Lies & Truths #10 Your Instincts are Your Enemy

Here is number ten in our selections from the book, The Lies My Broker Taught Me and 101 Truths About Money and Investing.

TRUTH:  Most people prefer and easy lie to the hard truth.
 
1.  You can lose weight without dieting or exercising by taking our magic, fat-absorbing pill before going to bed.

2.  You can call the psychic network hotline for insights into your future.

3.  You can beat the market because we have experts who know which stocks will offer the highest return on your investment.

Would you like to see all the 101 truths of investing?  Call us at 920-893-5262 and let us know you read this blog post to receive a copy!

The Truth about Traditional Investing

What's happening to my money?

Margaret Wittkopp Investment Advisor Representative

You may know that I founded Veritas (Latin for truth) after many years of working in the financial industry. It was not an easy decision, but I had to make a change because I had discovered that much of what financial advisors are taught is not the whole truth.

Are you investing with a traditional firm? Or if you are a Veritas client, have you shared with others that you have found a more efficient way to invest?  Here are some things for you to consider (or for clients, things to ask your investor friends and family):

• Many retail financial products, mutual funds and/or other actively-managed funds involve high turnover rates. Each turnover involves a fee. Do you know how often the holdings inside your mutual funds are changed? Do you know the amount charged each time this happens?

• Did you get out of the Market when things looked bad and wait till things looked good before getting back in (the opposite of “buy low—sell high”)?

• Are you, your advisor, or your mutual fund manager attempting to find the next “hot” stock?

•Is your advisor attempting to pick stocks or mutual funds by past performance (checking the 10 year, 5 year or 3 year history of a fund’s returns)? Past performance has ZERO correlation with future performance.

• Do you know what is in your mutual fund? Many people, upon taking a look “under the hood” of their portfolio, discover that they have lots of overlap which means even though your portfolio may have lots of “stuff” it is not really diversified.

The most successful investing strategy involves:

• Appropriate asset allocation and true diversification

• Disciplined decision made on academic research, not just the latest hot stock or complicated retail product

• Consistently capturing market return

• Reducing fees and hidden costs

Would you like to learn more? Or are you looking for a way to help other investors? Email me at margaret.wittkopp@veritasinvesting.com or Jeremy Burri at jburri@veritasinvesting.com or call us at 920-893-5262. 

If you are in the area, don't forget that we offer at least two classes each month on topics related to successful investing. Click on the "Learning Opportunties" link above to see a schedule of classes.

We Wish You an Abundant 2012!

We wish you all the blessings of this season, and a year ahead of abundance and peace. 

Five Tips To Avoid Investment Fraud

Bernie Madoff

Sharing some excerpts from "Five Tips to Avoid Investment Fraud," an article from Ryan C. Fuhrmann , CFA

December will mark the three year anniversary of when it was first discovered that Bernard Madoff defrauded his clients for as much as $50 billion, in one of the largest financial Ponzi schemes in history. The money management industry sustained a significant black eye to its reputation as a result of Madoff's fraud. Unfortunately, there are likely to be future thefts of client funds, though likely not on Madoff's scale. As with any industry, certain players in the investment field will resort to cheating, in an attempt to get ahead. Below are five issues to consider identifying, and best avoiding, investment fraud.

TUTORIAL: Don't Be A Victim Of These Investment Scams

Too Good to be True Returns

An article in The Economist, written shortly after the Madoff scandal broke, cited smooth investment returns as a potential warning sign, given that markets are inherently volatile. In the case of Madoff, investors began to question the steady "returns" of approximately 1 percent per month he posted, in a period of abnormally-high market fluctuations. He even lulled the SEC and many large, well-respected financial institutions into complacency, with supposedly savvy risk-control procedures. Excessive returns compared to benchmarks should also be monitored; in 1981 Dennis Grudman ran off with funds he attracted from some 400 investors, by reporting short-term returns as high as 85 percent.
Background Checks

Another key safeguard includes reference checks, which should be standard when entering into any business relationship. Of course, many Madoff investors were referred from friends and colleagues, but others did end up avoiding his dubious services, after performing due diligence and related background checks on his character and operations. Other financial services industry regulatory bodies can also assist in checking out the background of an investment manager. This includes the Financial Industry Regulatory Authority's (FINRA) Broker Check network, which is available online.

Outside Custodian

A key reason that Madoff was able to operate undetected for many years, was that he operated as his own broker-dealer. This allowed him to falsify trade information and statements that were sent out to clients. Using an outside financial firm as a custodian can help allay these concerns, as the outside party becomes responsible for key back-office functions, including the execution and settlement of trades and the preparation and mailing of client statements. Large, well-respected firms that serve this function include Fidelity and large custodial banks, including State Street and Northern Trust. Clients can also go directly to these custodians to verify asset levels and returns.

Skin in the Game

The phrases "skin in the game," "eating your own cooking" or "putting your money where your mouth is," all refer to the extent that an investment manager has his, or her, own money invested in the same strategies as clients. This serves a number of benefits, including confidence in the manager's own strategy to aligning manager and customer interests, such as avoiding taking excessive risk to keeping fund expenses as low as possible. For commingled assets, this can consist of money committed to the manager's own hedge or mutual fund. There is no set rule for the percentage of the manager's own capital invested along with clients, but the higher, the better. Well-respected managers and businessmen, including Warren Buffett and the managers of the Longleaf Partners, have significant portions of their personal wealth invested along with their investors.

Other Considerations

Additionally, the illusions of secrecy or exclusivity and/or the inability or unwillingness to clearly explain an investment strategy, should be met with suspicion. Finally, and perhaps not completely in jest, Lucy Kellaway, a popular journalist in the "Financial Times," has speculated that a menacing name could indicate the degree to which an individual can be trusted. In her words, Bernard Madoff "made-off" with client funds, while Michael Milken "milked 'em" out of their funds, while at the helm of Drexel Burnham Lambert.

The Bottom Line

There is no fool-proof strategy to avoid investor fraud, but there are a number of approaches investors can take to minimize the risk of an outside manager using his, or her, hard-earned funds improperly. Taking these five tips into consideration is a good step in protecting yourself and your investments

The Dirty Little Secret of Investing

Some words of wisdom from Symmetry, one of our partners in a non-traditional approach to investing...

Contrary to conventional wisdom or what pundits might have you believe, it's really hard to beat the market. Many try; most fail. (The term "beating the market" refers to an investment manager generating higher returns than the market of stocks within which they are investing.) Investors often lose sight of this widely documented phenomenon for one very simple reason: we place too much weight on recent events. This inherent bias is called Representativeness and is quite common among investors. Ability shouldn't be judged based on short-term success because most of us are long-term investors.

To be fair, yes, there have been active money managers who have found success in playing the market by delivering superior returns above the market rate of return. Here's a little realistic perspective: Beating the market for 5 years garners respect, beating it for 10 demands recognition, beating it for 15 years warrants the title of investment icon. One of the biggest mistakes that end investors make is assigning this extraordinarily rare skill to the general population of professional money managers. If indeed you do decide to put your faith in someone's ability to actively pick stocks, consider the following three part test:

First, you as an investor would have to believe that financial markets don't work very well, meaning stocks are often mispriced, and that the current price of a stock isn't a good judge of what it's worth. You would have to arrive at this conclusion because active stock pickers believe that they can identify these mispriced stocks.

Second, you would also have to believe that successful, active stock pickers exist - that have consistently (consistently being the keyword) shown an ability to outperform the broad-based market over very long periods of time.

Finally, and most importantly, as an investor, you must be confident in your ability to identify these individuals BEFORE they beat the market. Not after! Essentially you would be looking for the next great money managers BEFORE they became the next great money managers.

There are investments that are actively managed that may make sense in your portfolio, and as your advisory firm, we have the resources available to conduct due diligence looking for the right fit for your portfolio. However, our belief is that a passive investment strategy at the core of your holdings makes good sense.

This has been an exercise in rationality, and to a degree, advocacy for the benefits of passive index style investing. However, recognizing the difficulties of beating the market isn't to say that achieving market rates of return using a passive buy and hold investment strategy is easy. It requires patience, emotional discipline and strict attention to detail when building, maintaining, and adjusting your portfolio over time. Therein lies the critical role of the financial advisor.

Content written by Symmetry Partners, LLC. Our firm utilizes Symmetry Partners, LLC for investment management services. Symmetry Partners, LLC, is an investment adviser registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. All data is from sources believed to be reliable, but cannot be guaranteed or warranted. No current or prospective client should assume that future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this article will be profitable. As with any investment strategy, there is a possibility of profitability as well as loss. Symmetry follows a passive investment strategy that involves limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance. Passively managed portfolios are designed to closely track their respective benchmark index rather than seek out performance. As a result, the portfolio may hold securities regardless of the current or projected performance of a specific security or particular industry or market sector. Maintaining investments in securities regardless of market conditions or the performance of a specific security could cause the portfolio to lose value if the market as a whole falls. Please note that you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from Symmetry Partners or your advisor.

Copyright (C) 2011, Symmetry Partners. All rights reserved.

The 20 Must-Answer Questions for Investing Peace of Mind™

Investing can be one of the most complicated aspects of your financial life. One of the reasons that investing may seem daunting is because many people don't know what kind of questions to ask that will help build their confidence and peace of mind. The 20 must-answer questions are specifically designed to help you identify the areas of investing where you can build your confidence as an investor.  Dilemma™.

If you can answer 'Yes' to ALL of The 20 Must-Answer Questions, you will be on your way to a high level of peace of mind with your financial investments.

1.  Have you discovered your True Purpose for Money, that which is more important than money itself?

2.  Are you invested in the Market?

3.  Do you know how markets work?

4.  Have you defined your Investment Philosophy?

5.  Have you identified your personal risk tolerance?

6.  Do you know how to measure diversification in your portfolio?

7.  Do you consistently and predictably achieve market returns?

8.  Have you measured the total amount of commissions and costs in your portfolio?

9.  Do you know where you fall on the Markowitz Efficient Frontier?

10.  When it comes to building your investment portfolio, do you know exactly what you are doing and why?

11.  Are you working with a financial coach versus a financial planner?

12.  Do you have a customized lifelong game plan to guide all of your investing and spending decisions?

13.  Do you have an Investment Policy Statement?

14.  Have you devised a clear-cut method for measuring the success or failure of your portfolio?

15.  Do you fully understand the implications and applications of diversification in your portfolio?

16.  Do you have a system to measure portfolio volatility?

17.  Are you aware of the incentives brokerage firms and the financial community have when selling commission-based products?

18.  Do you know the three warning signs that you are gambling and speculating with your money versus prudently investing it?

19.  Can you identify the cultural messages and personal mindsets about money that destroy your peace of mind?

20.  Are you ready to shift your personal experience of money and investing from a scarcity mode to an abundance mode?

If you would like to learn more about working with a financial coach, give us a call.  920-893-5262

What Is Financial Coaching?

Why do our Financial Advisor Coaches, Margaret Wittkopp and Jeremy Burri, use that term to describe themselves.  Just what is a financial coach?

Coaching is different from traditional financial advice. How is it different? An investment coach is a financial professional who goes beyond typical financial planning and advice to help you identify your investment philosophy, understand your investment strategy, and provide discipline throughout your investment experience.

Margaret often asks investors, "Do you want me to tell you something that will make you feel better, or do you want me to tell you what you need to know?"

A coach will not only help you identify the right strategy for you, but help you keep your decisions and behavior regarding your investments on track for achieving the results you want.

So, how do you distinguish whether you are working with a coach or not? A coach helps you answer 'Yes' to the 20 Must-Answer Questions for Investing Peace of Mind™.


We will post those 20 questions tomorrow.