Sound Advice

WE DO BETTER WHEN YOU DO BETTER!   One of the more prominent recent TV commercials comes from a well-known Wesst Coast adviser whose spokesperson proudly announces that they do better when their clients do better.   Surprise, surprise, with rare exception that’s the fee arrangement used by the overwhelming majority of firms in this industry.   Typically, advisory fees are set as a percentage of assets under management.   Although a midpoint would probably be about 1% annually, as assets to be managed reach higher levels, fees are reduced. Yet, this commercial seems clearly aimed at convincing less knowledgeable investors that by some minor miracle the firm behind it is giving you a better deal.   That’s hardly the case. Though fee arrangements usually follow a common path, they may reflect the asset allocation if the split varies markedly from the norm.   One example would be accounts that are heavily biased toward fixed income.   For those, ...

HOW TO SELECT A FINANCIAL ADVISER Financial advisers usually come under the following headings: stockbrokers, Registered Investment Advisers, and individuals with the following designations: CFP ®, CFA, CLU, ChFC.  Most other lettered designations are misleading.  Some, in fact, are available online for only a small fee and a 10-question test. The most common financial adviser is a stockbroker.  Years ago, a stockbroker was known as a customer’s man.  That was in the good old days when trading commissions were fixed and the cost of individual trades was $100 to $200 or more.  These days, commissions are rarely over $10 and often free, regardless of the size of the order. The key hurdle for prospective stockbrokers is the Series 7 exam.  It’s a 3 hour and 45 minute test that is little more than a check on one’s memory.  The material covered includes such areas as industry regulations, basic economics, security types, and simple investment concep...

  Dynamic charting and all kinds of goodies are now offered by a major brokerage house.  So what! It comes as no surprise that one of the leading Wall Street firms has been beating its drum for its recently acquired online trading subsidiary.   On the heels of a robust six-month market rally, investors, as usual, are much more interested in getting a piece of the action than they were early last Fall.   That’s the way it has always been. Over the nearly one century since the inception of the Standard & Poor’s 500 Index, the best of times to make commitments (to stocks, not mental institutions) has been when the market has been weak and prices are low. For most things, folks tend to have increased interest in buying low.   Strangely enough, however, the higher prices go, the more investors want to buy. So here we are at a considerably higher level than late 2023 and we now have the opportunity to sign up for an online account to take advantage of a less...

You can beat the market with high beta stocks, if . . . . . . the market always goes up.   The problem is that stocks tend to go up two thirds of the time and down one third of the time. What’s beta?   Beta is a measure of a stock’s volatility over time relative to that of the overall market.   By definition, the market (i.e., the Standard & Poor’s 500 Index) has a beta of 1.00.   A stock with a high beta (i.e., over 1.00) will generally have greater movement up and down than the market itself.   So if the market climbs 10%, a stock with a beta of 1.50 will climb 15%.   And vice-versa. Conversely, a stock with a low beta such as .80 will have smaller movements in both directions. Stocks such as Nvidia, Advanced Micro Devices, and Etsy, are prime examples, typically with betas above 1.75.   These are high growth companies whose market performance typically is reflected in unusual investor enthusiasm and hefty valuations while their expansion c...