Investors, Do You Know The Rules & Can You Verify They Are Being Followed?

Investor's, Would You Know If The Rules For Successful Investing 

Were Being Followed Or Violated?

                                          By: Brendan Magee

The other day a client of mine asked me for some help with investing in her company's 403b plan, a nonprofit company's version of a 401k plan. She wanted some assurances that she was making the right choices from the list of funds available. 

We sat down with the guide book for her plan which went into not only the investment options, but also participation rules. For example, there was a lot information on when and how money money could be accessed with or without penalty, when changes could be made,etc. The booklet was about 150 long.

As we made our way through the investment options and how much she was going to contribute to the plan, I noticed something pretty significant was missing from all the information we had. There was nothing that clued Joan in on the rules she needed to follow in order to make sure she was going to be successful and achieve  financial security with her retirement money. 

There was also nothing given to her that would enable her to verify that the rules were being followed or violated. After signing up and contributing to the plan, the success she wanted to achieve was totally out of her hands. She was at the mercy of the people who would now be managing her money. People she never had or probably ever would have the chance to meet.

As we discussed what was missing, Joan was not feeling as confident as she would have preferred. She said it would be nice to know what the rules were before she made her investment selections so she would be able to discern which investment companies were following the rules and which ones weren't. She didn't want to find out five, ten, or fifteen years down the road she was being taken advantage of. 

Fortunately, we took our time and went over the rules for successful investing and found a few investments within the plan that she felt good about. We also set up a system to measure whether or not the rules were being followed and the plan was being successful or not.

The question I asked and Joan was wondering about was, "With all the information being supplied to investors, be it in a 401k plan, a 403b plan, or personal brokerage accounts, how come the rules for successful investing are not the first bit of information given to investors? Why isn't it listed any where in the information they are providing investors?"

So the $64,000 questions are, Do you know what the academically proven, empirically proven rules are for successful investing? Do you have the ability to verify that the rules are being followed or violated? If you cannot answer these questions with a 100% yes, give me a call or shoot me an e-mail.

P.S. If you do know the rules, get in touch and let me kow how you came across them and how you verify they are being followed day-in-day-out.

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

The Real Reason Why Tom Brady and Your Mutual Fund Can't Stay On Top

Tom Brady and Your Fund Can't Stay On Top

by: Brendan Magee

All I have heard on the news lately is the punishment that has been handed down to Tom Brady and the New England Patriots.  Ironically, his suspension ends when his team plays the Indianapolis Colts, the team that reported that the Patriots were deflating the balls in last year's playoff game. 

This is where our investing lesson begins. The Patriots have won four Super Bowls. In each of those games the other team lost, 2004 still hurts. Certainly, the Patriots are a great team with tremendous athletes.A somewhat deflated football couldn't account for a decade worth of great football, or could it? 

The same could be said for every team in the National Football League. Very of the games are complete blowouts. They usually come down to the final two minutes of the game to decide the winner. Every team spends hours of preparation looking for that little edge to put them over the top. 

Now let's just say a deflated football or filming the other teams practices gave New England the edge they needed. Pro football is a pretty close knit fraternity and the players and coaches move from team to team each year. New England's secrets aren't going to stay a secret for long. Other teams want to win championships and enjoy all the perks that come from winning football games. 

If they realized that New England has gained a competitive edge, they can't just sit back and do nothing. Otherwise, New Engalnd will win all the time and the rest of the teams will be left to settle for second place. So the Colts report New England deflating the football or the Eagles report to the league offices New England filming their practices and stealing their hand signals. The edge is gone and New England falls back to the pack a little bit. They do not stay on top. 

The same thing happens with mutual funds. A fund has a record year. It's performance has far and away outperformed the pack. That fund manager is sought out for television appearances, covers of magazines, makes the speaking circuit and is paid thousands for his or her insights, gets offers to write books, etc. 
The rest of the fund managers don't get any of these perks. They are left to answer why their fund didn't perform as well as the champion. 

Let's say the top fund manger's performance came from tech stocks. Stocks the other fund managers didn't pay too much attention to. They have two choices, stay put and allow the top performing fund to maintain their competitive advantage or start investing in those same top performing tech stocks. How could they explain another year of under performance? How can they risk their jobs? Answer, they don't. They invest in those same tech stocks and the competitive edge is now gone. The champ is now one of the heard. 

Just like the N.F.L. the mutual fund industry is very competitive and is played by people who have a tremendous amount of ability. No one gets into that industry to settle for second place. They are not going to allow the other teams to maintain a competitive advantage for long.


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

So What If You Beleive An Economic Crisis Is Looming

So What If You Believe An Economic Crisis Is Looming!

                                            by: Brendan Magee

I was watching a commercial promoting a "Crash-Proof Retirement" seminar. The commercial showed the seminar director asking attendees at a previous seminar for a show of hands asking,  How many in the audience believed an economic crisis, the kind that we saw in 2008 was looming on the horizon? I'm not sure I got the question word for word, but I got the gist of the question. 

The presenter pointed out that just about everyone in the audience had their hands up. So there was a lot of angst in the room about the economy and what that meant for money they had in the stock market.  

The point of the seminar was that the stock market was way to volatile for anyone, especially a senior citizen in retirement, to have their money in the stock market. What the presenter nor anyone in the audience failed to realize was their answer to that question doesn't matter one bit. The current level of the market takes into consideration everything that is knowable and predictable. It is only unknowable and unpredictable information that moves the market. There is information and data factored into the stock market that neither the presenter, the audience, me, you, etc. have a clue about.

So the premise of the seminar , is to not be too risky with your retirement nest egg, and senior citizens, middle aged people or a thirty something year old wants to be too risky with their money. Unfortunately, by merely asking the audience this question the presenter has put himself and the audience in the shoes of a gambler and speculator. They are in the position of trying to predict the future. No one can consistently do that. When you engage in that kind of behavior you will undoubtedly come out on the short end of the stick.

Since the presenter brings up 2008, let's go back there. In 2008 U.S. Large Company stock were down 36%. That was painful. Everyone was hitting the panic button. Capitalism as we knew it was on the verge of collapse if you believed the media. Take all your money out of the market and cut your losses was the advice Jim Cramer was giving. 

Now if investors followed that advice look at what they missed out on since 2009 until today:

U.S. Large Company Stocks up 110.81%

U.S. Large Company Value Stocks up 196.62%

U.S. Micro Cap Stocks up 193.33%

International Value Stocks up 93.08%

International Small Value Stocks up 134.30%

Fixed Income by contrast is up 9.62%.

By far, in early 2009 one could have made a more believable case that an economic crisis was at hand. The point is this, do not base your investment decisions based on what you feel or believe is looming no matter how much data you have to support your beliefs. 

Your information and beliefs have already been factored into current stock market prices. Only unknowable and unpredictable information will move the market. If you do engage, based on those beliefs, you will be operating under the same set of circumstances as the guy or gal going into the casino, the race track or buying lottery tickets. You are gambling and speculating, and you will lose. 

You are operating under the delusion that you know how six billion people around the world will react to news and events that have not even happened yet. Not the side to be on. 

Please know that when investing in stocks or any securities there is a risk of loss and that the returns used in this blog are in no way guaranteed. Please consult your professional before making any investment decisions. Past performance is not a guarantee in any way of future performance. 

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

Ryan Howard & Investors Pay Dearly For Lack of Verification

Ryan Howard & Investors Pay Dearly 
From Lack of Verification!

by: Brendan Magee

There certainly are far worse things in life to happen to you then being the victim of theft, but realizing the people that are stealing from you are your mother, father and brother would have to be one of the worst things that could happen to anyone. Such was the nightmare that Ryan Howard woke up to in 2012 when he opened the financial books to a company he started as his career in baseball started to take off back in 2006. 

Being as busy as he was with the life as a professional baseball player he turned the day to day running of the business and its financial management to people he felt he could trust implicitly, his family.  In openning up the books he comes to find out his initial $8 million dollar investment in the business and the money he was paying his family to provide for his financial future was being treated more as their personal piggy bank then his. 

He found out his Mom, the company's financial officer paid out over $2.7 million to family members for services that were never rendered. All this comes to head in series of lawsuits and counter lawsuits back and forth between family members where the lawsuits are eventually settled out of court. In other words, it cost Ryan Howard more money to have the financial mess go away. The emotional and family scars can't be handled as conveniently. Going on blind confidence just didn't cut it.

A lot of this turmoil could have been avoided if, from the beginning, Ryan had a system in place to verify that the jobs assigned to his family members and the money being spent were being done as agreed upon.

Investors often times suffer unneccessarily because they assume their money is being handled as it should. Just like Ryan, they are doing business with people they trust. They don't follow through or see the need to verify that what is supposed to be happening with their money actually is. 

For example, a couple I met with a few weeks ago. They have their money in a life cycle fund promoted by many of the mutual fund companies. Basically, the investor picks a year in which they feel they are going to retire. The mutual fund will diversify accordingly and as the date of retirement approaches the diversification will be adjusted so that less money is in stocks and more is moved to bonds and cash. So the investor walks away after depositing their money in this fund feeling they are diversified. The mutual fund company said that that was what they were going to do so why doubt a big reputable company that everyone has heard of, right?

So in our coaching session we look at the fund and how it has diversified this couple's money. It is allocated amongst three different kinds of investments: 60% in U.S. Large Company Stocks, 30% in International Stocks, 6% in Bonds, and 3% in Cash. With this discovery Jim says "That's not diversified." Worst of all he finds out that the majority of his money is in an investment that has experienced a 40% loss twice in the last 15 years. He's taking on a lot more risk than he had been aware of or would have agreed to. Ouch! He's not a baseball player earning millions of dollars a year. This is serious money that can't be played with.

Like Ryan Howard, Jim and his wife, would have been better served with an awareness of what they wanted done and the ability to verify that their wishes would be carried out. This awareness only comes when the right questions are asked from the beginning. "How do I measure diversification/", and "How do I verify that the allocation of my portfolio will be carried out over a lifetime of investing?" These are the questions that every investor needs to ask. The price of not asking the right questions and having the ability to verify how your money is being handled is way higher than Ryan Howard or any investor knows they're going to pay. 

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. 

Investors Who Get Guarantees Agains Stock Market Crashes Guarantee They'll Never See Market Rates Of Return.

Guarantees Against Market Crashes Guarantee Investors

 Will Eventually Lose Money

                   by: Brendan Magee

I was listening to a radio advertisement for a show that guarantees to educate investors how to never lose money should the stock market crash. Sounds like a good idea, especially for retirees. Who would ever want to go through the pain and heartache of 2008's market crash again?

Unfortunately, investors in their attempts to find the holy grail of investing often give up way more than they realize. In this case if they are in the position that they will never have to experience losses due to a stock market crash, they also guarantee they will never enjoy market rates of return.  

To make this point we have to go beyond what the media typically reports on when talking about investing, the S&P 500 and the Dow Jones Industrial Average. These are benchmarks that report solely on U.S. Large Companies. The market consists of many more categories of investments and we will take a look at what a few of those investment categories have done in the recent past.

Investment Category                                                         Annualized Returns 2000-2014
S&P 500                                                                                           4.24%
U.S. Large Cap Value Index                                                            7.84%
U.S. Small Cap Index                                                                       11.50%
U.S. Small Cap Value Index                                                            13.95&
Int'l Small Cap Index                                                                        8.55%
Int'l Small Cap Value                                                                        7.57%
Emerging Markets                                                                             7.38%

Now here's a couple of things to bear in mind, over the past 20 years ending December 31, 2014, the cost of living has gone up 2.80% and the average stock mutual fund investor's return was only 3.69%, according to the Dalbar Report.

The market rates of return mentioned above do two things: outperforms the average investor by a considerable amount and outpaces the rising cost of living. That means market rates of return are more than enough to have an investors money maintain its purchasing power and last longer. How upset would you be if over the past 14 years these were the returns you achieved?

Now where the idea of "Crash Proofing" your portfolio comes from is off the heels of 2008 when the S&P 500 fell almost 40%. So how do I as an investor make sure I never go through that pain again? Answer, take my money out of the market all together.

Unfortunately, investing is a counter intuitive process. What appears to be the logical solution isn't. Matter of fact the most logical solution most likely will do more damage than the investor realizes. In the case above, if I take my money out of the various markets, my money is in something else that won't generate the kind of returns listed above. The problem is that when ever there is a lot of investor turmoil there is always someone who stands up and shouts they have the solution that will cure your problem for ever.  That solution usually has the investor breaking the rules for long-term successful investing.

Here's what I mean by that. The market tanks. You're ticked off at seeing your portfolio take a beating. You're scared that if the beat down continues, you'll be left with nothing. Someone offers a solution that you will never have to suffer like that again. All you have to do is move your money over to their account. You proceed and you just broke the golden rule of investing, you sold low after buying high. The impact of the loss you just experienced is permanent. If you ever do get back in the market it will only be after the market has gone on to record highs  and you don't want to miss the party. Now you sold low and then bought high. you compounded the mistake. The odds of your money lasting through retirement are getting smaller by the minute.

The solution isn't Crash Proofing anything. It's the investor staying true to the rules of successful investing no matter the situation. It might also be having someone in your corner who won't let you waiver even if you consider straying from the straight and narrow. Josh Hamilton of the
Los Angeles of Anneheim Angels could have used a coach. Maybe you could too.

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

The rates of return listed above are not guaranteed. Investing involves the risk of losing principle. Consult with an investing professional before making any investment decisions.

Study Shows Education Not Helping Investor's Results

Education Not Helping Investor Results

By: Brendan Magee

Here is one of the conclusions of 2014's Dalbar Report, Qualitative Analysis of Investor Behavior, "Attempts to correct irrational investor behavior through education have proved futile. The belief that investors will make prudent decisions after education and disclosure has been totally discredited. Instead of teaching financial professionals should look to implement practices that influence the investor's focus and expectations in ways that lead to more prudent investment decisions."

These findings are backed up by the results of stock fund investors returns as compared to their benchmarks. Over a 20 year period the average stock investor's returns were an annualized 5.02% while the S&P 500 did an annualized 9.22%. The findings even showed that when investors did well, their results lagged behind the benchmark. In 2014 the average stock fund investor did 25.54% as compared to the S&P 500 which did 32.41%

Now if you did a Google search of the word investing, millions of pages of information and education would appear on your computer screen. So the question is this, if massive amounts of investor educational material is readily available and it is not having a positive impact on the results investors are achieving, why is it continually distributed to investors?

First one who responds with a good answer to this question wins a gift card to their choice, Starbucks or Dunkin Donuts!


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

Should Friends And Family Handle Your Investments?

Should Friends And Family Handle Your Investments?

                                                                                         by: Brendan Magee

We all like to do business with people we like and trust and who do we trust more than good friends and family? They aren't going to do anything to hurt us or our family, especially when they are handling something as important as our retirement money or the kid's college fund, right?

Along with this high level of trust comes a bias that can also be dangerous to our financial security. Because of our loyalty or close ties to our friend or family member we may not be as quick, or blinded all together, to see or confront some pretty big red flags when it comes to our investments.Let me give you a couple of examples of this.

Helen is the owner of a very successful marketing firm. She is in her late fifties so she is getting close to retirement and is looking forward in the next few years to becoming a doting grandmother. She recently told me that a good friend was doing a great job of handling her investments. I asked her how much she was paying to have her money managed, and she said all she pays is about one percent on the amount of money she has invested with her advisor. She told me she sees the amount she pays on her investment statements she receives quarterly.

Then I asked her how much does she pay when the funds her advisor has invested in makes a trade. She looked at me with a blank stare. She had no idea that beyond the advisor's fee, she was subject to paying any other fees. So how does Helen determine whether or not she is getting value for what she is paying? At present she can't. I would bet you, if Helen, went into a restaurant and ordered a meal she would know,based on the menu, what she should be paying. I bet if there was a mistake on the bill she would bring it to the waiters attention and have the bill adjusted. When it comes to her investments, why is it that she has become so less vigilant?

Another couple, very smart and  highly educated professionals, John and Tina, spoke with me about their investments. They were disappointed with their returns over the past few years. They were doing business with a cousin. They felt like with the market having done so well over the past few years, they should have been doing a lot better.

My first question was, had they gone to their cousin and let him know that they were disappointed with their returns? John and Tina said they were reluctant to do that. They were concerned about hurting somebody's feelings. They had even secretly gone to another planner to see if he could offer any other solutions, but couldn't go with him because of the family dynamics.

 I asked them a few questions to see how sound their investment decision making process was. I asked if they were aware of the warning signs that they were engaged in or were allowing someone to engage in gambling and speculation with their money versus prudently investing it. John wasn't sure about the answer, and Tina was was quick to say that that sounded like an underhanded way of investing money and that she didn't believe her cousin would engage in that sort of behavior. She didn't really even want to entertain the possibility.

So neither John nor Tina have a grasp of the differences between gambling and prudent investing, nor, more importantly, do they have the ability to verify whether or not their advisor is investing their money or gambling and speculating with it. This being in the dark about how their money is or isn't being managed may be coming from a lack of knowledge, but you can't ignore that there is lack of desire to confront the possibility and deal with the consequences of finding out their cousin might not be the person to have handling their investments. If they were dealing with someone who wasn't a friend or family member would they be so willing to  be in the dark about what is going on with their investments?

The unfortunate thing for John, Tina, and Helen is that there could be untold damage being done to their investments and their American Dreams could be in real jeopardy. At the root cause of their problem is blind faith in their advisors because they are dealing with close friends and family members. Their financial security is taking a back seat to their loyalty to friends and the desire to keep peace in the family.

The problem is that investors are human beings and human beings make decisions and act emotionally. I do not believe investors have enough  appreciation for just how strong their emotions are. Therefore, there is no awareness how quickly their emotions can subtly over power what they know to be the prudent things to do or not do. The only way to deal with this phenomenon is to admit how powerless you are in dealing with their emotions and make sure they have a coach  empowered with the ability to tell them when their emotions are getting the better of them.

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.