"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.