All Funding Options

Asset Allocation

May 5, 2015/in All Funding Options/by admin

Is There A Secret To Higher Returns using Asset Allocation?

Most people think that making money in the stock market is about buying low and selling high all the time at the right time. That is called market timing. These people might also think that they can predict the bottom of the market and the top of the market. Numerous studies and research has been published that makes the valid argument that one’s portfolio performance is primarily a factor of one’s asset allocation. Market timing and security selection only make up a minor part of portfolio returns.

Asset Allocation

Over 90% of your returns are because of your asset allocation, 5% is from security selection, and only about 2% from market timing.

Asset allocation consists of different asset classes such as… large cap equities, mid cap equities, corporate bonds, government bonds, international equities, real estate, etc. Over 90% of your returns are going to be based on how you allocate to these different options.

Asset Allocation There are usually hundreds of options to choose from when it comes to security selection. An example of security selection inside of large cap equities would be your choice of XYZ Mutual Fund or ABC exchange traded fund. Rest easy because your selection between the two will only account for about 5% of your overall returns.

Lastly, trying to figure out the bottom or the top of the market is impossible and hindsight is always 20-20. Fortunately it only accounts for about 2% of our portfolio returns. Market timing is where most people get into trouble. The trouble comes about because people are so emotionally tied with their money that they make careless investing errors, such as selling off all investments after your portfolio decreases by 30% and then waiting to get back in the market after it has already made a full recovery. Does that sound like you or someone you know? If it sounds like you or someone you know, seek competent advice so you don’t fall prey anymore to the behavior gap.

The behavior gap is the difference between the rate of return that a well balance portfolio earns and the rate of return that your average investor earns by moving their money around in an emotional response to the news they get about the markets. This behavior gap ranges between 4-5% per year!

Asset Allocation

Do you want to earn a higher rate of return than your friends?

Asset Allocation - Houston Certified Financial Adviser - Qualifications

Then bridge that gap, work with a qualified financial advisor.

Financial Advisor Fees

April 29, 2015/in All Funding Options, Houston Certified Financial Adviser/by admin

Financial Advisor Fees

Commission Based Advisors VS. Fee Based Advisors

What are the main differences between financial advisors? What type of advisor is right for my family? Is my current advisor charging me too much for his services? Is my current advisor charging me a commission or is he/she charging me a fee? Or both?

In the good old days just about every advisor was a commission based advisor. However, now there are different business models that financial advisors have adopted. Let’s look at some of the differences.

A commission based advisor sells products such as investments or insurance and he/she makes a commission from the sale. Commission based advisors receive their compensation from the insurance or investment company.

Ways to determine if you have a commission based advisor?

Advisor talks about sales charges
Advisor only sells one mutual fund family
Advisor is a product pusher – for instance, advisor is very adamant on you purchasing one particular product such as an annuity or life insurance
Who does your advisor work for? If your advisor works for a brand name insurance company then he/she is probably compensated via commissions.

As a comparison, a fee based advisor collects fees for managing your investments or giving you financial advice.

Ways to determine if you have a fee based advisor?

The advisor charges an hourly rate for service
The advisor charges you X% for managing your entire investment portfolio
The advisor regularly meets with you

The easiest way to tell the two apart is to ask your advisor, “WHO PAYS YOU?” If the answer is “the insurance or investment company” then you have a commission based advisor. If the answer is “the client does” then you are working with a fee based advisor.

WHAT TYPE OF ADVISOR IS BEST?

You decide…

Fee based advisors get compensated the same whether they recommend that you buy XYZ Mutual Fund or ABC Mutual fund. This typically leads fee based advisors to work in the client’s best interest. One very cool thing to note is that most commission based advisors work based on the Suitability Standard which says that they have to recommend to the client a product that is suitable.

*Most products available are suitable for you (ie: you need life insurance, you need a retirement savings vehicle so recommending a product that fills those needs would be suitable) though it may not be in your best interest to buy that particular product. Most fee based advisors are held to the Fiduciary Standard which says they have to act in the client’s best interest at all times.

Lastly, commission based advisors tend to be more transactional. They make the majority of their compensation on the initial sale with little incentive to see you after that except to cross-sell you another product. Fee based advisors, including the majority of Certified Financial Planners, are relationship driven. A fee based advisor’s compensation is spread out throughout the course of the advisor/client relationship; they want to keep you informed and happy. And they want to work with you for many years.

Financial-Advisor-Fees - Commission Based Advisors VS. Fee Based Advisors