, thats a 54% gain from the bottom.

Not to bore you with any more details, I bring these numbers to your attention to reinforce two things;

1. if you stayed the course and continued to add to your S&P 500 index fund or etf, you have done quite well and have lowered your average cost considerably (isnt that the point, buy low, sell high?)

2. you still dont need a stockbroker (my guess is that you were told to get out near the bottom in march 2009 or you have been under-invested during this period and failed to buy low)

Stay tuned and keep an eye out for my new book 'that little green handbook'.

Chevy Volt

2009-08-11T21:40:00.000-05:00

Ok, I know this is an investing blog and not car & driver but hear me out. If the Chevy Volt can deliver on its claim of 230 mpg and zero gas usage until 40 miles, that is a game changer. Period.

I never advocate single issue stock trades but I must say that this could make GM a winner. Its a good thing you can't buy GM stock today or I would be tempted, yes, I know there is a pink sheet version but thats not tempting.

A car that gets 230 mpg is a game changer like the computer in 1975 or the Internet in 1994. I knew we could do it, interesting that it took america this long but I won't get political. This will affect car companies, oil companies, suppliers and many other companies. There will winners and losers but in a good way, this is innovation and technology and only time will tell which stocks and investments will gain from this but I can certainly tell you one thing, this is good for America.

Approach to Investing

2009-07-20T15:15:00.000-05:00

Your approach is everything. Bottom line is that while the bulk of investors are awaiting a pull back from the March 2009 lows, I am pretty confident that any pullback will be mild.

Your approach to investing has to change if you think you can time the market. I just read an article at yahoo finance which backs up what I've known for years, that timing the market is virtually impossible.

1983-2003 period for S&P 500

Buy and Hold ~ 10%

Minus 30 worst days ~ 19%

Minus 20 best days ~ 5%

Moral of the story is that if you are willing to risk missing the best days trying to miss the worst days, go ahead but you will have probably wasted a lot of your time, and money and got nowhere. You need to change your approach to investing.

I have said it before and will say it again, buy a no-load mutual fund or ETF that tracks the S&P 500 and you are doing really all you can do.

Warren Buffett

2009-07-14T16:55:00.000-05:00

I blog, write and speak about investing all the time. One common theme is that very few can beat the S&P 500 with any consistency so why try. Buy the S&P via an ETF or no load mutual fund and forget it, you will end up beating 91% of investors and save a fortune on fees.

Unless you've been living under a rock, you know the name Warren Buffett who is one of the rare individuals / institutions that have beaten the S&P 500 with some consistency. If you like him, and its hard not too, you are in luck, you can invest side by side with Warren Buffett by owning his companies shares (Bershire Hathaway) which is listed at the NYSE as brk-a and brk-b.

Let Warren Buffett do the heavy lifting for you.

BTW, WB obviously has a vested interest in his companies shares but it is interesting to note that he buys US treasuries for his personal account.

Beat 91% of the Crowd

2009-06-19T09:42:00.000-05:00

You want to know how to beat 91% of the crowd?

How do you think you can out invest all the highly paid money managers and traders?

Its simple, very simple and the reason you hear very little about it is that no one has a vested interest in educating you.

Buy the S&P 500 and forget it. Thats it. Back when I was a stockbroker, there were alot of barriers to doing this. There were mutual funds that tracked the S&P but you had to pay a broker to buy them and of course there were minimums and account fees, etc.

Now, with ETF's (exchange traded funds) such as vanguard and very cost effective accounts such as fidelity and scottrade, you can buy your way into the S&P slowly, with the money you have set aside for the long term (yes, i said long term, ten yrs or more) and let it sit.

You won't beat the market but you will participate in it with the lowest possible fees. This doesn't mean you can't lose money, it means you will track the S&P which is the benchmark by which 90%+ of money managers and traders cannot beat with any regularity.

More on fees later. Stay tuned.

Investing Is Easy

2009-06-17T09:35:00.000-05:00

The investerati has convinced the public that if you save a few extra dollars or come into some money, that you need to 'invest' it in the stock market. This is simply not true, there is nothing wrong with a nice safe CD or money market at your local bank.

Having said that, if you have decided to invest, do yourself a favor and invest on your own and save a fortune.

The investment community are masters of marketing and have you convinced that you cannot invest on your own.

Here's the scoop. 91% of money managers cannot beat the S&P 500 and neither can your stockbroker of financial advisor.

How do I know? I was a great salesman and convinced alot of people to take on more risk in stocks and got paid well for doing it. The dirty little secret is that you can do the same thing yourself and save alot of money, hundreds of thousands over a lifetime!

Most stockbrokers or financial advisors are genuinely good guys interested in your accounts well-being. The problem is that stockbrokers (and thus the brokerage firm they represent) get paid by assets under their control and charge you a management fee of 1%-5% to do nothing more than you can do. Value added, are you kidding? How did you do over the last year?

Stay tuned for exactly what to do.