Present Day Insight into Asset Allocation

Few people have heard the name Harry Markowitz, even fewer know the contribution he made to the world. However, every investor has heard and used his theory over and over again.

If you ever seen a pie-chart of your investments, you should know Markowitz. If you’ve ever been told that it is a long-term investment, you should know Markowitz. If you have ever used a buy-and-hold strategy, you should know Markowitz.

Harry Markowitz is a finance professor and Nobel Prize winner who in 1952 wrote a research paper that gave birth to buy and hold investing. He is also known as the Father of Modern Portfolio Theory, from which asset allocation was derived. These theories have been at the base for all financial institutions and professionals for decades.

The financial industry has used his teachings as a crutch and for years, we have been beating against it. Have you ever called your financial professional about a poorly performing stock or mutual fund? Have you ever gotten the answer that you need to understand that it is a long-term investment? When is there a good time to own a bad investment? The answer you receive is a lazy excuse because there is no management on your account. However, we have seen many retirees and widows lose fortunes due to owning unsuitable investments based on this advice.

It has then always been us against the Nobel Prize winning Markowitz. That is until a January 2010 Chicago Tribune interview was published. Harry Markowitz gave some very interesting insight into his own theory and the way the financial industry has applied it.

Markowitz said in the interview “I’ve never been a buy and hold guy…” and continued on that his ‘Modern Portfolio Theory’ has been misapplied in staying the course when deeper analysis is warranted. The article continues on that he did NOT hold onto all of his investments during the market crash in 2008. He did this not because of some certainty he knew, but made adjustments on what he perceive as increasing risks.

He goes onto say that there are times when portfolios should be adjusted if risks appear outside the norm, periods such as the technology bubble and the recent financial crisis. Markowitz thinks some fail to understand that part of modern portfolio theory.

So what does this all mean to you, the investor? It means you need to take the steps to understand your investments. You should know the strengths and weaknesses and whether or not it is suitable for you.

Don’t let buy and hold keep you from not having sound management for your assets. These times are still outside the norm.

To hear the Smart Money Radio Show segment focused on this topic, Please Click Here! (about 7 minutes long)


To hear the full Smart Money Radio Show where Bruce discusses this topic and more, Please Click Here! (about 25 minutes long)

OUR Financial Roadmap

Let’s plan a trip. Make that a road trip. You and your spouse or three of your best friends are going to San Diego by car! What all do you need to pack? Beach clothes, check. Sun tan lotion, check. A few snacks for the drive, check. You get to the end of the driveway and then realize that none of you know how to get there.

What do you do now? One possibility is to stop at the local convenience, buy a map, and figure it out from there. There are several “What if” questions that come from this situation. What if the map was done before the new construction in Kansas? What about the bridge that got washed away last week in Illinois?

The thought of buying a map to travel somewhere so far away may seem silly, especially given all of the technological advances. Yet, almost everyone does the same thing when they look at their finances. We go through a financial planning process, where essentially a map is drawn for our drive to San Diego.

Through the years of being in business, we have met some of the nicest financial planners. In no way is this conversation an attack on them. The problem with financial planning is the process. You have hundreds of software packages to choose from, thousands of strategies to fill in problems and answer questions, and tens of thousands of investment choices and products to answer the needs of the client. The possible combinations are endless and we haven’t even added in what all of your needs could be!

Financial planners set a roadmap for you, but the journey and the risks are on your shoulders only. The biggest problem is that there is NO MANAGEMENT that continues along. There is something inherently wrong when a plan allows you to lose 30% or more of your money and the only explanation is that this is a long term strategy.

The financial planning process has become a sales tool. It allows an agent to point out problems and offer you solutions from a limited pool of choices. These choices never answer the question of “what if the bridge is out”.

To hear the Smart Money Radio Show segment focused on this topic, Please Click Here! (about 7 minutes long)


To hear the full Smart Money Radio Show where Bruce discusses this topic and more, Please Click Here! (about 25 minutes long)

How Safe is Your Bond Fund?

In the market fallout of 2008 and early 2009, we watched as many investors moved away from their stock and equity funds into bonds and bond funds. They then missed the subsequent run up in the stock market in 2009.

Bond funds have swelled in huge proportions over the last years for two main reasons. First, people moved into bond funds away from their money markets due to the low returns. Other people were tired to the stock market's downward spiral and ran to the bond funds for a safe haven.

Missed in the safe haven is the inherit risks involved with bond funds. This risk is interest rate risk. The price of a bond falls as interest rates rise. As of this writing interest rates are near 0%. The only possibility is for them to rise. So how much is at risk? Generally a 1% rise in interest rates leads to a 7% drop in the price of bonds. Therefore, a 4% rise in interest rates would lead to a 28% DROP in your bond values.

Other "safe" spots for your money also have inherit risks you should be aware of. First are CDs. We have seen people deposit an amount in a CD equal to the amount of the FDIC protection (currently $250,000). This would leave no coverage on any interest you earn if the bank should go bankrupt. Don't think it can't happen to you, 59 banks went out of business last year.

Money markets dropped below the $1 mark in September 2008. As Lehman Brothers failed their commercial paper caused people to lose principal dollars. By chasing yield in your money market account, you are putting your principal at risk. Look for money markets that are based on US treasury notes. They may yield less, but are much more stable.

To hear the Smart Money Radio Show segment focused on this topic, Please Click Here! (about 7 minutes long)


To hear the full Smart Money Radio Show where Bruce discusses this topic and more, Please Click Here! (about 25 minutes long)

Oil Changes & Investing

Everyone who drives a car knows that there are periodic maintenance items that are required. The most basic one everyone thinks of is an oil change. You have several choices when it comes to getting your oil changed.

First, you do not have to do anything. You can drive your car for as long as you want and watch it breakdown someday.

Second, you can do it yourself. There is not one part of an oil change you cannot do or learn to do (don't let a mechanic know I told you that!). You must realize how much time it will take you to learn how to do it and how much time it will take you to actually do it. What tools will you need? Do you know how to use those tools? And the most important question you should ask yourself is what happens if you make a mistake.

Third, you can hire someone to teach you to do it. They will work along with you and then get in the car and drive around with you. If your car breaks down on that trip, they are stuck on the side of the road with you.

Finally, you can take it to a garage and buy a one-time solution to your product. They will change your oil for a specific fee and you can drive home in 25 minutes. The next time you need an oil change, they will gladly charge you and change it again.

So, how does this relate to investing? Well, you have the same choices. Many people are starting to work with these online discount brokers they see on TV and we have started to get many questions about what we think about them.

The basic tools are there for you to use or misuse. You can do this investing yourself. But you need to realize how much time it takes, if you know how to use the tools, and what will happen if you make a mistake.

For over 25 years, we have gained the experience and knowledge from every client and prospect that has walked through our doors. That experience of knowing where the potholes are goes a long way to achieving a smooth ride.


To hear the Smart Money Radio Show segment focused on this topic, Please Click Here! (about 7 minutes long)



To hear the full Smart Money Radio Show where Bruce discusses this topic and more, Please Click Here! (about 25 minutes long)

Hot Stock Tip!

We have helped people for over 25 years. We have seen people make money in individual stocks. Unfortunately, we have seen many people lose fortunes by owning one stock. Very small groups of people inside companies know what is going on there. For every report about why a company is a good buy, there is a report about it for the negative. Stockbrokers learn an art of talking from whichever report they want, whether you are looking to buy or sell a particular stock.

Buying an individual stock means you are making a BIG bet based on the success or failure of one company. We have seen many retirees, widows, and families lose a majority of their personal wealth betting on large companies that didn't work out. We advocate using low cost exchange traded funds and institutional mutual funds that spread your risks over thousands of companies throughout the world.

If you are still looking for the tip, find another website. You will not see us recommending you to make any big bet with your dollars. If a stock tip works out, people tout their ability to see the future or feed you another tip. If it doesn't work out, you are out of money but receive plenty of excuses.

To hear the Smart Money Radio Show segment focused on this topic, Please Click Here! (about 7 minutes long)


To hear the full Smart Money Radio Show where Bruce discusses this topic and more, Please Click Here! (about 25 minutes long)

Market Prediction!!!

Listeners have been beating down our doors with one question. What will the market do in 6 months? How about a year?

Earnings reports are coming out and the market doesn't like what it sees. All sorts of debates on Capital Hill are raging. Unemployment is still high. Should we batten down the hatches? Not just yet …

There are plenty of places to go on the Internet and see what people think the market is going to do. Turn your TV to Fox News, CNN, Bloomberg, or MSNBC. You will see analysts of all backgrounds telling you what to buy, what to hold, and what to sell immediately.

You want the true prediction….

In 2 words, the market in 6 months will be…

Nobody Knows!

All the fortune tellers you see on TV and read on the Internet are making their (educated?) predictions for entertainment value. They keep you glued to their channel by making you fear financial Armageddon or to make you feel good with greed about the current bull market.

To hear the Smart Money Radio Show segment focused on this topic, Please Click Here! (about 7 minutes long)


To hear the full Smart Money Radio Show where Bruce discusses this topic and more, Please Click Here! (about 25 minutes long)

Too Much Risk or Not Enough Safety?

If you have been reading along with us (and if you haven't, you can easily catch up by checking the archives along the right side of the page), you would probably imagine that we think people have too much risk in their portfolio. 

Unfortunately, this is not from what we think but rather what we know from many of the new clients that come to our firm looking for added safety. We get the idea from the factory worker in Lewistown who planned to retire at the age of 60, but is no longer able to. It comes from the 75 year old widow in Mifflintown who lost 40% of her money after her broker told her that her money was safe (it was only invested in 85% stocks). It comes from the retired couple in McAlisterville living on their investments and social security that now have 35% less income.

We can all benefit by having more safety in our portfolios. We have learned that the average person (and many financial professionals) lacks the ability to talk intelligently about risk. Instead, we counsel on what degree of safety is wanted in their retirement. Brokers tend to avoid the word safety because of their products' lack of it.

To hear the Smart Money Radio Show segment focused on this topic, Please Click Here! (about 7 minutes long)


To hear the full Smart Money Radio Show where Bruce discusses this topic and more, Please Click Here! (about 25 minutes long)