I hope you had a wonderful weekend! Did you remember to get your boss a gift today? Yep, it’s National Boss’s Day. Check out the prior link for the top ten Boss’s Day gifts.
LRPC’s Monday Morning Minute for this week, “12 Financial Truths (Including Some You Won’t Like)” (presented below) comes to you courtesy of James E. Wilson. As an independent, objective Registered Investment Advisory (RIA) firm, Lawton Retirement Plan Consultants, LLC (LRPC) has access to research from many sources. Be assured that I will share enlightening, useful information with you each week.
We all operate using certain “rules of thumb” to guide our decision-making. See if your financial rules of thumb are challenged by this week’s piece.
Have a wonderful week!
12 Financial Truths (Including Some You Won’t Like)
By James E. Wilson
We live in a noisy world where wisdom is hard to discern. Here are a dozen financial truths honed from more than three decades of observation.
1. The primary reason many investors end up with overly complex, inappropriate insurance/investment products boils down to two words…sales commissions.
The “Pyramid of Temptation” that engulfs most financial services firms pays brokers, (sometimes wrongly called financial consultants, wealth managers, etc.), the largest sales commissions for selling packaged products like annuities (I have more on annuities later).
2. Except by chance, no manager, firm or individual consistently “beats the market” for the long term.
Yes, I know that is exactly what large brokerage firms sell, but it is untrue. Some may succeed for a while, but the outperformance rarely persists. Don’t confuse luck with skill. Instead, invest to capture the returns freely provided by the global markets.
3. Real estate isn’t the best investment in the world.
I know, that’s close to heresy but let’s examine facts. Actual observed long-term returns from residential real estate over the past half-century or so have been roughly the rate of inflation, plus or minus one percent per year. Don’t confuse the positive utility that you receive from owning a house to the investment aspects of homeownership. Overall, owning a home might be a decent storehouse of value but that’s all.
4. The long-term expected return of gold is, (wait for it), …ZERO.
Yep, 100 years ago an ounce of gold would buy a very nice men’s suit. Today, an ounce of gold will buy a very nice men’s suit. Like real estate, a storehouse of value perhaps, but zero long-term above-inflation returns.
5. There are two sides to every investment transaction.
If you sell a stock or a mutual fund because you believe the market is “overvalued”, the person on the other side of that trade is buying because they believe the market is “undervalued”. Think about it, with almost 100 million participants each day in the global stock market, do you really know more?
6. The two most dangerous words for investors are maximize and minimize.
As a lifelong student of economics, I fully understand what these words represent in theory, BUT they can be very damaging to individual investors. Always trying to maximize returns, for example, can expose your portfolio to unnecessary risk. Focusing on minimizing taxes, for example, can easily fold over into a portfolio that is far too technical and constrained. Drop these two words from your investing vocabulary.
7. How much you save, and for how long, matters more than investment returns.
You can’t make up for years of neglect with a few years of high returns. Save for your future or it will turn into a future determined by someone else.
8. No one can predict the future.
No one knows what inflation, taxes, or stock market returns will be next month or next year. Uncertainty is part of the investing deal. Accept it, embrace it.
9. Your neighbor’s finances and goals are not your finances and goals.
You can’t achieve long-term financial goals unless they are highly personal and meaningful to you.
10. Annuities are a very complex, expensive and almost always a very poor insurance/investment solution.
Actually, they generally create more problems than they “solve”. Their use is usually inappropriate and driven mostly by excessive sales commissions. Still don’t believe me? Try to get out of an annuity and see how much fun that is.
11. You likely will live longer and spend more in retirement than you think.
You will need more financial resources than you think. You will need to prioritize and be willing to make tradeoffs.
12. You can’t maintain your lifestyle throughout retirement without being a permanent investor in the stock market.
Inflation is the silent killer in retirement and this simply can’t be outpaced in any other way.
Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or firstname.lastname@example.org or visit the firm’s website at http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.