Disclaimer: Information presented on this program is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information and may not be suitable for members of the listening audience. A professional adviser should be consulted before implementing any of the strategies presented.
Government Restart Opens Small Window for Changes to Your Bond Portfolio
Posted on Thursday, October 17, 2013
The bond market seems convinced that it should be a while before we recover from the cost of the shutdown and that economic numbers will show more weakness than strength between now and February. What does that mean for a bond investor? Click here to read the entire article on http://www.brianbritt.com/.
The stock market is staging a mini rally with the hope that a deal passes in order to avoid a default on U.S. debt obligations and restore the government's ability to borrow and spend money. News broke from House Speaker Boehnerís office, which confirmed what the market already knew: the Republicans will eventually fold because they always do. There are three possibilities of how this all turns out and each one has a slightly different investment strategy. Click here to the read the full article on http://www.brianbritt.com/.
It is a proven fact that the secret to long term investment success is not about timing. Itís not about picking the right investments. It's not about always being conservative. Itís not even about asset allocation and diversification. At the end of your life, when youíre lying on your death bed and your beneficiaries are all around you calculating your net worth on their smart phones, your financial success will have all come down to how you reacted to risk and monetary pain throughout your lifetime. Why are most investors trying to stay in line with the market over the long run when the average investor gets beaten by the market by about 450 percent on average per year? Remember that prehistoric hard wiring to survive didn't just disappear as we evolved. Click here to read more on http://www.brianbritt.com/.
It is now a proven fact that the secret to long term investment success is not about timing, itís not about picking the right investments, itís not about always being conservative, and itís not even about asset allocation and diversification. At the end of your life, when youíre lying on your death bed and your beneficiaries are all around you calculating your net worth on their smart phones, your financial success will have all come down to how you reacted to risk and monetary pain throughout your lifetime. Studies now show that the most important thing you can do as an investor to slant the odds in your favor, besides having me as your investment advisor, is to spend some time understanding the way that you react to pain and to build your portfolio around that pain tolerance. So today we are going to dig deep into your pre-historic brain and discuss how you can better understand the way you are personally wired when it comes to pain and how you can use that to your advantage when it comes to your money.
So letís first go back to the time when the newest fashion trends were animal skins and the idea of courting was a man hitting his beautiful mate over the head with a club and going steady. Yes, of course Iím talking about those simpler times when social status was measured by the size of your cave. And back in pre-historic times, when life was simple, our brains were hard wired for one thing above all Öto survive, and that survival instinct quickly programmed us to run first and ask questions later. So basically, when the clan was running in fear, those who stopped to ask questions were not around for very long, and the ones who survived the longest had the strongest instincts to stay with the herd.
So here we are today, in modern times, and you might be asking yourself WHAT does this have to do with investing? And the answer is EVERYTHING. It is now a proven fact that the way people are wired to survive and tolerate pain will dictate how they handle their investments over their lifetime. Let me give a simple example: Over the last 20 years, according to a Dalbar study, the average investor earned 1.9% per year before taxes, commissions and inflation compared to the S&P 500 which earned about 8.4%
So why is that? Most investors, when asked, are just trying to stay in line with the market over the long run yet the average investor gets beat by the market by about 450% on average per year. Could it be bad stock selection, bad advice, bad luck or could it be something much more fundamental? Enter the cave manÖremember that hard-wiring to survive didnít just disappear as we evolved, it is just suppressed in the back parts of our brain and only comes out when we panic, as it should. So if you look at individual investors over very long times several things become obvious; first, they are amazingly accurate at buying high and selling low and secondly, they are doing exactly what they are programmed to do which is stay with the herd. So when the market collapses next time, most people will do exactly what they did the last time and the time before that. They will sell near the low point where they just canít handle the pain anymore, and they will buy back when it feels safe, which is when things are much higher in price. Thatís why you see that huge disparity between market performance and actual investor results. And believe it or not, even if you look at the actual returns of investors who buy S&P 500 index funds which imitate the market almost perfectly, there is still a huge gap because of the pain tolerance factor.
So the big question for today is, ďHow Can You Beat the System?Ē And the system Iím talking about is not the market, itís your brain!
And the answer is that you need to understand the way your personal brain is wired to tolerate pain and then build your investment strategy around those tolerances so you wonít trigger the panic button the next time the floor falls out. Notice that I did not say that you need to ignore your hard-wiring or learn to go against the herd and just focus on the long term and ignore the short term, I said you need to understand the way your personal brain is hard-wired to tolerate pain and then build your investment strategy around those tolerances. And this is where most investors and advisors go wrong. They build their models in a nice comfortable vacuum where there is no stress or pain without ever understanding how all that goes out the window when everything is melting down and every financial entertainment channel you turn on has the BREAKING NEWS crawler running across the bottom of the screen. Although people might logically understand risk, if they donít test how theyíll react to it before it happens, itís a roll of the dice when everything goes south.
So what should you do? How can you test your pain tolerance levels without actually experiencing the next market crash? Well the answer can be found inside of Nobel Prize-winning research that is now being used in a very sophisticated software tool that uses fuzzy logic to measure your pain tolerance with a 96% accuracy level when compared to how you actually will react. And just by coincidence, it is the exact tool that my team and I use before we will even agree to work with a new client.
Forest Gump once said ďStupid is as Stupid doesĒ So the question of the day for you to ponder is ďAre You as Stupid as Ben Bernanke?Ē Now we all know that Fed Chairman Bernanke is the opposite of stupid, so why would I ask such a crazy question? Well, Iím actually reading a headline referring to an article from Bloomberg News that talked about how Chairman Bernankeís net worth is mostly (I think that means more than 50%) made up of an investment that self-proclaimed investment guru, Suze Orman, claims is the worst investment that you could ever own!!! And if you listened to my show last week, you know that Iím on a bit of a tear with Suzie Snoozie Orman, and my rage was launched by an article my wife gave me last week from Yahoo Finance about the three worst investments youíll EVER make in your life!!!!!!!!!
And if you recall those three things Snoozie claims you should NEVER own: 1) Permanent Life insurance as an investment, 2) Annuities and 3) Bond Mutual Funds. So last week we busted two of those myths proving that Permanent life insurance (when structured correctly) is an investment like no other on the planet that offers tax-free cash accumulation, a minimum performance guarantee while you are accumulating your fortune and a death benefit for your family if you die too soon, and we also talked about how bond funds are often a great choice for those who donít feel comfortable picking individual bonds and managing a complicated portfolio fixed income portfolio.
Well today, as promised, we are going to explode the last remaining piece of advice that Suzie gives her adoring book buying fans which is NEVER NEVER NEVER BUY AN ANNUITY. And this is going to be an easy one even before I give you some of the details of annuities... Chairman Ben Bernanke, like all of the Federal Reserve governors, has to disclose where his investments are each year. And in a recent disclosure, it turns out that a majority of Chairman Bernankeís NET worth and much of his $1 million per year book royalties ends up inÖ. annuities! Now wait a minute. Isnít this the worst investment on the planet according to Suze Orman? Arenít the fees too high? Canít you do better on your own picking stocks and bonds and mutual funds? Well, that advice makes for selling a lot of books and self-help CDís but it doesnít make for good financial advice, and Chairman Bernanke is just one of the super elite in America that knows insurance company backed investments are hard to beat in the long run. And this is just more proof that you need to be very careful of where youíre getting your financial advice from. Whether itís from someone trying to get you to watch their TV show on CNBC while frantically pacing back and forth with their sleeves rolled up or itís someone selling books and CDís, you need to understand the biasís of your advisor and what their personal angle is. Also look at what the most successful people in the world are doing with their money and it is probably the opposite of the masses. So why would Ben Bernanke own annuities? Well I can only guess that itís because he is willing to pay the higher fees for the guarantees and lifetime income options that many annuities offer. Now there are several different types of annuities that we donít have time to go into today BUT, some of the unique benefits of annuities are that they can offer lifetime income guarantees that few other investments can, they accumulate 100% tax deferred like your 401k and IRA but unlike those 401kís and IRAís, there is NO LIMIT on how much you can put into annuities, so the sky is the limit. And also, annuities are backed up by the most stable and historically impeccable industry on the planetÖnot Banks, not brokerage firms, but insurance companies who are in the business of mathematically controlling risk over long periods of time and paying their policy holders in the worst times in history for over 300 years.
So there you have it, maybe Ben Bernanke is dumbÖLIKE A FOX.
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