Best
Financial Help is Between Our Ears
By
Stephen J. Butler |
Archives |
A perennial favorite of New Year's resolutions is weight loss
according to various surveys, but a close second these days is
saving more money and investing more effectively. "Where can I
find good help?" is the question that echoes in the void left
by major players in the financial services industry.
The dozen largest
companies in the brokerage business have just offered to pay $1.5
billion in penalties in an effort to avoid years of litigation
from angry investors. It's not clear in my mind who will receive
this money. It's only clear that the industry has to pay it. Not
that long ago, one of the nation's largest brokerage firms, alone,
had to pay yet another $1.5 billion to settle years of shareholder
suits over limited partnerships that had turned sour. Lawyers
presumably received a major portion of that money before the trickle-down
effect benefited investors in any material way. It reminds me
of the class action suit against some dungaree seller where the
lawyers received millions and the buyers each received about $5.00
if they bought their jeans within a certain specific time period.
If a financial institution takes advantage of us, we can't count
on the justice system to wreak vengeance and make us whole. For
all practical purposes, we are alone with our money.
The first lesson
is that bigger is not better. These major institutions with huge
ad budgets and admittedly smart people need to be viewed with
a healthy dose of skepticism. The size and national stature of
a financial institution is no guarantee that the contact person
we work with is giving us good advice. U.S. Trust, a venerable
financial advisor for high net worth Americans (and now owned
by Charles Schwab and Company) had an especially embarrassing
period back in the seventies when, according to financial writer
Andrew Tobias, it advised many of its clients to invest in what
turned out to be very bad real estate deals. At the time, the
company had one of the best reputations in the business.
Even Vanguard's
management exhibits a touch of self-serving behavior. This unique,
giant cooperative, effectively owned by its mutual fund investors,
has been faulted in recent years for what some would consider
to be excessive compensation coming from its so-called "Partnership
Program." The latter is apparently a compensation system put in
place to meet the advantage other financial institutions had in
the form of stock options. Vanguard's unique ownership structure
precluded stock ownership, so this "partnership" approach was
adopted. In the light of what has happened to stock option values
in the financial services industry, it may be time for Vanguard
to do some course correcting and further reduce investor expense
ratios.
The rising markets
of the 80's and 90's turned all investors into self-styled "Masters
of the Universe." It was intoxicating to get those statements
in '97, '98, and '99 and see what for most of us were dramatic
gains. Now, for the past three years, we have found ourselves
having to "duke it out with the Dark Side of the Force." The temptation
to throw in the towel and turn to an expert---any expert --- is
probably greater than ever. It's in this state of mind when we
can be most vulnerable.
A constructive
first step is to determine the soft underbelly of our investment
and savings program. Are we dealing with substandard investment
results or just a lack of self-discipline that leaves us saving
less than we should.
When it comes
to substandard investment results, we should ignore the actual
percentage loss of assets and focus on whether or not we had been
adhering to basic investment rules of thumb. The markets have
lost 40% or more overall, and the best money managers in the world
are, for the most part, stuck with something close to those losses.
To have known, prospectively, what advisor or money manager could
have helped us avoid that loss would have been impossible. My
mail is full of these investment newsletter people who have claimed
to have "timed the market," but according to Mark Hulbert who
tracks their long-term performance, most have had dismal records
over the years.
After having
lost almost 40% over the past three years, the market as a whole
is now on a par with its long-term 10% rate of return. In other
words, we could draw a line of hypothetical performance illustrating
a rise of an even 10% per year and then compare it with an equivalent
line reflecting actual market performance. These two lines today,
thankvetica,Geneva,Swiss,SunSans-Regular" color="#002200" size="4">Step in Shop for Stocks
At this step in the process, enter the dollar amount you want to purchase of each security. The minimum is $20, but you can invest as much as you like. Using our Unlimited Investing Plan, you pay $14.99 per month for unlimited trades. With our Basic Investing Plan you pay $6.99 per month, which includes your first two trades, $2.99 for any additional trades in that month. |