December 31, 2011

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

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 !!

December 12, 2011

Barrons Picks For 2011, Looking Back

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!

December 2, 2011

Are Bond Funds A Good Idea?

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!

November 29, 2011

Couples and Finances

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

November 28, 2011

Scared of the stock market? Try dollar cost averaging!

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

November 3, 2011

Investment Myth That More Risk = More Return

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.

October 12, 2011

Can You Avoid The Next Financial Bubble?

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.

September 21, 2011

Difference Between Gambling and Investing and your Financial Guy

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.

September 15, 2011

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

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.

September 6, 2011

Investing Advice or Education

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.

August 22, 2011

Gold versus Stocks

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.

August 12, 2011

Rule of 72

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?

August 4, 2011

Cash is ok

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.

July 25, 2011

Stock Market Volatility, Debt and DC

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?


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.

July 7, 2011

The difference between debt and deficit

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.

June 27, 2011

Don't Throw Your Money Away

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).

June 13, 2011

Misleading Investors

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 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.

May 27, 2011

Investing is like dieting

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 of any kind.  This is not advice, its education!

May 17, 2011

Why I won't invest in hedge funds

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.

April 18, 2011

Tax Consequences

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.

April 13, 2011

Dow 2000, No Wait, Dow 25000

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!

March 24, 2011

Realistic retirement 'plan'

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.

March 15, 2011

Japan Disaster and Investing

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!!!

February 28, 2011

Mutual Fund Wholesalers

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.

February 15, 2011

An Old Stockbroker / Financial Advisor Trick

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 :)

January 28, 2011

Biggest Commission

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.

January 20, 2011

Index Huggers

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 !!!