Friday, May 19, 2017

Remember 2008? Use This Strategy To Help Protect Your Money

Our financial markets have made a gargantuan move higher since the presidential election results back in November. If you have an IRA, 401K or other investment account you've more than likely heeded some substantial gains over the past 7 months. President Trump, like him or not, has made some bold claims for boosting our economy and up until now that has all seemed to have gone quite well. Unfortunately, as we've seen of late, he's having a difficult time adjusting to this new position thus making the markets increasingly weary of the future. 

Where do investors turn for help with their investments in times like this? My team went to the drawing board and asked a handful of our clients what type of option they would need to feel confident and put them in a position to succeed given the current state of the market. 

Here's what we were told:
  • They wanted the ability to participate in a market rally if it continued to rise from here
  • They wanted a downside buffer to protect them against some losses if the market slips
  • And lastly, they wanted it to be a low cost, affordable option
  • Basically, they wanted all the good of the market while having some protection against the bad
We worked with our partners and established a new investment strategy that provided our clients with the solutions they desired.   

This new solution allows our investors to:
  • Participate in a rally if the market continues higher.
  • Have the ability to chose what level of protection or how much of a buffer they would like against a downturn in the market.
  • As for cost, how much does this solution set them back? This solution has NO fees. 

Over the past 30 years, the S&P 500 has seen a total of 7 negative return years. We wanted to find a solution to help with the downside of the market. 

Upon seeing seeing the reaction from our clients, I knew this was the right solution for many of our clients both large and small. If you would like to take advantage of this opportunity please feel free to reach out to me so we can determine how to incorporate this into your current investment strategy.

I'm giving my blog readers exclusive access to my 5 Point Financial Plan completely FREE. The concepts in this plan are one's that I utilize in every new client meeting and set the foundation for proper financial planning. It's loaded with value and not something you'll want to pass up on. Click below to get  your own PDF version!

*The views expressed are not necessarily the opinion of Woodbury Financial Services, Inc., and should not be construed directly or indirectly, as n offer to buy or sell any securities mentioned herein. Individual circumstances vary. Investing is subject to risks including loss of principal invested. No strategy can assure a profit against loss. Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs and expenses. 

Tuesday, May 9, 2017

The Real Cost of Index Funds: 3 Ways You've Been Fooled

It's truly fascinating to see what a multi-million dollar budget can do.  The large low cost providers have used their war chests of money to manipulate and brainwash an entire generation. Before we get into that I want to start by saying I have nothing against index funds and I do use them when appropriate. I believe that index funds have a place in a portfolio, however, I do not believe they should comprise the entire portfolio. 

By only investing in index funds you're saying that you are satisfied with average. You would never like the opportunity to do better than the general market nor are you interested in having a manager who can make adjustments to hedge some of the downside risk in a correction or bear market.

Word Manipulation

I can already hear the objections now, "But XYZ low-cost provider says that the average mutual fund doesn't beat the benchmark 80% of the time, so why use them?". To which I always reply, "Can you please define the term 'average' for me?" and I ask this because no one knows what they're comparing their low-cost funds against. 

I can tell you one thing for certain, there is a large number of actively managed mutual funds out there that are poor, with unacceptable performance. So, when you include these funds in the comparison, suddenly these providers are able to paint the precise picture they need to convince the investing public their method is superior. 

Here's the catch, my clients are not investing in the "average" actively managed mutual fund. If we decide that an active manager is the right fit then we are using funds with long track records of stellar performance. Of course, any fund will have a few years that this doesn't occur but this doesn't mean the strategy should be abandoned.

One-Sided Comparisons

One thing you will never see the low-cost providers do is make comparisons in real dollar figures. Meaning, they focus on the year-to-year returns when what truly matters is how much money did you start with and how much money did you end with over a period of time. 

They won't show you these statistics because in doing so their strategy suddenly looks far less appealing. For example, I have an actively managed mutual fund that I've been recommending to clients for years now. 

When you look at a $10K investment over a 10-year time span my fund appreciated to $21,570 (NET OF FEES). Meanwhile an S&P 500 ETF from one of the leading low cost providers has only grown to $19,600. So regardless of what the funds expenses are all that it comes down to is; which pile of cash would you prefer? 

Once a client sees that our active managers have returned more real dollars, net of fees, to it's investors over a given time frame the decision becomes obvious. Now you understand why they will never make comparisons in real dollars even though this type of analysis is far more relevant than what an active fund did in one specific year.

Hidden Agendas

Once again, the goal of this blog was not to beat up on these low cost providers but instead  it was to give the other side of the story. Hearing both sides makes you a more informed investor and prevents you from relying on the headlines that these huge marketing budgets can afford to put in your face.

 They trick you into believing they are doing you a service by giving you a fund that costs less, when as you can see from my previous examples, this isn't true whatsoever. Remember, all these low-cost providers have a hidden agenda, they aren't trying to cut your fees because they're your friend. They make their money similar to how a bank does, by having your money in their accounts and being able to do other things with it. These companies spend BIG dollars to make sure their ads are seen all over google and other places that investors frequent and there's a reason for it.

One thing I hope you all take away from this, regardless of your age or investment experience, is that what truly matters is how much money you end up with in the long run. Year-to-year calendar returns are meaningless if these low-cost funds aren't making you as much money over time as the active funds are net of their fees. Fees are only an issue in the absence of value, so long as your advisor is using active funds that bring real value the fees associated with them are an irrelevant issue. 

 The views expressed are not necessarily the opinion of Woodbury Financial Services, Inc., and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Individual circumstances vary. Investing in mutual funds involves risk, including the potential loss of principal invested.  Risks vary depending upon the strategy used by the fund as well as the sectors in which the fund invests.  When redeemed, shares may be worth more or less than the original amount invested.