To say the stock market is going through a time of uncertainty right now would be a serious understatement.

Just looking over the returns over the past week would make anyone feel anxious and nervous about what’s to come.

                                                                                                                                               

Here is how the Dow Jones closed the week of August 9^th:

Monday        Down     634 points – 6^th worst point decline in stock market history.

Tuesday        Up         429 points

Wednesday   Down     519 points – 9^th worst point decline in stock market history.

Thursday         Up       423 points

Friday             Up       125 points

In case you’re unfamiliar with how the stock market works, these are some very extreme swings in the market.

                                                                                                                                   

I don’t know about you, but I think it’s time we take a look at some of the myths that surround the stock market and investing.

I hear these comments all the time when I listen to the “gurus,” and it is very frustrating.

Just because something is repeated over and over again doesn’t make it true.

These myths need to be exposed for what they are: false statements that are not based on fact.

                                                                                                                                     

Myth #1:  This is a good time to invest in the stock market.

No matter what is happening in the market, we will always hear someone say this is a great time to invest.  This statement usually comes from stock brokers and money managers who make a commission on people buying and selling.

Quick question:  When was the last time you heard a stock broker say it was a bad time to invest?

When the markets are dropping, we’ll hear people telling us it’s a great time to buy, because we’re buying cheap.

When the markets are rising, we’ll hear people tell us it’s a great time to buy, because the economy is getting better and we don’t want to miss out on the opportunity.

                                                                                                                                   

Myth #2:  The stock market averages 8% a year.

You might have been able to average 8% or better in the 1980’s and 1990’s due in large part to the housing bubble and the dot com craze, but those days are long gone.

Just looking over the past 5 or 10 years we see a much different story.

For the last 10 years ending 8/1/11 the Dow Jones has averaged only 1.54% per year.

For the last 5 years ending 8/1/11 the Dow Jones has averaged only 1.81% per year.

This is quite a bit less than 8%. 

Times have changed and we better start seriously questioning the advice we hear.

                                                                                                                                   

Myth #3:  To protect yourself you should have a diversified portfolio of mutual funds and stocks.

What’s the point of diversification?  To water down losses when certain sectors of the economy are down.

Have you ever stopped to think about the opposite situation?  If being diversified waters down your losses, don’t you also think it will water down your gains?

Another thing to keep in mind; being diversified in the market, still means all your money is in the market.

Being truly diversified means you have money in the market, in real estate, in businesses, in savings, in money market accounts, etc.

                                                                                                                                   

Myth #4: If you want to earn higher returns, you have to take more risk.

Whenever I hear this phrase, I always think of Las Vegas.  If we start making our investments sound like gambling, then we shouldn’t be surprised when we start to lose money.

This must also come as a surprise to Warren Buffett, and all the other millionaires/billionaires who make their money investing in the markets.  They spend countless hours and manpower researching and studying companies before they invest.

Sure they lose money from time to time, but the fact that they’ve made billions of dollars in the market would strongly indicate they are not taking too much of a risk – they can’t be that lucky.

                                                                                                                                   

Myth #5:  Stocks do better over the long term.

Define “long term.”  What long term?  Whose long term?  Compared to what?

Oftentimes this myth is stated with no discussion of the above questions.

                                                                                                                                   

My point in all this is not to scare anyone or getting people worried about the future.  My point is that the market has changed and things are different now.

Some people will hold on to past beliefs and struggle during this time of change.  Others will question the old way of thinking and make the necessary changes to move forward.

If you’re tired of worrying about your money and what the stock market is going to do next, now may be a good time to re-evaluate your
current situation.

If you would like a second opinion on your finances and the strategies you have been using, feel free to contact me anytime.  My consultations are always free,  and I will not pressure you into any investment you don’t fully understand and desire.

*The articles on this blog are for education and entertainment purposes only and should not be taken as financial advice. I  understand that every person’s situation is unique and should be treated as such. Please contact me, or another financial  professional, for specific advice regarding your situation. I try my best to keep the information current, but things are always changing, so it may be different now than when it was first published. If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.

The stock market is once again going crazy!

If you have been listening to the news at all lately, you will have heard about how the US debt rating has been downgraded for first time in our history.  On Friday, August 5^th, the S&P announced that it was reducing its credit rating for long-term U.S. government debt from AAA, the highest rating, to AA+.

To make a long story short – this is not good.

To give you an idea of what this news has done to the stock market, consider the following:

                                                                                                                                               

On Monday, August 1^st, 2011 the Dow Jones Industrial Average closed at 12,132 points.

On Monday, August 8^th, 2011 the Dow Jones closed at 10,809 points.

The stock market dropped 1,323 points or 10.9% in just one week!

                                                                                                                                               

I believe now is as good time as any to question conventional wisdom and to seriously evaluate our own personal investment options.

One thing we know about the stock market is that it will go up and it will go down.

The question most of us have to consider is how comfortable we are with our investments in those times when the market goes down.

If you’re anything like me, and you don’t like to lose money you have worked so hard to earn, then now may be a good time to re-evaluate your current situation.

Next week, I will be discussing the myths that surround the stock market, and why these myths need to be exposed.

In the meantime, if you are at all concerned about your portfolio, and your current investment strategies, please feel free to contact me and we can take a look at your specific situation and evaluate what is best for you.

*The articles on this blog are for education and entertainment purposes only and should not be taken as financial advice. I  understand that every person’s situation is unique and should be treated as such. Please contact me, or another financial  professional, for specific advice regarding your situation. I try my best to keep the information current, but things are always changing, so it may be different now than when it was first published. If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.

This is the fifth and final part in my series on ways to invest your money, click here to read part one, part two, part three, or part four.

As I mentioned in my last post, when discussing Index Accounts, there are two philosophies at play.

#1 – The average investor/money manager can’t beat the performance of the stock market.

#2 –Never lose your money.

I’ve already discussed the first philosophy, and in this post I’ll be discussing the second philosophy.

                                                                                                                                                 

When discussing Index Accounts, it is important to mention that having your money in Index Accounts can mean several things.  For instance, some Index Accounts fall into the category of Variable Accounts, in that your investment can go up and down, depending on how the particular index performs.

Other types of Index Accounts are designed to protect a person’s principal, and previously earned gains, without the risk of losing money when the market goes down.  These are the type of index accounts that I’m referring to in this post.

                                                                                                                                                 

I believe it was billionaire investor Warren Buffett who said, “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” 

This is the basic theory behind investing your money in Index Accounts that protect your principal, and previously earned gains, without the risk of losing your money when the market goes down.

Like all investments, these types of accounts are very complex and detailed, and would be impossible to fully explain in a short article.  However, the basic underlining principals are fairly straight forward.

These types of investments are offered through insurance companies – which is why your principal investment and all future earnings are protected – and it does not have to be in a life insurance policy.  The basic idea is that, as long as you follow the contract, you will not lose any money in your account.  The “catch” – because there is always a catch to every investment – is that when the index goes up, you will typically get a percentage of the overall return.  In some years you may get 100% of the gain, and in other years you may get 50%.  Studies have shown, that over a long period of time, investors receive about 70% of what they would have received in the years the market went up.  The nice part about these accounts is that when the market goes down, there is no loss of previously earned gains.

                                                                                                                                                         

To illustrate how a potential index account may work, I created the following illustration below.

Please Note:  The last two columns show the value of your money when looking at the dates illustrated.  The second to last column, shows the value of your money if you had invested it in the stock market – specifically in the Dow Jones Industrial Average (Dow Jones for short).  *The last column illustrates the value of your money if you had placed your money in an Index Account that I’ve been referring to.  *Further notice, that when the stock market (ie. the Dow Jones) goes down, the Index Account remains unchanged.  Also, to keep the Index Account realistic, I placed a 6% Cap on the Account – many accounts are set up in a similar way.  What this means is that you will get 100% of the gain in the Index up to a 6% “cap.”

Date	Dow Jones	Return	$ in Stock Market (DJ)	$ in Index*
7/2/01	10,522.81	—	$100,000	$100,000
7/1/02	8,736.59	-16.97%	$83,030	$100,000
7/1/03	9,233.80	5.69%	$87,754	$105,690
7/1/04	10,139.71	9.81%	$96,363	$112,031
7/1/05	10,640.91	3.17%	$99,418	$115,583
7/3/06	11,185.68	5.12%	$104,508	$121,501
7/2/07	13,211.99	18.12%	$123,445	$128,791
7/1/08	11,378.02	-13.88%	$106,311	$128,791
7/1/09	9,171.61	-19.39%	$85,697	$128,791
7/1/10	10,465.94	14.11%	$97,789	$136,518
7/1/11	12,582.77	20.23%	$117,582	$144,709
AVERAGE/TOTAL		2.6% average	$117,582	$144,709*

 

*In the above illustration, the person who had their money in the Index Account, had $27,127 MORE at the end of ten years, then the person who was completely invested in the stock market.

I know that this can all be confusing, so please if you have any questions, feel free to call me for further explanation.

*The articles on this blog are for education and entertainment purposes only and should not be taken as financial advice. I understand that every person’s situation is unique and should be treated as such. Please contact me, or another financial professional, for specific advice regarding your situation. I try my best to keep the information current, but things are always changing, so it may be different now than when it was first published. If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.

This is the fourth and final part in my series on ways to invest your money, click here to read part one, part two, and/or part three.

I was originally going to write about Index Accounts as one post, but due to the complexity and misinformation about this topic, I decided to split this up into two posts.

To recap what I have stated in previous weeks, with all the hundreds of thousands of ways to invest your money, I believe there are only three ways in which your money will work within each of these investments.

The three labels that exist today are:
Fixed Accounts
Variable Accounts
Index Accounts

                                                                                                                                                   

Most people are familiar with how fixed accounts and variable accounts work.  We may not understand all the fine details of these types of accounts, but we have heard of them and are somewhat knowledgeable in how they work.

This article is about the Index Accounts.

The types of Index Accounts that I am referring to bring together two ideas:

#1 – The average investor/money manager can’t beat the performance of the stock market (specifically, the S&P 500).

#2 –Never lose your money.

                                                                                                                                                  

Let’s explore these two ideas.

#1 – The average investor/money manager can’t beat the performance of the stock market (specifically, the S&P 500).

According to Dalbar, Inc. – an independent company that studies investor behavior and analyzes investor market returns – the average investor consistently earns below average returns.

For example, according to Dalbar Inc., for the 20 year period ending Dec. 31, 2010, the average equity investor had a return of 3.83%. During that same period, the S&P 500 returned 9.14% annually. This is a difference of 5.31%.

It really shouldn’t come as a shock to many of us that the average investor can’t beat the performance of the stock market, but what about the highly paid money managers?

How do the money managers, who are paid 100’s of thousands of dollars a year, and have every research tool known to man at their fingertips, perform compared to the stock market?

Doing a quick search on the Internet about how well the average mutual fund performs when compared to the stock market, and you’ll find some alarming statistics.  Most of the information I found shows that approximately 80% of mutual funds underperform the average return of the stock market.

Furthermore, according to author Charles Ellis of Winning the Losers Game, “the basic assumption that most institutional investors can outperform the market is false. The institutions are the market. They cannot, as a group, outperform themselves. In fact, given the cost of active management – fees, commissions, market impact of big transactions, and so forth-85 percent of investment managers have and will continue over the long term to underperform the overall market.”

Sadly, there have even been studies done showing that monkeys throwing darts at board pick winning stocks almost as effectively as money managers/stock brokers.

So what’s the alternative?

This is the main reason why many companies have begun offering various types of Index Accounts.  Some Index Accounts fall into the category of Variable Accounts, in that your investment can go up and down.

Other types of Index Accounts are designed to protect an investor’s principal, and previously earned gains, without the risk of losing money when the market goes down.

I will explore these accounts next week as they are the basis of what I call Index Accounts…….to be continued…

*The articles and information on this blog are for education and entertainment purposes only and should not be taken as financial or legal advice. I understand that every person’s situation is unique and should be treated as such. Please contact me, or another financial professional, for specific advice regarding your situation. I try my best to keep the information current, but things are always changing, therefore some of the information posted may be different now than when it was first
published. If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.

This is the third part in my series on ways to invest your money, click here to read part one and/or part two.

I know I’m not alone when I say that I have a love-hate relationship with variable accounts.

Variable accounts/investments are any type of investment that has the potential to go up or go down.  These would include: stocks, mutual funds, variable annuities, real estate, hedge funds, etc.

I love ‘em when they are going up, and I hate ‘em when they are going down!

If you are going to invest some of your money in a variable account, here are some of my Do’s and Don’ts.

The Don’ts:

1. Don’t use past performance as your gauge for how well a stock/fund is going to do in the future. – Every time you read anything about funds you will see the phrase, “Past performance is no guarantee of future results.”  This should tell you something.

2.  Don’t actively buy and sell, unless you have done major research. – Warren Buffett, who is regarded as one of the most successful investors in the world, has said, “If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.”

3.  Don’t buy a stock/fund based solely on what you heard recommended on TV or the radio.

4.  Don’t buy stocks or funds if you are concerned about losing money.  Jack Bogle, the founder and retired CEO of The Vanguard Group, once said, “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.”

5.  Don’t think you can outsmart the market.  Although you may do better than the market from time to time, keep in mind that studies show that professionally managed funds underperform the S&P 500 anywhere from 75% – 96% of the time – and these are the people that get paid hundreds of thousands of dollars a year to invest your money.

The Do’s:

1.  Do your research.  Research how a company or fund is expected to do, and base your decisions on the future, not the past.

2.  Always think long term.  Warren Buffett is also famous for saying, “our favorite holding period is forever.”  This doesn’t mean that he never sells stocks or funds, but it does mean that when he is purchasing something, he is thinking long term.

3.  Be realistic with your expectations.

4.  Do realize and understand that you will win some and you will lose some.  Another great quote comes from George Ross who once said, “When somebody buys a stock it’s because they think it’s going to go up and the person who sold it to them thinks it’s going to go down. Somebody’s wrong.”  You will be right some of the time and you will be wrong some of the time.

If you do would like some more information and learn more about all your options, feel free to contact me anytime.

*The articles and information on this blog are for education and entertainment purposes only and should not be taken as financial or legal advice.  I understand that every person’s situation is unique and should be treated as such. Please contact me, or another financial professional, for specific advice regarding your situation. I try my best to keep the information current, but things are always changing, therefore some of the information posted may be different now than when it was first published. If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.

Last week I gave a very brief overview of what I believe are the three main ways to invest your money.  To recap, with all the hundreds of thousands of ways to invest your money, I believe there are only three ways in which your money will work within each of these investments.

The three labels that exist today are:

Fixed Accounts
Variable Accounts
Index Accounts

Every single investment in the world will fit within at least one of these three categories.

Today, I’d like to talk about fixed accounts.

The features that most people view as negative within these types of accounts are that they are boring, predictable, and you will definitely not get-rich-quick.

The positive features within these types of accounts are that they are boring, predictable, and you will definitely not get-rich-quick!

I’ve read many articles bashing fixed accounts and discussing how you can do better in some other account.  Unfortunately, history proves otherwise.

—————————————————————————————————

For example, let’s compare the S&P 500, the Dow Jones, and fixed accounts over the past 10 years – from June 1, 2001 to June 1, 2011.

The Dow Jones grew an average of 1.703% per year – from 10,502.40 – 12,290.14.

The S&P 500 grew an average of 0.737% per year – from 1,224.38 – 1,314.55.

—————————————————————————————————

Do you think you could have found a fixed investment within your retirement accounts over the last 10 years that averaged more than 1.703%?  I know I could have.

—————————————————————————————————

Let’s put some dollar amounts to this scenario.

Let’s say you invested $100,000 on June 1, 2001 into each of these accounts, and you just let your money sit.  What would you have had in these accounts on June 1, 2011?

Dow Jones                  =          $118,396.17

S&P 500                     =          $107,619.29   

3% Fixed Acct.          =          $134,394.64

—————————————————————————————————

Which one looks better to you?

My point in all this is that fixed accounts are not always a bad option, as some “gurus” would lead us to believe.

Obviously if we look at other dates in time our numbers would be different.  For example, if we were to research the past 20 years, the Dow Jones and the S&P 500 did much better than fixed accounts – due in large part to the “dot com” craze of the 1990’s.

Conversely, if we look at just the past 4 years, fixed accounts demolish the Dow Jones and the S&P 500.

What’s going to happen in the next 4 years, 10 years, 20 years?  Who knows!

But, in my professional opinion, there is a time and a place for every investment, and I believe there is a place in everyone’s portfolio for fixed accounts.

If you do would like some more information and learn more about all your options, feel free to contact me anytime.

*The articles and information on this blog are for education and entertainment purposes only and should not be taken as financial or legal advice.  I understand that every person’s situation is unique and should be treated as such. Please contact me, or another financial professional, for specific advice regarding your situation. I try my best to keep the information current, but things are always changing, therefore some of the information posted may be different now than when it was first published. If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.

Over the next several weeks, I’m going to be discussing the ways in which people can invest/save their money.  This is going to be a very general discussion, but if you’d like more information, please feel free to contact me anytime.

A while back I wrote about how we shouldn’t get our financial advice from the “gurus” on TV.

Listening to some of these “gurus” can lead you to believe that there are some financial products that EVERYONE should buy, and there are some that NO ONE should buy.

I don’t believe this logic – if you can call it that!

I believe when the “gurus” are making these claims they are looking for good sound bites that will resonate with their advertisers to help remember them.  They are not looking out for the best interest of everyone in their listening audience.

That being said, as far as I can tell, there are really only 3 Different Categories of investments that exist today.

I believe every single investment out there, of which there are hundreds of thousands of options, can fall into one of these three categories.

The Three Different Investment Categories:

1.  Fixed:  Otherwise known as CD’s and Money Market Accounts, you can find fixed accounts just about anywhere.  You can have a fixed account at the bank or even in your retirement account (i.e.  403B, 401K, IRA, Roth IRA).

2. Variable:  Otherwise known as stocks, mutual funds, variable annuities, and hedge funds – basically anything that can go up and can go down.

3.  Indexed Accounts:  Otherwise known as Indexed Annuities and Market Linked CD’s.  These types of accounts can never go down if done properly, and when the market does go up, you will earn a percentage of the total gain.

That’s really about it!

Of course, there are hundreds of thousands of options out there within each category, but put in its basic element, I believe each investment falls into one of these three categories.

The difficult part is putting all the pieces together to fit right for you.  

How much money you should put into each category, and to what exact investment you should chose, is the tricky part.  This is why we need to get educated and find out what is best for us.

Over the next few weeks I will discuss each category in more detail. 

If you do would like some more information and learn more about all your options, feel free to contact me anytime.

*The articles and information on this blog are for education and entertainment purposes only and should not be taken as financial or legal advice.  I understand that every person’s situation is unique and should be treated as such. Please contact me, or another financial professional, for specific advice regarding your situation. I try my best to keep the information current, but things are always changing, therefore some of the information posted may be different now than when it was first published. If you would like more information about how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.