What a Year It's Been

As we enter the last month of the last year of the first decade of the first century of the new millennium (got all that?), I’ll spare you a recap of the entire decade and simply reflect on what has been an eventful year for investors to say the least. While a lot of this has been covered in the media and even in this blog, I think it’s a good time to take one more walk through 2009 and how it might relate to the future.

We entered the year feeling battered and bruised by what was one of the most horrific quarters of a generation to end 2008. A little blip in December provided a glimmer of hope that the worst was behind us. That blip was met by what can only be described as roughly 10 weeks of pain and some of the worst months on record in January and February. In early March, there was a true feeling of desperation in the air when it came to investing and the world economy in general.

Since then, we have enjoyed what has been a fairly historic recovery, despite a lot of mixed messages in the media and the day to day lives of our friends and family. International markets and real estate, which led the way down, have performed exceptionally well as would be expected in leading the world back out of the recession. The US market has followed steadily behind, but still providing impressive returns. While unemployment and other economic indicators continue to depress, they certainly seem to have leveled off. As they are lagging indicators, it only makes sense that they would struggle to keep up with a historically forward looking market.

So what does all this mean? In terms of changing how you invest or what you invest in, not much in my opinion. Remember all of the so called experts back in early March telling everyone to get back in as the tides were about to rise again? I don’t either. Remember those who yelled from the mountaintops in late February that it was time to pull out of the market? Have they gotten back in yet? Have they already missed the bulk of the recovery? It simply proves that we are rarely able to predict what is coming around the bend and that anyone who claims they can is just another salesperson selling expertise they simply do not have.

The smart money will continue to thoughtfully plan their financial future over the long term, allocate investment choices accordingly and then stick to that plan to the best of their ability. Despite short term success and failure, this is the only method that time and time again has proven the most effective way to enjoy a successful investment experience. Chasing returns at the cost of meeting your goals continues to be a losing battle.

A columnist in the Cincinnati Business Courier recently used a quote from John F. Kennedy that seems appropriate for the times in which we live. Kennedy said, “Change is the law of life, and those who look only to the past or present are certain to miss the future.”

Nothing is certain about the current recovery or what lies ahead in 2010 and beyond. The climb back to prosperity may be slow, job growth may move at a snails’ pace, and challenges at home and abroad will continue to play their role as wild cards to any planned path. But how different are these challenges to those that the world has faced in one form or another for generations?

It has never been more challenging to pick who the winners and losers might be going forward. Knowing that you don’t have to in order to invest successfully is an empowering feeling. All you need is a belief in the continued growth of the overall world market in the long term. So long as entrepreneurs and businesses continue to use their ingenuity and scarce resources to produce value for an ever increasing amount of consumers; and so long as you have the ability as an investor to provide those entrepreneurs capital in trade for a fair return on your investment, you can still proceed into 2010 encouraged that the 21st century, while off to a slow start, will be another step forward for the world.

By Chip Workman, CFP®
cworkman@taaginc.com
www.taaginc.com

Avoid Thanksgiving Stress

As we start this week, so too begins the holiday season. While it is wonderful to spend time with friends and family over the holidays, it can also be very stressful, especially if you’re the host.

I had the unfortunate experience recently of witnessing a mother-in-law meltdown; she just became overwhelmed at the thought of fixing Thanksgiving dinner, hosting out of town relatives overnight, and deciding how to handle the family gift exchange. I fear the added stress of knowing her youngest son is getting married in just 100 days kicked her over the edge.

To help her hold it together, we decided to eliminate as much Thanksgiving related stress as we could by working together. Hopefully you can help lighten the holiday load by incorporating some of these tips into your family get togethers:

· Ask for help! If you’re kind enough to host, that doesn’t mean that you have to cook everything, too. When people ask “What can I bring?” take them up on the offer. Delegate! Ask someone to cover desert and another person to bring an appetizer. If Cousin Katie isn’t such a good cook, ask her to bring a bottle of wine or perhaps a store-bought veggie tray.

· Call in a prep crew. Six members of my family committed to spending Saturday afternoon at my in-laws home helping them prep for the festivities. The guys helped dad in the yard rake leaves and mow, while the ladies tackled cleaning the indoors.

· Prep as much as you can. We went ahead and set up the tables for Thursday’s dinner. Bringing in extra linens, tables, chairs, plates, and silver is a lot of work, so ask your crew to help you set it up. Lay all glassware on its side and cover the set table with clean sheets.

Don’t feel as if you shouldn’t ask others for their help. It was actually fun for all of us to chip in and help with the setup. Not only was our work truly appreciated, but it was great spending time with family and getting to talk before the holiday.

As we start this holiday season, keep the big picture in mind. Be thankful for the people who have chosen to spend Thanksgiving with you. Even if your house isn’t picture perfect, the only person who will probably notice is you.

By Amanda Bashore, CFP®
arbashore@taaginc.com
http://www.taaginc.com/

False Prophets, Big Bucks

This blog post was written by Dan Solin
Posted November 17, 2009 on www.huffingtonpost.com

Jeremy Siegel Ph.D. has very impressive credentials. He is the Russell E. Palmer Professor of Finance at The Wharton School of the University of Pennsylvania. He is the author of a number of financial books, including Stocks for the Long Run.

Professor Siegel has become a cottage industry. His web site refers to him as the "Wizard of Wharton" and offers subscriptions so that readers can benefit from his market newsletter and "investment strategies."

His stock market skills are extolled by no less an expert than Jim Cramer, who wrote that "Jeremy Siegel is one of the great ones. [His article at the market top was] one of the most stark and prescient calls I have ever seen."

Of course, Cramer said the same thing about Lenny Dykstra, who he also called "one of the great ones in this business". Dykstra recently filed for bankruptcy, declaring assets of $50,000 and debts of $30 million. But I digress.

Professor Siegel makes end of the year predictions about the performance of the stock markets. When he did so at the end of 2007, with his predictions for 2008, I wrote a blog warning investors not to rely on his predictions. I noted that we all wish there was a guru out there who could see the future but that these claims were "... a disservice to investors when those who should know better foster this false hope."

How accurate were Professor Siegel's 2008 predictions?

Professor Siegel predicted that "...the economy will avoid a recession" in 2008. His crystal ball also revealed that "the stock market will have another winning year in 2008" and that "financial stocks, which have plummeted 18% so far this year, will outperform the S&P 500 index next year [2008] as the credit crises fades."

The recession of 2008 was the worst since the Great Depression.
The S&P 500 lost 38.49% in 2008. It was its worst year since 1937. Financials underperformed all market sectors, losing 56.95%.

I am not picking on Professor Siegel. His predictions are no better or worse than many others.
The securities industry and the financial media inundate investors with market predictions. The reality is that they have no value, whether they are delivered by a carnival barker like Cramer or a well credentialed academic like Professor Siegel.

Dan Solin is the author of The Smartest Retirement Book You'll Ever Read.

Does Your Financial Advisor Work for You?

As the market recovery continues, we have been receiving many phone calls from individuals looking for a new financial advisor. Most inquiries are from people who have been working with a brokerage firm such as Merrill Lynch or Smith Barney. Last year’s market rout has exposed the fact that their portfolios were not diversified, and their broker isn’t interested in proactively communicating with them. As if this is not enough, when we prepare an analysis of their current portfolio, they are often shocked to find out the true cost of this advice.

Bob Veres, author of a monthly newsletter for financial advisors explains:

A brokerage firm representative is employed by, and owes a duty to, the firm, rather than the client.

The brokerage firm representative is PAID by the brokerage firm, rather than the client.
People follow the directions of whoever is paying their income.

And (here's the biggest distinction) the brokerage firm representatives inevitably recommend investment products with a lot of buried, hidden, obscure costs that trickle out of the customer's investment portfolio into those enormous multi-billion-dollar bonus pools. By the rough estimate of one advisor, a client with a $1 million portfolio will pay at least $20,000 more in various hidden costs to a broker than he or she to a financial advisor, even if both the broker and advisor are charging the same fee amount for the planning and investment work.

This is not just an issue of finding the cheapest advisor. This is the brokerage firm putting one over on its customers, draining the portfolio in ways that are never quite visible.It's a trust issue. The brokerage person posing as a real professional is helping the firm take money which, if the consumer knew about it, the consumer would object. The difference between professionals and salespeople is the professionals disclose all costs and compensation clearly and visibly, and you know what you're paying for.

At The Asset Advisory Group, the only compensation we receive is from our clients. Period. We are never paid by an investment company or any other firm. It is important for everyone to understand how the person giving them investment advice is compensated so they can be assured their advisor is working for them and not on behalf of their employer.

By Chris Carleton, CFP®
clcarleton@taaginc.com
www.taaginc.com

Alice Came to the Fork in the Road

Alice came to the fork in the road.
“Which road do I take?” she asked.
“Where do you want to go?” responded the Cheshire cat.
“I don’t know,” Alice answered.
“Then,” said the cat, “it doesn’t matter.

I came across this quote from Alice in Wonderland last week as I was working on our company’s business plan. I think it does a great job of illustrating a problem we all have from time to time. When we try to make decisions about what to do next in our business, our personal or financial lives, we lose sight of how important our goals are in determining our next steps.

The past 24 months have emphasized how critical it is to have financial goals and a plan in place to reach them. People who set goals and monitor their progress against those goals have been much calmer and able to handle the day-to-day market volatility we’ve experienced.

People who are reluctant to set goals and establish plans are more battered by their emotions and vulnerable to the daily investment noise that encourages you to “Do something!” During the early part of this year the urge to bail out of stocks was strong. With the recovery we’ve experienced since March, some are now thinking they should be more aggressive while others are worried about another drop after the Dow Jones Industrial average reached 10,000. The answer is the market movements don’t matter. What is important is your own specific financial situation, you personal goals, and your plans to reach them.

There are tools available to help you establish goals if you don’t know where to begin. If you enjoy reading I recommend The Magic Lamp: Goal Setting for People Who Hate Setting Goals, by Keith Ellis; What are Your Goals: Powerful Questions to Discover What You Want Out of Life or Goal Setting 101: How to Set and Achieve a Goal, both by Gary Blair. At The Asset Advisory Group, we have tools available to help you set personal and financial goals as well, and can work with you to design a plan to meet them.

The happiest and most successful people I’ve met throughout my life have been people who have goals and work to achieve them. Goals give us direction and provide a positive focus when everything seems uncertain. If you aren’t setting goals for yourself, you are missing out on a great opportunity to lead a happier life.

By Jeannette Jones, CPA, CFP(r)
jjones@taaginc.com

www.taaginc.com

And Down the Stretch They Come

On a recent trip down the Historic Kentucky Bourbon Trail, I attended a brunch at Woodford Reserve Distillery in Versailles, Kentucky. The featured speaker at the event was Ellis Starr, one of the worlds’ premier horseracing handicappers. The distillery had brought Mr. Starr in to discuss the finer points of wagering at the track for the many attendees planning on spending the day at Keeneland.

Being a horseracing novice, I was intrigued by what Mr. Starr did for a living. In short, people interested in betting on horseracing will actually pay for Mr. Starr’s advice. Race tracks will also hire him to pick winners and losers for their in-house television networks that are broadcast to track patrons, off-track betting facilities and home satellite services.

As he talked about how to read a program and analyze each horse, the overall conditions of the track, the quality of the jockey and past performance of the horse, it dawned on me how similar these methods were to actively managing an investment portfolio. Was there really a method I could use to beat the odds at the track and expect better than average returns on a regular basis? There must be some hidden piece of data lurking in the race program that only I could see the right way.

Analyzing all the statistics surrounding various horses, much like investments, feels like the right thing to do. Unfortunately, the truth is whether at the track or on the trading floor, countless variables are at work that cannot possibly be interpreted with any regularity. Horses, like stocks, are going to behave however they choose to once they get out of the gate and are free to run.

My trip did not take me to Keeneland that day, but I did go back to review that day’s results as compared to the expert analysis. Much like the stock picking program offers that fill my inbox each day, a broker’s hot tip, or even my good friends on CNBC, I was left disappointed. In not one instance was the winner selected with any degree of certainty. There were a few picks that, if wagered properly, could’ve been winners, but knowing when and how to place that well timed wager would have been a gamble all its own.

What’s more, I got to hear this analysis for free. Most folks, just like in the investing examples mentioned above, pay for expert advice. This is not to disparage horse handicapping in any way, but rather to revisit that tried and true ideal that if something seems too good to be true, it probably is. No investment strategy, whether betting on the ponies or the stock market, is a guaranteed winner. It doesn’t make financial sense to bet on every horse, but, fortunately, you can bet on virtually every company in the world market and ensure that, over time, you’ll have more winners than losers.

As we come down the stretch of the investing year, now is a great time to evaluate how you choose to invest. Is it a thoughtful plan based on your appetite for risk and meeting your needs in retirement? Is it being carried out by professionals with no conflicts and only your best interests in mind? Or, are you simply spending day after day at the race track that is Wall Street, leaving your money in the hands of folks that continue to sell you products and advice based on a promised level of expertise that they simply do not have?

Wagering on a race here and there can be a lot of fun, but I wouldn’t bet my retirement on it.

By Chip Workman

cworkman@taaginc.com