What is the Greatest Opportunity to Improve 401k Plans Today?

What is the greatest opportunity to improve 401(k) plans today? We want as many employees as possible to get to higher account balances as soon as possible! Yep. It’s all about the money! Do you and your fellow employees deserve it? Absolutely you deserve it! A majority of participants allocate their money poorly resulting in less return each year versus what they could have had. That results in less compounding. Repeating that lower return year after year – with the all-important compounding effect – and participants are left with ⅓ to ½ of what they could have had! Ouch! Just a 1-3% less return each year on average is devastating to the final balance at retirement. So we need to improve the allocation of as many account owners as possible. How do we do that? Note, that by definition, 401(k) plan account owners have freedom to place or “allocate” their money in the plan options. Plans must offer “fund education” – but they are not required to offer “investment advice” – advice on how much to place in each fund for best results long term. What’s the solution? I’ll give you two: the band-aid (quick) enhancement and the permanent enhancement. Band-aid Enchancement: Hire a registered investment advisor become the ERISA Section 3(21) advisor to your current plan – who is licensed, willing and able to give investment advice. The investment advisor will help employees significantly improve the return versus employees left to their own devices. Most 401(k) plans have “shiny object funds” that at first glance sound good. An example is “Stable Value”. Stability sounds intriguing. What’s not to like? Well...

A Unique Way to Define Good Investing – Challenge the mainstream!

Over the years, the mainstream financial world has completely misinformed us and misguided us on what constitutes great investing. This is conventional thinking – there’s a far better way. They push the idea of active investing, the exciting idea of “placing bets” on when to buy what and when to sell it. The best way to invest is “own everything” as that way you own each big winner. Statistically proven market behaviors like small company stocks outperforming large company stocks can be employed by a slight over-weighting towards small company stocks. We call that “Evidence-Based Investing” since the strategy is backed by statistical proof or evidence. In the conventional view of investing pushed by the financial mainstream, it is expected that every year there will be capital losses. Enough “losers” are sold near the end of the year to offset capital gains with the goal of zero capital gains taxes. (Legally avoiding taxes is wonderful but not because your net gain each year is zero or less!) It has been common in my investment advisory practice to take on new clients with accumulated “capital loss carryover” from the past. In other words, their investing results have been so poor – that their gains have not overcame their losses. My clients have the opposite problem. After they have been on board for a few years – all their asset classes – their DFA funds – have increased in value. So when we re-balance their portfolio –  capital gains are generated with no capital losses available to offset them. That’s OK. In fact, that’s great! That should be your GOAL. If you’re paying capital gains taxes, it...

1st Quarter 2017 Market & Model Portfolio Report

The first quarter of 2017 was a good one for the market generally. The best performing asset classes were emerging markets at 11.4%, international at 7.9% and large USA (S&P500) at 6.1%. While small caps were in favor in emerging markets and international, they were not in favor in the USA – specifically small and value (Russell Value index -0.1%). The opposite, large/growth, usually a laggard, was best index in U.S. stocks at 8.9%. This swing is not unexpected after the small/value significant run-up in Q4 2016. Global real estate was up at 3.4% and US real estate was fractionally down -0.3% The O’Reilly Wealth Advisors 100% equity model was up 5.2% with the most conservative portfolio, 40% equity, came in at 2.6%, and the others lay in-between. The main value of looking at a quarter is to satisfy your curiosity, “What happened in the last three months?” Remember that a quarter is a “second” in market time and if you look at any quarter, you are bound to see “odd” market behaviors. In fact having the quarter results mirror long term expectations would be unusual! Investing is a long term proposition and there is a huge amount of statistical noise in stock market data. That’s why we focus in the on 18+ years of results, not 1, 3, 5 and 1o years. The 18 year data has a higher probability of representing the actual expectations of future performance.   See our market summary (16 pages) here and the model portfolio results (2 pages) here....

My “Inner Nerd” Loves When Data Shatters Preconceived Notions

Wouldn’t you think that when markets are hitting new highs – that the chances of the market being up in 12 months is lower than at other times? Makes sense – gotta come down sometime? Well it turns out the market is up more than we realize. We tend to focus on the negativity we hear loudly when the market is down and it creates an incorrect perception. The data shatters that preconceived notion. Dimensional Fund Advisors studied this by looking at the S&P500 from 1926 through 2016, see the paper here. Each time a month finished at a new S&P500 high – they looked at the S&P500 12 months later and found that 80.5% of the time, the S&P500 was higher not lower! When they looked at ALL the months across those 91 years – 74.7% of the time, 12 month later, the S&P500 was higher. Very close numbers, very slightly favoring higher markets when starting at a new high!  Wow! I’ve presented data here previously that shows the market is up about 3 out of every 4 years across long time periods. So I guess I should not be surprised! I love it when proof – actual undeniable DATA smashes preconceived notions! I hope you do too!...

2016 Market Review (incl Q4) and Quarterly Model Portfolio Performance

It was a very good year. The small cap premium and value premium were potent in USA with Russell 2000 Value index up 31.7% vs Russell 2000 at 21.3%. In large cap the Russell 1000 Value Index was up 17.3% vs. Russell 1000 at 12.7%. S&P500 11.96%. Our models take advantage of these persistent and pervasive market behaviors by including them at slightly higher than  market cap weighting. MSCI Emerging Markets index up 14.9%. US REIT 6.7%. The rest of the world lagged with MSCI World exUSA Index +2.8%. Our most aggressive model, a mix of the above, assuming 1% advisory fee, +12.7% for 2016. Here’s a link to the Market Review (30 pages) and our Model Summary (2 pages)....