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Look out for "Financial Planners" and "Wealth Investors" who aren't concerned with clients' investment returns 

Tuesday, October 6th, 2015

You and everybody else works very hard for their money, and when it comes to saving that money you want it to work just as hard for you as you worked to earn it. We all understand that the problem comes along- where do you invest that money?

You first must determine what the money is for. If you are saving for a new car or a short-term need and you want to have access to that money within 12 to 18 months, the best place to keep that money is in the bank or a money market. You may complain that you don't get a good return on that money in the bank or money market, but on the short term of 12 to 18 months you should be more concerned with return of that money rather than the return on that money. 

If you are looking outwards of 18 to 24 months or longer, you now have a vast amount of choices open to you of where to hopefully get the best return on your money; as well as the return of your money. 

I read a study that was conducted by Morningstar Direct, Dalbar Inc. and JP Morgan Asset Management for the period of 1995 to 2014, a period of 20 years which gives all investments ample time to show a good average performance.

As an investor you need to outperform inflation because if you don't, your money may appear to grow but your spending power will not. It would be like spinning your wheels in the mud or snow, a lot of action but you don't go anywhere.

First, over the 20 year period in the study, inflation rose on average 2.4% per year. 

I have said this many times and unfortunately people don't like when I say it or don't believe it, but one of the worst performing investments was homes- increasing an average of only 3.2% per year over the 20 year timeframe. Now I know perhaps your home may have done better, but this is a national study and it may have done better depending on the area you live in.

 It would be the same as buying one stock that has a great return and assuming that all stocks would have that same return. People also forget about the costs of investing in a home, such as repairs, (which increase as the home ages) taxes and insurance.

I'm often asked about investing in gold, and I believe it is due to all the commercials people have seen and heard about what a great investment gold is. While I think gold is very nice when it comes to jewelry, investment-wise it has only averaged 5.9% over the last 20 years. Some of the problems of investing in gold include either the storage of that gold or paying to store the gold somewhere, as well as the brokerage commissions on gold being rather high.

Bonds were also included in the study, and with the bond bull market we have had, I was surprised to see that over 20 years the average return on bonds is only 6.2%. But the reality is that over the last 20 years, interest rates have gone up and down and it is only since 2009 we have seen a large decline in interest rates. So while the 6.2% is a decent return, it is probably a pretty good reflection of what an investor can expect over the longer-term.

One of the most fearful investments that scares people who are young and old is stocks. For many people unfortunately, it is programmed in their DNA that stocks are just gambling and are too risky. And if you have not invested in stocks over the last 20 years, you missed an average annual return of 9.9%.

In Professor Jeremy Siegel’s new book “Stocks for the Long Run,” he points out that after inflation, stocks have earned about 7%. Adding back inflation, you are getting around a 10% return, roughly the same as what the 20 year study was.

I think it is funny how all the data proves that stocks can actually give investors the best long-term return, but for some reason stocks gets a bad reputation. I think it is because of the human emotion and the volatility in stocks that scares people, even though time and time again stocks have proven to be a great investment.

A big part of the problem is that many advisers, rather than educating their clients and helping them through the down periods or difficult times, recommend that investors invest 60% of their money into stocks and 40% into bonds. They do this to try to make the down periods more tolerable for people; however the return of this mix is 1.2% lower than just straight stocks, or an average annual return of 8.7%.

That may not sound like much and you may feel it is worth the lower volatility. However, look at an investment of $100,000 over 20 years and with that investment split 60/40, your hundred thousand dollars would grow to $566,169. You might think that’s not a bad sum, but if you take the time with a good financial advisor who understands the benefit of investing in good, fundamentally strong companies (also known as stocks); and who will be there through the good times and bad for you, that $100,000 at 9.9% would be worth $718,414 (a difference of $152,245.)

To me it is no contest; understand that if you hold good quality companies and don't let your emotions get the best of you, your rewards will be worth the down periods.

And that leads me to the sad ending of the story, or should I say of this study, where they found that the average investor’s investment return is only 2.5%.

Part of this poor performance is from investors trying to time the market, while the other part is from bad investment choices like alternative investments or private investments.

I hope you don't cry when I give you this last piece of information. With that same hundred thousand dollar investment and using an annual return of 2.5%, over 20 years an investor would only have $164,786. That’s a difference of $553,628, and if that investor would have had a good financial advisor who understood the value of investing in good fundamentally strong companies, they could have either retired earlier or perhaps have a far better retirement.

I blame the financial advisor community because unfortunately, many of them get into the industry to make large commissions at the expense of the client’s long-term return. Instead of doing what is just for the client, they do what is easiest to sell to the client and take the path with the least resistance.

This also could be why we have a retirement problem here in the United States; not because we don’t have some great opportunities to invest in, but because we have too many financial planners, wealth managers or whatever they call themselves who don’t know how to do the best investments for their clients and are only worried about their own commissions.

Do you have a question or a company you'd like me to take a look at? Email me at!

Wilsey is a financial analyst for Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. Information is provided by Reuters. 

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