Market Pullback

Another well-written blog was recently posted by Dan Wheeler concerning the recent market pullback. Click Here.  The main idea of this great perspective can really be summed up in two points:

• Trying to time the market during these pullbacks is a futile exercise that almost always leads to more losses.
• A long-term investing focus with emphasis on diversification and low costs is clearly the best way to have a successful investment experience.

A third point may be a useful addition for the especially nervous investor:

• We cannot successfully time the market reversals, but we absolutely do try to predict them to happen.  One popular risk measure of the market, called volatility, is always a key input in determining a client’s portfolio and retirement projections.  If the market did not experience this volatility then that would be the real surprise.  The market swings can be disheartening if we have a short-term perspective, but some reassurance should come from thinking “I am glad my advisor already planned for this to happen.”

The Two Most Important Words in Advising

Kendall King, a partner and advisor here at Legacy Financial Group, linked to a great article on Financial Advising today on his twitter feed.

The link can be found here or if you follow Kendall on twitter (@kendallwking) it can be found there as well.

The most important words from this article are: "Fiduciary Standard."  There are several definitions of what a "Fiduciary" is, but they all say the same thing.  I will use the definition presented on the Fool.com website which is where the article in reference is taken from.

“Buyer Beware”

By Eric Burkholder

This a great blog post by Dan Wheeler.  Click Here.  A little background on Dan:  Dan is a CPA who has an extensive background in accounting and finance.  He recently retired from his spot at Dimensional Fund Advisors as director of Financial Advisor Services after 21 years.  He now is semi-retired and writing his own blog titled “Wheeler Writes.”

Prior to starting his career in the fee only advisor business he had a notable stint working for Merrill Lynch servicing retail clients.  It was this experience which ultimately led him to see the ethical failing of the commission based financial services industry and start out on his own as a fee based advisor.

He is currently writing a series of blog posts that speak to his time at Merrill Lynch.  I highly recommend everyone read his blog.  He discusses the same issues I often mention, but with the most important distinction of having actually lived it.  So I repost his short blog article and implore you to read it. (“Implore” was the fanciest sounding word I could think of to say “I really, really, really think you should read it.”)

Before reading it I want to highlight a few points that I think are especially relevant to you.

Lower Equity Returns The New Norm? Think Again.

David Booth of Dimensional Fund Advisors does a great job of explaining market cycles.  There is no evidence that current investor sentiment has predictive power for future returns.  A case can actually be made that investors are usually wrong and we should expect higher than expected returns in the years to come.  Either way a properly diversified portfolio will still be the best way to reach your long term goal.

The Secret to Predicting Mutual Fund Performance!

By Eric Burkholder

There is a very good article out today on MarketWatch.com.  "You are the best predictor of next bull or bear" The title is misleading but the theme of the article is this:  There is no evidence that any person or any expert has any ability to predict mutual fund returns or forecast the economy.  Actually, an even better summary of the article is in the affirmative: There IS significant evidence that traditional performance metrics cannot reliably predict mutual fund performance and there IS significant evidence that experts do a very poor job of predicting turning points in the economy.