Category: Investments

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Should You Use a Financial Planner or an Investment Adviser?

couple-meeting-financial-advisor-916x516From 1998 to 2013, the number of Fortune 500 companies offering pensions to their employees fell from 60% to 24%, according to The Washington Post. With the decline of unionism and loss of employee bargaining power, corporate managements have aggressively replaced pensions with profit-sharing plans, essentially transferring the risk of retirement planning and investment management to their employees. It is possible that the Social Security program will be similarly transformed, making retirees responsible for investing funds through private accounts. However, the truth is that few people are prepared to manage their own retirement funds – as Howard Gold writes in MarketWatch, “Most investors have no idea of what they’re doing.”
 
In the last half-century, the financial markets have become increasingly complex with new products, new markets, and changing tax laws. Technology makes it possible for investors to remain informed 24-7 about events that may affect their stock positions and to enter trades from the comfort of their home. At the same time, they must compete with robo-trading programs that react to news and market activity faster than any human can. As a consequence, according to Rosalind Resnick writing in Entrepreneur, even people capable of managing their own capital should carefully consider whether a go-it-alone approach to investing makes sense.
 
Whether due to a lack of training, interest, or time, many individuals are turning to professional advisors to help them navigate the perilous waters of personal finance. In some cases, advice covers the entire spectrum of financial services, ranging from budgeting, to creating specialized trusts and estate plans. In others, the consultant’s primary responsibility is limited to a specific need, such as managing a portfolio of investments or developing effective tax strategies.
 
Seeking and finding the perfect advisor is not always easy, especially in an industry filled with confusing acronyms. According to the Financial Industry Regulatory Authority (FINRA), there were more than 160 different professional designations. In addition, terms such as financial analyst, financial advisor, financial consultant, and wealth manager are generic titles and can be used by anyone without registering with securities regulators or meeting educational or experience qualifications. To add further confusion, many consultants add multiple titles and designations to their resumes, making it difficult to determine which services they actually provide.

Do You Need Financial Planning Advice or Portfolio Management Services?

While the terms “financial planning” and “investment advice” are often used interchangeably, they refer to different skill sets. As a consequence, two of the more popular designations – certified financial planner (CFP) and registered investment advisor (RIA) – are regulated under different authorities.
 
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Country Wisdom & Investing

country barnCountry wisdom is the collection of practical experiences gained by generations of pioneers, farmers, and ranchers as America transformed from a vast frontier to the world’s greatest economy. That experience – the result of constant trial and error – was passed from parent to child in plain language that left no room for misinterpretation. Living on a farm or ranch miles from the nearest neighbor meant solving problems on your own, making do with the materials around you, and accepting whatever happened and moving on.
 
Country people know that worry is like riding a rocking horse – it’s something to do, but gets you nowhere. Excuses and explanations count for little if the seed is not in the ground by the spring rains to make a crop. You don’t blame the cow when the milk gets sour, but change the pasture where she eats.
Country Sayings to Invest By
 
The wisdom gained over years of self-reliance in a lonely, often hostile environment remains just as applicable today in our modern, urban setting as at the turn of the century. The lessons of a country life – expressed in simple, understandable language – are especially pertinent for a beginning or inexperienced investor seeking to negotiate a confusing, constantly changing terrain of potential investments and prices. The following country proverbs are tested and true bits of wisdom you can apply equally to your investments and your life.

1. “The Quickest Way to Double Your Money Is to Fold It Over and Put It In Your Pocket”

Everyone expects to make money in the stock market, but few have realistic expectations of probable returns. Inexperienced investors frequently buy stocks on the advice of acquaintances or friends who brag about their experiences, implying that investment success is easy.
 
Everyone expects to buy the next Apple or Microsoft, allowing them to retire at age 30 or 35. However, doubling your money in a single year is highly unlikely, and becoming wealthy overnight a pipe dream for most people.
 
Here are two keys to stock market success and long-term financial independence:

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5 Steps to Better Problem Solving

problem-solving1Modern humans are the greatest problem solvers the world has ever seen. While our predecessors developed primitive tools to better live in their environments, humans are the first to develop the mental acuity necessary to transform their living space. As a consequence, we thrive around the world, altering hostile, barren desert lands and freezing climates into hospitable habitats with growing populations.
 
Of course, problem-solving abilities vary considerably from one individual to another – some of us excel in resolving overarching dilemmas, while others are more adept at making basic day-to-day decisions. Researchers at the Center for Research on Learning and Teaching at the University of Michigan believe that difficulty solving problems tends to stem from the following two issues:

Inaccuracy in Reading

Incorrect interpretation of a problem can stem from perceiving it without concentrating on its meaning. It can also result from reading unfamiliar words, overlooking important facts, and starting to address it prematurely. Simply stated, many people have difficulty framing a problem accurately at first and consequently develop inadequate or incorrect solutions.

Inaccuracy in Thinking

Ancients Greeks called the ability to properly reason “logic.” Today, we sometimes refer to this ability as “pragmatism”—a system of thinking to determine meaning, truth, or value. Poor decisions result from a lack of clarity so that irrelevant information is considered in the problem-solving process. We sometimes pursue solutions that do not meet our intended goals, or we fail to break complex problems into understandable parts when time constraints force us into premature decisions.
 
Each of us makes decisions every day that affect our happiness, careers, and satisfaction with life. By learning and practicing the skills of proven problem solvers—and following the necessary steps— you can boost your self-esteem, reduce interpersonal conflicts, and lessen overall stress.
 
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The Rise of the Robot Investment Advisers

online investingIn the past five years, a new type of financial advisor has emerged to compete with traditional investment advisory firms. Funded by venture capitalists, these new advisors exploit the latest technology to offer competent investment advice in exchange for drastically reduced fees.
 
Just as technology changed the full-service brokerage industry by lowering transaction costs and enabling online trading, it will also ultimately change the practice of investment advisors by automating portfolio management and investment advice. According to Grant Easterbrook, analyst at Corporate Insight, “These newcomers offer average Americans access to low-cost advice and investment solutions with fewer potential conflicts of interest and greater performance transparency.”

The Rise of the Virtual Advisors

Automated online portfolio management services – what many have dubbed “robo-advisors” or virtual advisors – have been available for the past decade. They offer convenient, transparent portfolio management for accounts both large and small through easy-to-use websites – and all for 20% to 30% of the cost of traditional advisory firms. According to Institutional Investor, Corporate Insights estimates that this group currently manages almost $17 billion in U.S. assets.
 
Robo-advisors generally share a common philosophy of money management:

Passive Investment Strategy

Based on the concepts of Nobel Prize-winning economists Eugene Fama (Efficient Market Hypothesis) and Harry Markowitz (Modern Portfolio Theory), robo-advisors do not attempt to “time the market” by projecting its direction up or down. Nor do they try to pick “winners” and “losers” of individual stocks. They invest in broad sectors of securities or market indexes—exchange-traded funds (ETFs)—to diversify risk and secure average stock market returns.

Algorithm-Based Advice

Robo-advisors rely on proprietary software to automatically create and maintain portfolios of index funds. These portfolios are designed to fit broad client investment goals, and are tailored to factors such as age, risk tolerance, expected retirement date, and so on. For example, the criteria to select a specific portfolio might be based upon a goal, such as retirement, to be achieved by a certain future date, with the ratio of equity to debt securities based solely on the time-frame between the investor’s current age and retirement age.

Extended Investment Term

According to Betterment, an analysis of the Standard & Poor’s 500 Stock Index between 1928 and 2014 indicates that the longer people stay invested, the less loss they risk and the greater their possibility of gain. For example, about a quarter of all one-year investment periods between 1928 and 2014 experienced losses in value, while less than a tenth of the 10-year investment periods resulted in a loss. Similarly, the median cumulative return was substantially greater for 10-year holding periods than one-year periods. In other words, the longer you stay fully invested in a broadly diversified portfolio, the greater your chances of gains.
 
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