Friday, September 24, 2010

Media Profits Form Investors Problems

Media Profits From Your Investing Problems
By: Brendan Magee, 9/22/2010
A year ago I was at a conference and the guest speaker was a professional golfer by the name of Jay Delsing. He’s been on the professional tour for 25 years and played on U.C.L.A.’s golf team, a team that included Corey Pavin and Fred Couples. Corey Pavin won the U.S. Open and is this year’s Ryder’s Cup Captain, and Fred Couples won the Master’s in 1992. So Jay has the credibility to speak about problems that weekend warriors like me  face in trying to become better golfers.
Like a lot of golfers, I would read golf magazines that offered tips on how to improve my game. If I was slicing my tee shot cover pages that had the Fix Your Slice!  headline would catch my attention. I would try to incorporate the advice and see if it fixed my slicing problem! Truth be told, I never read anything that offered a long-term solution for my game.  Jay made a point that I hadn’t considered before. He told me that the magazines myself and thousands of other golfers were reading and getting tips from had no interest in me improving my golf game. As a matter of fact he said they were more interested in me not becoming a good golfer.
Jay asked me to consider what would happen if from a tip I read in a magazine all of a sudden I became a scratch golfer, someone who went from shooting rounds in the mid eighty’s to someone who could shoot in the low seventy’s on a consistent basis. He asked me, how many more times I would buy another golf magazine? My answer was probably never. If my golfing woes went away I would have no need to buy the magazine. Jay pointed out that the publisher of that magazine has already considered that possibility and knows they cannot afford to give tips that provide long-term solutions to your golf game.
From that conversation I drew a parallel to the investment magazines, cable shows, and internet web sites, etc. Investors read these magazines and tune into the shows hoping to find solutions to their investment and financial woes. These media outlets offer tons of suggestions on the mutual funds one should own or the money manager who you should hire. Again, ask yourself this question if you found the one investment that offered double digit returns and never experienced any sort of downturn, how many more investments are you going to buy? How many more magazines will you need to subscribe to? The answer is you wouldn’t buy another investment, nor would you need to tune into any more shows or read any more magazines. None of which helps the profitability of those media outlets.
So whose agenda will the media ultimately serve? The answer is theirs. In so doing the media cannot give the investor information that helps them become more profitable investors. It gives what appears to be good, well intentioned tips that will ultimately have the investor sabotaging themselves. For example, a headline reads the, The Five Best Funds To Own Now!! or The Stocks That Beat The Market!!, or Why The Stock Market Died!!. If you’re an investor whose funds have performed poorly you could be swayed by the advice contained in these articles. Not once would any of these articles mention by engaging in what they’re advising that the investor is engaging in gambling and speculation or breaking the rules for successful investing.  

Now when those investments don’t pan out the investor reads more magazines, tunes into more cable shows, logs onto more web sites, and buys more investments. This is great for ratings and the brokerage house profit margins, but it spells doom to the investor and their financial security. Best of all, no one ever holds a magazine or t.v. show responsible for the advice they give. As far as the magazines are concerned they just need you to keep coming back and as long as you continue to experience disappointing returns or hearing about investments performing better than yours, you have no other choice.
So just remember the next time you pick up a magazine or turn on an investment cable show, their profits and ratings are depend on you not becoming a profitable investor. Your problems are their profits.
Brendan Magee is the president and CEO of Inevitable Wealth Coaching. If you have questions, comments, or suggestions call 610-446-4322 or send an e-mail to Brendan@coachgee.com




Wednesday, September 15, 2010

Broad Ambiguous Answers Hurting Investors

Broad Ambiguous Answers Mean Less Control For Investors, Higher Profits For The Investment Industry
By: Brendan Magee
A gentleman I know has a reduced breathing capacity. His lungs have a hard time producing enough oxygen. As a result there are times when he needs an oxygen machine to help him breath. The question is how does he know when he needs to use the oxygen machine? The answer is, his doctor gave him a device that mathematically measures the amount of oxygen his lungs are producing. If the machine registers an 88 or higher he doesn’t need to use the oxygen machine. It’s the mathematical measurement of the machine that enables him to be in control of his oxygen level. Without it he’d just be guessing and there wouldn’t be a whole lot of comfort in that.

Now we would all agree that breathing and our ability to produce oxygen is pretty important, and it’s something, we really don’t want to be guessing about. There’s just  too much at stake. Unfortunately, when it comes to investing far too many of us have been conditioned to accept broad ambiguous answers to questions that require precise mathematically measured answers. The result is investors are left guessing and they’re making huge mistakes.

For example, risk is an important aspect of investing. When most investors respond to a question of their risk tolerance, they’ll place themselves in one of three categories, conservative, moderate, or aggressive. Why is this? Perhaps, it’s because a past experience. Another reason is, investment companies administer these tests with the premise that it will help the investor to determine what their risk tolerance level is. In either case, the investor is left with a broad ambiguous answer to a very important aspect of investing. There is nothing in these answers that gives an investor an ability to mathematically measure the risk of one investment vs. another.

For the investment industry these measurements make it easier to sell products. Because no matter which category an investor falls in, there’s an already put together set of investment products that match your category. Unfortunately, the investor doesn’t get anything that tells them exactly how much risk or what they should expect in returns. They’re left to deal with those two answers on their own.  The result is investors finding that investments they thought were conservative were a lot more volatile than they thought.  Also, investors have no real clue as to whether or not they’re returns are acceptable or not.


Case in point, a couple I met a
while ago, who was within six to eight years of retirement, saw their portfolio lose $132,000 in two months.  What made the loss all the more difficult to deal with was that they had recently met with their financial advisor and based on their anxieties over the stock market, he moved them into more “conservative” investments. Now they became downright irate when they finally got a mathematical measurement of the risk they assumed with their conservative portfolio. They couldn’t belief how much risk they had assumed.  They said if they had known that before, they never would have invested their money that way. Here the keep the investor in the dark approach helped the advisor sell the couple an investment product, but gave the investors no way of knowing how inappropriate the products were to their circumstances.

So besides risk, what other aspects of investing can and should be measured? Expected rate of return, level of diversification, and expenses would be critical for any investor to have measured. If you cannot put a mathematical number to these parts of your portfolio this should be a huge red flag.

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























Thursday, September 9, 2010

No More Hope And Pray Investing

Without A Well Defined Investment Philosophy, Investors Are Just Grasping At Straws.


Investors want to feel safe and secure in their investment decisions. No one prefers the hope and pray approach. Yet, a real life story gives an example of what is happening to a family as a result of not taking the time to develop a deep rooted investment philosophy.



The kids are grown and raising their own children and mom and are supposed to be living out their days in peace at the Jersey Shore. The adult children from time to time check in on the parents to make sure they’re doing well. All should be well given the assets and income, Social Security, pensions, plus a nest egg somewhere in the neighborhood of $500,000. The retired mom started working with an advisor trying to make certain their money was wisely invested and going to last the rest of their lives. A few years into retirement, the $500,000 is about half of what it started out at, and mom, dad and the grown kids are more than a little concerned.



Mom can’t figure out how things have gone so badly, and the kids aren’t sure if mom and dad are going to come and live with them or if they’re going to have to relocate to South Jersey. No one but mom has ever met their current advisor, no one can say for sure how the money is invested, and mom is not eager for anyone to know how much of their nest egg is really left. Now mom is weighing the options of moving what’s left of her money to c.d.’s or maybe taking out a reverse mortgage. The problem is no one is at all certain if these moves are going to provide the solutions their looking for or make them worse. It’s a damned if you do, damned if you don’t dilemma.



So how does and investor find themselves in a predicament where they haven’t got a clue about what’s being done with their money and they’re completely in the dark about which is the right direction to go next? The answer is, not having a clear, well defined investment philosophy. The most uncomfortable place for an investor to be is to not be 100% clear about what they’re doing with their money and clearly understand why. You never know if tomorrow’s turn of events could mean you’re broke.



The question is how does an investor gain clarity? The simple answer is, develop your personal investment philosophy. This is a critical step for any investor if they’re going to have true peace of mind.



So what is a philosophy? It’s an internal belief system that anchors our decisions and behaviors. For example, Innocent until proven guilty guides our judicial system. People aren’t thrown in jail without a fair trial.



As for investing the fact that there are only two philosophies to choose from cuts down tremendously on information overload. They are, Free Markets Work and Free Markets Fail, and each comes with their own set of principles so you can see which aligns with your beliefs.



Free Markets Work beliefs are:



-Supply and demand is the best determinants of prices



-All knowable and predictable information is already factored into market prices



-Only unknowable and unpredictable information will move market prices



-The randomness of markets makes it impossible for any individual or entity to consistently predict in advance market movements and capture additional returns without adding additional costs and risk



Free Markets Fails beliefs are:



-Supply and demand is not the best determinant of market prices



-Some individuals can know in advance which markets or prices are inaccurate



-By identifying the markets or investments that are mispriced in advance investors can increase investment returns without adding additional risk.



One of these philosophies and their beliefs should align with your beliefs and that is your investment philosophy.



So how would this be of benefit to the family and the troubles they face? Having defined her philosophy, mom would have gained tremendous perspective as to whether or not the broker she was working with was right for her and her husband. Obviously, she would only want to be working with someone who shares her beliefs and would invest her money accordingly. Second, they’re would be no doubt about what should be done with the money next. Simply put, does the decision align with her beliefs or not. There wouldn’t be any more hope and pray decisions.



Lastly, mom could clearly articulate to her children what is being done with their money and know exactly why. When it’s being done the right way, you want to share your success with those you love and care about. The children would gain a peace of mind knowing that mom and dad are being taken care of.



So take the time to define your personal investment philosophy. Go back and read the principles behind each philosophy, and determine which philosophy is yours. The results should be you being a much stronger more focused investor.



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














Wednesday, September 1, 2010

Investors Not Doing As Well As Advertised

Investor’s Doing Worse Then Advertised!!


By: Brendan Magee 9/1/2010

Every time Ryan Howard or Chase Utley comes to bat we see how well or poorly they are hitting. Under their names is their batting average, home runs, rbi’s, etc. For professional ball players there’s no hiding their productivity or lack thereof.


For investors it’s not so easy to see. It’s not like any publication is airing our personal returns, and there is no law forcing us to disclose our private information. So how do we know if our returns as an investor are meeting or failing to meet acceptable standards? If we go by the results the mutual fund companies boast about in their ads and commercials, we could easily believe investors are doing pretty well. So how well are we doing?


According to the Dalbar Corporation, a research firm located in Boston, Ma. We’re really not doing well at all. Over a twenty year period from 1989 through 2008, the average stock mutual fund investor’s average annualized return was a paltry 1.87%. The average bond fund investor did even worse at 0.77%. Now you might blame these dismal numbers on a free falling stock market, but that wouldn’t be the case. From 1989 through 2008 the S&P 500 Index’s annualized return including a terrible 2008 was 8.35%. The Barclay’s Bond Index did 7.43%. The real killer here isn’t how far behind the bench marks investors are, it’s that inflation went up 2.89% per year in that time. The struggles seniors feel today are the result of their money not keeping pace with the rising cost of living. Are you on pace to struggle or thrive in retirement?


Now over the course of those 20 years, do you recall any body flashing a score letting you know how poorly you were doing? Absolutely not!


Now if it’s not the stock market that's doing the damage what is at the root of such dismal results? According to the Dalbar Corporation it’s investor impatience. Investors have very little tolerance to ride out difficult times. As a result they are continually taking their money out of investments after a loss and buying into investments that have performed better (Sell low/buy high isn’t the formula for success). This conclusion has been backed up by a recent New York Times article that shows investors took $240 billion dollars out of the stock market between 2007 through 2009. Remember the panic?


Any one heard an advertisement for gold in the last few years? How about fixed, guaranteed investment? Those who sold out made the impact of the markets drop permanent.


So the questions are: How do investors get the ship turned in the right direction? How do we make sure impatience doesn’t do us in again in the future?


First we have to focus in on the right issue. We have to realize that as investors we are biggest risk factor to our investments. We do far more damage to our investments than anything else. (I know it may sting a little to hear that, but the sting will go away) Let’s face it, we get angry and scared when our investments do poorly. We get happy and confidant when our investments do well. That’s how we as human beings function. We were born with our instincts and emotions and we really need to acknowledge how powerful they are.


Second, we have to realize that as far as keeping pace with the rising cost of living stocks are our best weapon. The S&P’s annualized 8.35% over the past twenty years would have given us a nice cushion against inflations 2.89%. The market isn’t your problem. It’s your money’s best friend. Marry yourself to the academic definition of diversification.


Third, don’t go it alone. Find an advisor you trust. Meet with them at least quarterly. Make certain they are educating you, not simply selling you a product. A good way of knowing whether or not you’re being educated is if you can recite what is being done with your money in one minute or less and can someone else comprhend what you're telling them. Investing isn’t complicated.


Fourth, empower that individual to protect you from you. This is not an act of weakness or a lack of intelligence. This is an act of courage and wisdom.






Brendan Magee is the owner and CEO of Inevitable Wealth Coaching. With a question or comment you can call 610-446-4322. You can also send an e-mail to Brendan@coachgee.com