Tell me what you want, and I will tell you what you have to do financially to get it !


Mutual Funds and Variable Annuities -- never individual stocks

Long before Morningstar became the king of Mutual Fund data reporting, Wiesenberger was considered the “Bible” of the Mutual Fund industry. They had a very clever way to illustrate something about investing that clarifies what the best strategy for you to achieve optimum investment results. Using hindsight, they compared the results for perfect timing of market turns versus perfect selection of your investments. In essence, they contrasted when you invest with where you invest using perfect hindsight.

Mr. A invested $1000 buying the Dow Jones Average at the bottom and selling it at the top. Between January 1940 and December 1973, his investment grew to $85,937. That is slightly more than 13% per year.

Mr. B also invested $1000, but he stayed in the market throughout all the market rises and declines only changing his investments from one group index to a better group index. Over that same 34 year period, Mr. B‘s result was $4,357 million. Yes that is 4.357 Billion! That is slightly more than 52% per year.

Mr. A used timing alone; whereas, Mr. B selected the right investment each time. Mr. B’s investment strategy produced 4 times the annual rate of return of Mr. A, and a whole lot more money! Obviously, investment selection is 4 times more important for your success than market timing alone. That is the reason why I only use Mutual Funds and Variable Annuity portfolios. Professional money managers spend more time and have more resources available to them than I do. Why should I reinvent the wheel?

Also, please note that the Dow Jones for Mr. A, was broadly diversified while the indices for Mr. B were only diversified within a particular industry.

With Mutual Funds and Variable Annuity portfolios, you automatically get a diversified portfolio of many securities that were selected by a professional portfolio manager who felt that those securities were a great deal at the time of purchase.Most people do not have enough money to buy 100 shares of 30 different stocks. They could buy a few shares of 30 different stocks,but the commissions to buy and to sell would be outrageous. The Mutual Fund automatically gives you the diversification, and investment minimums are very reasonable.

 Furthermore. You can review the past history of that manager’s previous security selections in order to get a better picture of his skills.

I never recommend individual stocks because I have never seen any analysis of data which implied that people who bought individual stocks from a stockbroker had the investment success which Mutual Funds and Variable Annuity portfolios have produced. A stockbroker is a salesman not a portfolio manager. The stockbroker spends all his time talking to customers. The portfolio manager appends all his time analyzing businesses and their economic performance. I do not expect the stockbroker to pick stocks as well as the Portfolio manager for a Mutual Fund.

By law, the Broker Dealers must keep records of every securities transaction for 6 years. The Broker Dealers have the data which would allow the comparison of results, but they never do the analysis. Often the Broker Dealers say that each customer is different. However, they all have stocks, bonds etc. in their portfolio. It would be simple to document the performance of the stock selections. Why should you buy individual stocks when there is no evidence to say that your results will be as good as Mutual Funds and Variable Annuities? hat is most important?

Market Declines

I will help you avoid the major market declines, and take advantage of the market bottoms. Twice I have avoided major market declines and reaped the profits from that fortunate timing. I am not a market timer. All I am trying to do is get in near the bottom when prices are low, and get out near the top when prices are higher.

I made 8.446% over 5 years ending December 31, 2008. According to Morningstar, the average stock Mutual Fund lost almost 1% per year during that same period! My success sounds unbelievable, but it is true. The real question is … Can I repeat the success? I can certainly repeat the methods which led to that success, but that is no guarantee that I will repeat the success. The market is fickle, and sometimes it does strange things which confuse everyone.

 Maybe I will be confused. Maybe I will time the market right, but my investment selections will not perform well and I will lose the advantage of the timing. Maybe the market itself will fizzle, and all my efforts will be for nothing. I am not trying to bad mouth my own achievements; I want you to have a realistic impression of what I can and cannot do to help you. I will tell you exactly what I am doing with my investments, so that you get the same results that I get. 

My Guarantee

I can only guarantee you one thing. The advice that I give you is the same advice that I give to my wife and use on my own personal accounts. If you don’t succeed, I don’t succeed! In addition, I don’t want to suffer the Scorpion's sting (my wife). I can only guarantee you that I will do my best, and you know that I really mean that.

Where should you invest your money ?

Your first choice should be your Employer's reirement plan. Your employer offers a tax-advantaged savings plan either a 401(k), or a 403(b) = Tax Sheltered Annuity, or 457 Deferred Compensation plan. The amounts that you contribute to these plans are tax deductible and tax sheltered. That is why they are your best choice for your retirement savings.

If you are in the 25% tax bracket, a dollars’ worth of investment will only cost you 75 cents. Furthermore, you will not pay income taxes on the investment profits until after you are retired and probably in a lower tax bracket. In fact, even when you retire, you will roll the savings over to an IRA account which is also tax sheltered. Compounding your profits for all those years until you spend the money will produce more money for you to spend after taxes!

Some people make the mistake of only contributing the same percentage of their salary as their employer matches. That is foolish. If you can contribute more, do so. I do not have any connection to your employer’s plan, so I cannot be paid for my work. However, if you are a client, I will examine your investment options, and tell you which to use. If you have taxable savings which are only going to be used for your retirement, that money is only increasing your current tax bill. I can show you how to transfer that money into your Employer’s plan so that you can avoid those current taxes.

 If you have retirement savings money left over after contributing to your employer’s plan, your second choice should be an IRA. IRA accounts are tax deductible if your taxable income is below a certain limit. Even if your IRA contribution is not tax deductible, you can still make the contribution, and the profits are tax sheltered until you withdraw the money from your IRA.

If your IRA contribution is not tax deductible, then you should consider a Roth IRA because the profits are tax sheltered, and the proceeds are income tax free if you havened the account for 5 years or longer.

If you still have retirement savings left over after contributing to your employer’s plan, and your IRA, then an Annuity is your third best choice. Investments in Annuities are tax sheltered, but not tax deductible. There is no limit on how much you can invest in an Annuity. There is also no requirement for withdrawals at any future age. Annuity contracts are issued by Insurance companies, and come in 2 flavors - fixed and variable. Fixed Deferred Annuities are like Bank CDs - they guarantee an interest rate over a period of years. Variable Annuities are very much like Mutual Funds.

Picking your investments

I have constructed an index of stock Mutual Fund performance dating all the way back to the first Mutual Fund in 1924. That index shows that you could have invested for as long as 14 years and made no profit or even suffered loss! You should not invest money in the stock market unless it is going to stay invested for at least 15 years. For similar reasons, you should not invest money in Bond Funds unless the money will be invested at least 10 years.