[Investing Made Difficult]

In the May 2, 2011 edition of the Wall Street Journal (WSJ), there was an article titled “Stress-Test Your Portfolio” by Jonathan Burton. The subtitle was “How to prepare for risk known and unknown”. It is my belief that the average person reading the article would come away totally confused.

There are few meaningful pieces of advice in the article. One being that a portfolio should be diversified worldwide. But then there is Bernard Baumohl of the Economics Outlook group in Princeton NJ who advises reviewing each of your holdings, assessing the vulnerability to a potential shock and then making sure you’re not overexposed to any one country or sector. Further, Baumohl suggests you consider liquidity or how easily you can sell the asset if the need arises.

Then there is the advice of David Rosenberg, chief economist of the Toronto based firm of Gluskin Sheff, who says “It’s a matter of assessing risk, of identifying opportunities and basically looking at the forest past the trees. It’s not about market timing”.

Much of what Baumohl & Rosenberg are suggesting involves forecasting what is going to happen in the future. No one knows what is going to happen in the market in the short term. We do know that the next 100% movement in the market will be up.

When we set up a portfolio for a client, the first thing we do is assess the risk in the portfolio. We address the question of how much the portfolio may differ from the expected return in any one year based on historical results, knowing that past performance is no guarantee of future results. The client has a benchmark from which to consider how much the portfolio might lose in a year. Since we can’t and don’t forecast the future, we concentrate on having a portfolio that reflects the risk tolerance of the client, that is diversified in 40 plus countries, across 17 different asset classes and we rebalance back to the targets every quarter. The target is the mix of stocks (equities) and bonds (fixed income) in the portfolio. This is investing made easy.

Why make your investing experience more complicated?

Bill Mullen CFP, MBA

Investor Coach

4315 Hidden Cove Rd

Park City UT 84098

435-655-0508

435-655-0759 Fax

801-916-7283 Cell

bmullen@catapulsion.net

www.billmullen.org

Mullennium Finance LLC is a registered investment advisory firm in the state of Utah. The information provided herein is for informational purposes only and does not constitute individual financial, investment, tax, insurance, accounting or legal advice. The information contained does not constitute a distribution, an offer to sell, or the solicitation of an offer to buy securities. Investment Advisory Services Offered Through Mullennium Finance LLC A Utah Licensed Investment Advisor

Copyright © 2011 Mullennium Finance LLC. All rights reserved.

You are receiving this email because you are a client, or a prospective client, of Mullennium Finance LLC. If you would like to be removed permanently from this mailing list please click "unsuscribe". Mullennium Finance LLC is a registered investment advisory firm in the State of Utah. The information provided herein is for informational purposes only and does not constitute individual financial, investment, tax, insurance, accounting or legal advice. The information contained on this Web site does not constitute a distribution, an offer to sell, or the solicitation of an offer to buy securities. Investment Advisory Services offered through Mullennium Finance LLC a Utah Licensed Investment Advisor

NOTICE: This electronic mail message and any files transmitted with it are intended exclusively for the individual or entity to which it is addressed. The message, together with any attachment, may contain confidential and/or privileged information. Any unauthorized review, use, printing, saving, copying, disclosure, or distribution is strictly prohibited. If you have received this message in error, please immediately advise the sender by reply email and delete all copies.

Prior to investing, please read the investment’s prospectus carefully. The prospectus contains information about the investment, including the investment objectives, risks, charges and expenses. Orders for the purchase or sale of securities cannot be accepted via email.

[The Market is Up-So What?]

I read in the 4/28/2011 edition of the Wall Street Journal that inflows to equity mutual funds have been up for the last 13 weeks. Money is coming out of money market funds and municipal bonds among other places. I am not surprised. The S&P 500 is up over 8% year to date according the webpage of Standard & Poors. Although you cannot invest directly in the index, it is a measurement that investors’ watch.

I would not be surprised to find that the investors who are returning to the market are the same folks who jumped out in 2008 and early 2009. It really is sad to watch the destructive behavior of the average investor.

Dalbar just released its Qualified Analysis of Investor Behavior (QAIB) for the 20 years ending 2010 and the results are as disappointing as any other of their findings that they have made since they began this report in 1976 and updated each year for the previous 20 years. Here are the results of Dalbar’s latest findings;

Average S&P 500 return 9.14%
Average Equity Investor Earned 3.83%
Average holding Period 3.27 Years

Here is the bottom line-investor behavior costs the investor lots of money!!! For the 20 years ending 12/31/2011, it cost them a negative return of 5.29%. A loss of $280,377 on an investment of $100,000 over those 20 years.

So far the S&P is up for 2011. Will it stay up? I don’t know. I do know that the next 100% movement of the market will be up. Don’t know when. I do know that if you are not in the market, you will not capture that upside.

Want to know how you can achieve market returns? Call me!!

Past performance is no guarantee of future results.

Copyright © 2011 Mullennium Finance LLC. All rights reserved.
You are receiving this email because you are a client, or a prospective client, of Mullennium Finance LLC. If you would like to be removed permanently from this mailing list please click "unsuscribe". Mullennium Finance LLC is a registered investment advisory firm in the State of Utah. The information provided herein is for informational purposes only and does not constitute individual financial, investment, tax, insurance, accounting or legal advice. The information contained on this Web site does not constitute a distribution, an offer to sell, or the solicitation of an offer to buy securities.

Bill Mullen CFP, MBA

Investor Coach
4315 Hidden Cove Rd
Park City UT 84098
435-655-0508
435-655-0759 Fax
801-916-7283 Cell
bmullen@catapulsion.net
www.billmullen.org

NOTICE: This electronic mail message and any files transmitted with it are intended exclusively for the individual or entity to which it is addressed. The message, together with any attachment, may contain confidential and/or privileged information. Any unauthorized review, use, printing, saving, copying, disclosure, or distribution is strictly prohibited. If you have received this message in error, please immediately advise the sender by reply email and delete all copies.

Prior to investing, please read the investment’s prospectus carefully. The prospectus contains information about the investment, including the investment objectives, risks, charges and expenses. Orders for the purchase or sale of securities cannot be accepted via email.

[Don’t Let the Stars Get in Your Eyes]

Jeff Benjamin wrote an interesting article in the April 11, 2011 edition of Investment News (www.InvestmentNews.com). Entitled, “Guess What? Buy-and-hold works”, the article focused on money that moved in and out of mutual funds based on changes in the “star rating” issued by Morningstar. In summary, money moved out when a fund lost a star or two and money moved in when a fund gained a star or two. A follow-up study by Baird research discovered that over the three years following the rating change, those who lost “stars” outperformed those who gained “stars”.

The folly of this hit me. It is a variation of market timing and forecasting the future. Benjamin tries to make the point that investors should stay with the manager and forget about star rating-in effect he is supporting what he calls buy and hold. But the average mutual fund manager does not buy and hold. His/Her average turnover ratio hovers around 100% according to Morningstar. That means the stock holdings in the portfolio on December 31 are different from the stocks held on the previous Jan 1. Everything was sold and new stocks were purchased.

Too many investors are looking to beat the market when they should be concentrating on adhering to a system that that achieves market returns. If you think about it, most successful endeavors revolve around a system. Think McDonalds. Think Fed-X. Think Starbucks. Benjamin’s article makes it clear that chasing stars is not a successful system.

Contact me if you want to know “Why” you can’t time the market, “Why” you can’t be a successful stock picker, “Why” you can’t rely on track record investing.

Mullennium Finance LLC is a registered investment advisory firm in the state of Utah. The information provided herein is for informational purposes only and does not constitute individual financial, investment, tax, insurance, accounting or legal advice. The information contained does not constitute a distribution, an offer to sell, or the solicitation of an offer to buy securities. Investment Advisory Services Offered Through Mullennium Finance LLC A Utah Licensed Investment Advisor

Bill Mullen CFP, MBA

Investor Coach
4315 Hidden Cove Rd
Park City UT 84098
435-655-0508
435-655-0759 Fax
801-916-7283 Cell
bmullen@catapulsion.net
www.billmullen.org

NOTICE: This electronic mail message and any files transmitted with it are intended exclusively for the individual or entity to which it is addressed. The message, together with any attachment, may contain confidential and/or privileged information. Any unauthorized review, use, printing, saving, copying, disclosure, or distribution is strictly prohibited. If you have received this message in error, please immediately advise the sender by reply email and delete all copies.

Prior to investing, please read the investment’s prospectus carefully. The prospectus contains information about the investment, including the investment objectives, risks, charges and expenses. Orders for the purchase or sale of securities cannot be accepted via email.

[Fee Only and Fiduciary Responsibility]

I recently read an article about how to find a financial advisor/financial planner. The first admonition was to make sure you looked for a person who was “fee only”. The second piece of advice was to determine if the advisor operated as a fiduciary.

Most people have a feeling for the meaning of “fee only” but I find that with respect to the meaning of “fiduciary” there is a real misconception. To be on the safe side, I am going to take time to define each of the terms.

Fee Only Advisors

Sometimes the best way to define something is to state what it is not or what it does not do. Fee only advisors DO NOT accept commissions. Fee only advisors DO NOT sell products. Clients pay a fee only advisor for the advice they receive. They operate the same way an attorney does.

Some investors might say what difference does it make? The advisor is going to get paid either way and it is going to cost me. The consensus of opinion in the industry and which I believe is that accepting commissions can create a conflict of interest. Here is an example. If a client has $100,000 to invest there are numerous vehicles that could be used. One choice might be an annuity. The commission would be $5,000-$7,000. The advisor would receive 80-95% of that commission within 2-4 weeks.

If on the other hand, the choice for investing is a diverse portfolio with an investment fee of 1%, the advisor would receive $250 within the next three months. The next fee would be based on the value of the investment at the end of the following quarter.

Two things are important here. First, the advisor has a continuing interest in the investor when using the diverse portfolio investment while the investment in the annuity is a done deal.

Second, does the advisor have a conflict over the fact that his/her bank account will have $5,000 added to it in two weeks or $250 in three months? I believe that the great majority of advisors will put the investor’s interest first but my personal choice is to avoid the potential conflict and operate my firm as FEE ONLY. In the interest of complete disclosure, in the past, I worked as a fee based advisor which means I either accepted fees or commissions.

Fiduciary Responsibility

When I received the designation of Certified Financial Planner™ I agreed to operate as a fiduciary. Being a fiduciary means that in everything I do in my practice I MUST put the client’s interest first. That is the same standard to which an attorney must adhere. A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. A fiduciary has both a legal and ethical obligation.

Your first reaction might be that my broker does the same for me. That probably is true EXCEPT your broker does not have a fiduciary responsibility to do so. A broker operates under the concept of “suitability” i.e. is the product suitable for the client. Further, your broker does not work for you. He/she works for the broker dealer. Examples of broker dealers are Smith Barney, Merrill Lynch, Edward Jones and Fidelity. There is controversy going on now in the industry because the Securities and Exchange Commission (SEC) wants to require brokers to be fiduciaries. The broker dealers are fighting against the SEC.

Here is another misconception. A sponsor of a 401k plan i.e. the employer, often believe that the administrator of the plan, in most cases broker dealers or insurance companies, is the fiduciary of the plan. That is not true. Unless the sponsor has taken definite steps to transfer the majority of the fiduciary responsibility, it is retained by the employer. The Department of Labor has proposed new regulations with regard to 401k plans and addressing fiduciary responsibility is in their cross hairs.

Mullennium Finance LLC is a registered investment advisory firm in the state of Utah. The information provided herein is for informational purposes only and does not constitute individual financial, investment, tax, insurance, accounting or legal advice. The information contained does not constitute a distribution, an offer to sell, or the solicitation of an offer to buy securitiesInvestment Advisory Services Offered Through Mullennium Finance LLC A Utah Licensed Investment Advisor

Bill Mullen CFP, MBA

Investor Coach
4315 Hidden Cove Rd
Park City UT 84098
435-655-0508
435-655-0759 Fax
801-916-7283 Cell
bmullen@catapulsion.net
www.billmullen.org

NOTICE: This electronic mail message and any files transmitted with it are intended exclusively for the individual or entity to which it is addressed. The message, together with any attachment, may contain confidential and/or privileged information. Any unauthorized review, use, printing, saving, copying, disclosure, or distribution is strictly prohibited. If you have received this message in error, please immediately advise the sender by reply email and delete all copies.

Prior to investing, please read the investment’s prospectus carefully. The prospectus contains information about the investment, including the investment objectives, risks, charges and expenses. Orders for the purchase or sale of securities cannot be accepted via email.

[Wall Street Does Not Have the Answers]

Gordon Murray died January 15, 2011. He was 60 years old. Brain cancer. Inoperable.

You may never have heard of Gordon Murray. He was a former bond salesman with Goldman Sachs and rose to managing director at Lehman Brothers and Credit Suisse First Boston. He retired from Wall Street in 2001.

In 2008 he was diagnosed with brain cancer. In June of 2010 new tumors were discovered and Murray was given 6 months to live. On June 6th, he called his financial advisor, Dan Goldie and told him of the turn of events. Goldie suggested that Murray write the book he had been talking about for years. Goldie confesses that he may have been a little brusque based on the news Murray had just revealed. But write the book they did.

Now you would think that after 25 years on Wall Street, the book would focus on hedge funds, derivatives and the like. If that is what you are looking for, don’t bother buying, ”The Investment Answer”.

According to a January 20, 2011 article by Dennis Hevesi in the New York Times “The book offers a blueprint for how to do better and worry less by taking a simpler more regimented approach” to investing. Poor phrasing, but good advice.

Murray is quoted as saying “It’s American to think that if you’re smart or work hard then you can beat the markets”. Murray discovered that is not true and I agree whole heartedly.

In the New Times article, it said that Murray turned to Dimensional Fund Advisors when he retired in 2001 to handle his personal portfolio. DFA is a firm that rails against Wall Street’s aggressive investment philosophy. At Dimensional, he began taking advice from Dan Goldie.

Murray is quoted in the Times article stating “I learned more through Dan and Dimensional in a year than I did in 25 years on Wall Street”.

So what advise does the “The Investment Answer” suggest? In a recent interview on National Public Radio, Dan Goldie told Robert Siegel that there are 5 decisions that an investor need make.

First, do you invest on your own or do you hire help. If you hire help, who do you hire?

Second, in what will you invest i.e. stocks, bonds, cash?

Third, how will you divvy up the money among stocks, bonds and cash?

Fourth, will you invest actively or passively?

And finally, do you rebalance and if so how?

I agree that making these 5 decisions is a good start. The answers to them will raise more questions requiring more answers. For example, how you answer the second and third questions will determine the risk in the portfolio. That will lead to a discussion on true diversification.

In discussions with my clients we talk about the “20 Must Answer Questions” that true investors need answered to be a truly knowledgeable investor. And being a truly knowledgeable investor can lead to peace of mind investing.

Bill Mullen CFP, MBA

Investor Coach
4315 Hidden Cove Rd
Park City UT 84098
435-655-0508
435-655-0759 Fax
801-916-7283 Cell
bmullen@catapulsion.net
www.billmullen.org

Investment Advisory Services offered through Mullennium Finance LLC a Utah Licensed Investment Advisor

[Is Your Advisor On Your Side?]

Here is a story written by AnnaMaria Andriotis in Smart Money Jan 25, 2011

The Securities and Exchange Commission called for stockbrokers to put clients’ interests ahead of the bottom line. But brokers aren’t the only advisers who put themselves first. Consumers depend on financial experts of all stripes – and many are saddled with conflicts of interest that could cost you money.

The advice industry is booming — the ranks financial planners, college aid advisers, mortgage brokers and more are expected to increase by 30% by 2018, to 271,200, according to the Bureau of Labor Statistics. But many of these advisers get paid to peddle specific products, or to encourage consumers to make risky decisions. Among the conflicts: Insurance agents and some financial planners often get the biggest commissions by selling products that can result in smaller savings for consumers. Mortgage brokers profit by originating larger mortgages—even if a buyer has a tough time making payments. And college financial aid advisers rake in fees of up to $1,000 or more to boost financial aid, rarely delivering more than what a family can do on their own.

Of course, no one sets out to get bilked. Many consumers even second-guess advice, then push their worries aside, says Linda Sherry, director of national priorities at Consumer Action, a nonprofit advocacy group. One reason: A surprising number of people believe — sometimes mistakenly — that financial professionals are acting in their best interest: 76% of investors said so for financial advisers and 60% said the same for insurance agents, according to a September 2010 study co-authored by the Consumer Federation of America. The truth, however, is another story, says Barbara Roper, CFA’s director of investor protection. Many, she says, are "salespeople with no obligation to act in the best interest of the customers."

Here are some warning signs to look for when working with four types of advisers.

Financial planners

Fee-only advisers don’t sell products, and therefore don’t have commission incentives (they charge a flat or hourly fee or a percentage of assets under management, or both). But other financial planners depend on commissions that come from selling products, others charge fees or get a percentage of assets–many use a combination of the three. One big pitch to watch out for: variable or equity-indexed annuities where high commissions often eat into returns. The same tax-deferred retirement saving benefits occur with an IRA or 401(k) often for a tiny fraction of the fee, says Roper. Planners make up to four times more in commission (about 5% to 8%) on average by selling a variable annuity than investing a client’s money in mutual funds, says Sheryl Garrett, a fee-only certified financial planner. Invest $3,000 a year in an index fund with a 6.75% net return and you’ll have $40,000 more after 25 years than if you put the same money in an annuity at 5% net yield.

What to do: Make sure you understand how fees and performance on funds you are pitched stack up to other funds with similar exposure. (Many people don’t: About 32% of women and 23% of men rely solely on a financial adviser’s recommendations for mutual funds, according to the CFA.) You can also ask if the fund is owned by the company selling it or if the broker gets paid extra for selling it, says P.J. Gardner, founding partner at AGW Capital, an investment consulting firm, but there’s little guarantee that they’ll tell you.

Insurance agents

Because agents depend on commissions to make money, they may pitch policies that serve little purpose. "As a whole, the insurance industry is very much ‘buyer beware’ territory," says Roper. What to beware of: child life insurance and cancer insurance, says Scott Simmonds, a Saco, Maine-based insurance consultant. Life insurance policies protect the income of breadwinners, but children don’t make money. To sign up for cancer insurance, which provides cash for cancer treatments not covered by health insurance, a consumer must be healthy but assume they’ll be among the nearly 41% of adults to be diagnosed at some point, according to stats from the National Cancer Institute. The average monthly premiums for cancer insurance range from $20 to $36 a month, according to eHealthInsurance.com, which means you could pay $432 for every healthy year. Life insurance, long-term care and disability insurance, on the other hand, can be smart–but brokers will often try to sell you pricey policies that net them more cash.

What to do: Most adults should have a life insurance policy , but in most cases, a term policy is the best option, says Simmonds. Premiums are about 70% lower than on a whole life policy, he says. Commissions on whole life can run up to 110% of the first year premium. If you sign up for long-term care or disability insurance, make sure the insurer is in good financial health (try ratings agencies A.M. Best Company or Weiss Ratings) because if a company shut down, policyholders could lose coverage, says Simmonds.

Mortgage brokers

As of now, mortgage brokers can earn extra cash from the lender they sell the loan to for adding terms like a prepayment penalty. In April, new Federal Reserve rules for mortgage brokers will put a stop to that, but buyers will still need to look for questionable tactics, says Robert Lattas, a real estate attorney in Chicago, including pushing a customer into a bigger mortgage. The result: a buyer with, say, a $70,000 down payment might be persuaded to put less money down than the typical 20% recommended, in order to get the $380,000 house — on which a broker will earn a bigger commission. The broker’s share, which ranges from 0.5% to 2% of the mortgage, gets bigger as a loan grows.

What to do: It’s a good sign if a mortgage originator asks about monthly income and expenses and whether large expenses, like private school tuition for children, will kick in while repaying a mortgage, says Gibran Nicholas, chairman of the CMPS Institute, which trains and certifies mortgage lenders and brokers. If they don’t ask — or don’t care — consider these expenses yourself before signing up for a mortgage that gets you an extra bedroom now—and financial strains down the road.

College aid advisers

Newly-minted college graduates carry more than $23,000 in student-loan debt, on average. As college costs climb and more families scramble to get financial aid, financial aid consultants have become sought-after advisers. "The main benefit is hand-holding," since they mostly help fill out the Free Application for Federal Student Aid, says Mark Kantrowitz, publisher of FinAid.org. However, many also claim they can increase financial aid, which often cost $1,000 or more—which is simply untrue.

What to do: Once the FAFSA is filed, there are no strings to pull to get more federal, state or school aid–other than appeal to a college’s financial aid office, which families can do for free. And parents who are saving with a 529 plan should consider signing up for a direct-sold plan where annual fees are nearly half what they are for adviser-sold A- and single-share plans (0.59% compared to 1.16%, on average), according to the Financial Research Corporation. Most direct-sold plans offer age-based options that become more conservative as time goes by, minimizing your risks.

Read more: Financial Advisers Put Their Own Interests First – SmartMoney.com http://www.smartmoney.com/investing/mutual-funds/financial-advisors-put-their-own-interests-first-1295908785132/?page=2#ixzz1CeluUYLF

www.billmullen.org

bmullen@catapulsion.net

Investment Advisory Services offered through Mullennium Finance LLC a Utah Licensed Investment Advisor

[Looking out the Rear View Mirror]

You have read it or heard it a 100 times. “Past performance is no guarantee of future results”. The SEC requires the statement to accompany any promotion by a mutual fund company in their advertising. Yet here we are very early in 2011 and the populist financial press is touting the best and worst mutual fund managers for 2010.

Morningstar, the Chicago Company that follows mutual funds listed the fund managers that “…posted exceptional gains” in 2010.

It is not important to know who these managers are or which funds they manage. History is history. I searched the article in detail to see if there was any forecast as to whether the “winning managers” would duplicate their results in 2011. Nothing! After all, wouldn’t that be better information for investors? I really don’t mean a forecast; investors would like a definite statement that says “Here are the managers that will beat the market in 2011”. You will never find such a statement. Nonetheless, I have seen headlines on the covers of the December 2010 financial magazines listing the 10 best funds for 2011 and the best stocks for the New Year.

All you need to keep in mind is that magazines are in the business of selling magazines. With respect to financial magazines you will notice that funds and companies that are featured in articles are often some of the biggest advertisers in that issue.

Any person who wants to be a successful investor needs to be able to answer the 20 Must Answer Questions found on my website (www.billmullen.org), establish a diversified portfolio that is rebalanced quarterly and work with a coach to help you stay focused.

Investment Advisory Services offered through Mullennium Finance LLC a Utah Licensed Investment Advisor

[Why I am a Coach and not a Financial Planner]

In 1992, I received the designation of Certified Financial Planner® Certificant. They didnt call it certificant back then but that is not of importance. I continue to provide financial plans for clients but over the years it has become apparent that a large part of my client interaction has been with the investment side of the plan. I still work with associates who provide tax advice, legal advice and risk protection advice but I have found that I must focus on the emotions of my clients as they pertain to investing.

In recent years, the term coach has been almost ubiquitous. When I was growing up, coaches were only people who dealt with sports. Now we have voice coaches, life coaches, anxiety coaches and yes, even Investor Coaches. When I was first told that I needed to be an investor coach and not a financial planner I was not comfortable. Today I am totally comfortable with the designation. Here is why;

In 2008, the market crashed and so did I. On Sunday morning, September 28, 2008, I pitched backward off an embankment onto my driveway. I broke my left elbow, cracked four ribs and two vertebrae. The worst part was the back injury that kept me incapacitated for about 5 months causing me to miss the ski season. However, it gave me a lot of time to do research on the market, trying to find and answer to the question, Could I have done better for my clients? I was under no illusion that with the market conditions of 2008 that I could have made them money in their portfolios but rather, could I have positioned them such that their losses were lower? Or could I have given them some indication before the fact that their portfolio could lose 10, 20, 30 or 40% in a 12 month period? The answer I found was a resounding YES!

By utilizing Free Market Investing which incorporates the belief of a) Efficient Markets b) Modern Portfolio Theory and c) The Three Factor Model we can develop portfolios that can predict variation in the expected return of a portfolio based on historical returns and the clients risk tolerance. That does not mean we can guarantee a positive return, for past performance is no guarantee of future results. However, by educating clients on how to attain market returns in a well diversified portfolio and coaching them in down as well as up markets we can guide them toward peace of mind investing. Today, that is what I do with all clients.

Financial planning cant do that. Coaching can! Thats why today, I am an Investor Coach.

For more information on Efficient Markets, Modern Portfolio Theory and The Three Factor Model and why track record investing, market timing and stock picking are anathema, contact me at bmullen@capatapulsion.net or 435-655-0508

Investment Advisory Services offered through Mullennium Finance LLC a Utah Licensed Investment Advisor

12/2/10

[The Risk of Not Being in the Market]

Things we know;

-Over time, a well diversified portfolio has a positive return-See Malkiel below.
-Over time, the average investor does not achieve returns equal to those of the S&P 500-
See Dalbar chart below
-Fear and greed are basic emotions.
-Past performance does not guarantee future results.

There was an excellent article in the Wall Street Journal on November 18, 2010 by Burton Malkiel author of A Random Walk Down Wall Street. The title of the article was Buy & Hold is Still a Winner. Malkiel showed a diversified portfolio for the so called lost decade (2000-2009) and compared it to the S&P 500 index for the same period. While it is true that you cannot invest directly in the index, the index is a worthy benchmark. The chart that accompanied the article showed that a $100,000 invested in the diversified portfolio beginning in 2000 would have been valued at $191,859 at the end of 2009 while the S&P 500 was valued at $93,717-an annualized gain of 6.73% versus an annualized loss in the S&P 500 of 0.65%.

A couple of observations are in order. First, the S&P 500 index which the talking heads use as the basis for declaring the time 2000 through 2009 as the lost decade is not a diversified portfolio. The S&P 500 index measures ONLY the largest 500 stocks in the United States.

Second, at first glance, you might say that an annualized return of 6.73% is not a great return. When you consider that in 2000, the S&P lost about 10%, lost about 13% in 2001 and lost a whopping 38% in 2008- three down years in the lost decade, the reality is that a diversified portfolio almost doubled your money and beat inflation. (S&P 500 Data from Yahoo Finance.)

Dalbar Research produces an annual study showing how the S&P 500 index performs over moving 20 year time periods versus how the average equity fund investor performs. Here are their results for the 20 year period 1990-2009;

CATEGORY 1990-2009 Annualized
Return

S&P 500 Index 8.20%
Average Equity Fund Investor 3.17%
Inflation 2.80%

After looking at the Dalbar Chart, the question becomes obvious. How does a non diversified index such as the S&P 500 beat the average equity investor? My answer? The emotion of fear causes the average investor to bail out of the market in years like 2000, 2001 and 2008 and then when the market goes back up, they get back in. It is called buying high and selling low. Not smart.

My final observation about the Malkiel article is this. It clearly points out that the portfolio must be rebalanced to have any chance of achieving positive results. In other words, Buy & Hold does not mean Buy & Hold and Forget.

Learn more about Free Market Investing at www.billmullen.org

Investment Advisory Services Offered Through Mullennium Finance LLC a Utah Licensed Investment Advisor

[Do You Have an Advisor?]

In a Wall Street Journal article by Jason Zweig in the October 30-31 2009 edition, Zweig told the following story;

In 2008, Antoinette Schoar, an economist at MIT, trained 24 “mystery shoppers” in the basics of investing. Pretending to be potential clients, the shoppers met with almost 300 financial advisors in the Boston area.

Each “client” showed the advisor a preferred investing strategy. About a third of the “clients” pretended to like chasing hot returns. Instead of the advisors educating the potential “clients” of the folly of stock picking, market timing and track record investing, advisors were supportive of the hot return approach. The more the “prospective client” touted hot returns, the less likely the advisor suggested a different approach.

I will not surmise the reason for an advisors caving to an investment approach in which they may not really believe but Antoinette Schoar’s study shows that all advisors are not equal.

When I started in this business 18 years ago, I began as a financial planner. Today I am an Investor Coach. If I cannot demonstrate to a potential client that stock picking, market timing and track record investing Do Not Work, I recommend another advisor.

An investor need look no further than the Dalbar study below.

DALBAR is an independent research firm that does massive studies on Investor Behavior – the real results that investors get. In 2009, they concluded a 20-year study of tens of thousands of brokerage accounts for investors who have over $100,000 invested – so not just small, inexperienced folks. And here’s what they found:

1990-2009 Annualized Return
S&P 500 Index	8.20%
Average Equity Fund Investor	3.17%
Inflation	2.80%

Dalbar updates the study every year for the previous 20 years and the results don’t change. The average investor does not beat the S&P 500 return. Why? Because they are not patient and think that the hot manager, the hot fund, the hot stock will repeat. There is no evidence that such behavior works. In fact the SEC insists that the statement “Past Performance is no guarantee of future results” or some variation thereof appear on most if not all investment proposals.

Make sure your advisor is coaching and not enabling.

Investment Advisory Services offered through Mullennium Finance LLC a Utah Licensed Investment Advisor

Bill Mullen CFP, MBA

4315 Hidden Cove Rd

Park City UT 84098

435-655-0508

435-655-0759 Fax

801-916-7283 Cell

bmullen@catapulsion.net

www.billmullen.org