Musings on 2011

A week into the New Year, I am reminded of the cottage industry that unfailingly produces a stream of “predictions & forecasts” this time every year. This isn’t a new phenomenon, of course, as we have looked to would-be wizards and wise men down through the ages to preview our fortunes. Taken with a grain of salt, I say “no harm/no foul” to the sport of New Year’s predictions, with one noteworthy exception: financial predictions.

Financial predictions take myriad forms--from which investments will perform best in the year ahead to where the stock market will end the year & everything in between. Financial prognosticators of all stripes make the predictions because they provide easy content for their TV shows, print publications, etc. and they are undeniably entertaining. The danger is that gullible investors bet real money--money they can’t afford to lose--on these highly uncertain outcomes.

To be clear, I revel in the promise and possibilities of the New Year as much as the next person. But rational investors, including me, will concentrate our focus on what we can control—not on what we can’t control. Future predictions and their outcomes are beyond our control and distract us from focusing on things we can actually do something about.

An old quote, “You can’t direct the wind, but you can adjust your sails,” reportedly a German proverb, provides us investors with all the guidance we need. Future predictions are nothing more than wind that will blow in every conceivable direction no matter what we do or don’t do. Our individual portfolios are our sails. This is where we should focus and make adjustments, as necessary. Asset allocation, diversification, risk assessment & mitigation, research, profit-taking & rebalancing, etc. are some of our tools. Not as dazzling perhaps as gazing into the night sky and pondering the stars, but more beneficial to our fortunes in the long run.

Timothy R. Meyer
President & Chief Investment Officer

Sidestep This Financial Regulatory Loophole

These days, pretty much every financial services provider claims to put a client’s interests first. It’s great advertising. It’s also shamelessly misleading.

Long-time personal finance author, Jane Bryant Quinn, sets the record straight in a recent blog post. She writes:

Senator Tim Johnson socked investors with what might be a knockout punch, during negotiations on the financial reform bill last week. Johnson, known as the “senator from Citibank,” habitually sides with the financial industry and against consumers. He’s the only Democrat who opposed last year’s legislation to curb credit card abuses.

A South Dakota Democrat, Johnson laughs at the concept of “fiduciary duty” — the idea that people who advise you on investments should put your financial interests ahead of their own.

At present, Registered Investment Advisers have a fiduciary duty toward you and your money. But there’s an exception for stockbrokers and insurance agents. They can—and do—advise you to buy financial products that benefit themselves more than they benefit you.

For example, it’s okay for them to offer you high-cost mutual funds when low-cost funds are available that invest the same way. It’s okay for them to sell you a high-cost, out-of-state 529 college savings plan when your own state’s plan costs less and gives you a tax deduction, too.

Johnson’s aggressive language might yet be watered down, but brokers and insurance agents won’t have to change their ways anytime soon.

Few consumers really understand what it means for a provider to put a client’s interests first. Try it, ask a friend or neighbor. Invariably they‘ll argue convincingly that their broker or insurance agent does precisely that.

How many of those people would also, at one time, have insisted that their mortgage broker was putting their interests first when he/she sold them a sub-prime or hybrid mortgage that now they can’t afford? How unfortunate…and preventable. We need to wake up!

Ms. Quinn’s examples of fiduciary duty, or lack thereof, make the concept easy to comprehend and recognize in practice. Being familiar with them can not only save you money…it can make you money. Read her full article here: Investor Protection Gets Knocked Out of the Financial Reform Law