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Overheard ...

It was years ago when someone first told me about Overheard in New York, a collection of random, often humorous quotes claimed to have been overheard on a subway, in the office, or anywhere in The Big Apple. True or otherwise, the site has entertainment value, to be sure!

Of course, those of us in the wealth advisory business know that situations we’ve encountered during our careers include their fair share of drama and comedy, sometimes rivaling a Hollywood script.  

With Saza Wealth Partners entering its 3rd month of operation, I’m hearing some familiar comments from prospective clients that I’ve heard throughout my 25 years in the industry. So, without any further ado, here are our ... drum roll, please ... 

Top 5 Overhead from Clients & Prospective Clients 


#1: “Let’s buy that investment and check back  in 6-12 months.”

Investing means that results (good or bad) aren’t known for years. But the stock market offers us updates every millisecond, and this presents a conflict in our brains. One way to overcome this is by studying a little history. The chart below illustrates that, in the short term, anything can happen … and frequently does! But over time, the noise tends to dissipate, leaving prices to reflect the fundamental value of an investment. Then your results will be clear to see. 

In other words, to re-word a common saying, “Don’t just do something, sit there!”

#2: “I’m giving half to you & half to another advisor, and I’ll see who performs the best.”

This was an understandable approach a few decades ago, when one advisor was tasked with being the best in everything (economic outlook, asset allocation, stock picking, bond selection, etc.) If he/she got it wrong, you suffered the consequences. But ever since the 1990s, when “open architecture” allowed for numerous managers to be included inside one portfolio, this approach makes little/no sense anymore. In fact, it makes things worse!

How? Put yourself in the advisor’s shoes. The advisor is already half-fired, so why not shoot for the moon, beat the other advisor’s performance, and gain all the business? In other words, this approach incentives both advisors to maximize risk, not for your benefit, but for theirs.   

But you can still gain some advantage here: when interviewing potential advisors, tell them that you’ll pursue this approach and see what they say. If they set expectations for great performance over the near-term, beware. But, if they attempt to educate you on the downside of this approach, perhaps even decline the business, then you’ve likely found an advisor of high integrity.

#3: “Why is my portfolio lagging the S&P 500?”

This one has always puzzled me, and it’s persisted over the years. Investors seem to understand the benefits of a diversified portfolio of stocks and bonds, yet they compare that portfolio’s results to the S&P 500 Index. This index is 100% U.S. large cap stocks, which probably make up a 30%-40% of a globally diversified portfolio. In other words, the majority of your comparison is apples to oranges!

But what’s most important is the unspoken question. While they’re attempting to compare their portfolio to “the market”, they might really be asking, “Am I ok?  Am I on track?” And this is why all investors should have a plan, the “why” that drives the portfolio. We often talk about the market, about beating the market. But the market isn’t trying to beat you! Instead of the market being the focal point, the investor should be at the core from which all financial decisions emanate, including investing.  

#4: “The market is at or near it’s all-time high, so I’m waiting for a pullback before buying.”

Everyone (including me) has an opinion or a perspective when attempting to explain the current market environment. But the truth is that no one knows, and that all strategies or processes for deciphering the market come with their downside. For those who derive conclusions from specific price points such as all-time highs have their downsides, too.  

A better approach would emphasize the investor’s portfolio, not the market’s current level. (More to follow on “rebalancing” in separate post.)

#5: “How does my portfolio / net worth compare to others?”

Peer rankings are everywhere. Company performance reviews, sports rankings, political elections. But like many things in investing that are a bit weird, I’ll propose that peer ranking matter less than most believe.

To be sure, when our investment process determines that X% should be allocated to small cap stocks, I would hope that the vehicle we select (active or passive) doesn’t turn out to be the worst selections of all the available options.   

Then again, my goal is to capture the opportunity within the asset class, not beat out the entire universe of competitors. If I think small cap stocks will perform well, then I could simply invest in the index and gain that exposure. If I think that small caps stocks offer the opportunity of excess returns given the nuances of this part of the market, then I’ll take the time to research and select a manager. But if I achieve my goal, do peer rankings really matter? In short, peer ranking may be more valuable for salesmen at cocktail parties, but success is better defined by delivering the desired result in the least risky way.

Interested in more?  Let’s talk.