(The following is the second in a five-part series of articles devoted to helping fiduciaries, especially individual trustees and ERISA plan sponsors, best align investment goals with beneficiaries? needs.)
When we put out a question to our network of financial professionals, we usually get enough more than enough responses to fill our needs. When we put out this particular question, we couldn?t believe the amount of messages in our e-mail 
inbox. In fact, we received so many thoughts, ideas and opinions from so many professionals, it?s impossible to use all the answers. To do so would produce an article whose length would rival a novella. Despite this volume, we analyzed the answers and categorized them into three general categories. These represent the three most common investor mistakes all investors should avoid. And when we say all investors, that includes both the average investor as well as individual trustees and ERISA plan sponsors.
Common Mistake #1: Trying to ?beat? the Market ? or trying to ?beat? anything, for that matter. Conservative investors refer to this mockingly as the ?horse race mentality.? Let?s confront this most common mistake made by investors: John Graves, editor at The Retirement Journal in Ventura, California and author of The 7% Solution, says, ?Chasing performance is a mistake [because] a. You are too late to the game, [and] b. The last one at the dance is the first to go home.? Robert W. Kowaleski of Professional Wealth Management in Hauppauge, New York likens chasing performance to ?a dog Chasing its tail. How far did the dog get when it was done and did it ever catch its tail??
Rarely, if ever, will a trust document or investment policy statement demand the trustee or fiduciary ?beat? the market. Trustors create trusts and lawyers draft trust documents solely for the benefit of named beneficiaries. While it may be advantageous to have an investment portfolio which ?beats? the market, and many trusts do have investment portfolios which ?beat? the market, this represents the result of a sound investment discipline and not the result of any specific dictate.
Why do investors commit this ever popular common mistake? Robert L. Riedl, Director of Wealth Management at Sumnicht & Associates, LLC in Appleton, Wisconsin, believes ?They have no plans, no financial objectives and lack independent professional advice. Thus, they don?t know what they don?t know and that increases their opportunity to make random decisions that will increase their risks and opportunity to fail.?
Indeed, goals should be tied to something more tangible, such as paying a set amount in expenses, making specific purchases (for example, buying a car or a house), paying college tuition or living a comfortable retirement to name just a few. ?Many investors do not define the purpose of their accounts,? says Damian Rothermel of Rothermel Financial Services in Portland, Oregon.
The true goal, then, represents the lifetime goals or dreams of the beneficiary (or investor). These may be specifically defined in the trust document or, more likely, require an interview with the beneficiary (or investor) to fully determine the goals and nature of the portfolio?s investment policy statement. In the latter case, such interviews need to be conducted on a periodic basis and certainly after any major life event (marriage, birth of a child, etc?) to insure the goals and dreams have not changed significantly. ?It doesn?t happen too often that people ?accidentally? save too much,? says Hilary Martin, a financial advisor for The Family Wealth Consulting Group in San Jose, California. ?It?s important,? continues Martin, ?to know your own cash flow requirements and plan for increased expenses for things like travel and health care.?
To summarize this common mistake, the individual trustee, retirement plan fiduciary, or regular investor cannot treat investing like an athletic contest. Targeting arbitrary hurdles quickly leads to undisciplined and, in the end, unproductive, investment management. Why? It is extremely unlikely that any conservative, long term investment portfolio can ?beat? any arbitrary index during every single time period (thus is the nature of ?risk.?) Should the individual trustee, fiduciary or investor blindly focus on ?beating? the market, he is merely chasing performance. This easily degrades into excessive investment adviser turnover as the investor is always firing the existing adviser (or mutual fund) to hire last year?s best performer. Alas, this kind of activity results in something similar to buying high and selling low; thus, the investment performance of the portfolio suffers considerably.
Common Mistake #2: Trying to ?play it safe.? This second common mistake represents the opposite extreme of our first common mistake. Although it?s been most apparent today, particularly among younger investors still in shock from the market debacle in 2008-2009, this mistake has been with us for quite some time, particularly in the 401k investment arena. Indeed, Congress passed the 2006 Pension Protection Act in part to address the need to encourage 401k investors to place a greater portion of their retirement assets into long-term investments (and thus begat target date funds).
?Being so conservative and leaving 100% of investible assets in cash or in a shoe box is a mistake,? says Kevin Cahill of Canadian Legacy Builder in Guelph, Ontario. Cahill?s comment may appear as hyperbole, but it gets to the root of the problem of ?playing it safe.? David Houle, co-founder and portfolio manager at Season Investments in Colorado Springs says, ?investing too conservatively can be a mistake that results in lost opportunity and not meeting your long-term objectives. Most people who are investing too conservatively are doing so out of fear which is a dysfunctional emotion to let drive investment decisions.?
Martin explains further, ?even in the long run, the expected return of bonds is something like 2-3% real. If the average investor retires at age 65, and has a life expectancy of 92 years, how are you going to provide for inflation-proof income for 27 years with a 2.5% return on half of your portfolio? I believe that is a sure-fire recipe for having too much time left at the end of your money.?
And while some investors do have the luxury to play it safe, there is clearly one segment that doesn?t. Elle Kaplan, CEO of Lexion Capital Management in New York City says, ?Investing too conservatively is only a mistake if your accounts have a long time horizon and you can benefit from compounding. Younger investors
that won?t be touching their account for years can take on more risk.?
In summary, as Tony Fiorillo, President/CEO of Asset Management Strategies, Inc. in Indianapolis, says, ?Long term returns are better with equities (stocks) than with fixed income (bonds) and bonds can have as high a level of risk. Especially when dollar cost averaging into your 401k, and if you have years to go to retirement, you should lean heavily on the stocks in your allocation.?
Common Mistake #3: Trying to ?time? the Market ? or trying to time any financial asset. A related common mistake entails attempting to ?time? the market. The industry defines market timing as shifting your money from one asset class to another. To work, you would have to correctly guess which asset class would have the best short-term performance and invest accordingly. Through the years, many investment ?gurus? have purported to have developed a ?fool-proof? method for market timing. There remains no convincing evidence that market timing works. Indeed, there is ample evidence suggesting the investor pays a steep penalty for incorrectly guessing when to shift from one asset class to another.
?Many studies show that the performance of the average investor is well below that of the markets,? says Mitchell E. Kauffman, an independent Certified Financial Planner with offices in Pasadena and Santa Barbara.? Kauffman points to one such study by Dalbar that concludes ?the cost of market timing for the past 20 years is about 4% per year on average,? and adds that ?during volatile times that shortfall nearly doubled to 7% for market timers.? For all the talk of fees, no aggregation of fees approaches this cost of market timing.
In a very real sense, the mistake of market timing derives from our first two mistakes. It starts with believing the tree will grow to the sky and investors searching for ways to beat the market. Then, when the bubble pops, investors decide (usually incorrectly) it?s now a good time to play it safe. Here?s a real world example provided to FiduciaryNews.com readers by Craig Lemoine, Assistant Professor of Financial Planning at The American College in Bryn Mawr, Pennsylvania. He tells us, ?In 2006 and 2007 Chinese markets doubled in value, became plastered over media outlets and discussed. I sat across from a mutual fund wholesaler who explained that the share value of the Emerging Market equity fund he was selling had increased by 200% over the past two years and that the sky was the limit. From 2007 to 2012 the same fund has experienced a -1.73% annual return. Buying after the initial growth or expansion phase will lead to a decrease in overall performance.?
Yet, for all the academic studies that provide solid proof of the folly of market timing, why do people continue to believe it works? Kauffman says ?People over estimate their abilities and the simplicity of timing prompts grandiosity and excessive risk taking.? This, in part, explains why they overreact when market timing fails and why they suffer unfortunate consequences. ?When investors are invested too aggressively,? says Alan Moore, founder of Serenity Financial Consulting in Milwaukee Wisconsin, ?it means they can?t psychologically handle the swings in the market. This means that when the market dips, the investor will sell out of fear. This leads to locking in losses, and is a great way to wreck a retirement plan. There is a danger of being way too conservative, because the investor will not get growth in their portfolio. For most investors, they need growth in their portfolio over time in order to meet their investment goals. Being too conservative in their investments runs the risk of delaying retirement or forcing additional savings later in life.?
Another symptom of this common mistake involves trying to make a lot of money quickly. This is also related to the first common mistake. This mistake, however, can have far greater consequences. The words most associated with trying to make a lot of money quickly are ?speculation? and ?gambling.? Conservative investors know making a lot of money quickly requires luck more than skill. It?s not impossible, but entails a lot of risk ? too much risk for the prudent investor.
Jason Hull of Hull Financial Planning in Dallas/Fort Worth asks, ?How many people bought Facebook shares just because they knew Facebook? Furthermore, how many of them invested a disproportionately large amount of money into Facebook because they ?knew? it was going to go to the moon? When we take a big risk in investing a lot of our investable assets into one investment, then we live or die by that investment. Instead, we should look at diversifying our investments so that one bad investment doesn?t ruin our investment portfolio.?
Of course, the mailbox is full of plenty of examples of money managers who claim to have doubled or tripled their investment portfolio in two or three years. We expose the folly of these direct mail pieces by gently reminding the reader that every week across our country several people win million dollar lotteries with a single one-dollar ticket. As an individual trustee or retirement plan fiduciary, would you bet your trust?s entire investment portfolio on a single lottery ticket?
Still not convinced? Let?s give our direct mail money managers the benefit of the doubt. Let?s say their past record of lottery-like investment performance is true and accurate. We hope the reader will pause and consider how many of those weekly million dollar lottery winners win another million dollars the following week? The following year? For the remainder of their life?
For all these warnings though, it is the ease of access to ?information? that most vexes investors. ?The biggest mistake people make, in my opinion, is paying too much attention to all the ?noise? in the media (present company excluded, of course!),? says (graciously) Christopher Kimball, whose firm Christopher Kimball Financial Services is located in Lakewood, Washington. Kimball adds ?Bad news sells; panic gets people?s attention. That?s why newscasters so often play chicken little and claim the investment sky is falling. Fixating on all the panicky commentators not only can result in high blood pressure, but bad investment decisions, too. Everyone knows the stock market goes up and down ? it?s one of the fundamental laws of investing! As a friend of mine says, however, ?The only people who get hurt on a roller-coaster ride are the ones who jump off.? People have got to learn to remain calm and not listen to the doomsday sayers, whether it be on television, radio, or in print.?
If we could condense all three of these common investing mistakes into one word, that word would be ?emotion.?
?People tend to react instead of plan,? says Douglas L. Nelson of TCI Wealth Advisors, Inc. in Santa Fe, New Mexico. ?They buy when prices are going up and sell when they are going down. Fear and greed drive them. They think they know where the markets are going tomorrow and react instead of sticking to their plan. If anyone knows where markets are going tomorrow they will not tell us and would be wealthy beyond imagination.?
Everyone makes mistakes. There should be no fear in admitting when one makes a mistake. Mistakes aren?t always bad. Mistakes offer an excellent opportunity for us to learn. Mistakes can often lead to our greatest discoveries (see ?Christopher Columbus?). In the end, though, we can accrue these very same benefits by watching ? and understanding ? the mistakes of others.
The three most common investor mistakes other investors have committed have been listed here.
Don?t make them.
We?ll now move from the arena of mistakes to reveal A Better Way.
Part I: The Easiest Way to Reduce Personal Fiduciary Liability for Plan Sponsors and Other Non-Professional Trustees
Part II: Experts: 3 Common Investor Mistakes All Retail and 401k Investors Should Avoid
Part III: A Better Way
Part IV: Specific Real Life Examples
Part V:Putting It All Together
Interested in learning more about this and other important topics confronting 401k fiduciaries? Explore Mr. Carosa?s book 401(k) Fiduciary Solutions and discover how to solve those hidden traps that often pop up in 401k plans.
Source: http://fiduciarynews.com/2012/10/experts-3-common-investor-mistakes-all-retail-and-401k-investors-should-avoid/
kingdom of heaven national enquirer whitney houston arizona republican debate arizona debate enquirer national inquirer knicks vs heat
Rumors swirled Wednesday morning that US law enforcement agents were preparing to pounce on a major sportsbetting business with operations both inside and outside the United States, and online sportsbetting fixture Pinnacle Sports? name was bandied about as a likely target. Later in the day, the Las Vegas Review-Journal reported that Mike Colbert, Cantor Gaming?s sportsbook director and manager of the M Resort race and sportsbook had been arrested in Las Vegas on a warrant filed by the District Attorney?s office in Queens County, New York. Colbert is facing eight charges of conspiracy, money laundering and enterprise corruption. 
Source: Brian Solis and JESS3 http://www.theconversationprism.com/