Wow – New Market Highs & Unpeeling the 401k Onion
As of December 9, 2016, “the markets” have been doing quite well. Keep in mind there’s a million ways to define the market. Our definition of “the market” is performing even better than the average person’s definition. It appears the “premiums” we employ for our clients – small stocks beat large and value stocks beat growth stocks are in favor, so our clients are enjoying higher performance in their portfolios.
Upward moving markets happen! It may seem like a surprise, but since we cannot predict market movements – it’s actually not a surprise. We have no idea where the market will go or when it will go there. A year from now, it could be higher, lower or the same. (Choose one and you have a 33% chance of being correct, just like the celebrated Wall Street Forecasting “Experts”!)
Our human behavior and biases make it difficult for the average person to be a great investor. After a notable market movement (or non-movement) has happened, as time passes, we begin to think we saw it coming. It’s obviously not true, but our minds play tricks on us. Also when we are in the midst of a market situation – we suffer “recency bias” – meaning that we over-focus on the present without seeing the bigger picture. Right now a lot of people are piling onto the market when we are at record highs. That’s not a problem as long as your commitment is 5 years or longer.
We can help you “keep your cool” and make more money than most, by staying invested and highly diversified. The media and our culture tend to draw us away from this winning strategy.
Now changing topics….
“Unpeeling the 401k onion”: a great read by the talented Ary Rosenbaum, respected attorney specializing in the law surrounding 401(k) plans. This area of IRS Code is referred to as ERISA. He writes the following that is also found at this link. To put Mr. Rosenbaum’s comments into perspective, he is referring to the typical mainstream “financial advisor” or “broker” who sells 401K plans with commission paying mutual funds and makes money on transactions. In the 401(k) space, these brokers are having to adjust to the new Dept. of Labor fiduciary rule by sometime in 2017. I am sharing this because I want the citizenry to be aware of the dishonesty and deception in today’s financial services industry. Many RIA firms are made up of people coming from the mainstream financial services industry and some continue with these bad habits.
Work with a small fiduciary RIA firm like ours that has not been tainted with the bad habits.
From Ary Rosenbaum:
One of the most interesting aspects of dealing with the Fiduciary Rule is commissions. When a registered investment advisor collects a fee, it’s rather simple. When it comes to the broker, it’s just awfully confusing about the different trails, commissions, incentive compensation, and everything else that a broker may get in selling a commission based product.
I think finding out about the different levels of compensation is like peeling an onion because there are just so many layers that a broker-dealer is going to have to get a handle if they have any hope in managing the process to meet a Fiduciary Rule, it’s certainly taking a lot of work, a lot of hours, and a lot of legal bills to find out what levels of compensation are out there and what can be salvaged in meeting this rule. Even when dealing with product manufacturers, they’re going to have to see what levels of compensation they can still offer brokers and broker dealers in hawking their products. If you think it’s all about serving in a Fiduciary capacity, it isn’t. It’s just going to take a lot of work between now and April to get things done,
by Ary Rosenbaum