March Madness and Investing: Surprising Similarities (And How to Avoid Common Mistakes)

March Madness (1)

What a great time of the year. Cherry blossoms are out, baseball opening day is right around the corner, and the best single elimination tournament in sports is on its way. That’s right, it’s March Madness time.

For those of you unfamiliar, March Madness, as it’s commonly called, is a 64-team college basketball single elimination tournament. There are four regions that each have 16 teams seeded 1 though 16. The winners of each region meet in the “final four” to determine who will emerge as the champion.

Offices around the country are buzzing with brackets, upset picks and friendly wagers. In other words, it’s chaos both on and off the court and it’s glorious!

In case you couldn’t tell, I love sports. As a financial advisor, I am constantly looking at seemingly unrelated topics, and comparing them to the world of finance. What may come as a surprise to you is that investing and March Madness have more in common than you think.

So what does the tournament have to do with investing? Let’s have some fun and take a look.

You Can’t Predict the Future

Every year people get excited about their bracket. We watch the “experts” on TV and eagerly listen to their reasons for picking one team over another. We all go into the season thinking that this is “our year.” We’ve done the research and we’ve studied history. What could possibly go wrong?

In the first round of this year’s tournament, a record 10 double-digit seeds advanced to the second round! Do you think a lot of people predicted that? Not a chance.

March Madness BracketsHave you ever heard the saying on Wall Street that past performance does not guarantee future performance? There’s a reason the saying exists. Just like last year’s successful mutual fund managers aren’t any more likely to pick this year’s best accounts, the winner of last year’s bracket pool is no more likely than you to pick this year’s winning March Madness team.

When it comes to investing, “experts” love to tell us what is going to happen in the future. People brag about their best stock picks and conveniently leave out their poor ones. The truth is, no one knows what is coming. Once you accept that, you can create a financial plan that takes into account your risk tolerance, and current life situation to make the best investment decisions for you.

Diversification and Risk vs. Reward

No one picks a perfect bracket. The odds of filling out a perfect bracket are 1 in 9.2 quintillion (source: USA Today). According to that number, if everyone in the US filled out one bracket each year, we would see a perfect bracket once every 400 years. You’d be better off gambling with the lottery based on those odds.

However, straying from the standard “favorites” isn’t always the answer either. People love to pick the underdog or “dark horse,” but if you do this consistently year after year, you aren’t likely to have much success. That doesn’t mean you can’t pick an underdog here or there, but the risky picks should be a subset of your overall picks, not the full strategy.

The truth is, no one wins a bracket pool by picking all favorites or all upsets. As the point above taught us, everyone is just guessing. By diversifying your picks with some favorites and some upsets, you give yourself the best chance at success.

The same principal applies with investing. If your portfolio is composed of stocks from one sector or all growth stocks, you are exposing yourself to huge amounts of risk. Sure, the reward may be great if you end up being right, but as we’ve seen time and time again, that is a strategy that can set you up for disaster.

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Why Stock Picking Is a Losing Investment Strategy

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This article was originally published on NerdWallet.com

Picking a stock that goes up 100% in a year is exhilarating. But there’s a problem with this method of investing. Like gambling in Vegas, it may be fun and even rewarding in the short term. Yet in the end, just as the house always wins, picking stocks is a losing game.

I talk to friends all the time who say they invest in stocks — meaning individual ones rather than broad-based index funds that capture the movement of the entire market — and I always wonder why. I think many people see a company that carries a well-known name — maybe they are customers or they hear about it on the news — and they assume it’s a good investment. But history has shown us time and time again that picking stocks of individual companies, and thus trying to determine which will be the winners, is not a good investment strategy.

No company is immune to short- or long-term failure, no matter how good they look in the moment. The company’s value may not go to zero, but it could certainly take a huge hit relative to its underlying industry or index. Just think about how the Standard & Poor’s 500 index has changed in the past two decades. There has been a revolving door among the largest companies in the S&P 500, proving that even the biggest companies out there are not immune to volatility and risk.

Individual stocks vs. an index

As further evidence that picking stocks is risky and ultimately a losing game, consider recent research from financial firm JP Morgan Chase & Co. It compared the Russell 3000 index — which, as the company notes, “represents approximately 98% of the investable U.S. equity market” — between 1980 and 2014 with information on individual stocks. Here are the three main findings:

  1. The risk of ‘catastrophic’ failure among individual stocks is higher than you think. “When looking at how often a stock has what we call a ‘catastrophic decline’ — falling 70% or more and never recovering — we see that 40% of all stocks suffer this fate at some time in their history. And some sectors — like telecom, biotech and energy — saw higher-than-average loss rates,” the report states.
  2. Most stocks underperform over their lifetime. According to the report, “The data shows that two-thirds of all individual stocks underperform over their ‘lifetime,’ as compared to the Russell 3000. On average, the outcome for individual stocks was underperformance of about 50%.”
  3. Concentrated holdings in individual stocks add huge amounts of risk to your portfolio. “When computing the optimal risk-adjusted return for a concentrated holder,” the report notes, “we find that 75% of concentrated stockholders would benefit from some degree of diversification.”

Why investors keep picking stocks

So why do so many individuals keep trying to pick stocks? I see two main reasons.

We all enjoy making money, and we don’t usually associate the word “boring” with something we enjoy. That reason alone likely explains why so many people try to pick stocks. It’s the “sexy” way to invest. But the research is clear that this is not an optimal strategy. When it comes to investing, “sexy” might as well be spelled “sucker.”

Rather, investing should be boring. It’s like baseball: Base hits are the name of the game. By properly diversifying your investment portfolio — picking a mix of asset classes with exposure to many sectors and countries — with a long-term strategy, you allow yourself to take advantage of compounded gains without subjecting yourself to unnecessary risk (i.e., swinging for the fences).

The other major issue is that not all investors understand what they are doing. When you’re stock-picking, you may think that you are diversified by owning five different stocks; but if that’s all you own, you’re exposing yourself to a huge amount of risk by having such a large percentage of your portfolio invested in just one stock or industry. One catastrophic loss could devastate your portfolio.

Diversification

The logical question you might have is, “OK, so what should I do?” While answers are going to vary slightly for each individual, one applies across the board: Diversify. That doesn’t mean owning many different individual stocks in the same sector, but rather spreading your investments throughout multiple asset classes, industries and countries. Proper diversification of your portfolio is key to your investing success over the long run.

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Why Volatility Is an Opportunity for Long-Term Growth

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This article was originally published on NerdWallet.com

The market has been on a wild ride lately, which has provided a wake-up call for investors who rode the six-year bull market — and its low volatility — without a care in the world. Now reality has set in.

As with all market corrections, this one has inspired retail investors to question whether it’s time to pull money out, shift to safer and more stable investments or just throw in the towel entirely.

While it is normal to feel anxiety during a downturn, there’s another way to look at it. As long as downturns and dips don’t affect your financial plan or, more specifically, your immediate need for cash, they can be an opportunity.

Remember the mantra “buy low and sell high”? The volatility, geopolitical risk and uncertainty we’ve experienced so far in 2016 have presented a particular opportunity for investors in the accumulation stage of their lives, or for anyone who has money but hasn’t started investing yet, to actually buy low (or at least lower). If you’ve been delaying investing regularly because the “market was too high” or “you knew a correction was coming,” now might be a good time to start.

The key is to view volatility — like what we experienced last August and what we are seeing now — as a tool to keep contributing regularly to your investments. This will let you maximize the possible potential for your investments and enable you to watch them grow. The two best concepts to help you do that are dollar-cost averaging and compounded interest.

Dollar-cost averaging

Dollar-cost averaging is the process of spreading out the costs of your investments as the market rises and falls, rather than purchasing shares all at one (potentially higher) price. The key is to pick a schedule — whether it’s monthly, bimonthly or weekly — and an amount, no matter how small, and stick to it by purchasing as many additional shares in your investments as your fixed amount will allow. This is much more effective than trying to “time” the market by buying shares when they are at their lowest or selling when they are at their highest.

Using this system, you are regularly contributing the same amount, regardless of the price of shares. As a result, that fixed dollar amount buys more shares in times when the market has dropped and prices are low, and it limits the amount of shares when the market has risen and prices are high. Over time you will come out ahead, compared with trying to time the market.

Compound interest

Once you have started to build up the size of your investment with the help of dollar-cost averaging, the concept of compound interest gives you a boost. Compounded interest is the interest you earn on the sum of both your initial investment and the interest that investment already has earned. If you have $1,000, for instance, and it earns 5% interest yearly, you will earn $50 at the end of the first year. Then, if you keep that money invested, the next year you will earn 5% interest on the total — $1,050 — which is $52.50. The following year, you will earn 5% on $1,102.50, which is a little more than $55.

Because dips in prices allow you to buy more shares with a fixed amount, volatility allows you to maximize the potential for compound interest as well.

Using these two concepts, the daily ups and downs and market corrections are not a cause for undue concern. If you are sticking to your dollar-cost averaging plan and taking advantage of compound interest, news events shouldn’t affect your long-term plans and goals. Any dollar that is invested in the stock market should be a dollar that you are comfortable keeping invested through a bear market or a major correction.

If you are disciplined about investing, and consistent about reinvesting, you’ll start to look at market volatility as a tool and an opportunity, rather than as a source of anxiety or, worse, a reason to throw in the towel and lose out on long-term growth.

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

In Times of Uncertainty, Feeling Certain about Your Plan

As I was listening to Fed chair Janet Yellen’s testimony in front of Congress last week, I was intrigued by a tweet from Morgan Housel: “Go back to 2008 and tell people that in 2016 our biggest headwind would be low oil prices and a strong dollar. Economics is hard. Not in a “things are actually good today” way. But in mid-2008 surging oil prices and a falling dollar were a big headwind.”

As a Financial Advisor, I read every piece of economic data available to me and follow the thought processes of the top thinkers at virtually all the key financial institutions so I can carefully invest money on behalf of our clients.

Here’s what I’ve discovered: none of them, and none of us, have been given a roadmap to what the future holds. They can watch and study the relevant economic indicators, but they cannot predict the financial future with absolute certainty. We all live with uncertainty while trying to make the best decisions we can with the information available.

Given the certainty of uncertainty, what can individuals do to best prepare for their financial future?

With all of the speculation about the upcoming elections, questions about possible negative interest rates, and concerns about international instability, it’s easy to feel anxious about the potential effects on the economy and on your savings and investments. Particularly because the airwaves and the Internet are full of news reports, commentary, blogposts and Tweets about how volatile and risky the markets are.

One thing that is certain: there will always be volatility and risk in the markets. That’s what makes the stock market the stock market. Even if we are currently experiencing a bit more than just normal market volatility, remember that the markets have historically rebounded extremely well after corrections (which are considered a drop of at least 10%). Don’t take my word for it, take a look at the chart below:

 

These charts show 27 corrections of at least 10% or more since 1987. All of those corrections had one thing in common: they all rebounded with a bullish rally. What history has shown is that, over the long run, markets continue to move higher.

What does this mean for individual savers and investors? No matter your age or experience with financial planning and investments, there is one universal “must” that applies to everyone. You need a financial plan:  a carefully thought-out, customized financial plan, not just something you downloaded from Google. Once you have that plan in place, the next steps are to implement it, then put your head down and trust in that plan.

This current market in particular highlights the importance of having a financial plan that is both age-appropriate and risk-adjusted to your specific financial situation, goals, and needs. If you’re in your 20s or 30s, for instance, the correction we’re experiencing is a great opportunity. Why? Because you have the luxury of time on your side. With the market currently down significantly from where it was a year ago, this is a great time to implement a dollar cost averaging strategy and start saving and investing on a consistent basis.

One of the things that differentiates us at Sherman Wealth, however, is that we believe that no two people are alike and that everyone’s investment strategy and portfolio should be customized to suit his or her individual situation, needs, and goals. We get to know each client – or potential client – so we can analyze their actual risk tolerance in a holistic way, rather than just plugging their age and one or two other factors into a simple, one-size-fits all algorithm the way some of the Robo-Advisor platforms do. Then we create a plan that is designed to work for our clients.

I can’t tell you what the market is going to do tomorrow or six months from now – no one can. But with a well-thought-out financial plan – one that takes into consideration who you are now, where you want to be, and how much risk you can tolerate – you will feel much more confident about your own strategy and less likely to panic about what the next crazy pundit to pop up on the internet has to say.

Photo Source: AP

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

When A Storm Hits Are Investors Still Gluten-Free?

Empty Shelves

More snow coming?

Get ready for Instagrams and TV reports about empty bread shelves!

Here’s one from my local store before the blizzard a couple of weeks ago:

BreadShelvesNo matter how many people have resolved to stick to a gluten-free diet, that gluten seems much more appealing when a storm is on the horizon and gluten-free bread may get harder to find.

The same thing happens to investors. When the market is stormy, anxious investors often disregard their financial plans and start switching to what they perceive as “staples,’ sometimes at surge prices.

The trick with smart investing, as well smart shopping, is to make sure you’ve got enough of what you need – and want – before the storm hits, not during a run on the shelves. If you’re gluten-free, that means having a pantry already stocked with gluten-free pasta and a gluten-free loaf of bread in the freezer – not to mention beans, rice and tomato sauce – to tide you through the blizzard. It also means sticking to what you know has made sense for you in the past and realizing that two days without bread is not the end of the world – the bread will return to the shelves once the storm has passed.

Likewise, if you know your risk tolerance and have already planned effectively, you’ll have a balanced portfolio that contains the right balance of stocks and other less volatile instruments before a storm hits. With a fully diversified asset allocation strategy, there will be parts of your portfolio that go up, as well as other parts that go down, during times of stress. That way you’ll be comfortable sticking to your investment strategy and plan when the market is stormy. Plus, you’ll have purchased those less volatile instruments before pundits start shouting and everyone starts panic-purchasing.

A good financial advisor will help you build a portfolio strategy that truly for reflects your risk tolerance and, importantly, helps you understand exactly where the risk is in your portfolio. Your advisor will help you understand if, when and why to own bonds, Munis, Treasuries, and CDs, and how much of a cash component makes sense for your particular situation and need for liquidity.

The volatility we’re experiencing, current geopolitical uncertainty (like Japanese negative interest rates), and Federal Reserve uncertainty are all great litmus tests to determine whether you have a properly diversified portfolio and whether or not it’s an accurate match for your true risk tolerance.  If current market conditions or any paper losses you may be experiencing make you feel uncomfortable – or keeps you up at night – it’s likely that your investment strategy does not match your actual risk tolerance and needs to be re-balanced.

If, however, you’ve worked with your financial advisor and are comfortable with where you, then you’re best bet is probably to ignore the noise, ignore the panicking pundits, and stick to your saving and investing plan. Remember, if your investments made sense to you a couple of weeks ago, they probably continue to make sense for you, even during market volatility.

Just like a diversified pantry will help you stick to your nutritional goals when there’s a run on the supermarket, a good fee-only financial advisor can help you create a portfolio that is truly diversified, risk appropriate, and with the exact amount of liquidity that makes sense for your long-term goals, so you can sit back and weather the storm with confidence.

Photo Source: Reuters/Shannon Stapleton

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Do Interest Rates Have You Worried About Buying a First Home?

Guide to Buying Your First Home

Did the recent interest rate hike news cause any delay to your plans to house hunt? Are you wondering – given the rate increase and current market turmoil – if this is really the right time to purchase a first home, or if renting makes more sense for you right now?

Actually, the exact opposite happened. Rates actually fell from 2.3% to 1.55% on the US 10-year treasuries (a common indicator of how mortgage rates are priced), their lowest point since September 2012. If you already own a home with an ARM or 30-year fixed mortgage, this is also a good time to refinance or reduce debt at these low rates.

Remember a house or condo is both a home and an asset that can appreciate over time. No matter what they’re saying on the news, what’s important is what makes sense for your finances, based on your goals and what’s happening in your local housing market.

Here are a few things to consider:

Evaluate your current circumstances:

  • What would your mortgage payment be in relation to current rent? A good rent-versus-buy calculator can be found at Realtor.com
  • Do you plan to be in the area for 5 years or more? The housing market will fluctuate. If you need to sell quickly, you may have to sell for less than desired, whereas a booming market can provide quick sales for a profit.
  • Can you afford the additional costs? The cost of home ownership is more than just the mortgage payment. There are taxes, insurance and sometimes homeowner’s dues that need to be considered, not to mention upkeep, repairs, upgrades, and furniture!

Assess Your Finances:

  • Have a good understanding of what your assets and liabilities are.
  • Consider what you can afford. Being house poor and unable to save for emergencies, retirement, college or other financial goals can create a stressful situation.
  • Speak with a lender about which programs you may qualify for; what a lender will approve you for and how much you can afford may not be the same thing.
  • Take a look at your credit report. AnnualCreditReport.com offers a free credit report from all three credit bureaus. Get one from each bureau and check it for accuracy.
  • Meet with a financial advisor to strategize your financial planning Is it better to make a higher down payment, pay down debt to get your debt to income ratios lower? Or is it better to leave the money invested so the lender includes this in your financial reserves?

Get Pre-approval:

  • Your chosen lender will review your financial information and credit, then make an assessment about how much home you can buy, what down payment is required, and the best loan program. The lender then provides a preapproval letter.
  • A second option is having an underwriter review your completed file, evaluating your income, credit, and financial assets, then providing a pre-approval letter.   Having an underwriter review your file may require application fees and other costs to be paid up front.

Contact a real estate agent:

Start your search online to help narrow down location and potential neighborhoods. This can save time (and therefore money) by giving you a sense of where you want to live and what is available in your price range.

  • Pay attention above all to location: be sure you are within an acceptable commute to work, schools and other activities that you will be involved in on a regular basis.
  • Consider resale value: do not buy the most expensive home in the neighborhood.
  • Consider how you want to use your financial resources: fixer-uppers are the best bargains but take both cash and time to complete.

Buying a home is an exciting decision and can result in a solid investment that appreciates over time. Whether or not this is the right moment to purchase is something you should evaluate carefully with your financial advisor, based on your current financial plan and your long-term goals, not based on the news or economic “predictions.”

While interest rates may have risen slightly they are still at historic lows, so don’t miss out the opportunities that a low-interest rate environment offers homeowners and prospective homeowners.

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Still haven’t won the Powerball?… Now what?

Powerball

Still haven’t won the Powerball/? You may have to postpone that fantasy of buying a private island in Thailand, but that doesn’t mean you can’t still be on your way to achieving your financial goals and dreams.

Here’s one way to do it – take that money you’re sinking into lottery tickets and invest it instead.

Why are so many people willing to waste hundreds of dollars on a lottery they won’t win instead of investing it in capital markets that have shown growth over time? Many reasons. For some people, the hardest part of saving and investing could be just getting started. For others, it’s not understanding the benefits of compound interest and that even small amounts add up over time. For others it may be fear of volatility and distrust or the markets from listening to too much CNBC, Fox Business, and Bloomberg!

While it’s true that markets have dipped significantly in January, market dips are a potential opportunity to buy low and earn higher returns over time. The bottom line is that, for most people, even those starting with modest amounts, keeping money in cash is generally not a winning proposition.

Here’s why:

Lets say you are contributing $250 each month ($3k/yr) to your 401k plan with a 100% company match and invest it in a diversified basket of stocks and bonds based on your risk tolerance. At the same time, you save and invest $20 a week (the cost of 10 Powerball tickets a week) in a regular investment account. Assuming historical 4.8% annual returns*, here is how your money will grow over a 20-year period (in today’s dollars) vs. saving the same amount as cash:

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*based on a diversified portfolio that assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Barclays Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the Barclays Global High Yield Index, 5% in the Bloomberg Commodity Index and 5% in the NA REIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data represents total return for stated period. Past performance is not indicative of future returns. Data are as of 12/31/15. Annualized (Ann.) return and volatility (Vol.) represents period of 12/31/99 – 12/31/15. Source: Page 59 https://www.jpmorganfunds.com/blobcontent/202/900/1158474868049_jp-littlebook.pdf

So go ahead and keep dreaming about that island! But first speak with a financial advisor about your current situation and future goals and what the best steps are to start working towards financial freedom.

And when the next Powerball comes around? Our guess is that a good financial advisor can help you find better ways to let that $2 grow for you!

 

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Why Go Where Your Money’s Not Wanted?

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In the film The Shining, a ghostly bartender tells Jack “your money’s no good here,” while other ghosts are planning to do away with Jack and his family. In December it was Wells Fargo doing the “ghosting.” By urging its brokers to get rid of clients with a minimum balance of less than 65,000, Wells Fargo Advisors sent a clear message to younger investors that, going forward, their money is “no good” at Wells Fargo.

In a company statement quoted by Janet Levaux in Think Advisor, Wells Fargo, which is the most valuable financial institution in the world according to the WSJ,* said that, in 2016, “bonuses will be awarded to FAs with 75% of their client households at $250,000.”

Wells Fargo isn’t the only large institution effectively ignoring Millennials and other smaller and entry-level clients. Most of the corporate institutions prefer high-net worth clients because it creates “efficiencies of scale” and a higher profit margin on larger trades.

As frustrating as the requirement for a high minimum balance is for first time investors, it has also inspired a new breed of smaller independent RIAs, like Sherman Wealth Management (“SWM”), as well as the the new “robo-advisor” firms.

Younger, breakaway firms like SWM aren’t looking for “efficiencies” or working for sales commissions on the products we recommend. Our focus is different. We strive to help investors build a strong foundation then grow with them, not by profiting off the trades, good or bad, we recommend for them.

Where large brokerages currently see a “revenue problem,” we see a growth potential and are building long-term lasting relationships. By the time Wells Fargo and the other firms with traditional models get around to investing their time and attention in younger investors, it may just be too late. Those Millennial clients will be growing their wealth with firms that didn’t “ghost” them and, like Jack – spoiler alert! – may end up being “frozen out” of the largest wealth transfer in the history of the world as capital shifts from Boomers to Millennials.

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.
*http://www.wsj.com/articles/wells-fargo-co-is-the-earths-most-valuable-bank-1437538216

Why You Should Consider Buying that Powerball Ticket

Powerball

If you won the Powerball today, what would you do with the $90 million dollars?

While I’m not the first to tell you that you are definitely not going to win the Powerball – you have a 20 times greater  chance of having identical triplets – it’s a great idea to think about what you would do with the 90 million dollars if you did win.

Here’s why: your answer is a great way to understand what you truly care about in life.

What’s the first thing you thought of? Was it “retire and live on a boat in Hawaii?” “Quit my job and become a deejay?” “Book a ride to the Space Station?” Or even just “Stop worrying about how to pay for my kids’ college?”

Your answer – however crazy or however normal –  is a window into what’s really important to you and a great way of evaluating your current financial strategy. Is upgrading your home a potential goal? Have you budgeted enough for your passions? Should you start saving more for more travel and adventure? Have you looked into 529 plans?

As a Financial Advisor, I would advise that you not waste that $2 when it would be better spent collecting compound interest. I would ask you whether you’d already contributed to your 401K plan, your emergency fund, and your other long or short term savings goals. Then I would suggest that if you really wanted to play Powerball, that you re-allocate that $2 from another area –  skipping the caramel latte this morning, for instance, or biking to work tomorrow to save on gas – so that the $2 is amortized.

But I would also tell you to keep dreaming, because those things you are dreaming about are a great way to evaluate whether your current savings and investment goals are tailor-made to help you achieve the life you really want, the life you’d lead if there was nothing standing in your way.

So consider it: if you won $90 million dollars, what’s the first thing you’d do? Now call your financial advisor and take the first step to actually making that happen.

p.s. – If you want to see what your chances of winning actually are, click here to try the LA Times’ Powerball Simulator!

 

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.