Wealth Abundance | Wealth Management

Where Are My Investment Returns?

Derick — Thu, 03 May 2012 22:56:14 +0000

Do you often look at your investment statements and wonder what is going on? Do you wonder where and how your returns are coming in? Are you frustrated with the returns you’ve gotten over the years? Do you wonder if there is a better way?

According to Dalbar, Inc., an independent research firm that tracks investment returns and investor behavior, found that the average stock investor received a miniscule 1.9% over the last 20 years, ending in 2008. In other words, investors took on a lot of risk to receive a CD rate of return. During that same time period, the S&P500 (an unmanaged index) returned 8.4%, almost a 7% difference!

So, why have investors failed to get market rate of return for the last 20 years? It generally boils down to the four most common mistakes:

1) Poor (or wrong) investments. Investors generally have no idea what their investments are about, and have no idea what they are intended to do. Investors generally grab a handful of mutual funds, hoping that they will perform well. If not, replace them when they don’t do well. Often times, investors will buy a mutual fund based on past performance (which means nothing), or buy a fund based on an advisor’s recommendation (based on past performance, which means nothing).

2) No plan in place. Do you have an investment policy statement? If you don’t have one, you are in investing trouble. An investment policy statement will outline your investing objectives, target specific funds, outline your strategy (in market up’s and down’s), and hold you accountable. It will also eliminate ‘behavior’ mistakes.

3) Behavior (or emotion) based investing. Investing based on emotions is a dangerous activity. Barron’ Magazine found that 9 out of 10 investor decisions ( selling or exchanging investments) based on emotion where incorrect in the end. So, what are the odds that your ‘gut’ is telling you the right thing?

4) Not knowing where returns come from. This is the crux of investing. If you don’t know where returns come from, how will it be possible for you to get them? There is over 60 years of academia studies that show where returns come from, and they don’t come from a broker.

Do you have a ‘peace of mind’ about your investing strategy? If you’re not sure, or feel you should be doing better, I invite you to contact an investment coach at Wealthabundance Wealth Management. Wealthabundance coaches are independent, un-biased coaches that will show you how to achieve a better retirement, a better life-style, and a more enjoyable life. Contact a Wealthabundance coach at 920-202-3765, or visit www.wealthabundance.com

IRA planning that creates a family legacy-

Derick — Mon, 26 Mar 2012 18:05:38 +0000

In February, 2012, the government of the United States, Congress, to be exact, tried to shut down an IRA planning strategy. This strategy is so powerful, that on February 7, during the Senate Finance Committee’s review of a massive new highway bill, committee chairman Max Baucus (D-Mont.) added a provision that would have ended tax-deferred “stretches” of inherited IRAs for beneficiaries other than spouses, minor children or the disabled. Under the provision, most beneficiaries would have been forced to pay taxes on inherited IRAs over a drastically shortened five-year timeframe, rather than being allowed to defer the taxes over the beneficiary’s lifetime, as is currently permitted.

The government tried to strip it from you and your family, and not allow you to use it. Why would they try to shut down this strategy? This strategy is so powerful; it could turn your IRA into a family fortune. The fortune that your family has, is a fortune the government doesn’t get. This strategy allows you to pass your IRA onto beneficiaries that you choose. This strategy allows the beneficiary the ‘stretch-out’ the IRA distributions over their lifetime, while continuing to earn interest and grow. This strategy allows your IRA to last for a significant amount of time longer than the government wants it to. The government doesn’t get their money right away, but has to wait for it over a longer period of time, keeping the money in your family’s hands for years, growing and creating wealth for your family.

This strategy is so powerful, the government tried to shut it down. Fortunately, in March 2012, the Senate pulled it from consideration knowing it would be one of the greatest wealth confiscation acts ever brought on against the American public.

What IRA planning are you doing? Do you know the strategies that successful investors use? IRA planning could be more important than setting up a will or trust. If you are interested in knowing what your IRA options are, I welcome you to give me a call, or email me. Don’t put it off, it could cost you and your family a fortune!

Here’s to your wealth!

5 key strategies for a successful IRA

Derick — Wed, 21 Mar 2012 15:33:22 +0000

Do you know the 5 keys to having a successful IRA? Most investors have an IRA, but aren’t properly planning on maximizing it, often times leaving a potentially large chunk of money that’s going to be, eventually, payable to the IRS. You’ve spent a lifetime accumulating the value of your IRA tax-deferred- but you don’t get to keep it all. The IRS has great interest in your IRA, and they can’t wait to get their hands on their share of your account.

There are 5 key strategies to maximizing your IRA and minimizing the IRS. To keep as much of your money in your hands, or your families hands, and out of the IRS hands, you need to do much more planning than just looking at your statements.

The first key planning strategy is to time the distributions correctly and efficiently. When your 70 ½, the government says you must take out money on a yearly basis, and of course, they will have their hand out, waiting for their cut. Distribution planning is often put off, or not done in the most efficient manner.

The Second key planning strategy is to insure the account. Insure it? You may be scratching your head here, but yes, insure it. You insure your home, your car, your health, why not your investments? Your investments may be more valuable than your house, and definitely your car. So yes, insure it!

The Third key planning strategy is to ‘stretch’ it. Most investors have no idea what stretching is, and instead of parlaying your investments into a fortune, often times give it away to the government.

The Fourth key planning strategy is to ‘Roth’ it. Most investors have heard of a Roth IRA, but think it’s too late to have one, or don’t see the benefits of having a Roth IRA. A Roth IRA has tremendous benefits for you, and for Estate Planning purposes. Do you want to eliminate the IRS from your life? If so, The Roth is a key planning strategy.

The Fifth key planning strategy is to Avoid the Death Tax Trap. If you don’t have a plan to avoid the Death Tax Trap, the government has one for you. By not doing anything, you essentially sign off on the government’s plan. And their plan includes them. Do you have a plan that keeps them out as much as possible?

If you would like more information on how to maximize your investments, call our office at 920-202-3765, or you can email me at Derick@wealthabundance.com

Here’s to your wealth!

Are you a Smarter Investor than a Fool?

Derick — Mon, 05 Mar 2012 17:22:29 +0000

Are you a Smarter Investor than a Fool?

In volatile times, good deals are plentiful for fearful investors. Safe money alternatives sound great. You’ll hear about annuities, gold, silver, and other commodities. So, are they really prudent investments?

We’ve all seen the commercials on tv and heard on the radio to buy gold and silver. Since the commercials are on all the time, they must be providing good advice, right?

Or, are they turning you into the greater fool?

10 years ago, commercials on tv to buy gold were rare. 10 years ago. Commercials about silver, and other commodities were just as rare. When do we hear about gold and silver, and other commodities? Usually, after they have done well. When gold does well, as it has in the last few years, commercials are all over the place telling you to diversify into gold. When gold takes a break, silver is promoted as being a good diversifier. Anything that’s done well recently is considered a great diversifier.

So, what does gold, silver, or other commodities do for you? Well, let’s take a look at what they don’t do:

First off,

Commodities have no productive activity- they don’t manufacture anything, and they certainly don’t provide a service.
They don’t have a coupon rate- like bonds do.
There is no dividend- like stocks have.
There are no earnings- like stocks have.
They have no internal rate of return, so therefore, it’s purely a speculative adventure. What are you betting on?

So, what are the reasons they want to sell you gold, silver, or other commodities?

Often times, you’ll hear about gold being a hedge against inflation. You’ll hear that gold is a safety net for a declining dollar. Let me ask you this: If these reasons are true, protecting against inflation and/or the declining value of the dollar, why would a company sell you their gold and silver for your declining dollar? What do they know that you don’t know? Would you make a trade like that? Would you be selling someone something of value for something that is deemed to be going down in value? In an ironic twist, those who rely on speculation, stock-picking or market-timing become the “greater fool,” and are left holding the bag when the investment falls and they either can’t find a buyer or they have to sell at a loss. If the dollar did decline to such a low level, when you needed to sell your gold or silver, would you exchange it for useless paper?

This is called the “Greater Fool Theory” The greater fool theory (GFT) refers to those who buy an investment based on the premise they will be able to sell it at a profit to a “greater fool.” Many investors subscribe to this theory, but don’t know they are engaging in it.

Obviously, the people selling you gold and silver don’t share the same view as you do, so which of you is the greater fool?

A prudent investor will focus on a globally diversified, low-cost, passively managed portfolio based on their risk tolerance.

Your Retirement Plan…

Derick — Tue, 28 Feb 2012 18:59:03 +0000

What if you could build the retirement plan of your dreams

Imagine for a moment…

What if there was a way to restructure a qualified retirement plan or IRA to:

Never have to take taxable required minimum distributions
Can compound the money tax free until you need it
If and when you need it, you could take it out tax free
And, your beneficiaries, after you’re gone, can take it out income tax free

Sound too good to be true?

It’s not! And, I’m going to be showing you exactly how to do this with your retirement plan/investment portfolio on March 19 at Liberty Hall.

This is going to be a great event and I encourage you to be there. If you haven’t let me know that you’ll be attending, do so now. Give me a call, or shoot me an email, to let me know you’ll be there. It’s going to be good

Will the Dow hit 13,000?

Derick — Wed, 22 Feb 2012 15:33:03 +0000

Will the Dow hit 13,000 this week?

All indications are is that it will. Anytime the market hits a high mark such as 13,000, there is cause to celebrate. Afterall, we all remember the low of the market on March 9, 2009, when the Dow was creating widespread panic as it was bottoming out under 7,000.

What have investors learned over this 6,000 gain in the market? As a Coach, over the last 3 years I’ve heard it all. Unfortunately, none of the stories I heard where market related- they were mentally, emotionally, irrationally, and doom & gloom stories of scarcity…not of abundance.

As the Dow took a downturn, investors where seeking a ‘safe’ haven. They had to ‘get out’ of the market before they lost any more money. Stories of CD’s and Annuities became a ‘hot’ sale to a scared investor. Investors often looked to protect the downside, rather than maximize the upside potential. How silly those investors look now. They locked in their losses, and as the market rebounded, lost all the upside gain. Their ‘fear’ actions lead to a double loss!

Why do investors continue to make silly decisions?

Often times, it’s because they don’t have an investing plan, or an investment policy statement.

Investors don’t have Coaches. Most investors have brokers, who get twice as scared as they do because now, their salary is on the line, which causes them to make trades, sell commissioned-based products, all at the expense of the investor. Yes, brokers are just as quilty of creating investor chaos. Often times, a broker would rather keep you happy than tell you the truth, like a Coach.

The fear of loss is often times greater than the excitement of gain. Short-term focus can destroy an investors peace of mind.

Investors don’t know history. History tells us that the market has gone up 100% of the time! While we don’t know if the next 20% movement will be up or down, investors should invest as if it’s always going up, and buying.

There are other reasons as well. And I’m going to go over them on March 19 at Liberty Hall. This is going to be a great event and I encourage you to be there. If you haven’t let me know that you’ll be attending, do so now. Give me a call, or shoot me an email, to let me know you’ll be there. It’s going to be good

Your Broker Has No Clue

Derick — Wed, 08 Feb 2012 16:08:46 +0000

I have to share this recent article by Dan Solin, “Your Broker Has No Clue.” In this article, Dan Solin really hits it on the head when defining the difference between a broker and a Coach. A broker will always keep your account in chaos, while a Coach will help you structure a globally diversified portfolio. Enjoy the article, I highly recommend it.

Dan Solin

Author of the Smartest series of books

Your Broker Has No Clue

Posted: 02/ 7/2012 7:28 pm

I am fascinated by the way most people invest, because it is demonstrably wrong. Here’s how you probably pick your mutual funds.

Your broker calls and tells you about a mutual fund he believes is right for your portfolio. The pitch usually involves a discussion of the stellar past performance of the fund. He encourages you to sell funds that have underperformed and buy ones with better performance. The process repeats endlessly. You fall for it every time. Does this make sense?

In a thoughtful blog, Brad Steiman, a vice president of Dimensional Fund Advisors, discusses the many problems with this approach.

Recent performance can be misleading

Steiman notes that a few years of outperformance may not be indicative of skill. The fund manager could just be lucky. For example, a fund that had an average “alpha” (positive return above its benchmark) and a standard deviation (measurement of volatility) of 6%, would require a track record of 36 years before you could be 95% certain the fund manager was skillful and not just lucky. A 6% standard deviation of alpha is representative in the Morningstar data of actively managed US equity mutual funds.

Just for fun, ask your broker this question the next time he recommends a mutual fund: How long a track record would I need in order to determine if the performance of the fund manager was evidence of skill? He won’t know the answer, but the blank look will be worth your effort.

Finding the needle in the haystack may not be enough

Let’s assume you have a terrific broker who has a modest understanding of statistics. The broker tells you he has found a fund manager with a long enough track record to indicate skill and not luck. Should you buy that fund?

Probably not. According to Steiman, one out of 40 managers is expected to meet this criteria based on luck. He concludes that even with this impressive track record, “[T]here is still a 2.5% probability the outperformance was due to good luck, and the true alpha of the manager is zero.”

The Fund Manager’s Skill May Not Persist

It gets worse. Even with a statistically impressive past performance, Steiman notes that “…winners do not continue to win, and even when there is alpha in the extremes, it does not persist.”

You can’t expect your broker to understand how to evaluate statistical data. They are salesmen (and women). But you can — and should — educate yourself with a basic understanding of how to determine whether the next “hot” fund manager shows evidence of skill or is the latest false prophet hyped by the financial media and the securities industry.

I agree with Steiman. You need to get off “the manager selection merry-go round”.

Investor ‘Fear’ Destroys Portfolios

Derick — Wed, 25 Jan 2012 15:25:23 +0000

An often heard phrase “Markets hate uncertainty.”

I disagree, markets thrive on uncertainty. The more certainty there is, the lower the expected return. The more certain the markets, the lower rate of return. Uncertainty rewards investors for the risk taken. Investors should not fear volatility, but embrace it, and use it to your advantage.

Right now, the current rate on a 5-year CD is about 1.36%. Once inflation and taxes are taken into account, the CD holder actually losses money. This is a good example of “certainty.” That is not the way to invest. The markets, a globally diversified portfolio, will reward investors for the risk taken, lower volatility, and produce returns over inflation in the long term.

Investors should not worry about short-term fluctuations, but keep your eye on the future.

As the great hockey player Wayne Gretzke once said, “I skate to where the puck is going, not to were it has been.”

The S&P500 and the Dow are up 91% since the market low of March 9, 2009.

There is plenty of growth in the future. So skate to it!

Broker’s Are Like Belly Buttons

Derick — Wed, 18 Jan 2012 18:11:25 +0000

As an investor, you should follow the protocol and insist on peer-reviewed evidence supporting the advice given by your broker or financial adviser. Few can survive this kind of scrutiny.

Broker’s opinions are like belly-buttons, everyone has one. The hard part for a broker is actually finding someone who would actually endorse, or back up, their recommendations. Why? Because most of the time, their opinions are not based on academic, nobel prize winning investing theory. So why would anyone invest in something that has no evidence of intelligence?

Fire a broker, and work with a Coach.

As part of our service to you, Matson Money reviews your accounts for rebalancing each quarter. As a courtesy I wanted to inform you that Matson Money will be rebalancing your accounts over the next few days if needed. We wanted to make you aware of this so there is not a concern if you see activity in some of your accounts.

Index YTD

Dow Jones Industrial Avg. (12,422) 1.76%

S&P 500 (1,289) 2.58%

NASDAQ 100 (2,372) 4.16%

S&P 500 Growth 1.67%

S&P 500 Value 3.68%

S&P SmallCap 600 Growth 1.96%

S&P SmallCap 600 Value 4.01%

MSCI EAFE 0.21%

MSCI World (ex US) 1.24%

MSCI World 1.60%

MSCI Emerging Markets 4.02%

Feelings about 2012 are Mixed and Choppy

Derick — Tue, 10 Jan 2012 14:26:22 +0000

How about you?

A recent survey by CouponCabin.com found that 47% of U.S. adults say they are optimistic that 2012 will be a better year for them financially than years past, according to UPI.com. Thirty-seven percent do not believe they will be better off in 2012, with the remaining 16% unsure.

Here are some of the ways they intend to be proactive financially: 77% intend to cut back on unnecessary expenses; 62% intend to curb such extras as eating out or going to movies; 54% say they will create a budget and stick to it; and 54% say they will use coupons.

With respect to investing, 21% plan to buy stocks.

While 2011 didn’t set the World on fire, there were some positives. We’ve discussed many issues that our Country is going through.

The good news is- 2012 is a new year.

We should all hope that our economic issues begin to get worked out, and the Power of the Free Markets does what it’s suppose to do.

Index 2011

Dow Jones Industrial Avg. (12,218) 8.41%

S&P 500 (1,258) 2.12%

NASDAQ 100 (2,278) 3.69%

S&P 500 Growth 4.70%

S&P 500 Value -0.48%

S&P SmallCap 600 Growth 3.67%

S&P SmallCap 600 Value -1.34%

MSCI EAFE -12.14%

MSCI World (ex US) -13.71%

MSCI World -5.54%

MSCI Emerging Markets -18.42%