Excuses, Excuses… #2 I don’t like risk.

In continuing last month’s article “The Top Ten Excuses for Not Seeing a Financial Planner”,   here is excuse number two:  “I don’t like risk”.

To the surprise of many, risk can be useful.   Most of us only think of risk as peril or casualty.  In finance, however, there are many kinds of “risk” and understanding risk can be helpful.

For a moment, imagine that you’re on an airplane flying at 10,000 feet and standing at the door with a parachute.  You’re ready to jump, but you’re uncertain if the parachute will open.  That’s risk.  Now you go up another 10,000 feet, but you know that the parachute doesn’t work.  That’s not considered risk because the outcome is certain.  Risk means uncertainty.

As most of us have learned, we can’t predict the economy, and we sure as heck can’t predict the markets.  I’m often asked by my clients, “Jeff, where is the best place to invest my money next year?”  I have two answers to this question.  First, if I or anyone else could predict the near-term future, I’d probably have a cult following me around.  My second answer is more serious but almost always the same, “Let’s stay disciplined, goal-oriented and diversified”.

I say this because no one can predict the best returns over a one-year period. In 2012, some of the best returning asset class mutual funds for Dimensional Fund Advisors were United Kingdom small companies (36.4%), International Real Estate ( 32.54%), and Emerging Market small companies (23.09%).  Now I ask you, who on God’s green earth predicted the winners at the end of last year?  If you find that person, please tell me so I can join their cult.

Because we obviously don’t know the best performers of next year, the best thing to do is hold as many diversified asset classes (foreign, domestic, real estate, small and large companies, etc.) as possible in one portfolio. Doing so in an all stock portfolio returned about 16.5% in 2012.  Not the highest return, but certainly less risky than holding all of your stock in one asset class.

The discipline of the portfolio helps us avoid the flawed assumption that there is a trend of higher returns in last year’s best performers.  Stocks are not human; they are inanimate and do not have a memory! If we try to predict trends or invest all of our money into one company, chances are we’re going to hurt ourselves financially.

Think about it.  Diversity is good for the environment, the work place, and certainly our yoga practice. We do a diversified set of Asanas in our yoga classes. And there’s no way anyone would do handstands for 90 minutes.  Why?  That’s a good way to get hurt.  You need to diversify your yoga practice just like you need to diversify your investments to reduce the chance of getting hurt.  And that’s why you let a trusted financial planner look at your portfolio.

Next month, I’ll discuss Excuse Number Three for Not Seeing a Financial Planner:        Live for Today, Tomorrow will Take Care of Itself.



Do Your Investments Support Guns?

In the wake of the Sandy Hook tragedy, Americans and the rest of the world were left repulsed and heartbroken.  We would love nothing more than to see our President and Congress enact stronger gun laws.  Really, why does anyone need an automatic and semiautomatic weapon (if you’re not fighting the Taliban in Afghanistan)? If you can explain this to me without invoking the second amendment, please tell me.  After all, the first amendment protects our freedom of speech, but that doesn’t mean we can yell “fire” in a movie theater.

Yet, despite the momentum of citizens we see rallying behind gun control, and our administration taking executive action to end gun violence, the sad reality is that it isn’t going away.  We will continue seeing more horrific massacres.

As I write this, NBC News reported today on January 10, 2013, that the United States has more violent deaths—6 per100,000 residents—than any other wealthy nation.  That’s according to a report released by the National Research Council and the Institute of Medicine.  By the way, none of the other countries came even close to that ratio.  Moreover, homicide is the second leading cause of death among adolescents and young adults.

Furthermore, according to the report, we have the highest rate of gun ownership among our peer nations.  We can proudly boast that the United States possesses 35-50 percent of the world’s civilian-owned firearms.  Forget being the best in math and reading scores, we’ve got guns!

I don’t like to be a pessimist about changes to our gun laws; I’m just a realist.  The fact is, though, that other countries that have guns have lower murder rates.  And kids from Topango to Peru are watching and playing the same violent movies and video games.  They’re just not killing each other at the rate we are.  That’s what we need to look at.  Why is that?  That’s the question we need to examine on our march to end gun violence.  If you have any answers, please consider posting them on my Yogic Investing website.

As concerned citizens, there may be little we can directly do to control guns or gun violence.  But the one thing we can do is put our money to better work by not supporting weapons manufactures with our investments.  If you’re concerned (like some of my clients are) that your money is supporting guns, here’s how to find out.  Just visit your fund’s website and look at its holdings.  By law, the fund has to disclose all of its holdings.  Even if you’re not concerned about whom your money supports, check it out anyway.  You may be surprised at what you find.  For instance, your fund might invest heavily in defense, big banking, big energy, or other companies that may not support your core values.  Of course, if you have any trouble reading your fund’s holdings, just email me at:  jeff@silawealthadvisory.com.  I’d be happy to help you.