February 22nd, 2010
NYT February 18, 2010
“…
Another aspect of evaluating brokers is to ask about their compensation. If broker-dealers or certified planners earn commissions for selling certain products, can they provide unbiased investment advice? For example, the typical commission on a $100,000 variable annuity is $6,000, plus $2,000 in annual expenses, which flow back to the agent, insurer and investment manager.
To better understand brokers’ motivations, examine their registration and compensation. Professionals with “Series 6” registrations, for example, can sell only mutual funds and annuities. They must pass a 100-question, multiple-choice exam for this designation. A much broader registration is “Series 7,” which allows sale of all securities and some insurance products.
Fee-only financial planners, in contrast, do not earn commissions; they may pick products that fit your financial needs and goals, at the lowest possible cost. These planners charge for their time and expertise. …”
This is important for investors to understand!
Tags: Investment Advice, Investment Style, linkedin, NEW
Posted in Avoiding Risk, Financial Planning, Investment Advice, Investments | No Comments »
February 5th, 2010
WSJ January 3, 2010
“A STOCK that builds momentum in one year often carries it over into the next. Might that momentum effect work for the overall stock market? Stocks surged in the last nine months of 2009. But the market’s performance in one year can’t predict the next, the data show.
It’s an especially tantalizing prospect right now, after the market’s surge over the last nine months of 2009. Investors would love to see that trend continue into this year. Unfortunately, though, there is precious little statistical support for it.
Consider the yearly returns of the Dow Jones industrial average since 1896, the year the index was created. The Dow rose in 73 of those years. And in the year after each of those climbs, it rose 64 percent of the time. That’s statistically indistinguishable from the 65 percent frequency with which the Dow rose after years when the index fell.
These results suggest that the market’s performance in 2009 doesn’t increase the probability of a net gain in 2010. (The good news, of course, is that high frequency of yearly gains. That means you’re likely to make money if you buy and hold a broad portfolio of stocks over the long term.) …
“We can be comforted by the fact that reasonably efficient markets always base their level on anticipated future returns,” he added, “and do not include history in the calculation.”
One exception to this general pattern involves the relative performance of small-capitalization stocks, which over the last 80 years have shown some modest persistence from year to year. That makes sense, because small caps are the market’s least efficient sector, and it therefore takes longer for their prices to adjust to new information….”
Read the whole article, it does a good job of explaining why trends and patterns don’t hold up and why market timing is virtually impossible with precision. This article was published on January 3, after February 4th, I think the point is underscored that market moves are unpredictable.
Tags: Investment Advice, Investment Style, linkedin, NEW
Posted in Avoiding Risk, Investment Advice, Investments, Uncategorized | No Comments »
February 5th, 2010
WSJ February 1, 2010
“New studies cast doubt on whether fund-manager skill and past performance are good gauges of future results.
Advisor Perspectives, an e-newsletter for financial advisers, in December published a study suggesting that investment research firm predictive value. It also found that many five-star-rated funds were likely to underperform their peers.
Robert Huebscher, chief executive of Advisor Perspectives, randomly selected a fund with a particular rating, and then looked at how it fared against randomly selected funds with lower-star ratings from the third quarter of 2006 through the third quarter of 2009. He found many cases where the lower-rated funds were more likely to outperform those with higher ratings.
Yet, despite those findings, “the public pour money into funds that get higher ratings,” Mr. Huebscher says.
The perils of banking of past performance are clear to see. Bill Miller, manager of Legg Mason Capital Management Value Fund (trading symbol: LMVTX), posted an industry-record streak of beating his benchmark for 15 straight years. But investors joining the fund in early 2007 based on that record would have suffered a 6.7% loss that year, followed by a whopping 55% decline in 2008. Further illustrating that past performance isn’t a reliable guide, the fund was up almost 41% last year.”
If investors use the Morningstar five star funds as their sole rationale for picking a fund, they are employing a strategy of performance chasing. This is not an effective strategy as the article goes on to explain why.
Tags: Investment Advice, Investment Style, linkedin, NEW
Posted in Avoiding Risk, Financial Habits, Financial Planning, Fixed Income, Investment Advice, Investments, Retirement, Uncategorized | No Comments »
February 5th, 2010
WSJ January 30, 2010
“…So, even though you technically have until next April to decide when to pay the tax, it makes sense to make that decision early. One other note: Conversion income might drive up your state income tax as well, which you could check with a local accountant.”
Paying taxes on roth conversions isn’t clear so read this article to see your options to avoid penalties.
Tags: Estate Planning, Investment Advice, linkedin, NEW
Posted in Investment Advice, Investments, Retirement, Roth Conversions, Roth IRA, Uncategorized | No Comments »
