Broker Check



| December 27, 2016
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My last post was pre-election and the intervening time period has helped to prove some of the points I was trying to make with my last post. 


Remember in October, when I said the proponents of active management are out to tell you they can predict the future and get you into and out of the market at “just the right time?”  Although it is tempting to believe those guys in their slick suits and Wall Street skills, the election yet again shed some light on how they could be making luck look like skill. 


Before the election, all the talking heads, experts, and pundits were saying Hillary Clinton was going to win.  Trump was the experts’ pick to lose.  On top of that prediction, which somehow didn’t materialize, all of the Wall Street forecasters claimed the market would take a major dive if Trump were to win the election.  Again, all of those so-called experts were wrong.  Although it may be easy for me to cherry-pick this one example, THIS blog post highlights some real numbers when it comes to forecasters. 


What does all of this prediction talk have to do with you or with implementing a financial plan?  A key decision in implementing a financial plan is deciding what tools to employ along the road to your financial goals.  Most investors really aren’t all that interested in fundamental analysis, standard deviation, alpha, Sharpe ratio, or really any of the terms that could be thrown at you to argue for or against a given investment option.  What I believe most investors are interested in is the answer to the question, “Will I have enough money for my goals?”  The way most financial planning software makes estimates of your likelihood of success is by using historical market return information.  According to a 2015 Standard & Poor’s Scorecard report only 23% of US equity managers beat the index they were intending to beat between 2009 and 2014 (Standard & Poor’s Indices Versus Active Funds Scorecard, SPIVA, mid-year 2015).


This unreliable performance of active managers is why I believe it is best to lean toward science based implementation of financial plans.  What this means is that I aim to use investments that are globally diversified and structured around the known factors that tend to drive returns.  In the end the investment portion of the discussion is relatively boring and straightforward.  Our goal in choosing investments is to use our science based approach to build a portfolio that is properly adjusted for the risk tolerance of the client and doesn’t involve trying to jump in and out of the market or outguess everyone else. 


Aside from the investments, which should be more of a side-note (when they are founded in science) than the main event in a financial plan, we choose high-quality insurance products based on the goals of our clients.  Each client will have different attitudes and needs when it comes to insurance products, but many will need to protect themselves with life insurance, long term care insurance, or disability income insurance.  While the plan is to stay happy and healthy for long periods of time, part of implementation is preparing for the unexpected by building in appropriate coverage to keep our client’s plans from being destroyed by unexpected illness, injury, or death. 


Almost every client I have worked with also has a need to plan ahead with other professionals like a CPA or attorney.  It is very important that a financial advisor be thorough with clients, even if they have to admit to the unthinkable, that they can’t do it all.  A thorough financial plan will often uncover client needs for a Will, Power of Attorney paperwork, a healthcare directive, or an area where they could benefit from tax advice. 


Once the assets, liabilities, goals, and concerns have been laid out, the financial plan moves forward by choosing investments aimed to grow the assets, action steps to eliminate liabilities, and insurance products aimed to alleviate the concerns an individual client may have.  With small steps, patience, and discipline, a well-crafted financial plan can help a client take the right path to achieving their goals. 

 This time we are going to mix it up a bit.  A couple of ducks instead of a puppy this month:

*All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Asset allocation is an investment strategy that will not guarantee a profit or protect you from loss.

**A diversified portfolio does not assure a profit or protect against loss in a declining market.

***For a comprehensive review of your personal situation, always consult your legal advisor. Neither Cetera Advisor Networks LLC, nor any of its representatives may give legal advice.

****Past performance is not an indication or guarantee of future results.

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