WSJ.com - Don't Let Income Obsession Cheat You
If the above link doesn't work, let me know, I'll forward a copy of this article.
I was quoted in this article, the excerpt as follows:
"Equally important, what retirees often don't understand is the importance of having their portfolios continue to grow and not just generate a set amount of income, says Scott Dauenhauer, a financial planner in Laguna Hills, Calif. "Even though your income looks good...you may be losing purchasing power" to inflation, he says.
To make the point with clients, Mr. Dauenhauer boils it down to a simple example: postage stamps. A retiree in 1975 whose "needs" were to buy two postage stamps required a "portfolio" that produced income of 20 cents. Six years later that same amount of income would only buy one stamp. Today that income buys half a stamp.
For that portfolio to keep up with the "cost of living" it would have needed to grow about 4.5% a year. "Inflation happens and it matters," Mr. Dauenhauer says."
The Wall Street Journal is the top finance paper in the U.S. and argueably around the world, it's pretty cool to see my name in their again!
Scott Dauenhauer, CFP, MSFP
Monday, March 20, 2006
Monday, March 13, 2006
Brokerage Firms Pay Revealed
On Wall Street - A SourceMedia and Investcorp publication
Every year the industry magazine "On Wall Street" does a survey of its participants and writes a story on how they get paid. They get paid via a "grid". The "grid" basically represents what % of the commissions or fees that are generated that the broker actually gets paid. For example, if the broker sells a mutual fund and generates a $5,000 commission and the grid pays out 50% on mutual funds, the broker will take home $2,500.
What is interesting about the payout grids, which can all be found at the end of the article (scroll all the way down to the end of the articles page and you will find several pdf files) is that very few of them ever get above a 50% payout. In order to reach the level that the broker gets to keep 50% of the fees and commissions generate the broker must usually generate at least $1 million in revenues. Even then some of that compensation is paid in "Deferred Compensation."
The average broker is probably not taking home much more than 35 - 40% of the fees and commissions being generated. You have to ask yourself how intelligent can these "brokers" really be if every year they are essentially letting 60% of the fees and commissions generated by their clients go back to the firm they work for (notice how I said "work", they don't "work" for you). Giving up 60% of your revenue does several things that are bad for the clients. The first is that the clients are paying more in fees than is necessary as the broker must sell much more product at higher costs in order to pump up his bottomline. Second, as you will see with many of the "grids" the brokers are given certain incentives to sell one type of product over the other. Finally, the use of deferred compensation acts as a "golden handcuff" to keep the brokers at the firm they are with. If they leave they will forfeit much, if not all of the deferred compensation they've accumulated, thus they are not free to find the best place for YOUR money.
All of these wirehouse brokers could leave and go independent or become an RIA (Registered Investment Advisor) and take home next to 100% of the revenues they generate, but to do that they'd have to actually run their own business, most of them are just too lazy to do that - even though it would be in their client's best interest.
This story by On Wall Street and the grids attached are just one more nail in the coffin on why brokers and brokerages firms are hazardous to your wealth.
For more reasons you can goto my website, www.meridianwealth.com and read Secrets of the Wirehouse.
Scott Dauenhauer, CFP, MSFP
Every year the industry magazine "On Wall Street" does a survey of its participants and writes a story on how they get paid. They get paid via a "grid". The "grid" basically represents what % of the commissions or fees that are generated that the broker actually gets paid. For example, if the broker sells a mutual fund and generates a $5,000 commission and the grid pays out 50% on mutual funds, the broker will take home $2,500.
What is interesting about the payout grids, which can all be found at the end of the article (scroll all the way down to the end of the articles page and you will find several pdf files) is that very few of them ever get above a 50% payout. In order to reach the level that the broker gets to keep 50% of the fees and commissions generate the broker must usually generate at least $1 million in revenues. Even then some of that compensation is paid in "Deferred Compensation."
The average broker is probably not taking home much more than 35 - 40% of the fees and commissions being generated. You have to ask yourself how intelligent can these "brokers" really be if every year they are essentially letting 60% of the fees and commissions generated by their clients go back to the firm they work for (notice how I said "work", they don't "work" for you). Giving up 60% of your revenue does several things that are bad for the clients. The first is that the clients are paying more in fees than is necessary as the broker must sell much more product at higher costs in order to pump up his bottomline. Second, as you will see with many of the "grids" the brokers are given certain incentives to sell one type of product over the other. Finally, the use of deferred compensation acts as a "golden handcuff" to keep the brokers at the firm they are with. If they leave they will forfeit much, if not all of the deferred compensation they've accumulated, thus they are not free to find the best place for YOUR money.
All of these wirehouse brokers could leave and go independent or become an RIA (Registered Investment Advisor) and take home next to 100% of the revenues they generate, but to do that they'd have to actually run their own business, most of them are just too lazy to do that - even though it would be in their client's best interest.
This story by On Wall Street and the grids attached are just one more nail in the coffin on why brokers and brokerages firms are hazardous to your wealth.
For more reasons you can goto my website, www.meridianwealth.com and read Secrets of the Wirehouse.
Scott Dauenhauer, CFP, MSFP
Friday, March 10, 2006
Stocks: The Asset of Choice for the Long Run
Stocks: The Asset of Choice for the Long Run: The Future for Investors - Yahoo! Finance
This is vintage Siegel, a great article about how stocks are, historically the best asset class to invest for long periods of time. Though the professor uses a couple "investment" terms in the article that may sound foreign to you, the rest of the article is well worth reading. The professor predicts 6% Real (means after inflation) returns for stocks over the long run, a pretty hefty return considering bonds might be at 2.5% long term.
Scott Dauenhauer, CFP, MSFP
This is vintage Siegel, a great article about how stocks are, historically the best asset class to invest for long periods of time. Though the professor uses a couple "investment" terms in the article that may sound foreign to you, the rest of the article is well worth reading. The professor predicts 6% Real (means after inflation) returns for stocks over the long run, a pretty hefty return considering bonds might be at 2.5% long term.
Scott Dauenhauer, CFP, MSFP
Monday, March 06, 2006
Warren Buffett: Beware brokers who want your money - Mar. 6, 2006
FORTUNE: Warren Buffett: Beware brokers who want your money - Mar. 6, 2006
Warren Buffet, the legendary investor is not making many friends with this piece as he essentially tells people to fire their money managers and index. I agree. You may think it wierd that a financial planner who makes his living by charging fees would agree with Buffett on this matter and you'd be right, except that I am not like most planners. As Buffet alludes to most planners charge high fees and attempt to find "money managers" who will outperform, only to disappoint. All these additional costs are referred to as "friction" and reduce your returns by about 20%.
Essentially, to invest correctly you should structure your portfolio to avoid frictional costs as much as possible, which is exactly what I do by using institutional (low cost) index funds that are designed to give us the returns of the asset classes we want to invest in. Indexing is the best way to keep the returns that the market gives over time.
Between Dec. 31, 1899 and Dec. 31 1999, the Dow rose from 66 to 11, 497, a growth rate of 5.3%, plus you would have recieved dividends. If the Dow continues at such a pace, it should reach 2,000,000 by Dec. 31, 2099 - how much of that return will you keep? Keep costs low, hire a planner with reasonable fees (well under the typical 1%) and avoid all the sexy sounding investments like Hedge Funds and Private Equity.
Scott Dauenhauer, CFP, MSFP
Warren Buffet, the legendary investor is not making many friends with this piece as he essentially tells people to fire their money managers and index. I agree. You may think it wierd that a financial planner who makes his living by charging fees would agree with Buffett on this matter and you'd be right, except that I am not like most planners. As Buffet alludes to most planners charge high fees and attempt to find "money managers" who will outperform, only to disappoint. All these additional costs are referred to as "friction" and reduce your returns by about 20%.
Essentially, to invest correctly you should structure your portfolio to avoid frictional costs as much as possible, which is exactly what I do by using institutional (low cost) index funds that are designed to give us the returns of the asset classes we want to invest in. Indexing is the best way to keep the returns that the market gives over time.
Between Dec. 31, 1899 and Dec. 31 1999, the Dow rose from 66 to 11, 497, a growth rate of 5.3%, plus you would have recieved dividends. If the Dow continues at such a pace, it should reach 2,000,000 by Dec. 31, 2099 - how much of that return will you keep? Keep costs low, hire a planner with reasonable fees (well under the typical 1%) and avoid all the sexy sounding investments like Hedge Funds and Private Equity.
Scott Dauenhauer, CFP, MSFP
Friday, March 03, 2006
SuperFund - The Hazardous Waste Invesment
I am a subscriber to the magazine BusinessWeek and I really enjoy it, however I was shocked last week when I opened the covers to find a story about a new investment fund coming to America called SuperFund.
Now, most of you probably associate the term "Superfund" with the program run by the government to clean up hazardous waste sites across the country. However, over the coming months you will be coming to know about a new "Superfund", a hedge fund that is being rolled out to U.S. Investors that in time I believe will have more in common with hazardous waste then prudent investment management.
This new hedge fund is really not new, it has been around in Europe for a few years and is run by an Austrian by the name of Christian Baha, a true idiot. While he claims monster returns I wouldn't trust them. The first clue that Christian, is clueless comes when he states "Why shouldn't everyone be able to make above-average returns in any market?"
Why is this statement so incredibly stupid? For one thing it ignores the fact that if everyone earned above average returns everyone would be above average.........which is impossible. It is reminiscent of Lake Wobegon (Garrison Keillor) where "all the children are above average." The arrogance, stupidity, and naivity of Christian Baha is enough to give anyone pause, but if that weren't enough the fees to invest in his funds should be. In one fund you don't make a dime until the return hits 8.75%, then you only keep 75% of the returns after that, the other fund must hit nearly 11% before you begin making any money.
Mr. Baha is counting on two things to drive sales - Greed & Stature. He claims that his investment styles are only available to the rich, but he is bringing them to the masses. He is playing on people's innate desire to be "rich" or like the "rich". He advertises huge returns in order to draw you in, but don't be fooled, he is simply another charlatan. Same wolf, different sheeps clothing.
To be honest, I thought the BusinessWeek piece on Superfund was a parody. I thought to myself, if I wanted to make fun of some of the ridiculous schemes that are going on in American financial institutions I would create the SuperFund idea. What better name for a parody about a bad investment than Superfund, a term long associated with toxic waste? Alas, it is not a parody - you will see this advertised on T.V., newspapers, radio, and you may even see an investment bus advertising the fund.
Superfund is what it is, a toxic waste investment that should be avoided with serious money. Christian Baha does not deserve your money.
If you'd like a copy of the SuperFund story I can e-mail it to you.
Scott Dauenhauer, CFP, MSFP
Now, most of you probably associate the term "Superfund" with the program run by the government to clean up hazardous waste sites across the country. However, over the coming months you will be coming to know about a new "Superfund", a hedge fund that is being rolled out to U.S. Investors that in time I believe will have more in common with hazardous waste then prudent investment management.
This new hedge fund is really not new, it has been around in Europe for a few years and is run by an Austrian by the name of Christian Baha, a true idiot. While he claims monster returns I wouldn't trust them. The first clue that Christian, is clueless comes when he states "Why shouldn't everyone be able to make above-average returns in any market?"
Why is this statement so incredibly stupid? For one thing it ignores the fact that if everyone earned above average returns everyone would be above average.........which is impossible. It is reminiscent of Lake Wobegon (Garrison Keillor) where "all the children are above average." The arrogance, stupidity, and naivity of Christian Baha is enough to give anyone pause, but if that weren't enough the fees to invest in his funds should be. In one fund you don't make a dime until the return hits 8.75%, then you only keep 75% of the returns after that, the other fund must hit nearly 11% before you begin making any money.
Mr. Baha is counting on two things to drive sales - Greed & Stature. He claims that his investment styles are only available to the rich, but he is bringing them to the masses. He is playing on people's innate desire to be "rich" or like the "rich". He advertises huge returns in order to draw you in, but don't be fooled, he is simply another charlatan. Same wolf, different sheeps clothing.
To be honest, I thought the BusinessWeek piece on Superfund was a parody. I thought to myself, if I wanted to make fun of some of the ridiculous schemes that are going on in American financial institutions I would create the SuperFund idea. What better name for a parody about a bad investment than Superfund, a term long associated with toxic waste? Alas, it is not a parody - you will see this advertised on T.V., newspapers, radio, and you may even see an investment bus advertising the fund.
Superfund is what it is, a toxic waste investment that should be avoided with serious money. Christian Baha does not deserve your money.
If you'd like a copy of the SuperFund story I can e-mail it to you.
Scott Dauenhauer, CFP, MSFP
Wednesday, March 01, 2006
What You Need To Know About Financial Advice
A good primer put together by TD Waterhouse - now TD Ameritrade (the custodian of my client's money) on the difference between a stock broker and an advisor. I think you'll find it interesting.
Scott
Scott
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