Yes, one of MY coaches. I am coached. Mark Matson is one of my coaches, and I have chosen to follow another adviser who has been in the industry much longer than I have. Paul Winkler is in the Nashville, TN, market and has been coaching clients as I have for nearly 30 years. I value his insight and his approach to helping his clients see what’s happening. I thought his article was especially helpful, and rather than try to paraphrase it, I thought I’d give it to you in its entirety. It’s well worth the 5 minutes it will take to read through it. I’ll see you on the other side…
Here’s a sneak preview of this month’s newsletter.
Markets and returns
Stocks markets around the world have generally been fairly good this year. As I write this newsletter at the end of May, returns have ranged from minus 2.85% for emerging markets to around 21% for large US value stocks and everything in between. Our goal is to hold asset classes that deliver dissimilar price movement and that is certainly what we have gotten so far this year.
It is interesting to note that our holdings of emerging markets is relatively small compared to what we’re seeing in portfolios we are analyzing (and what I’ve been reading about in the financial planning industry publications). While I was listening to a web-based investing program for advisors, I heard someone mention that fully one-third of a major mutual fund company’s assets are invested in their emerging market’s funds. Most of the assets didn’t move to this market segment until AFTER that area had great performance. We owned it before the fact and investors benefitted from that diversification.
As a whole, the funds have been doing exactly what we expect, which is delivering market returns. (Year to date the average asset class fund is above its benchmark by .59% and for ten years the average is above its benchmark by just over 1.4% per year.) In general, the portfolios have benefitted significantly from the new rebalancing methods that have been employed over the past 5 years. (That’s more of a topic for a workshop if you haven’t already heard me explain the “hows and whys”. They have been extremely tax efficient as well.)
We also went through an education program on GIPS (Global Investment Performance Standards) audits. This is where a certified auditing firm looks at a large sample of investment accounts and determines what the ACTUAL rate of returns have been for real investors or clients of the firm. MatsonMoney subjected themselves to such and audit and the results were impressive. This is important to us as planners, because we use our returns expectations when devising your financial plans. What I have found in my research is that few firms will actually go through such a process. When we ask why, the typical excuse is that it would limit flexibility (it would expose market timing) or it’s too much of a hassle (we’re afraid of what the public might find out). We are in the process of putting together workshops on the subject, so stay tuned.
One of the perennial concerns of investors (and Americans in general) is the state of the Social Security system. While the system has some long term issues, it is fundamentally sound in the short run. The big concern is what happens when the trust fund (or IOU barrel) runs out in a few decades. Most studies show that 75% of promised benefits would still be feasibly paid. It is my sneaking suspicion that some changes will take place to shore up the system. Among them: increasing the tax base, means testing that results in 100% of benefits being taxed for “upper income folks”, later retirement ages, discontinuing an age 62 retirement option, possible cost of living adjustments, etc. It is likely that those that are nearer retirement age now will be unaffected.
One of the tools we now have in our office is a Social Security optimization calculator. With knowledge of your benefits, we can help you determine the best strategy for taking your Social Security benefits. This can be very valuable as you reach closer to your retirement age. It’s just another reason to call us and tell us what you’re thinking of doing rather than calling us and telling us what you’ve done.
How Do the Rich Invest?
You may have heard my recent radio segments on an article in the Wall Street Journal entitled “How the Rich Play the Market”*. The article covered all the right things that the wealthy did as well as the mistakes that they made (below) based on a study by three economists from Harvard, Columbia University and NYU. It has often been my contention that the rich aren’t very good at investing and this article made my point.
What do they do right?
They didn’t turn over portfolios too much. (You’ve heard me cover that on many occasions.) They also used their competitive advantages and invested in some fledgling companies with greater potential. (We mimic that by investing in microcap stocks and other more thinly traded market segments.) They spread their assets “widely”. (We typically own over 12,000 stocks in our portfolios in addition to the fixed income assets.)
What did they do wrong?
They sometimes chased investment fads “like dogs chasing parked cars”. (As I’ve said at many a seminar, it is far too easy to get pulled into something that sounds good, but always remember, there is always a seller at the other side of a trade.) “They freeze with fear just when bravery is most likely to be rewarded.” They are good at rebalancing, but only when it is easy.” (We rebalanced INTO stocks in early 2009 just before the market shot up – not because we knew a market rally was coming, but because that is what our investment policy statement said we would and should do.) As a result of these mistakes, the wealthy people studied suffered far greater losses than the market during the 2008 downturn – over negative 62% according to the article.
While you may not be amongst the ultra-rich (yet), at least you can now say that you invest better than they do.
Watch the calendar. We are going to be doing workshops throughout the summer and have some really great things planned for this fall. If you want to make sure that you’re informed, email us and ask to be put on the email list (if you’re not there already). I’m sending this out via that email list. So if you have already seen this newsletter that means you’re on the list. Send your email to [email protected] and we’ll put you on the list. (It’s a different list than the videolist.)
Sincerely, Paul Winkler
Much of that should have sounded familiar–good reminders of the fundamentals we’ve been going over for some years now. A different voice, but the same sound message.
And speaking of good messages, I would also like to remind you that in a few short weeks we are showing Navigating the Fog of Investing, at NCG Cinemas in Lansing, MI.
This is valuable investment coaching and it’s free to you, my clients and your guests. If you are already signed up, consider who might like to attend with you. If you are not yet signed up, join the nearly 100 other area investors on July 17 for this excellent, entertaining and educational opportunity.
See you mid-summer!
Advisor / Coach
Cornerstone Wealth Partners