Tag Archives: Investing

Passive Investing: Lower Costs, Lower Risk, Better Returns

“Buy low and sell high.” That was my simple approach when I was a smart young investment advisor. I poured over a company’s balance sheet, earnings statements, and forecasted returns. Then I bought those companies that were bargains and waited for my gains to roll in. More times than not, they did—eventually.

The problem came with the “not” and “eventually.” A majority of my picks did go up in value, but the minority that were “nots” still lost enough to have a negative impact on my bottom line. Even more frustrating, some of my “nots” turned into gains “eventually” after I sold them.

My investment returns were similar to findings from Dalbar, Inc., a financial services research firm. Dalbar’s studies have shown that average active investors barely beat inflation over the long term. They significantly underperform investors who put their money in an index fund of stocks and leave it alone.

So much for my early investment brilliance. Continue reading

The Risks of Being in Business with Family

Every now and then I get a call from a client wanting my opinion about starting a business with a friend, investing money in a business owned by a family member, or co-signing a loan to help a family member buy a business. Being in business with family is something I know a little bit about, having been in partnership with my father and brother for 40 years. Going into business with family members or close friends can carry a high degree of risk, both financially and emotionally.

In part this is because it is uncomfortable or difficult to ask the necessary dollars-and-cents questions. We don’t want to seem uncaring, unsupportive, or untrusting. We are concerned about damaging the relationship. Yet the relationship is far more likely to suffer if we don’t ask those questions and the venture fails.

The following are some things to consider before you invest or go into business with someone close to you:

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Collecting Treasures–Or Not

Almost everyone has a story about a cousin or an aunt who bought a box of junk at an auction and found in it a diamond ring worth several hundred dollars. Every once in a while a valuable painting by a famous artist turns up in someone’s attic. “Antiques Roadshow” sometimes features odd items that have been sitting around in someone’s house for years and that are appraised for thousands of dollars.

This doesn’t mean buying and selling art or collectibles is a good way to make money.

Buying art, antiques, or collectibles is extremely speculative, in part because values are so subjective. What a given item is worth depends entirely on what a collector might be willing to pay at any given time. A piece of pottery or jewelry might fluctuate considerably in value as trends come and go. Yesterday’s hot collectible (think Beanie Babies or Jim Beam bottles) might be tomorrow’s overpriced embarrassment.

Does this mean you should never buy art or antiques in hopes that they’ll increase in value? Not necessarily. I am suggesting, though, that investment shouldn’t be the primary reason for your purchase.

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Finding the Right Path to Wealth

After three decades as a financial planner, working with successful wealth-builders, you’d think I would have a clear idea of the right path for creating wealth.

Instead, what I’ve learned is that there is no such thing. Here are just a few of the paths that aren’t the sure routes to wealth they might seem to be:

1. Education and career choices. Going into a field like law or medicine might seem to guarantee financial success. Not necessarily. I’ve seen many physicians, for example, who have accumulated significant wealth. I’ve seen just as many who live paycheck to paycheck.

2. High earnings. Again, this isn’t the reliable predictor of wealth it would seem to be. Continue reading

Comparison Shopping for Financial Advice

You can spot comparison shoppers a few aisles away at any retail store. They are the ones carrying articles from Consumer Reports, badgering the salesperson with a million and one questions. People who manage money well are usually big fans of comparison shopping.

If comparison shopping is important before choosing a new refrigerator or lawn mower, it’s even more essential before choosing an investment advisor. Unfortunately, there is no easily available consumer’s report on advisors. Even more frustrating, those selling financial products often have incentives not to be forthcoming with the information that is crucial for comparing advisors.

One aspect of shopping for an investment advisor is knowing what questions to ask. Continue reading

Defining “Fiduciary”

Okay, I did it again in a recent column. And I got into trouble again. That’s what I get for using the F-word.

“Fiduciary.”

My most recent transgression was to point out the simple fact that insurance agents are compensated by commissions on the products they sell. They have no fiduciary duty to legally act in the best interests of their customers.

Every time I remind readers that sellers of financial products do not have a fiduciary duty to their customers, I get indignant responses from financial salespeople who seem to think I have accused them of being unethical.

Not so. Continue reading

Insurance Industry Should Protect Itself From BYOB Schemers

It’s impossible for a financial columnist to please all of the readers all of the time. My recent column criticizing the Be Your Own Banker scheme drew the ire of several fans of whole life insurance. Two of them in particular, in a letter to the editor and a guest editorial published in the Rapid City Journal, disparaged my integrity, my professional qualifications, and my math skills.

Part of the problem is that these readers interpreted my warning about BYOB, which I called “one step from being a scam,” as an attack on whole life insurance in general. That was not the case.

Admittedly, I’m not a fan of whole life as an investment. The purpose of life insurance, in my view, is not to provide retirement income or cash value, but to replace income when someone dies. For most people, the best and cheapest way to do this is through term life insurance. Obviously, someone who sells insurance will have a different opinion.

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