Study Finds that Most Investor Portfolios Have Significant Shortcomings

Study Finds that Most Investor Portfolios Have Significant Shortcomings

Dunston Financial Group recently attended the National Association of Personal Financial Advisors (NAPFA) annual conference in Seattle. As expected, we were not disappointed by the quality or substance of content. We are honored to be a part of such a collegial and intellectually stimulating community of fee-only financial planners. Several things stood out at the conference. One of which was a set of findings put forth by BNY Mellon. In an attempt to ascertain the health of investor portfolios, BNY Mellon studied a large sample size of portfolios and found that most portfolios had significant shortcomings: 89% of investor portfolios were missing asset classes 89% were lacking an overall portfolio plan 86% followed or fled a trend too late 83% of portfolios were subject to sector bets that the investor did not know were taking place 78% of portfolios didn’t have enough or held too many holdings 78% of investor portfolios had unnecessary or unknown portfolio risk 75% had little to no tax management 68% of portfolios were subject to hidden costs We weren’t surprised when we heard this given that we regularly encounter such findings when analyzing portfolios on behalf of our own clients. Such shortcomings can have serious consequences for investors’ goals, including goals related to retirement and long-term wealth accumulation. When was the last time you had a portfolio checkup? It’s always better to catch such issues sooner rather than...
Dunston Financial Group in The Wall Street Journal

Dunston Financial Group in The Wall Street Journal

Dunston Financial Group is excited to share that we were featured in yesterday’s edition of The Wall Street Journal. The title of the article is “How Entrepreneurs Can Use IRAs to Finance Startups,” and it’s about how one can use IRA/401(k) money to fund a startup venture. Known as ROBS (Rollover for Business Startups) transactions, they definitely are not right for everyone, and they carry a unique set of risks. Nevertheless, in the right circumstances, ROBS transactions can be an effective business funding...
Hedge Fund Titan’s Surefire Bet Turns Into a $4 Billion Loss – via NY Times

Hedge Fund Titan’s Surefire Bet Turns Into a $4 Billion Loss – via NY Times

Every week at our firm we sit down with clients who 1) Have made speculative investment bets and lost, or 2) Want to make speculative investment bets because they have yet to lose. For those who want to play this game, you might be interested in reading about Bill Ackman, a New York hedge fund manager who recently lost, and lost big. I love the way the authors of The New York Times piece begin their story: A little over two years ago, William A. Ackman, one of Wall Street’s brashest and most self-assured hedge fund managers, was on top of the world. A billionaire before he hit 50, he was generating double-digit gains for his investors and raking in hundreds of millions in fees for his firm and himself.   Hailed as a master investor, he clinched his highflier status in the fall of 2014 by paying $90 million with some friends to buy the penthouse at One57, a 13,500-square-foot aerie in Midtown Manhattan overlooking Central Park. He didn’t plan to live there — it was an investment property — but until he sold it, the apartment would make a good party space, he told The New York Times. I think it might be this image—that of one sitting on top of the world and enjoying the perks of one’s investment brilliance—that often leads one to such speculative investing in the first place. The story goes on, however, and it’s a clear example of what we regularly tell our clients: For every speculative investment success story you hear, there are at least ten more failures about which you likely...
Monday Quick Tip: Beware of $1 Million Dollar Syndrome

Monday Quick Tip: Beware of $1 Million Dollar Syndrome

We all understand the power of inflation, and we also understand that $100 doesn’t buy what it used to. This might come as a surprise to some, but $1 million also doesn’t go as far as it once did. Our culture in the U.S. has long placed value on becoming a millionaire and the alleged financial security that comes along with having accumulated $1 million. For example, if a retiree expects a $1m portfolio to sustain retirement and, if we use the median successful safe withdrawal rate of 6.5%, this amounts to an income during retirement of $65,000 per year (gross of taxes and fees). For some, this may be more than enough to sustain retirement. For others, especially those who have grown accustomed to living with a much higher standard of living, $65,000 will not be adequate. In order to avoid $1 million syndrome, one should give thought to what kind of income one wants during retirement and be sure to put together a savings plan that will generate that amount of income. For many, I’m afraid the number is going to be well beyond $1m. If you’re young (or even if you’re not young!), start saving 20% of your gross income, and be sure that you continue to do this as your salary increases over time. In order to obtain financial security, it’s critical that the percentage of one’s savings keep pace with the percentage of one’s income over time....
How Your Relationship Choices Might Dictate Your Money Habits

How Your Relationship Choices Might Dictate Your Money Habits

Writing for CNBC Money, Ester Bloom explains that it wasn’t her financial savvy that helped her save $100,000 for a new apartment while only earning $30,000 a year in New York City. Instead, she maintains, “the most important decision I made was to surround myself with like-minded people, both romantically and socially.” This is interesting. I’ve long known that the core tenets of financial success are simple: Be frugal; save money; and, invest your savings. But what if you’re in a relationship where a partner doesn’t share the same values of frugality, or what if your friends are always encouraging you to spend more? As Bloom asks, “What good is a minimalist mindset, after all, if you’re living with someone who eats out two or three meals a day? Eventually you too will succumb to Seamless.” There are really important aspects of finance and investing that we in the financial advisory business broadly understand to fall under the rubric of behavioral finance. I suppose this would be a good example of a behavioral finance topic. What fascinates me, however, is that it’s not just the individual’s behavioral patterns that have a bearing on one’s financial health, but also the behavioral patterns of those in one’s direct social circle. We often hear of the importance of emotional, sexual, and physical compatibility in relationships, but what about money compatibility? According to Bloom, money compatibility is paramount: This is what relationship advice-types mean when they say to make sure you’re with people who share your values. If you want to be an ant, don’t shack up with a grasshopper. Don’t even go out drinking...
How to Be a Successful Investor: Why It’s More Than Keeping Costs Low

How to Be a Successful Investor: Why It’s More Than Keeping Costs Low

  We regularly come across clients who follow an indexing investment strategy. Indexing is not necessarily a bad thing; we follow what one might call an enhanced indexing strategy for our own portfolios. Indexing is usually an investment strategy that is associated with keeping investment costs low and investing in an entire investment index. With that said, indexing—at least the way we often see it done by clients—is not enough to be a successful investor. While costs and holding a wide array of securities are important to a total investment strategy, there is more to being a successful investor than merely selecting indexes and avoiding expenses. Asset Allocation First and foremost, investors need to keep asset allocation in mind. A failure to properly allocate one’s portfolio is probably the most fundamental flaw we see investors make. We’ve all seen the pie charts that lay out sample asset allocation models (see sample, below). Contrary to what some might think, there’s actually a lot of academic research behind the idea of asset allocation. In fact, the fundamental ideas behind such pie charts resulted in a Nobel Prize being awarded to three economists in 1990, and their ideas still lay the academic bedrock for investment success. In our own practice, we spend a lot of time on our portfolios to ensure that they represent an optimal amount of return for a given level of risk. We also work hard to avoid unnecessary risk, and we pay a lot of attention to a portfolio’s Sharpe Ratio—a measure of risk-adjusted returns created by Nobel Laureate William F. Sharpe. Most portfolios are lacking important slices of the pie, or...