Robinhood investing anyone?

Robinhood is an investing platform geared to millennials to make investing look so easy, fun, and sexy... The New York Times reports: "the company has also faced intense scrutiny for its practices." 

"The app has become a favorite of young and inexperienced investors, enticed by no-fee trading, offers of free stocks and an engaging user interface that uses what a New York Times report in July described as the 'Silicon Valley playbook of behavioral nudges and push notifications.'" i.e., you are being manipulated.

 "Last week, the Securities and Exchange Commission charged the company with “misleading customers about revenue sources,” citing “repeated misstatements that failed to disclose the firm’s receipt of payments from trading firms for routing customer orders to them.” Robinhood agreed to pay a $65 million fine. And on Wednesday, Bloomberg News reported that a complaint filed in San Francisco against Robinhood Financial could become a class-action lawsuit."

Source: Robinhood Recaps From a Volatile Year... And you thought your Spotify Wrapped was a bummer.

by Ezra Marcus

Think you can time the market?

October is notable for the many stock market crashes that occurred in this month. It's the 90th anniversary of legendary Crash of 1929. The Panic of 1907 and the October 1987 crash are other examples. But the month is not the point. Too many investors think they will cash out then jump back into the market after it recovers. Such a strategy guarantees selling at the bottom and buying near the top... not a way to get rich. Just as market crashes are sudden, unexpected and dramatic, so, often are markets recoveries. No one sounds a horn when the stock market bottoms out to announce the beginning of a recovery. "Trying to sit out a crash often means missing some of the market's best days" which come in fits and starts, no on a smooth trajectory. Numerous studies have revealed the penalties of sitting on the sidelines and trying to decide the best time to buy. Putnam Investments figured that "missing just the U.S. markets' 10 best days in the 15 years through 2018 would have cut your ending portfolio in half. Missing the 20 best days would leave you with two-thirds less" reports Spencer Jakab in The Wall Street Journal, 10/26-27/2019. Money you will need in the coming 5 years should not be invested in stocks. It was sad to hear about retirees bailing out of stocks in 2008 to early 2009, thus locking in huge losses. The longest bull market started on March 9, 2009 but those who panicked lost out by sitting on the sidelines after the trauma of inflicting large losses on their portfolio.

Wall Street Brokers missed the memo on Index Funds

"In recent years, investors have been flocking to low-cost index funds, driven by their long-term record of outperforming higher cost actively managed funds" writes Randall Smith in The Wall Street Journal (10/7/19). However, clients of Wall Street brokers have just 29% of assets in passive index funds according to a report by Cerulli Associates. The situation is even worse for clients of regional and independent firms with only 20-22% of assets invested in index funds. Who is getting rich? Certainly not the client who is paying high fees for funds that under perform their indexes. The benefits of index investing has been a major theme of this blog. Check out other posts that may convince you that your charming, persuasive broker may not have your best interests in mind.

Retirement Investing Regrets

"A survey of retirement plan participants conducted by American Century Investments shows the greatest personal regret among workers age 55 to 65 is not saving more money for retirement. "We continue to see this disconnect in people knowing what they 'should do' against what they actually do with respect to saving," says Diane Gallagher of American Century." (Retirement Security SmartBrief, Jan. 5, 2018).

How long will this bull market in stocks last?

The "bull market for stocks is 94 months old, making it the second-longest in modern history" according to Jason Zweig, writing in The Wall Street Journal, Jan. 21, 2017. In his weekly "Intelligent Investor" column Zweig explains the results of recent research showing that investors are affected by the optimism of other investors, often resulting in poor decisions. Investor optimism indices have increased recently. Zweig explains: "New research shows that the confidence of others can influence your decisions even more than your own experience can. At a time when stocks and bonds alike are expensive, investors need to be even more vigilant than usual against the risk of getting stampeded by other people’s emotions." (emphasis added). Now seems like a good time to reblance one's portfolio and if you need cash, do like I've been doing, sell your winners and lock in those gains. This bull market will NOT last forever.
"Confidence is contagious. But acting on it can be dangerous." (Zweig)

Investment Knowledge and Behavior: Ask Yourself These Questions

While the results of the recent FINRA Foundation study Investors in the United States 2016 are interesting, “what’s really valuable is to ask some blunt questions about your own investment knowledge and behavior.”  Read five key findings, and some questions you should ask yourself.

1. Ask Yourself: Do you know what you own? You can learn a lot by reading your account statements each month and taking time to learn how you can make and lose money with each investment.

2.  Investors use financial professionals—but most don’t check them out.

Ask yourself: “Have you looked up the background of your financial professional? It’s free and takes just a few minutes to do so using FINRA BrokerCheck. Over half (58 percent) of those who use an advisor say that professional designations or certifications are very important. If you count yourself among that group, learn more about the any designations your advisor holds using FINRA’s professional designations tool.”

3.  Knowledge of investment concepts is low. “Only 10 percent of the respondents who took a 10-question investor literacy quiz could answer eight or more questions correctly.”

“Ask yourself: How well do I know the basics of investing? You can start by reviewing the questions and correct answers to the quiz in the Investor Literacy section of the study.”

4. “Investors own individual stocks and mutual funds. Ask yourself: Do I understand the concept of diversification? Particularly, if you own only individual stocks, consider having a conversation with your financial professional about diversification. Prepare by reading FINRA’s Diversifying Your Portfolio.”

5. “Some investors understand advisor compensation—and some don’t. Ask yourself: Do I know how my financial professional is compensated? If you are not sure, then ask.

The investor survey is a component of the FINRA Investor Education Foundation’s National Financial Capability Study, one of the largest and most comprehensive financial capability studies in the country. Data for the survey were collected in July 2015.”

To receive the latest Investor Alerts and other important investor information sign up for Investor News. For more details & source of direct quotes above):

http://www.finra.org/investors/highlights/new-investor-study-ask-yourself-these-questions?utm_source=MM&utm_medium=email&utm_campaign=Investor%5FNews%5F122216%5FFINAL

Ignore hidden investment fees at your peril

Too often investors ignore the hidden fees in their retirement accounts, assuming that their employer or financial salesperson has their best interests at heart. Don't be so naive!  "Most people understand the basics of retirement planning. You set aside money to invest and save every month, and you keep daily expenses in check. Sounds pretty simple, right?

Not exactly. Even with a plan in place and the best intentions, you could be one of millions of Americans giving up hundreds of thousands of dollars in hidden fees. But how do you know? If you're saving for retirement with one of the leading brokerage firms, the answer is that you're probably losing retirement income to fees." Read the details by Bill Harris at: http://www.cnbc.com/2016/04/26/how-hidden-fees-can-crack-that-nest-egg.html

What if investors had an independent second opinion?

A Radical Proposal for Investors: What if investors had an independent second opinion? By Daniel Solin (3/18/15). Selectively quoted from his article in US News & World Report. Read his full article at: http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2015/03/18/a-radical-proposal-for-investors

“I have a radical proposal for you to consider. Stop making investment decisions for yourself.” Here’s why:

·         You’re not good at it.

·         You’re not prepared for retirement.

·         You follow bad advice.

·         Why you need a new decision model. There is a wealth of evidence indicating that people are better at making decisions for others than they are at making those same decisions for themselves.

For whatever reason, individual investors make awful decisions and are likely to continue doing so.

Daniel Solin’s proposal: In a perfect world, investors would rely exclusively on registered investment advisors (RIAs) who have a fiduciary duty to place the interest of the investor above their own. Unfortunately, we don't live in a perfect world. Investors, it seems, will continue to rely on financial planners who have a lower standard of duty and whose advice is both conflicted and contrary to the weight of academic support.

“To surmount these formidable obstacles, I propose introducing a new disruption to the financial services industry. It involves the creation of advisory firms whose sole purpose is to give a second opinion on the portfolios of their clients. These firms would charge an hourly or project fee. They would be contractually prohibited from converting the consulting arrangement into an advisory one. Their advice would be totally independent. They would offer no other products or services.”