"Why Haven't My Investments Grown!"

"Why Haven't My Investments Grown!"

                                            by: Brendan Magee

Jane asked, with a bit of wonderment, but also a bit of frustration, "why haven't my investments gown?"  She asked this question after letting me know she does not trust any financial advisors in the slightest. She told me she has been down that road with several of them who were long on promises, but very short on delivering. She told me about her most recent advisor who in 2010 told her to get out of the stock market all together because a crash was coming. She told me how this same advisor came back to her a few years later and told her she be a little more aggressive with her investments.

Jane is in her early fifties, and she has raised a daughter any parent would be proud of. She has worked hard to support herself and her family and also managed since she was about 25 to save for her future. It's just that when she saw the historical long-term rates of return for various asset classes, she frustratingly said she has never seen that kind of growth in her investments. The long-term rates of return like 9.82% for U.S. Large Company Stocks or 12.26% for U.S. Micro Cap Stocks would be nice to see once in a while she said. Why she hadn't seen these kinds of returns was a question she just couldn't seem to get a satisfactory answer to. (All investing involves risk and past performance in no way guarantees its returns in the future)

So she and I looked into her portfolio to see what was the problem. Now, in life I do not believe there are any coincidences. It wasn't the case for Jane's investments and it isn't the case for the majority of investors who are walking around with the same frustrations and no answers for their problems. There is a formula for successful investing and there is a formula for wasteful investing. Unfortunately, Jane's blind spot was that she couldn't see she was the victim of wasteful investment management.

First, lets start with her current financial advisor. He is engaging in market timing when he is advising Jane to get out of the market because a crash is looming. Market timing is any attempt to alter or change the make up of a portfolio based upon a prediction or forecast about the future. A looming crash or advocating to get back in to the market based on what you believe is going to happen is gambling and speculation .

To present this kind of advising to Jane as prudent money management is a bold face lie! You cannot prudently gamble. Trying to predict the future is a waste of time and money, period. So unfortunately for Jane, she was being inappropriately advised on what to do with her money by the very person she was trusting to give her good advice. She just couldn't see it.

Second, when we looked at her funds, she had a wide assortment of mutual funds. When we looked at the amount of turnover going on inside the funds, it was like the mutual fund managers had gone to Vegas at the expense of her financial security. In just about every fund she was in, the fund manager was trading the fund's portfolio at a 100% clip. Every stock in the portfolio, every year was being sold and replaced with the purchase of new stocks.

The fund managers were getting out their crystal ball and rolling the dice on a stock they believed was going to do well in  the future. On top of allowing the fund company to roll the dice with her retirement account, she was being charged an additional one percent for the fund company's brokerage services. This was on top of the advisory fees, the accounting fees, the record keeping fees, etc. She was being feed right into the poor house. She was getting hit with market timing on two levels. Her advisor and fund managers were both engaging in stock picking and market timing. It was a double decker gambling and speculation sandwich with a side of oppressive fees and expenses.

There is no coincidence. Gambling and speculation are not profitable activities. Engage in, or allow, someone to gamble and speculate with your money and you will lose. Brokerage houses know this. They just don't want the Jane's of the world to be able to see what they are doing with their money. They also don't want them to have a clue about the huge hidden expenses that ensure their profitability at the investor's expense. Not only do they not want investors seeing it, they make damn sure their financial services reps aren't aware of it. I can speak first hand on this.

Investors, if they are going to capture their share of the American Dream, cannot sit idly by and let somebody handle their investments. They don't need to watch over it 24/7/365, but they better be able to tell the difference between gambling and speculation, and prudent investing. They better be able to verify as time goes by that the people they use to mange their money are on,and stay,on the same page as them.

Brendan Magee is the president and founder of Inevitable Wealth Coaching. With questions or comments call 610-446-4322 or e-mail Brendan@coachgee.com.

Investors Can't Skip Over Fundamentals & Expect Success

Investors, Without Fundamentals Don't Expect Long-Term Success

                                   by: Brendan Magee

For the better part of 12 years, I have refereed basketball games. I have and continue to enjoy being around the game and the kids. I ref at the high school varsity level as well as the little kids just starting out. One thing that often catches my attention is that coaches, coach the little kids in the same way that you would expect to see college players coached. They draw up elaborate plays to score points. They design sophisticated defensive schemes to stop the other team from scoring.

Little to no time is spent on helping the players develop fundamentals like passing and catching the basketball. As a result well designed scoring plays get sidetracked by a kid who is unable to catch a ball. That well designed play becomes a pile of 10 bodies scrambling on the floor trying to gain control of the basketball.

Because the skill in catching and passing the ball is never given the attention it deserves, the scene of a player mishandling the basketball and players diving over one another to secure the  ball is  often seen at the high school varsity level. Countless times it happens at both boys and girls games. The truth is, there just isn't enough time given to helping kids learn and master the fundamentals of the game. As a result, they never realize their potential and can't figure out why they are not the player they expected to be.

The same thing happens to investors. Investors start out with the intentions of having their money grow and attain peace of mind for themselves and their family, but history is showing they are falling well short of their expectations. According to Dalbar Inc., for the 20 year period ending 2012, stock investors annualized returns were on average 4.25% while U.S. Large Company Stocks did an annualized 8.21%. Starting with a $100,000 investment that means over that 20 year period of time the average investor underperformed the market by $187,361. That's the average investor. The below average investor faired much worse.

  Bond investors did worse. Annualized they did 0.98% vs. the Barclays Bond Index which did 6.34%. Who needs fundamentals when you can just start investing, right? The answer is,  investors need them desperately. History is clearly showing that without them investors will not come any where close to accumulating the money they need to achieve financial security. The cost of living in that time rose 2.43%. This scenario doesn't scream wealth and abundance, it screams scarcity and sacrifice.

So what are the fundamentals investors are stepping over? There is a complete lack of understanding as to how the stock market actually works and where returns are coming from. As a result, they are easily deceived and fleeced by brokers and planners more interested in serving their agendas not the investor. Can you say Bernie Madoff or Allen Stanford? There is no attention paid to the purpose for which people are investing. There is no time given to truly understand what people are investing for. As a result there is not an investor driven agenda as to how they are going to use their time energy and money to transform their lives, impact the lives of the people they care about, and the causes they are most passionate about. How or why would anyone start doing something without truly understanding what you are out to achieve first? As a result, investors follow a pattern of doing what feels good or makes sense in the moment, but isn't consistent with fulfilling their true purpose for money. They are following a path of self sabotage.

Now when a basketball game doesn't go the way the coach or players believe it should have who gets blamed? The ref is a convenient excuse. When investors aren't achieving the results they thought they should who gets blamed? Wall Street, the President, Capitalism, to name a few. There is power in seeing where you have not been responsible, seeing that you had as much to do with your  results as anything or anyone, and committing to never let it happen again in the same fashion. Now when the investor or investment industry doesn't allow the time for this responsibility to take root and be acknowledged, the investor is robbed of their power. Authority over how their investments will be directed is handed over to someone else, and that someone else doesn't care nearly as much about the results as the investor themselves.

So take the time to focus in on and master the fundamentals of investing. In time you will see it was priceless.


Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments, call 610-446-4322 or e-mail Brendan@coachgee.com.

Philly Eagles & Investors Need To Protect Their Blind Side

Blind Side Hits Do The Most Damage

                                                             by: Brendan Magee

 

 

Seeming  as how the professional baseball season is, but for all purposes, done in Philadelphia, I paid a little more attention to the Eagles' offseason practices. I wanted to hear how the daft choices looked, I wanted to hear about the drama surrounding Desean Jackson's release, and I wanted to see if Chip Kelley looked like he really had the team headed in the right direction.

 

For over a week, I watched the interviews of Nick Foles, the starting quarterback, and Lesean Mc Coy, the starting running back. Most fans and insiders seem to believe that the team's fate for the upcoming season rests primarily in their hands. There was one player not interviewed that I do not know most fans would say the team's fate lies with,  and that is their starting left offensive tackle, Jason Peters.

The fans might not realize it, but the Eagles and Nick Foles understand full well his value to the team. This is backed up by the four year $41 million dollar contract that includes a $5 million dollar signing bonus they gave to Peters 

 

See most fans see the quarterback as the most important player. They are usually the highest paid player on the team and associated the most with the team's success or failure. A team has a lot riding on and invested in their starting quarterback. What fan's fail to realize is that the left tackle's primary job is protecting the quarterback's blind side. What a right handed quarterback, looking down field to pass the ball can't see, is the defensive tackle or linebacker coming from his left side who is ready to break him in little pieces. Their job is to pound the daylights out of the quarterback.

Most teams realize that if their starting quarterback gets hurt for an extended period of time, their season is for all intensive purposes over. The defenders the quarterback can see can be avoided or they can throw the ball away to avoid the hit. Blind side hits give the quarterback no way to get out of the way and live to play another day. Hence, the most important player on the team is arguably  Jason Peter, given how vital he is to the team's success.

 

Another thing to realize is that teams have eyes every where. They have coaches on the sidelines, up in the coach's box in the top of the stadium, etc. They realize, what they can't see is going to do the most damage. Unfortunately, this same respect for the blind side is not often enough shared by investors, and the problems they cannot see are the ones that do the most damage. They in just about every case cause damage  that is irreversible.

 

They spend an awful lot time going over pie charts that represent their portfolio's holdings, they spend a lot of time and are given a lot of opinions on where the market is going to go next, or looking for the next brilliant money manager. There is no attention paid to the blind side. Their is no attention paid to being able to spot the next Bernie Madoff, no attention paid to making sure they understand the difference between gambling and speculation vs. prudent investing, nor is their any attention paid to making sure out of control emotions or biases don't have them making decisions that ultimately sabotage their financial security.

 

So why is there no attention paid to an investor's blind side? The answer is pretty simple. If the Giants can hide where their blitz is coming from they can cream the Eagle's quarterback which would make it easier for them to ultimately win the championship and their players can get big fat profitable new contracts. If an investor can't see a scam coming, or spot investment advice that will make the brokers rich at their expense, the brokers win, not the investor.

 

So how do you begin to become aware of your investing blind spots and undo the damage being done? You do it with the right questions. You need to ask very specific questions and work with someone who will work with you until you see the answer clear as a bell. This does not get accomplished with the sale of an investment product. It gets done through coaching, much like the coaching the Eagles players get from their coaching staff.

 

How does the market work? Where do an investor's returns really come from reveals a misconception and all the misguided actions that go along with this blind spot. Can you calculate all the costs you are being charged to have your portfolio managed? Will reveal a blind spot that has you paying good money for a service that has no value and plug that leak in  your portfolio. These are just a few of the questions that we will call Your Investing Blind Spot Checklist.

 

Lastly, here's what you should know about a blind spot. You will come face to face with your blind spot, find out how much damage it's doing to you, eliminate it and grow stronger as a result of being more aware, or someone will use it unmercifully to further their financial well being at your expense.  

 

Brendan Magee is the president and founder of Inevitable Wealth Coaching. With questions or comments call 610-446-4322 or e-mail Brendan@coachgee.com.

 

 

 

403b Participants Getting Short End Of Stick

403b Plan Participants Taking A Backseat To 401k Plan Participants

by: Brendan Magee

I met with two employees of a local school district after each had expressed dissatisfaction about the returns of their retirement plans. They are both participating in their school district's 403b plan, a nonprofit employee's version of a 401k plan.

Last year was a great year for the stock market. U.S. Large Company stocks were up 32.33%. Carol's 403b plan returned .0030%. That is 30% of one percent for the year. Worse then that she paid in investment expenses, 1.25%. She is paying more in expenses than she earned! Steven has been a participant for the last eight years. From 2006 through the summer of 2013 he earned just 2.35%, while in that period of time U.S. Large company stocks earned 7.58%. His investment expenses were over three percent per year. Steven's returns not only didn't keep pace with the rising cost of living, he is slowly but surely working his way into the poor house with oppressive expenses.

Now even though Carol and Steven have had investment representatives that enrolled them in the school district's 403b plan, neither had a clue about how bad their investments were really doing. They never heard from them after they signed up. Now, their experience is not the exception. after talking to many 403b plan participant's it seems to be the routine experience for countless 403b plan participants.

What most 403b plan participants do not realize is that when it comes to a Non-Erisa 403b plan, they are completely on their own. If their investments go bad, unlike a 401k plan, there is no one they can hold accountable. In a 401k plan, the plan sponsor has a fiduciary responsibility to the participants and the beneficiaries of participant. Often times to alleviate some of the liability, 401k plan sponsors will hire investment advisors who are also operating under a fiduciary responsibility. This means that if a 401k plan participants investments do not work out and they can prove that the sponsor and advisor did not live up to their fiduciary responsibilities, they can be held personally liable to the participant and their families.

One of the biggest requirements of a sponsor of a 401k plan is to monitor the plan. For the sponsor of the plan this means having an idea about investment expenses, returns, what types of educational material is being put in the hands of the participants, reviewing the results of the investments being offered to the participants, and making sure the plan's performance is meeting certain benchmarks.


 No such protection exists for employees who are making payroll deposits into a Non-Erisa 403b plan. The benefits manger or whoever has the responsibility for choosing the vendors for the plan does not have the responsibility of monitoring the plan. The vendors are free to approach the employees however they see fit and convince them that theirs are the right investment products for that employee. Unless properly educated before hand the, the employee is completely at the mercy of the vendor. Public school 403b plans and a few others fall into the Non-Erisa category.

So what does this mean to the Non-Erisa 403b participant? They have no right to hold the benefits manger or business manager responsible for anything. They could, unknowingly, be sold underperforming, over priced, completely unsuitable investments that do not keep pace with the rising cost of living and not have the right to hold anyone but themselves responsible. They can't even hold the company rep who sold them the products responsible, if they signed forms that they agreed the investment was suitable to their circumstances. They also could wave their right to take a rogue salesman into court if they signed an arbitration agreement which basically means you have agreed to waive your right to a trial which would be decided by a jury of your peers. (Before financial services companies will open the account they require their reps to have these forms signed)

It's unfortunate, but without that liability hanging over their necks, a lot of school district benefits managers and business managers do not have the motivation to stay on top of their 403b plans. They take the out of sight, out of mind approach and try to leave well enough (or substandard to dismal investment options) alone.

In this school district's case, when Steven, Carol, and a few other employees found investment options that were less expensive and performed more to their liking, the business manager told the employees they already had nine other vendors to choose from. He wasn't about to add a vendor or even listen to their side of the story. He had no idea, or didn't care to know,  that the other vendors that were available were just as expensive and performed just as miserably as the ones the employees already had.

This would not be the case for 401k plan participants. They would have the right to contact the Department of Labor and plead their case. They could initiate an audit of their 401k plan. The plan sponsor is never out from under their fiduciary responsibilities.

Unfortunately, for some reason when it comes to employees of a public school districts, their retirement, their income, and the securities they invest in through the school district's plan, they do not deserve the same kind of protection.


Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions call 610-446-4322 or e-mail Brendan@coachgee.com.