Thoughts, ideas, suggestions and education from financial adviser Jim Ludwick, Founder of MainStreet Financial Planning, Inc. of Odenton, MD; Washington, DC; New York City, and Santa Barbara, CA

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Friday, August 15, 2014

Trends I Don't Like

By Jim Ludwick

Now you might recall, I’ve labeled myself as the Andy Rooney of financial blogging.  So here’s another piece in that particular style. 

I’m uncomfortable about a number of issues that affect financial consumers.  Here’s some and here’s why.

1.     Target Date funds being used for the wrong reason.  These fund of funds that automatically become less stock and more fixed income as time progresses are supposed to be an easy and sometimes are a default for 401k/403b retirement accounts.  What’s wrong you ask?  Investors (yes, if you have a 401k plan, you are an investor) in many cases don’t look at the underlying asset allocation (stock to bond ratio) to see how volatile it might be, especially in a down market.   I would argue that the ratio is more important than the target date, which can be quite arbitrary. 

2.    More online investment managers using cookie cutter portfolios.  Venture capitalists are funding these efforts left and right.  I participate in two of them for research purposes so I can know what I’m talking about and am prepared with a response when I’m asked about them.  When the VC boys and girls are throwing money at things, they smell profit.  At who’s expense, you might ask?  So far the jury is out and these investment programs may have a place, but I don’t see how they can manage an individual or family investment strategy when they only manage a portion.  Too easy for overlap or concentrations.

3.    SEC fails to hold brokers to a higher standard.  For awhile I thought the consumer was going to reap the benefit of Dodd-Frank insisting that the financial services industry put the customer first, before profit.  It’s not working out that way so their still buyers beware.  Just Google: “Favorite Brokerage Company Name followed by the word Fines.”  Have fun; the best customers seem to get the worst treatment.

4.    Online statements being pushed.  It’s easier to neglect to review transactions, fees and other details when it’s not in a paper format.  It’s that smaller typeface and bunching together that facilitate the difficulty of review. That’s what we’re seeing and it’s a worrying pattern.  There are benefits to online statements, don’t get me wrong, but it’s not helping detect problems like it was when clients had paper statements.

5.    Discount brokers selling more stuff to customers.  Yes, it’s the good old-fashioned competition gig.  “Once we get you in the door, what else can we sell you?”  Amazon has this down pat.  Now discount brokers are selling money management, financial plans, annuities, and all kinds of insurance.  The do-it-yourselfers are under attack with every phone call.  How do I know? I have accounts at most of the discount brokers and experience it personally.   It’s not all bad, but one stop shopping has its downsides.  You may not be getting the best deal or even need that deal.

There are more trends out there I don’t like, but that’s my current top five.   How about you? I’d like to hear your views on these or other non-consumer friendly trends.

Friday, August 1, 2014

Doom on the Horizon

The correction is coming, the correction is coming.  Do I sound like Paul Revere announcing the British?  Well, yes, that’s my intention.

Now I could have written this piece six months or even two years ago.  I would be saying the same thing:
o   Stay diversified

o   Have enough cash on hand to wait out 2 to 3 years of a down market

o   Buy low, or lower as the markets go down if you have extra cash

o   Don’t pay too much attention to day-to-day movements

o   Look to rebalance two to four times a year.  The calendar is not sacred, but percentages should be.

I have often remembered and repeated Warren Buffet’s advice: “Be fearful when others are greedy; and be greedy when others are fearful.”  The last big downturn 2008-to early 2009 gave me the opportunity to put this strategy into action.  My partner Anna will attest, I was buying on really bad days.   It served me well.

Last year I cut back my asset allocation from 90/10 stocks to bonds to a more realistic 60/40 given I have five years or a little bit less until I plan to start spending some of that money after long years of saving and investing.  I also have about two years of cash on hand for down market investing or spending without touching investment monies.

It’s all drama.  That’s my summary of day-to-day financial news.  The bolder or more dramatic the headline, or the scrolling BREAKING NEWS tag running across the screen, the more I want to turn off the TV, computer, or fold up the newspaper and magazine and throw them away.  Six months later it usually was no big deal.

So why this post?  I want my family, friends, clients, prospects and other allied advisors to be prepared.  You’re the reason I’m doing this. 

o   Don’t get caught up in the day-to-day dramatic news

o   Get out that checklist on an annual basis to cover all your bases (If you don’t know what they are, or don’t have a checklist, email me)

o   Reaffirm your life priorities, not just your financial goals

o   Enjoy the rest of summer.  It’s looking good.