It’s a fact: people have a hard time holding on to their wealth.
In a Wall Street Journal article titled, “Lost Inheritance,” it was cited that 70% of wealthy families lose their wealth by the second generation, and 90% lose their wealth by the third generation.
In another documentary by ESPN titled, “Broke,” some other financially troubling statistics are shared about the multi-millionaire demographic of sports professionals: 1) Within two years of retirement, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce, and 2) Within five years of retirement, 60% of former NBA players are broke.
Generally, money that comes easily and in large quantities isn’t protected with as much care and diligence as money that was slowly earned and cultivated. At the heart of it, the newly wealthy need to be able to say “No” more often if they want to keep their wealth, and if they want to build it, they need someone trained and skilled in the art of money management, someone who can look at the costs and benefits of a financial decision and be a filter for prudent and imprudent decisions. If only there was someone people could turn to who could give advice on how to grow and protect their wealth…
Speaking of wealth, many who built it on their own, quite admirably, try to manage and grow their investments themselves. The problem is, when it comes to money, emotions often get involved, and emotions tend to interfere with good decision-making skills. And when that’s combined with an endless stream of media, whether it’s from cable networks, newspapers, online videos, or phones, they all tend to amplify the emotional content that can further lead to unwise decisions that people later regret. It happens all the time, and there are plenty of studies out there that show investors of all stripes have had difficulty when it came to managing their own money (source):
- In 2014, the average equity mutual fund investor underperformed the S&P 500 by a wide margin of 8.19%. The broader market return was more than double the average equity mutual fund investor’s return – 13.69% vs. 5.50%.
- As of 2014, the 20-year annualized S&P 500 return was 9.85% while the 20-year annualized return for the average equity mutual fund investor was only 5.19%, a gap of 4.66%.
- In 2014, the average fixed-income mutual fund investor underperformed the Barclays PLC Aggregate Bond Index by a margin of 4.81%. The broader bond market returned over five times that of the average fixed income mutual fund investor – 5.97% vs. 1.16%.
- As of 2014, the 20-year annualized Barclays Aggregate Bond Index return was 6.20% while the 20-year annualized return for the average fixed income mutual fund investor was only 0.80%, a gap of 5.40%.
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- They want professional management of their investments and want it done at a low cost.
- They know little about investing and don’t have the time to learn and monitor their investments.
- They want to avoid a repeat of 2008 and want to minimize the risk of setting their retirement back.
- They want an advisor who can steer them away from potentially bad investment decisions.
- They want access to a team of specialists who could answer their questions about estate planning, tax planning, and investments.
- They want an advisor who is held to the Fiduciary Standard and will look out for their best interests.
- They want someone experienced and who earned the CFA designation.
(Posted July 22, 2015)
• Experienced: Over 15 years of experience, spanning three bull markets and two bear markets. Managed $100 million at Wells Fargo’s Wealth Management division and co-managed a $50 million hedge fund.
• No Conflicts Of Interest: You get unbiased advice because we don’t sell commissioned products. Fee is 1% of AUM (learn more).
• Your Interests Come First: We are held to the Fiduciary Standard, not the Suitability Standard.
• Avoid High Expenses: Index funds have up to 90% lower fees than actively-managed mutual funds and outperform them over the long term. Don’t own them? You may be paying too much.
• Held to the CFA Code of Ethics: Our firm believes in operating with integrity and abiding by the highest ethical and professional standards in the industry.
Rainier Trinidad, CFA
San Diego and Coronado’s Fiduciary Financial Advisor
Parabolic Asset Management
206 J Avenue
Coronado, CA 92118
rainier@parabolic.us
(619) 888-4070
Investment Risk Disclaimers: (i) Investments involve risk and are not guaranteed to appreciate, and (ii) Past performance is no guarantee of future results.
