Different isn’t always better, but in the complex and nuanced world of wealth and investment management it is important to be different. What separates us from the vast majority in the financial and retirement industry are the following:
According to Morningstar Inc. about 1.18% of the total charge is related to operating expenses, but what’s not required to be disclosed to investors are the annual trading and transaction costs, and on average they are over 1% per year. The 2% plus total expense doesn’t include up front or back-end commissions.
From a bottom line perspective there’s nothing wrong with paying more if you’re getting more in return. However, on average investment products don’t outperform their corresponding index, and that’s especially true over 3, 5 and 10 year periods.
This is a topic that few individual investors are fully familiar with. For articles of interest link to: The Hidden Costs of Mutual funds ,Real Cost of Mutual Funds , Wishing On A Star , Consistent Underperformance , Survivorship Bias.
We feel strongly that avoiding product and unwarranted complexity in an investor’s portfolio is a key component to success, which also helps lead to greater transparency, and numerous other benefits that just naturally fall into place. For example, Indexes and ETF’s create:
- Portfolios that tend to be much easier to properly diversify. There’s no need to wonder what the different product managers are changing, and how that impacts the risk of the whole portfolio.
- Portfolios that are usually much less expensive. On average an equity index costs less than one tenth the average equity fund.
- Portfolios that tend to be much easier to manage from a tax perspective. There’s rarely phantom capital gains, and positions can be easily held, or sold with original basis.
- Portfolios that are fully liquid – there’s no lock-up periods, or back-end charges.
- Portfolios that are easily portable – there’s no proprietary nonsense, surrender charges, or penalties.
In our opinion, having a mostly product free portfolio is likely more than half the battle to prospectively improving performance and making our clients’ financial lives more transparent.
Non-traded REIT’s, investment trusts, hedge funds, annuities, and other investments that restrict access for months, or years, in our opinion, are completely unnecessary and almost always counterproductive. Not coincidentally non-traded and illiquid investments are usually accompanied by some of the highest sales and management expenses in the financial industry.
Leahy Wealth Management Group believes that investments should be easily tradable – if the market is open – a sale should be possible in seconds. This may not sound momentous, but given the multiple ways it influences a client’s portfolio it is a significant risk and tax management factor.
How does liquidity make life easier? In the nuanced world of the financial industry if investors demanded trade based liquidity, transparency, and independent custodians to hold their assets, most of the front (and back) page financial scandals would be a thing of the past.
How to identify market extremes? One of the most significant mistakes investors make is the tendency to buy the hottest / best performing asset sector of the past few years. Historically, as a sector experiences several years of above market performance, the media and Wall Street begin a steady drumbeat of enthusiasm that many investors find hard to resist.
Unfortunately, history clearly shows that an extended period of superior performance by an investment sector will almost always be followed by below-average performance, or significant losses within a relatively short period of time.
In 1999, if an investor recognized the investment red flag of sector outperformance extending five years in tech and telecom they would have likely been exercising caution in those sectors. In fact, tech and telecom went on to lose over 70% from their 2000 market top.
The housing sector experienced broad market outperformance for five consecutive years, and then once again the pattern of superior performance proved ruinous. You can study market history going back a 100 years, or more, and whenever you see the four or five year pattern of sector outperformance you’ll almost always see that sector experience significant under performance in short-order.
It’s not rocket science, it’s actually just human nature, and we feel significant market extremes like these are often identifiable.
Risk management, in our opinion, has a lot to do with being patient most of the time, while diligently monitoring for recessions, and Market Sector Extremes. Not coincidentally, these two risks often go hand and hand.
For related articles /research please link to: Mean Reversion and Equity Allocation And for a more thorough look at Leahy Wealth Management Group’s investment approach see: Investment Perspective & Strategies
For example, you can buy a mutual fund and then have that fund distribute capital gains, and even though you didn’t own the fund long enough to profit from those gains you are still liable to pay the tax. That’s just one of the many problems in trying to be tax efficient with investment products.
For articles of interest see: Keys to Tax Efficient Investing
We represent only our clients and our advice is always in their best interest.
The firm independently Contracts with Fidelity Investments as the custodian of client assets. This is entirely for the safety and peace of mind of the firm’s clients. Fidelity’s role as custodian also provides the firm with a back-office support team as the end-line processor of account paperwork, statements, and tax documentation.
Even though we are independent, our access to client assets is purposely limited to money management; we do not, nor will we ever, act as the physical custodian of client assets.
Perhaps the most important benefit of working with a fiduciary is the confidence that comes from knowing that a trusted and qualified professional is sitting on your side of the table, helping you with decisions without the conflict of selling you products.
With decades of planning expertise we know how to help clients in this process. Our approach to planning is not cookie cutter, and isn’t used as a gimmick to sell financial products. We are here to be our client’s financial advocate not their financial or insurance salesperson.