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INSIDE THIS EDITION:
Millennial Investment: Parental Guidance Can Lead to Optimal Financial Outcomes
Weekly Technical Comment
What to Do When Clients Obsess Over Beating the Market
401k Plan Manager
Millennials, or Americans who were born in the 1980-2000 period, is a large and diverse population.
S&P 500 Nears Test of January High
The most important chart of the day may belong to the S&P 500. Chart 1 shows the SPX nearing a test of its January intra-day high at 2872.
Scott Bishop is executive vice president of financial planning at STA Wealth Management in Houston. Voices is an occasional feature of edited excerpts in which wealth managers address issues of interest to the advisory community. As told to Jacob Meade.
Mr. Bishop on information: Clients today are influenced by an abundance of market data, advice and information—but information is cheap.
Clients are inundated with advertisements and media about the financial markets that can color their view of their portfolios, leading them to think they will succeed only if they outperform the S&P 500 or another outside benchmark. But as financial professionals know, it’s almost impossible to beat the market. And when people try to do so, they can end up taking too much risk, micromanaging assets and failing to let long-term strategies run their course.
In my experience, the best way to remedy a client’s preoccupation with a benchmark is to ask targeted questions. When a client says to me, “I need to beat the S&P 500,” I first ask “Why do you need to beat the market? Why is that your goal?” I then ask, more broadly, “Is money your only objective? What about money is important to you?” I also inquire about their view on a hypothetical scenario to illustrate the risk in trying to beat the market, asking: “If the market lost 30% and your portfolio lost just 28%, you’d still be ‘beating the market,’ but would you OK with that type of loss?”
To the last question, clients will usually nod their heads as they start to register the risk of investing too aggressively. They will admit that they don’t want to lose that much. This realization then sets the stage for a broader discussion of appropriate risk, asset allocation and the long-term strategy they already have in place. Most importantly, the questions signal to the client how returns are merely the means to reach a goal—and pursuit of returns should never overshadow that goal.
After putting these questions to my clients, I’ll then bring the conversation back to their financial plan and a more realistic return needed to reach their goals. This helps reset the focus on the personal return they are aiming for and away from the return of an arbitrary and volatile market index they had been reading or hearing about.
Clients today are influenced, both positively and negatively, by an abundance of market data, advice and information—but information is cheap. Expert consultation on a long-term strategy—and the encouragement to stick to it—is what they should be paying you for.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by STA Wealth Management, LLC), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from STA Wealth Management, LLC. Please remember to contact STA Wealth Management, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. STA Wealth Management, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the STA Wealth Management, LLC’s current written disclosure statement discussing our advisory services and fees continues to remain available upon request.
Financial Planning and Investment Advice offered through STA Wealth Management (STA), a registered investment advisor. STA does not provide tax or legal advice and the information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters or legal issues, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice
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