Tag Archive for: Finances

Quality Questions Yield a Quality Life

It’s been said that quality questions create a quality life. Successful people ask better questions, and as a result, they get better answers. With better answers, they are better equipped to solve the problems or pursue the opportunities that lie in front of them on their path toward a life of significance.

With the stock market down more than 20% for only the second time in nearly 15 years, anxious investors are naturally starting to ask more questions. It’s in these times of worry that the quality of our questions becomes even more important because our emotions like to hijack our ability to reason. Here are some quality questions and answers investors should be discussing with their advisors.

Just how bad is it?
The first half of the year has seen a confluence of events that we really haven’t seen before – four-decade high inflation, war, a pandemic, Fed tightening, supply chain issues, and labor shortages. The combination of these economic and geopolitical challenges has driven the stock market into its longest bear market since 2008, while bonds have suffered a double-digit decline for the first time in decades. If the S&P 500 closed the year at its current level, it would be its sixth-worst year ever. With stocks and bonds both down year to date, it feels like there’s been no safe haven for investors. If you’re feeling uneasy, it’s understood. We haven’t experienced losses this severe for this length of time for well over a decade.

Despite this heavy dose of negative reality, the market outlook is not all doom and gloom when considering market fundamentals. There are many bullish indicators for our economy that give us hope:

  • Job openings remain near an all-time high1
  • Unemployment is near a 50-year low
  • Household debt as a percentage of income is at a 40-year low

The average U.S. consumer balance sheet remains healthy. Adding more hope to our outlook is the expectation that corporate earnings should grow by 10% for 2022, in line with the market’s long-term earnings growth rate.2

Is this market decline different?
It is and it isn’t.

Yes, this bear market is different than previous ones caused by events that are unique to this time we are living in. Not many saw a prolonged war coming in Ukraine, or expected global supply chain issues, both of which are contributing to our inflation woes that have pushed us into a bear market.

But it’s really a swap of one set of unknowns for another which makes this bear market similar to others. No one knew when tech stocks bubble would bottom, the housing market would end its freefall, or when the 2020 pandemic-induced market decline would cease.

Looking back at previous bear markets, none of them looked exactly like the one we are experiencing. But no two bear markets are exactly the same.

How do market returns look following bear markets?
With the S&P 500 down more than 20%, the bear market is already here. It’s a sunk cost. So, let’s look forward to what investors might expect moving forward. Analyzing eleven instances when the U.S. stock market suffered a double-digit yearly loss provides some important insights that investors should note about future returns following the worst years:

  • 1-year returns were positive 6 of 11 times while averaging just over a 6% return
  • 3-year returns were positive in all but one case during the Great Depression with an average cumulative return of 35%, or 10.5% annualized return
  • 5-year returns were positive 100% of the time with an average cumulative return of almost 80%, or 12.4% annualized return3

While the current market environment has left many investors a bit unnerved, history suggests there’s plenty of reason for long-term investors to feel hopeful when considering future market returns.

What actions should I be taking right now?
Investors would be wise to start by asking their advisor quality questions. Avoid questions that can’t be known, such as how long will this market decline last or how far will stocks fall. Instead, ask your advisor if your financial plan is still on track to achieve your goals? Ask if market declines like this one are factored into the plan that was created for you? Depending on your goals, ask your advisor if you have the right investments in your portfolio to keep pace or outpace inflation? By asking these quality questions about your financial plan, investors focus on what they can control, which is a key to creating quality outcomes.

Given the market volatility, another area of control for investors is the balance of their portfolios. Spend time strategizing with your advisor to make sure you own the right allocation of stocks and bonds aligned to your comfort with risk and the milestones you have set for your investment portfolio.

The solid returns following the worst years ever for the U.S. Stock Market should serve as a good reminder for long-term investors with cash on the sidelines to consider a plan that puts their money to work.

What actions should I avoid right now?
In times of turmoil, humans have a tendency to trade in their plans for panic. That’s why when America was first sending astronauts to space, the primary skill they were trained on was the art of not panicking. Panic causes people to ignore rules, make mistakes, and deviate from well-crafted plans.

Investors could learn a lesson or two from astronauts.

  • First: Trust your plan. Your advisor has worked with you to develop a financial plan that is well-constructed and meticulously developed to help you achieve your goals over time. Even so, during times of market chaos, it’s hard to ignore that tingling feeling urging us to throw it all out the window. It’s why Warren Buffett once said, “investing is simple but not easy.” It’s not easy because it takes discipline. Disciplined investors have been rewarded time and again by staying the course with their plans after market declines.
  • Second: Remain calm. Investors should stay focused on what they can influence, not worry about what they can’t control. Investment advisor Charley Ellis makes this point clear: “Forecasting the future of any variable is difficult, forecasting the interacting futures of many changing variables is more difficult, and estimating how other expert investors will interpret such complex changes is extraordinarily difficult.” Often, understanding what you don’t (or can’t) know is more valuable than what you do know.

Investors should be wary of anyone predicting when this market slide will end or when some of the current market factors such as war and high inflation will subside. These are unknowns that simply can’t be answered in the present.

How do I navigate this market decline?
While the current market storm has left investors understandably unsettled, we’d encourage long-term investors to remember that we’ve been through these types of worrisome markets before. While no one likes the recent volatility, it is the tradeoff investors make for returns over time that far exceed cash.

During past steep market declines, we’ve helped our clients successfully navigate these unchartered waters by focusing on what they can control, avoiding panic, asking quality questions, and sticking to their plans. Speaking of quality questions, what do lower stock prices mean for long-term investors? It means higher future expected returns. That’s a quality answer investors should appreciate.

Now is a good time to reach out to your financial advisor for a meaningful quality question and answer session.

 

Sources: 1 https://tradingeconomics.com, 2 Factset, 3 awealthofcommonsense.com, Mosaic calculations

by JOHN FISCHER, CFA®, CFP®
John is the Chief Investment Officer (CIO) at Mosaic Family Wealth. He leads the firm’s Investment Committee which shapes the firm’s investment philosophy and strategy for client portfolios. He also serves on Mosaic’s Leadership Team. A 20-year industry veteran, John is most passionate about helping people understand how emotions relating to investments can be more important than the investments themselves in achieving financial goals.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.

Past performance shown is not indicative of future results, which could differ substantially. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss, and the reinvestment of dividends and other income. You cannot invest directly in an Index.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

Learning to Dance in the Rain

It’s been said that April showers bring May flowers. Despite having turned the calendar to May, given the recent volatility in equity markets, it feels like it’s still raining – hard. More than the fact that the S&P 500 has fallen more than 10% year-to-date, it’s been the way we’ve gotten there that has made the recent market storm so unsettling.

With seven of the past twelve trading days having market movements of more than +/- 2%, it’s the size of the recent storm that has caught investors off guard. To make matters worse, five of those days saw the market fall by more than 2.5% in a single trading day.1 Add in the fact that we are experiencing the worst bond market in 40 years, causing the normal shock absorbers for investors to feel as if they’re adding fuel to the fire rather than serving as brakes on exposure.

This recent market turmoil is certainly causing stomachs to churn, especially because it’s been a while since we’ve seen market storms of this magnitude.

A DROUGHT OF MARKET VOLATILITY
The human tendency to favor or place greater importance on recent events over historic ones – known as recency or memory bias – can’t be understated when considering investor sentiment regarding the recent market storms. That is, we all tend to forget experiences of the past compared to more recent events.

Candidly, we haven’t seen any market storms recently. In a given year, the market averages about three 5% pullbacks and one 10% correction. In 2021 there wasn’t a single 10% correction and only one pullback of just 5.2%. For further perspective, last year’s 5.2% drawdown was the second smallest annual drawdown since 1995.2

Before the correction we experienced in March this year, the market’s last correction was at the onset of the pandemic in March 2020. That’s two full years between market corrections. And yet The VIX index, a volatility tracker that investors refer to as the “fear gauge” of the market, touched its highest level of fear since the height of uncertainty during the pandemic in 2020.

MORE NORMAL THAN IT FEELS
For most investors, the recent market volatility feels anything but normal given the long drought coming into 2022. Despite that feeling, investors would be advised to view the recent storms through a larger lens. On average since 1980, the stock market has suffered an intra-year decline each year of 14% – a number that often catches investors by surprise given long-term average equity returns of 8-10% per year.3 This year the S&P has suffered a 15% decline, in line with the market’s long-term average intra-year drawdown.

Historically, the stock market has had a positive return three out of every four years. The last three years have demonstrated that, with positive average returns of 26% per year. So, while we may be due for a down year, investors should remember the market drawdown to date happens every year on average at some point.

Keep in mind that the market faces a wall of worry to climb over every year with issues that stir investor anxiety. In 2022 those worries include elevated inflation, rising interest rates, the Fed’s actions, and the Russia/Ukraine war. Take hope in the fact that over the last three years we’ve climbed over other worries including tariffs and trade wars, a century-worst pandemic and economic shutdown, a polarizing U.S. presidential election, and inflation worries, and still saw average returns of 26% per year.4

WAITING FOR MAY FLOWERS
As investors wait for the storm to subside, they shouldn’t lose sight of the positive market landscape that remains. Corporate earnings are expected to grow by 9% this year, in line with long-term market averages. Interest rates have moved abruptly higher in 2022 but remain below long-term averages. Job openings remain near record highs, signaling economic optimism from businesses. And consumers, who make up about 70% of U.S. GDP, are in a strong financial position with unemployment levels near pre-pandemic lows, household debt as a percentage of income at a 40-year low, and wage growth well above long-term averages.

Periods of market volatility can serve as a good reminder for investors to review their risk tolerance and the balance of stocks and bonds in their portfolios. Except for a few months in 2020, the market has been on a general upward climb since the depths of the Great Financial crisis in 2009. This trend of market success can cause all of us as investors to forget our real tolerance or comfort with market risk, making market declines even more painful.

Last year many investors expressed concern over putting new money to work as the market was hovering around all-time highs. With the market roughly 15% below its peak, now could be an opportune time in the middle of the market storm for long-term investors with money to invest. As Warren Buffett said, “Be fearful when others are greedy, and greedy when others are fearful.” Given the recent market storms, maybe his quote should have been about learning to dance in the rain.

Sources:
1 www.investing.com
2 https://awealthofcommonsense.com/2022/01/this-is-normal/
3 J.P. Morgan Guide to the Markets
4 Morningstar

by JOHN FISCHER, CFA®, CFP®
John is the Chief Investment Officer (CIO) at Mosaic Family Wealth. He leads the firm’s Investment Committee which shapes the firm’s investment philosophy and strategy for client portfolios. He also serves on Mosaic’s Leadership Team. A 20-year industry veteran, John is most passionate about helping people understand how emotions relating to investments can be more important than the investments themselves in achieving financial goals.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

Skip 2022 Investment Predictions, Check Out 5 Investment Themes Instead

The start of a new year welcomes two time-tested annual rituals: New Year’s resolutions and investment predictions. Even though most people abandon their resolutions after about a month, they often put long-term faith in investment predictions. Wall Street certainly enjoys the attention they get from clients who yearn for insight into what an uncertain future holds.

I’ve recently started a new tradition each January of reading investment predictions from the previous year and comparing them to what actually happened. It’s a really enjoyable exercise for two reasons: first, despite coming from brilliant teams with abundant resources, it’s amazing to see how often these predictions are stunningly wrong. (To be fair, predicting the future is an impossible task!). And second, the wildly inaccurate predictions give my brain freedom to not seek out uncertain futures. After all, how many 2021 predictions pegged inflation at 7% for the year? Most predicted 2-3%, including the Fed. And how many predicted the S&P 500 would have a 27% return for 2021? I couldn’t find one that was even within 10% of the actual outcome.

Instead of predictions that would most certainly be wrong anyway, I thought it would be more worthwhile to share five themes for 2022 that investors should watch.

Market Returns
The S&P 500 returned 27% in 2021, roughly triple its long-term average, marking the 3rd consecutive year of strong double-digit returns by the U.S. benchmark index. Its three-year average annual return since 2019 is 24%, which is the S&P’s best three-year period since the late 1990s.1

Heading into 2022, investors would be well-served to temper their expectations around returns. With the three-year rally, market valuations are above their long-term averages. At the same time, optimism remains for the new year. The consumer makes up roughly 2/3 of the U.S. economy. With low unemployment, rising wages, lower debt levels, and higher savings rates, U.S. consumers are looking healthy and wealthy. Combine that with corporate earnings expected to grow 9% in 2022 and there’s good reason to believe that the current economic expansion can produce a 4th consecutive positive year for the S&P 500 – just don’t bet on 20+% returns in 2022.2

Inflation
After lying dormant for more than a decade, inflation was the hot topic of 2021. During the 2010s, inflation, as measured by CPI, averaged 1.8% per year.3 In 2021, inflation soared to 7%. There were a handful of factors that drove inflation higher, including soaring consumer demand, supply chain issues stemming from the pandemic, fiscal and monetary policy, rising real estate prices, and rising wages.

As investors look to 2022, inflation will likely retreat from its 2021 levels as supply chain challenges are resolved, business inventories are restocked, and consumer demand likely softens without the benefit of government stimulus checks. But rising home prices and wages are two of the stickier components of inflation, so it’s unlikely that inflation will return to its pre-pandemic levels in the near future. Investors should remember that moderate inflation is a sign of a growing, healthy economy and positive for stocks. And most importantly, over time, the best hedge against inflation is a diversified portfolio of stocks.

The Wall of Worry
It happens every year like clockwork: investors look at impending risks to the market and feel a sense of doom and gloom. In 2019, the market stared straight up at U.S./China relations, tariff and trade battles, and Brexit. In 2020, the covid pandemic and U.S. presidential elections created severe investor indigestion. Last year, high market valuations, the pandemic, and the threat of inflation churned investors’ stomachs. Despite those large walls, the S&P averaged a return of 24% over the three-year period and 2020’s worst year performance still generated an 18% return.

Each and every year the stock market faces a wall of worry it must climb. And yet, historically annual market returns have been positive 75% of the time. As we begin 2022, the market doesn’t suffer from a lack of worries: inflation, Omicron variant, the Fed’s speed of removing accommodative policy, mid-term elections, and geopolitical risks. For investors, it’s critical that they understand that this wall of worry is the norm, not the exception when investing.

Volatility
The up and down fluctuation of stocks is supposed to be the price investors pay for the opportunity to earn returns above that of a savings account at the bank. But in 2021, investors managed to have their cake and eat it too. Historically on average, the market has three pullbacks of 5% and one correction of 10% each year. In 2021, the market experienced only one pullback and didn’t have a correction. In fact, the market hasn’t experienced a 10% correction since the bear market in March 2020 at the pandemic’s onset.

Given the aforementioned wall of worries that investors face in 2022 and with volatility running well below normal levels in 2021, investors should prepare for more market volatility in 2022 by making sure they own the right balance of stocks and bonds for their risk tolerance.

The Pandemic
This time last year, many predicted that it was the beginning of the end for the Covid Pandemic with the arrival and broad distribution of vaccinations. Stocks rallied and interest rates climbed in the first quarter of 2021 on the expectation that the economic recovery would get even stronger. And then covid variants struck, putting pressure on financial markets and introducing us to vaccine booster shots.

As the world currently battles the Omicron variant, investors should be mindful that we remain entrenched in the worst pandemic in a century. The last time the U.S. economy dealt with a pandemic of this proportion, TVs, and refrigerators didn’t exist, the Model T was the car to own, and total U.S. GDP rivaled the GDP of Alaska in 2021. No one can predict how long this variant or any other unknown variants will linger and what effect it will have on global economies in 2022. Making accurate investment predictions is impossible in normal years let alone in the midst of a century-worst pandemic.

I expect these five themes to drive financial news headlines in 2022, drawing investors like a moth to a flame. But for investors desiring to achieve their long-term financial goals, it’s critical that they have a short-term memory like that of Wall Street experts making investment predictions. Speaking of predictions, I’ll give in to the seasonal temptation and leave you with just one: investors will be much more successful in staying on course with their financial goals by letting the headlines of their lives dictate any changes to their financial plan, not the headlines in the news. Here’s to a happy and healthy 2022!

by JOHN FISCHER, CFA®, CFP®
John is the Chief Investment Officer (CIO) at Mosaic Family Wealth. He leads the firm’s Investment Committee which shapes the firm’s investment philosophy and strategy for client portfolios. He also serves on Mosaic’s Leadership Team. A 20-year industry veteran, John is most passionate about helping people understand how emotions relating to investments can be more important than the investments themselves in achieving financial goals.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

 

Source: 1 Morningstar, 2 Factset, 3 https://www.minneapolisfed.org/

Make a List and Check it Twice

As we all find ourselves in the hustle and bustle of the holiday season and buying those last few gifts, here are a few key strategies & reminders to help you maximize your finances before we close out 2021.

  1. Stocks or cash make great stocking stuffers. Stop racking your brain trying to find the right gift for that hard to shop for person in your life. Consider making a gift of stock or cash from your portfolio. Remember that you may give any person up to $15,000 a year without having to file a gift tax return ($30,000 for married couples), and you may give cash or appreciated securities. There are benefits to gifting appreciated securities to individuals who are in a lower tax bracket than you (kids and grandkids), and you will spark a legacy of investing for the next generation.
  2. Charitable giving makes the season merry. Charitable giving is a great way to have a lasting effect on the causes you are most passionate about while providing important tax benefits. You can give in several ways; writing a check, giving to your Donor Advised Fund, or gifting appreciated securities. As an additional benefit, by giving appreciated securities, you avoid paying capital gains tax on the sale of the security and also receive a tax deduction for the full fair market value of the gift.
  3. Don’t let unrealized losses become a lump of coal. 2021 was a great year for the market, but recent volatility may have created an opportunity for you to offset part of your gains with losses. Keep in mind that you can repurchase any securities you liquidate in 31 days and still realize the loss to help with your 2021 taxes. Don’t want to sit on cash for 31 days? Consider purchasing a similar security to hold during your waiting period to ensure you don’t incur a wash sale, but still, have access to that industry or sector.
  4. Make a child or grandchild’s future jolly with an educational investment account. In addition to federal tax benefits, many states offer state income tax deductions or credits for contributions to a 529 plan. Starting a plan or adding to it in time for the holidays is a great way to celebrate the season while preparing for your child or grandchild’s future K-12 private education or college. For example, in the state of Missouri, a working husband and wife can each contribute up to $8,000 and receive a state tax deduction on those dollars. For a married couple contributing $16,000 to a 529, they would save about $960 in Missouri state taxes. Keep in mind that tax benefits vary state by state.
  5. Take your Required Minimum Distribution or face the Grinch. If you have an IRA or qualified retirement plan and are 72 or older, or if you have inherited an IRA, you need to take a required minimum distribution by 12/31/21. The required distribution is based on the IRA’s 12/31/20 value and the IRS life expectancy tables. Failing to take an RMD on time can incur a hefty penalty. If you need help calculating your RMD or have questions on whether or not you have taken your distribution, make sure to talk to your advisor.

 

The holiday season should be filled with laughter, joy, and memory-making. Your wealth advisors are standing by to help make things right and wishing a Merry Christmas to all, and to all a good night.

by MISSY BROWN, CFP® CPWA®
Missy is a Principal and Senior Wealth Advisor at Mosaic Family Wealth. She oversees the firm’s retirement, estate, tax, and financial planning services. She serves high net worth families, helping them strategize and develop consensus around any situation involving a dollar sign.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

How Financial Media Pulls the Strings

When I was a kid, my older sister Kim would often prey on my youth and ignorance. While this harassment took many forms, the instance I remember most was being “persuaded” by my sister and her friends to let them dress me up as a girl with makeup. It’s surprising how easily she convinced me to go along with her schemes like I was a puppet, and she was the puppeteer pulling the strings as she desired. As a young kid, I didn’t stand a chance.

Eventually, as I got older (and a bit wiser), I caught onto the game my sister was playing. Realizing that she was manipulating my emotions and reactions gave me a fighting chance, allowing me to cut some of those strings from time to time.

Those manipulative moments with my sister growing up parallel the relationship investors have with the financial media. Too often the financial media plays the role of puppeteer, pulling strings that shape and direct the emotions of investors, usually to increase their own profits. Investors need to develop the same kind of awareness that I developed with my sister, understanding the motives behind financial media in order to reduce vulnerability.

If It Bleeds, It Leads
Many have heard the old adage when it comes to nightly local news, “if it bleeds, it leads.” Financial media has adapted this mantra a bit, focusing on greed or fear to lead the way when it comes to capturing investor attention. They understand if you’re dreaming of making a fortune or scared of losing it all, they’ve got your attention. Next time you’re watching your favorite financial TV channel, watch for the following puppeteer moves:

  • Notice how often words like plunge, plummet, or surge are used both in conversation and plastered in all caps on the screen. These words push our internal greed and fear buttons, which causes us to watch longer.
  • When discussing stock market performance during the day, note how often financial TV references the Dow versus the S&P 500. Why? The Dow is trading around 35,000 while the S&P is trading near 4,500. One percent of the Dow is 350 points while one percent of the S&P is only 45 points. Which number scratches your greed or fear itch more? The larger number, of course. It’s a subtle but intentional way of exploiting investors’ emotions.

Financial Media Motivators
On any given day, the market experts on your favorite financial news channel make dozens of market predictions. Do advertisers pay more money for commercials based on the daily number of accurate market predictions? Of course not. Ad rates are driven by viewership, commanding top dollar for more eyeballs rather than spot-on market predictions.

It would be nice if the financial media’s primary goal was to support or enhance an understanding of your investment goals, but that’s not the case. Financial media’s primary goals are strong ratings. Put plainly: big viewership leads to higher company revenues and profits.

To be fair, financial media will always have a hard time focusing on your investment goals. The advice they give is unaware of your investment profile: short-term or long-term horizons; low, medium, or high-risk tolerance. It’s tough for them to narrow their commentary based on your personal goals, whether it’s funding college tuition, buying a second home, or retiring comfortably. You wouldn’t take exercise advice from a trainer who didn’t know your body type or fitness goals, why take investment advice from experts who know nothing about your financial goals?

Opinions Not Accuracy
Former Forbes Magazine CEO Steve Forbes once said, “You make more money selling advice than following it. It’s one of the things we count on in the magazine business – along with the short memory of our readers.” Many investors tend to believe that financial experts are paid because of the accuracy of their market predictions. Mr. Forbes made it abundantly clear that even media leaders themselves know this isn’t the case.

“You make more money selling advice than following it. It’s one of the things we count on in the magazine business – along with the short memory of our readers.” — Steve Forbes, FORBES Magazine

Financial experts are paid to have an opinion, NOT to be right. And like any good salesman, their opinion should be extremely convincing and somewhat entertaining, which they usually are! In baseball, before a batter steps into the batter’s box, you know the likelihood of that player getting a hit before they take a swing. Their batting average is available for all to see. When was the last time you saw a market expert’s stock pick average posted on the screen as they stepped up to make another market prediction? There’s a reason you don’t see it and it’s the same reason your college career counselor told you not to put your GPA on your resume if it wasn’t impressive.

Financial Education or Entertainment?
Given how financial media is compensated, it’s fair to ask if they’re in it to educate or entertain investors. One way we can answer this question is by looking at the people hired to produce some of these financial news shows. Susan Krakower is the former producer of Jim Cramer’s highly rated Mad Money show on CNBC. Her illustrious production career also includes stints at The Jerry Springer Show, The Maury Povich Show, and The Sally Jessy Raphael Show. You connect the dots.

It’s not that financial media is all bad. There are many highly respected sources for financial news. But it’s critically important that investors know that the primary goal is strong viewership and ratings, not addressing individual financial goals. Without this awareness, the greed and fear drivers can put investors at great risk of excessive trading, worrying about the markets, and making irrational investment decisions that can wreck financial plans.

By recognizing that often financial media’s goals are not aligned with our own financial goals (or risk tolerance, or time horizons), investors can prevent their emotions and focus from getting hijacked and instead stay focused on their long-term plan.

by JOHN FISCHER, CFA®, CFP®
John is the Chief Investment Officer (CIO) at Mosaic Family Wealth. He leads the firm’s Investment Committee which shapes the firm’s investment philosophy and strategy for client portfolios. He also serves on Mosaic’s Leadership Team. A 20-year industry veteran, John is most passionate about helping people understand how emotions relating to investments can be more important than the investments themselves in achieving financial goals.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.