Did you watch the recent Super Bowl over the weekend?
Did your team win or lose?
If there was one thing that I could wish for investors this New Year it would be that we change the way we invest. A few years ago, Brad Steiman at Dimensional Fund Advisors (DFA) published a list of New Year’s resolutions that I have shared with clients ever since. Instead of following the herd, or believing that you can outsmart the Market, I want you to adopt these New Year’s Resolutions when investing this year and beyond:
• I will not confuse entertainment with advice. I will acknowledge that the financial media is in the entertainment business and their message can compromise my long-term focus and discipline — leading me to make poor investment decisions. If necessary I will turn off CNBC and turn on ESPN.
• I will stop searching for tomorrow's star money manager, as there are no gurus. Capitalism will be my guru because with capitalism, there is a positive expected return on capital, and it is there for the taking. And for me to succeed, someone else doesn't have to fail.
• I will not invest based on a forecast—whether it is mine or anyone else's. I will recognize that the urge to form an opinion will never go away, but I won't act on it because no one can repeatedly predict the future. It is, by definition, uncertain.
• I will keep a long-term perspective and appropriately consider my investment time horizon (i.e., how long my portfolio is to be invested) when determining my performance horizon (i.e., the time frame I use to evaluate results).
• I will continue to invest new capital and work my plan because it is time in the market—and not timing the market—that matters.
• I will adhere to my plan and continue to rebalance (i.e., systematically buying more of what hasn't done well recently) rather than "unbalance" (i.e., buying more of what's hot).
• I will not focus my portfolio in a few securities, or even a few asset classes, as diversification remains the closest thing to a free lunch.
• I will ensure my portfolio is appropriate for my goals and objectives while only taking risks worth taking.
• I will manage my emotions by learning about and acknowledging the biases and cognitive errors that influence my behavior.
• I will keep my cost of investing reasonable.
If you would like to learn how you can apply these important New Year’s resolutions in reaching your financial goals please call us. At Arista we want to wish you a Happy New Year! May this year of life bring you and your family health, happiness, and prosperity!
Scott Johnson , CFP®, CPFA, AIF® is an Investment Adviser Representative of Arista Wealth Management, LLC, a Registered Investment Adviser
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In my last blog post I discussed 5 key principles that can help people get started on the right financial track. Within this post I will dive deeper into Principle 1, which is “Know Your Numbers and Live Within Them”. Below is a list of three key numbers that everyone should know and strive to live within.
As we enter the Thanksgiving week I invite you to pause and reflect on the question above and begin an exercise. This exercise is called the grateful exercise. It only takes 10 - 15 minutes but if it takes longer it’s ok.
When I was a kid in the 1980s, my dad was a Stock Broker and the “Back to the Future” movie trilogy was huge! In the 1989 sequel, Marty goes into the future and gets a sports almanac with 50 years of sporting outcomes, which would give him the ability to successfully bet on every future sports event. My fantasy was more simple. I just wanted to go one year into the future and get a Wall Street Journal that could tell me the 12-month future stock prices for every stock. I figured I could start with $1000 and turn it into a billion dollars in 12 months with that information.
Last week in Part 2, we examined the remaining emotional biases as well as introduced social biases that many are prone to. This week we’ll cover cognitive factors that often affect investors and wrap up the discussion with helpful tips.
This is the second in a three-part series where we are examining biases in financial thinking. We learned in Part 1 that the tendency to make inaccurate judgments and misinterpretations based on emotional and social influences can affect the financial thought processes.
Simply thinking about your investments can sometimes be overwhelming. We all want to make financially healthy decisions, but sometimes various biases keep us from accomplishing our goal. This 3-part series will reveal how you may be sabotaging your own plan.
After many years in the industry, I am witnessing something I have never seen before among clients and investors. Investment anxiety and fear are at all time highs. Life is short. Please relax.
The Dark Side of Annuities and Variable Universal Life
As a Certified Financial Planner™, nothing makes me cringe more than the words “Annuity” or “VUL” (Variable Universal Life). These are financial products which combine life insurance, investments, and guarantees. They are hard-sold by commissioned brokers who earn commissions as high as 8% per contract sale. Often the pitch is that these products can solve all of your financial problems by eliminating your downside investment return risk, providing tax-free investments and income, and protecting your loved ones when you pass. The main problem with many of these products is that they come with a hefty annual fee which can range from 2.50% to 4.50%. With an expense hurdle so high, it is hard to see your investments grow in value, and you are generally overpaying for the life insurance and the investment component.
What’s even more difficult with these products from a financial planning standpoint is that they generally have a long (7-10 year) surrender charge period. Remember, the insurance company pays the broker a hefty commission up front so they need to make sure they make their money back. This makes it hard to change your financial plan if the annuity or VUL no longer benefits you or meets your financial goals.
There can be a few valid reasons to purchase an annuity or VUL, but they often involve complex estate planning issues with high net worth individuals. However, for most people, you can accomplish everything you need financially outside of an annuity, or a VUL, for a lot less cost and a lot more flexibility. Especially when it comes to pure life insurance!
If you or a family member already owns an annuity or a VUL product, then my advice is to have it reviewed by an independent agent. There are a few VULs and annuities that are far superior to others regarding fees and performance. It is possible to do a 1035 exchange into another product. Or, the analysis may determine you would be better off cashing out the policy. For example, TIAA-CREF offers a level fee, non-commission and no surrender charge VULs and annuities which we think are some of the best of these products out there. We have had success switching clients with existing VULs and annuities over to TIAA-CREF and saving them thousands in fees and lost investment returns.
If you have a particular case that you would like to discuss, or you want to get a second opinion, please don’t hesitate to call me.
At Arista Wealth Management we are regularly asked by our clients to visit with their “millennial” children and share our expertise on ways to manage their money and build their wealth. Below is a list of the 5 simple steps that can help anyone get their finances in order.
Life is short and unexpected. A question I have for your thought and consideration is this - What brings you peace and joy?
Is $220,000,000 a lot?
Yes, it is. I would answer rapidly and with certainty that $220,000,000 is a lot of money.
Recently I was with a group of associates and we met with an owner of a Major League Baseball team. He spoke to us for over an hour on the positives and negatives of owning a MLB franchise. One of the many things that stuck out from the meeting was that $220,000,000 is spent annually on player salaries and that he:
CAN’T CONTROL THE OUTCOME or PERFORMANCE OF THE GAME.
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