[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
