The Best Investment In The World...Isn't One

Let me say from the front end that I am not going to fully explain that cryptic title in this article.  For the full explanation of it you will have to agree to two things: First, to read a book that I will provide to you, and second, to sit down with me and allow me to explain what you must do to take advantage of the best investment in the world.  This article is simply meant to demonstrate the findings of my years of research into this issue and to accelerate your arrival at the same conclusion.  

    So what issue am I addressing anyway?  For what problem am I promising you the “best” solution?

    There are two answers to that question.  The first answer is helping you determine the best place to store (invest) your money.  

    The second answer is more complex, but describes the mental processes that I have gone through over my years of examining the financial services arena.  If people were only concerned about the return on their investment, the answer to the above question would be the highest yielding investment.  However, my experience has shown me that people are actually concerned about many more things than just the return on their investments.  Some of these concerns are whether the money is liquid or not, whether or not there is a risk of loss, whether or not there are tax implications to the investments, whether these assets are subject to loss through lawsuits and how much control they have (or don’t have) over the assets.  If these concerns have ever crossed your mind, then you have an idea of what the real issue is.  Perhaps it can be summed up like this:  Is there a place where I can invest my money that alleviates all or most of my concerns as well as the pitfalls of other investments?

Past Results Are No Guarantee of Future Returns

    The “Past Results” disclaimer is on every piece of investment literature you see.  What it is really saying is that despite the rosy picture we have drawn showing the market generally proceeding upward, it is possible that we could be wrong and that the market could go down and you could lose it all.  Not a very comfortable thought is it?  And even if you don’t “lose it all,” what if you are the unlucky soul who is slated to retire the same year that the market has a major correction of say 40-60 percent?  Could you retire then?

    Most people that I advise simply ignore this fear.  It is not that they don’t recognize the potential of the market working against them, they just assume that nothing is guaranteed and that the market is as good a place as any to risk it.  Actually, that is how most “professionals” sell market investments!

    Try this experiment: Go into your financial advisor or stock broker’s office and say, “Which of my portfolio holdings has a guaranteed return?”  The advisor will quickly put his finger to his lips, give you a loud SHHH and tell you, “We don’t use that word around here!”
    What if you could get an investment with a guaranteed return?  Would you prefer that investment over the riskier one?  Better yet, what if you could guarantee the rate of return too?  Is there such an animal?

Your Silent Partner

    No, your financial advisor can’t guarantee your returns, but he can promise to get the government out of your pocket…for now.  It’s called qualified money, but you probably know it by the more common names: IRAs, Roth IRAs, 401(k)s, Simples, SEPs, and a host of other tax-privileged investment vehicles.  

    Here’s the pitch: Invest your money in one of these programs and the earnings are not taxed as income (some even give you the added benefit of excluding the contributions from your taxable income).  Then after year one, your contributions plus the earnings grow even more (compounding) without tax again etc. etc. etc.  Usually these pitches are accompanied by beautiful graphs showing you the difference between this tax-deferred growth and the growth of a taxable (non-qualified) fund.  

    It’s a no-brainer.  You feel so good about beating the tax-burdened investments and getting one over on the government that you sign right up.  You’ve already forgotten that the return is not guaranteed.  In fact, the beautiful graphs that depict the growth of your investments use what are called “assumptions.”  Maybe you’ve heard the old adage about what happens when you assume…Ah, who cares, those graphs sure were impressive!

    Then you learn the price you pay for tax deferral.  For the wonderful benefit of not being taxed on your earnings, you get a host of federal legislation telling you when and how you can use the money.  First, there are limits to how much you can invest in these programs.  Next, there are taxes and penalties for early withdrawal (i.e. use) of the money.    Also, you may move the money, but it must always remain in a qualified plan and in the care of a qualified custodian.  Finally, the money can’t stay (and grow) in there forever.  You must take a “minimum required distribution” at age 70½ regardless of your need or desire or tax circumstances.  Say hello to your silent partner, the IRS.

    I can hear all the advisors out there right now criticizing me: “Oh, but the government is liberalizing the rules regarding early use of qualified money.”  But they just don’t get it.  What I find repugnant about this whole scheme is not how stingy (or generous) they are in their regulations, but the very idea of anyone telling me how to use my savings.

    Most people that I talk to want to be able to get to their money, even their retirement money, if they need to and they are not interested in paying taxes and penalties to do so.  Now as a financial advisor I should strive to find an investment choice that would provide that option without losing the benefits of tax deferral.  Is that possible?  

Two Taxing Problems

    Why wouldn’t it be possible?  I thought we lived in the land of the free!  If such an investment doesn’t exist, why couldn’t we create it tomorrow?  In fact, why couldn’t we create an investment vehicle that would have every attribute we wanted?  Just saying that sounds revolutionary!

    Therein lies the first taxing problem: getting people, investors and advisors, to think outside the box.  The limited choices being offered to the investing public are not due to a lack of options, but rather to a lack of thinking, a lack of knowledge.  The answers are there if you know what you are looking for.

    So let’s describe the best investment in the world.  We’ll start with the characteristics already discussed.  We want:

·    A guaranteed return
·    At a rate we specify
·    With tax deferral
·    Not susceptible to lawsuits
·    But, without losing our control over the assets
·    And maintaining liquidity

    Bring this list of features to most financial advisors and they will laugh at your outlandishness then tell you that you can’t have it all.  So which ones are you willing to sacrifice?

    My answer is none.  In fact, I would add another feature.  I want tax free income from my investments when I retire.  Can I get that too?  

    This is the second “taxing” problem.  It arises from another assumption made by financial advisors, namely that retirees will be in a lower income tax bracket when they retire so they will not mind paying taxes on their portfolio income.  There are two problems with this reasoning.  First, my experience is that many retirees are not in lower income tax brackets.  And second, everyone I know would prefer NOT to pay taxes or lower them if they can legally do so.  Is this a surprise to anyone?

The Best Investment in the World

    The best investment in the world does exist, but it isn’t one.  Sorry, but I told you I wasn’t going to explain that statement.  What I will tell you is that you can have the best investment in the world.  All that is required is a change of thinking, a change of doing and a commitment to achieve it.

When It Pays To Hire A Financial Advisor...And The Good They Do

Recently in a piece written for Morningstar.com, Christine Benz had this to say about "When It Pays to Hire A Financial Professional":

Paying a financial planner an ongoing fee to handle every aspect of your financial plan can make sense if you're extremely time-pressed or if your finances are particularly complicated. Ditto if you're very rich. Paying for ongoing financial advice (and hand-holding) may also be worth it if you've had trouble sticking with your investment plan through the market's ups and downs. The best advisors earn their keep many times over by saving investors from their own worst tendencies to buy high and sell low.

For most other investors, however, I'd argue that it's not that difficult to create a sensible investment plan on your own...


Now how she can list those four conditions when it is appropriate to hire an advisor and then conclude that "most...investors" can do it "on [their] own" is just mind-boggling to me. So ask yourself:

1. Are you time-pressed?
2. Are your finances particularly complicated? (Before you answer, consider the state of the economy too.)
3. Are you very rich? (She seems to think that already having acquired lots of riches is a sign that you need an advisor. I would argue that one's inability to continually increase their wealth would be an indicator that they need an advisor.)
4. Have you had trouble sticking with your investment plan?

Again, does anybody not fall into one of these four categories? And when you consider the loads of BAD information that parades around as sound investment advice, it's a wonder that we haven't all been reduced to abject poverty...but stay tuned for that!

So what is the answer? Should you hire an investment professional? And what should you expect to receive for the money you pay?

In an earlier post, I recounted for you some things to expect from your financial advisor. These are the "goods" that an advisor offers and it is derived primarily from education, experience, expertise and sound reasoning. Intangible? Yes. Valuable? Without a doubt.

But is there anything tangible, more akin to a product, that you get from working with an advisor. Well, I don't know about every other advisor in the world, but here are some of the "products" that I provide to my clients:

• A proprietary system (called the Financial Report Card) that grades one's financial health and monitors economic growth.
• Professional money management with monthly monitoring and quarterly evaluation and reporting.
• Monthly reviews of all funds that hold clients' money and a determination whether or not those funds should be retained.
• Quarterly emailed report of your account holdings, asset allocation and fund changes.
• Partnership with a full-service custodial firm that provides my clients access to over 14,000 funds and alternative investments.
• True diversification through my proprietary "Personal Wealth Analysis"
• Help establishing the "The Best Investment In the World..."

But if we boil all of this down into what is most beneficial about having an advisor, I think it would be two things: First, the encouragement (if not outright demand) that you prudently save and second, the giving of objective advice about personal, and many times emotional, financial decisions.

In fact, I prefer when clients call me to discuss financial moves BEFORE they make them. As one of my colleagues says: It is much easier to create a plan than to clean up a mess. But in the final analysis, an advisor is only as good as the advice you TAKE. So if this post convinces you of the value of hiring an advisor, GREAT. But I will have done you a much greater service if this blog convinces you of the value of making a good plan and assiduously FOLLOWING it.

Good luck with yours!