Comment to Wall Street Journal Column – October 10

by J. David Lewis, MBA

A Wall Street Journal column I try to follow each week is “The Intelligent Investor” by Jason Zweig.   The column dated October 10 was particularly interesting – “Don’t Let a Market Crash Hit You at the Finish Line.”  I commented on it, as I do sometimes. When I read comments that followed mine, I wrote again to summarize my thoughts on some of those comments. It seems my second comment to that column can stand on its own here on the Resource Advisory Services Blog.

I generally love Zweig’s columns and this one is particularly good. And, I AM a financial advisor, who has owned stocks since my early teens in the 1960s. Along the way, I have absorbed a fair amount of formal education on the issues and techniques of investing, including stocks, bonds, real estate, and commodities. As Zweig frequently reminds us, good diversification among all these is fundamental to prudent investing. The question remains; “What is GOOD diversification?”

Since the early 1990s, I have been particularly interested in the issues of portfolio withdrawal rates and techniques. There is a growing body of knowledge, backed by solid research, on this subject alone. Some of the early work, like just keeping a few years cash in short-term instruments or ladders, has given way to more sophisticated methods with better foundations. Advancements have been interesting.

I often see the issue of fees to mutual funds and advisors and clearly understand the significance of fees relative to the net return of investors. Indeed, making the judgment whether each mutual fund we use is worth the fees within its expense ratio is an important decision. As for our investment advisory fees, they are not nearly as much as 1.4% and we clearly report total portfolio returns before and after our fees for every client. This is important for clients to see. Those returns are calculated using time-weighted-rate-of-return, which is the industry standard. Its math accommodates dividends and interest, whether invested or taken in cash. The return is the return, whether dividends are reinvested or part of the cash flow for supporting a lifestyle.

There is a lot more to investing and money than many people realize when they think about money. I have seen some pretty good successes from individuals who did it themselves, until the responsibility of making larger and larger decisions were more pressure than they wanted. And, I have seen some horrendous messes from lack of time and/or background and/or discipline. It becomes time to pay fees to an advisor. These are the cases where paying the fee is not for improved dollars from investing and should not be measured in this way. These are fees paid for greater expertise and relief from the complicated job. Find someone who can create quality diversification in the portfolio and monitor the cash flows from it in retirement, with an understanding of prudent reasonable expectations. Many qualified people can be found in National Association of Personal Financial Advisors http://www.napfa.org/. Most want the clients who really need them and do not want to work for people who do not need them.

The link to all of my comments on Wall Street Journal pieces is at this logo in my emails – .

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