Investors, If You Can Predict The Future, You Don't Need To Diversify

Diversification, Not Needed If You Can Predict The Future

by: Brendan Magee

Investors spend a great deal of time dealing with uncertainty. What will the market do this year? What are the winning stocks going to be? What are the losing stocks going to be? When is the next crash coming, and when should I get out of the market? These are just a few of the many uncertainties investors have to deal with on an everyday basis. Some turn to professionals to handle the job and some do it themselves with the help of what ever research they think best.

Let me tell you who doesn't have to deal with any of this, people who can predict the future. If you know what is going to happen tomorrow, next month, the next year, the next 20 years, you have no uncertainty to deal with. Matter of fact, if you know what is going to happen in the future you have no uncertainty at all. You know what and when it is going to happen.

Imagine for a second if you were one of those people. What would your life be like? How much money would you be making on a consistent basis, if you knew when the next market crash was coming? How much would you be worth if you knew who and when the next Microsoft was going to pop up. You would be worth trillions. Work would be a thing of the past. What ever you wanted, when ever you wanted it,would be at your finger tips. You could have a tremendous impact on any cause or charity you deemed worthy. Politicians would be calling on you to support their candidacy and you could play a major role in the political landscape of the world. Sounds good doesn't it!

Now, how many of us actually believe/know we can predict the future on a consistent basis? If you are in your right mind, you would not stand up and say you have this super human skill. By the way, if you did, there's nothing wrong with that. You could do a lot of good for the world and yourself. Predicting the future just isn't one of the skills the Good Lord blessed us mortals with. However, how many of us go about our investing as if we or someone else can predict the future? Many more than would actually admit it.

How many of us believe, we or someone else, can spot a trend in the market? Lots of people.  I talk to investors every day, and read and listen to countless analysts on television on a daily basis. Based on what they have read and seen they tell us what is going to be happening in the stock market. When you take away the fluff, they are telling us or themselves they can predict the future. Their actions, though, betray their beliefs.

Case in point, a woman I was talking to this week told me she could predict the future. She knew what the trends were and based on that she knew which stocks to invest in. She told me she had a portfolio of some 30 stocks and ten mutual funds in her portfolio, but I had a question. I asked her if she knew what stocks were going to do well, why she needed to have 30 as well as 10 mutual funds? Why would you need a broker? Why couldn't she just every year pick the the stock that was going to be the top performing stock and invest all her money in that one stock?

 Imagine how wealthy you would be if every year you owned the top performing stock? Bill Gates would be your neighbor. Her reply, "That wouldn't be diversified." No kidding! Now what she or anyone else with her ability to consistently predict the future is failing to see is, if you can predict the future you don't need diversification. There isn't any risk of uncertainty if you can predict the future.

The lesson here is this. If you cannot and you know that you, nor anyone else, can predict the future don't do any thing with your money based on someone's predictions (This means yours as well). Learn what diversification really is and how it truly works. Now, if  you can predict the future and have a 50 year history that backs up that ability, please call me and I will give you every dime I own and ask you to let me benefit from your superhero powers.I will gladly cut you in on a portion of the profits.


Brendan Magee is the owner and founder of Inevitable Wealth Coaching. With questions or comments e-mail brendan@coachgee.com or call 610-446-4322. For more educational material go to www.coachgee.com.

The Eagle's Running Back Dilemma vs The Investor's Dilemma

The Eagle's & Investor's Dilemma

By: Brendan Magee

On top of a record of three wins and four losses, Chip Kelly has a huge running back dilemma on his hands. He is faced with a very difficult decision. By all accounts, it looks like between running backs Ryan Mathews and Demarco Murray, Mathews should be getting the ball more often. Mathews has more yards per carry than Murray and, as his 62 yard touchdown run against the Carolina Panthers showed, he has an explosiveness to his running that Murray doesn't appear to have.

So what's the problem in starting Mathews as opposed to Murray? Nothing,  if you are an Eagle's fan. You want the best player on the field. However, if you are newly appointed general manager and head coach, Chip Kelly, you might not have it so easy. You are not the one who decided to give Murray a $40 million contract with $21 million being guaranteed. Eagle's owner Jeff Lurie might have a problem with you giving a running back so much of his money to sit on the sidelines. Now if you don't play Mathews more, your 3 and 4 record could go to three wins and five losses when you play the Dallas Cowboys in two weeks and Kelly could be looking for a new job at the end of the season. There just isn't that many jobs paying $7 million a year floating around out there.

So Kelly has a dilemma. He has a problem and the two most obvious answers could lead to bigger problems. The same type of dilemma is one that investors deal with every day. You have a problem and the two most obvious answers could make the problem you are trying to solve worse. You are trying to build up your nest egg for retirement. You can't stand the thought of becoming a ward of the state and relying on the government to take care of you. So you start to invest and this is where the dilemma hits you.

This is you life's savings. When you retire, this is it. You cannot go back and make up for 40 years worth of work. You look at your investment options and are trying to make as sound a decision as you can. You need to be safe with your money, but you also need your money to grow. Go down to the bank and the safe investments don't even give you enough in interest to beat the rising cost of living. At that rate you will have to work until you are 80 and that doesn't quite cut it.

You look to investments with a higher return like stocks and stock based mutual funds and that looks a little more appealing. Since their inception stocks have a double digit annualized return. Compared to the banks this is more like it. But wait! This is a bit of a downer. The stocks and stock based mutual fund's returns aren't guaranteed. "My money won't be as safe as I would prefer. I will be incurring a risk, and look at the decade of the 2000's. Investors lost almost $17 trillion dollars due to stock market crashes. That's downright scary. What am I to do?"

What am I to do? Is what both Chip Kelly and investors grapple with on an every day basis. This is the dilemma, and to deal with it, both have to ask the right questions. Chip has to ask what's best not only for himself, but, more importantly, the Eagles. The answer may take courage to follow through with, but it won't come at all unless he asks the right questions. Investors won't solve their dilemma without asking the right questions, either.

The most important being, What is my true purpose for money? What is it that is most important to me in my life and how do I want to use my money to fulfill on what is most important to me? Again, the questions may reveal answers that take courage to implement, but they won't come at all without the right questions. For the Eagles sakes and your family's sakes let's hope the right questions are being asked.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments brendan@coachgee.com or call 610-446-4322. For more educational material go to www.coachgee.com.

Eagle's Wins & Investing, They're Not Always Pretty

Eagle's Wins & Investing, They're Not Always Pretty

by: Brendan Magee

Unless you are an Eagle's or Giant's fan, you probably turned off last night's game after the second quarter. The game was sloppily played by both teams. Fumbles, interceptions, dumb penalties and bad play were par for the course.  The Eagles just made fewer costly mistakes than the Giants. However, as someone who sat in Franklin Field watching some of the most God awful football teams ever, I will gladly take the win.

Now neither team practices, or trains, as Chip Kelly calls it, all week long to go out there and play lousy football. These are tremendous athletes who have a lot of pride, and the last thing either team wants to do is look bad in front of a national television audience. Sometimes, it just works out that way.However, no matter how bad each team may have played, there is one thing that pretty much holds true in every football game, the team that controls the line of scrimmage usually wins the game. Anyone watching last night's game could clearly see that the Eagle's offensive and defensive lines controlled the line of scrimmage.The longer runs and the longer passes for the most part belonged to the Eagles and ultimately they came away with a decisive victory.

The same type of scenario can be said of investing. It's not always pretty, but the person who sticks to the principles of investing ultimately prevails.

There can be years of unexpected losses, flat returns, returns that lag behind media driven benchmarks, times when the idea of buy and hold makes you want to kill somebody, and your adviser has to be on drugs if he wants you to rebalance into asset classes that are down 40 percent. Oh my God! We are out of Scotch again? Investing is not always a walk in the park.

Like blocking and tackling there is grunt work and who ever sticks to it the longest eventually wins. Owning equities, diversifying, and rebalancing away from top performing investments into investments that haven't performed or are down is the formula for long-term investing success. Just like avoiding the latest fad running the National Football League, resisting the lure of the hot investment of the day or abstaining from the investment analyst whose prediction just happened to come true is not easy.

As an Eagle's fan I really don't care if the Eagles win the ugliest played Super Bowl in history. Before I leave this Earth, I would like to see a parade down Broad Street. I am sure Jeffrey Laurie would not give the Lombardi Trophy back simply because the Eagle didn't win a beautifully played game. Football success, nor investment success, ever comes to those who don't do the grunt work.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With comment or question go to www.coachgee.com or call 610-446-4322.

Michigan, Michigan State, Investors-When They Need Their Coaches The Most

When Players & Investors Need 

Their Coaches The Most

by: Brendan Magee

To borrow a line from Forrest Gump, College football and a box of chocolates have one thing in common, from game to game, "You never know what you're going to get." This past Saturday's Michigan vs Michigan State game fell right into that category. With just 10 seconds to go in the game and leading 23-21, Michigan lined up for a punt that if completed successfully would have made it all but impossible for Michigan State to win the game (I am having visions of the Eagle's "Miracles at the Meadowlands as I right this).

In good order the ball is snapped back to the Michigan punter, Blake O'Neill, and the blocking is good enough for him to have enough time to punt the ball away. Unfortunately, he drops the ball and rather that fall on the ball or just get tackled, he flings the ball in the air. The ball lands in the hands of a Michigan State defender, Jalen Watts-Jackson, and he races some forty yards for an improbable game winning touchdown.
Michigan State breaks into a euphoric celebration and Michigan is left to figure out "What happened to their all but in the bag victory. For better or worse, O'Neill and Watts will be a part of college football history.

College football coaches like Michigan's Jim Harbaugh and Michigan State's Mark Dantonio get paid big bucks to deal with circumstances like this, and their teams will need them now, more then ever. How does Michigan pick up the pieces, especially their punter, and get ready to play next week's game with the memories of Saturday's game? How do they exercise the demons? Michigan State needs to come down of f their high. How do you not have a once in a life time play distract you from getting ready for next Saturday's game? How do you make sure the hangover doesn't interfere with preparing their next game? The seasons for both teams could be hanging in the balance of just how well their coaches perform their duties this week.

The same can be true for investors. How well investors handle the unexpected determines how successful they are. For example, you have your money in what you believe is a diversified portfolio. You believe with this portfolio you will never lose money. You see two or three quarterly statements of negative returns. This isn't what you were expecting at all. Something has to be wrong! Maybe it is. Maybe it isn't. Before you throw out what could be the portfolio that will bring you the security you were after, you better get someone to help you deal with your upset. That better be your coach. Alone, we rarely do a good job of policing our emotions.

It can also work in reverse. That diversified portfolio has one of the investments that is up 35%. It's been on an upward trend for the past two years and you want more it. The other parts of your portfolio aren't doing nearly as well, some have even lost a little money. You say it's time to dump all the poorly performing investments and load up on the highest performing investments. You want to be on the float for the victory parade. Before you enlist in the Japanese Navy on December 8, 1941, you better have someone help you to temper your enthusiasm. Something that can go up 35% in two years can and most likely will go down 50% in a month.

When it comes to sports and investing, the one thing that we can count on is that there will be the unexpected. Out of the blue when you least expect it, you will see something you never saw before. How you deal with the unexpected will have a lot to do with the long-term success you experience or don't enjoy. For the overwhelming majority of football players and investors, they are going to be much better off with a coach.


Brendan Magee is the founder of Inevitable Wealth Coaching. With comments or questions go to www.coachgee.com or call 610-446-4322.

Investors, Are You Swinging A Dull Axe?

Investors, Are You Swinging A Dull Axe?

by Brendan Magee

What if you were a lumberjack and (sorry environmentalists) your livelihood depended on the amount of trees you were able to cut down? Take the case that you, being an able bodied individual found a job with a lumber company and every day you went to work they supplied you with your axe. What would be the impact on your ability to provide for your family, and what would be the toll on you personally if you went to work every day with a dull axe? How would you feel if you found out the lumber company was intentionally giving you a dull axe?

With that dull axe, could you still cut down trees and earn a living? Absolutely!  Could you cut down as many trees as you could if every day you were making use of an axe that was sharpened properly? No! Would your shoulders, back, arms, and hands take a bigger pounding with that dull axe? Absolutely! So you will most likely have to work harder and longer hours to meet your quota, and you could miss some quality family time. Maybe as a result of swinging the dull axe you can't work as long or be forced to retire earlier and not make as much as you would have with a sharpened axe. Inconveniences? Yes. Tragedies? No

So would using a dull axe be the biggest tragedy of your life? Absolutely not! The dull axe just puts reduces the possibilities that you and your family get to experience. Some may say that is a tragedy others wouldn't look at it so pessimistically.

As a coach I think I sometimes over inflate the amount of hardship an investor who uses imprudent investing strategies will endure as a result of using investing's equivalent of a dull axe- stock picking, market timing, and track record investing.

If you use these strategies to invest your money will you make money? Absolutely! Studies show that investor who do you use these strategies do make money. *The average stock fund investor over the past 20 years or so did around an annualized five percent. Some did a little, better some did a little worse, but there is no denying they made money. They just didn't make as much as they would have if they would have thrown away the dull axe and eliminated any and all stock picking, market timing, and track record investing. If they did, those stock fund investors in U.S. Large Company Stocks would have done an annualized 11.11%. (Past returns in no way indicate their performance in the future)

So at 5% you made money. It's just that you most likely will have to work a little longer to retire or you are going to have to cut out some unnecessary luxuries to be able to put more money into your 401k or IRA to make up for the lack of return.

You may just say the hell with it. I'm retiring at a certain age no matter how much I have and just cut out a few of the goals you and the wife had set out to achieve. Is working longer, harder hours a tragedy? Absolutely not! Is not taking the trip you always planned a tragedy? Absolutely not! Is having to put in more hours at work away from the family a tragedy? (Maybe according to the wife she would prefer it that way.) No! There are far greater tragedies that a person could experience than these.

It's just that there are consequences to every action. You have to be the one to say what you are willing to give up or endure. Unfortunately, a lot of investors are unaware that they are swinging a dull axe. All they know is that the returns they were expecting just aren't there. The amount of money they expected to be seeing in their retirement accounts is a fraction of what they were hoping for at this point in their lives.

Even sadder is when they make a change they still can't see that they have picked up another dull axe. Even worse is that in most cases, be it through a financial planner or over the internet on their own, the investment industry is handing the investor the another re-fried version of a dull axe.

Here's the bottom line. If you do not have peace of mind with your money and investments and what you are experiencing is confusion, disappointment, and resignation consider that you are swinging a dull axe. There are ways to find out. Focus on the right questions and if you cannot answer them, you are no doubt swinging a dull axe. Put it down and never pick it up again. Swing with the axe that makes your life the easiest.


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

-Source of returns data is the Dalbar Corpaoratiojns "Quantitative Analysis of Investor Behavior for 2014."

For USC Football & Investors, Surrender Is The Right Move

Surrendering, Sometimes Makes The Most Sense

by: Brendan Magee

If you are a college football fan, you must have some idea of the drama unfolding with the University of Southern California football team. Their head coach, Steve Sarkasion, was just fired. Over the past several months it has become obvious to everyone associated with the team that Sarkasion has a drinking problem that has gotten out of control. You don't show up for work at such a prestigious football program drunk, unless you have a serious alcohol problem.

As opposed to putting Sarkasion on administrative leave, Athletic Director Pat Hayden, opted to fire Sarkasion and make a clean break for the school and Sarkasion. As sad as it is to see someone lose a position like that, admitting that the problem has gotten out of hand and cannot be dealt with using the same old-same-old methods, is most likely the best way to allow Sarkasion to deal with his problem. In essence, Sarkasion and the school are surrendering to the problem. They are not giving up. They are just acknowledging that the problem has gotten too big to handle on their own.

Investors, in a lot of cases, would do well to learn from Sarkasion. They often times dig their heels in and by the sheer force of their will believe their problems will go away. How many investors are engaged in strategies they really do not understand? How many investors have suffered through massive losses, only to try and pick up the pieces, virtually, using the same strategies that caused the losses in the first place? How many are investing, but do not have the first clue about how markets really work? How many cannot tell the real difference between investing and gambling?

Yet, many investors with their retirement and financial security hanging in the balance, plow ahead and hope and pray for the best. Some times you just have to say, "Stop! I don't really know what I am doing. I need help!" It's not a sign of weakness or a lack of intelligence. It's actually an expression of wisdom and courage. You will be amazed at the breakthrough you can have when you surrender to your problems and get the help you need.

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

Investors Have To Know When

If You Don't Know When, 

You Are Gambling & Will Lose!!

by: Brendan Magee

I was listening to a radio commercial today about how investors can crash-proof their portfolio. In essence, invest in something and the investor's money will never experience any stock market losses. Oh, if we could only continually experience double digit returns and never see a statement with a negative return! Isn't that every investor's dream? Invest without any fear what so ever!

So on the commercial one of the firms clients starts talking about her experience with the system. Being a professor with all her education, certainly she will add credibility to the firm's message. She talks about how "She knows there's going to be a crash." She has seen it happen in the past. So here's the truth, she is right. There will be a crash some day. If you live long enough, you will see several stock market crashes. If you have been investing for just the past 15 years, you have experienced two crashes.

What the professor fails to grasp about her assertions about the market is this, she doesn't know when the crashes are going to take place. She doesn't know how severe they are going to be. She doesn't know how long the crashes will last, and she doesn't know when the market will rebound. Without having that information,she and any other investor who makes investment decisions based on a prediction about the stock market is speculating and gambling with their money, not investing it, and there is a heavy price to pay for imprudence.

So let's say you were back in 1999. The stock market has just been through an incredible five year run and, as this lady says, the market is going to crash. You agree and feel the decade of the 2000's is going to be nothing but a huge bear market (You'd have been just about the only one), and get rid of every stock you own and put it in guaranteed investments. Here are the rates of return of a few asset categories and the returns you would have missed out on from the year 2000 through 2014

U.S. Large Company Stocks      4.24%

U.S. Large Cap Value Stocks    7.84%

U.S. Small Cap Stocks              11.50%

U.S. Micro Cap Stocks             11.78%

U.S. Small Cap Value Stocks     13.95%

(Please know that investing involves risk and the use of these return figures in know way guarantees these returns will occur again in the future. Please consult a professional before making any investment decisions)

Remember as far as many experts were concerned the decade of the 2000's was a lost decade for stock investors. These numbers tell a different story, and you would not have benefited from them one bit, if based on a feeling that the market was going to crash, which it did twice and still produced these kinds of returns, you took all of your money out of stocks.

The point here is this. There three kinds of people that make predictions about the stock market: Those that don't know, Those that don't know they don't know, and those that know darn well they don't know, but get paid big bucks trying to convince you they do know! (I wish I invented that saying, but since it fits, I am going to borrow it from Professor Burton Malkiel) As enticing as it may be, stay as far away from people making predictions about the stock market as you can. You and your portfolio will be glad you did.

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

           

Unconscious Driving, Unconciious Investing Will cost You!

Unconscious Investing Is Costing/ Will 

Cost You!!

by: Brendan Magee

We have all seen the life and death consequences of people texting while driving. This story, although a pain in my butt, isn't quite so tragic. It involves me backing out of my driveway and not noticing that my neighbor had parked his car right behind my driveway. Not a great way to start out the day by having to leaving a note on your neighbor's windshield letting him know you dented his car then dealing with your auto insurance and body shops.

All of this is a problem, but the real problem was me not paying attention or being aware of what I was doing and I will pay a heavy price in time, effort and money over the next couple of weeks.

There is also a price to pay, although you don't feel the pain until much later, when people invest in an unconscious way. How many investors are on cruise control or automatic pilot when it comes to investing? In a somewhat robotic way they do things the way their parents taught them how to do it. Invest as the guy in the next cubicle does it because it seems as if he knows what he is talking about or it's the quickest way to get the task of enrolling in their 401k plan off your to do list. How many are taking the advice of the pundits on cable television or the magazines assuming they are actually acting on sound investment advice?

Investors in a lot of cases fail to take notice of the process they are allowing to be used in how their money gets managed. They don't stop to determine whether or not it is being manged as it should or if they are simply allowing the brokerage house to get rich at their expense. Without the pain of having to reach into their wallets, it usually takes a momentous event like the crash of 2008 or the breaking news of a Bernie Madoff stealing $65 billion from investors for investors to stop and take notice of what is actually happening to them.

Unfortunately, or fortunately depending on how you look at it, those events don't take place all the time and investors, easily, fall back into the same old routine.

To determine if you are asleep at the wheel, it takes being asked a few questions to raise your level of consciousness.. How does the market work? Where are the returns of the market coming from? Can I measure to the penny what I am being charged to have my money managed? What are the expenses being deducted from my account? What services am I receiving in exchange for them? Can I tell the warning signs that I am engaged in or allowing someone to gamble and speculate with my money as opposed to prudently investing it? If you cannot answer these questions with a 100% yes, yes you are asleep and there are things going on with your money that if you knew about it, you wouldn't allow them to happen.

Now here's the problem you just don't wake up and stay vigilant. You need to engage in a conversation that allows you to maintain a prudent investment strategy. That requires staying engaged in a conversation for prudence. Without a structure it's just too easy to go back on automatic pilot. If your adviser doesn't offer an ongoing education process there's probably a good chance he is profiting off of your staying unaware about how your money is being manged and I would strongly suggest you consider hiring somebody else. 

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