This Time it Is Different

1 minute read

The financial markets and investing are complicated. In order to help investors navigate the complexities the industry developed mutual funds, ETFs, model portfolios, age based portfolios, Index funds, specialty funds, alternative investments, tax deferred products and the list goes on and on. Wall street is in the product manufacturing business.

To help advisors and their clients the industry hangs it hat on Modern Portfolio Theory (MPT) which was developed in the late 50’s. The goal of MPT is to help organize portfolios with a diversified assortment of different asset class investments to theoretically reduce risk and enhance returns over time.

Due to the fact that MPT has two principal assumptions.

1) The markets are efficient

2) investors make decisions that are in their best interest.

It becomes clear that the theory is flawed because markets are not always efficient, and experience indicates that many investors make decisions that are not in their best interest (buy high and sell low).

Additionally, a core asset class that supported the theory was fixed income which returned a 4-6% relatively risk-free return for over 30 years until 2008. When interest rates dropped to zero fixed income’s 40-year bull market was over.

An understanding of the history of the markets and the structures around the industry is critical to developing a financial plan that best serves individual investors. One size does not fit all but neither does the decades long strategies that are still mostly in use by many advisors and their clients.

Second opinions matter with our health and personal financial wealth. We specialize in helping clients understand the new dynamics of the markets and creating financial plans and Wealth Management strategies that work for their family. We can answer the question ; “Will I have enough retirement income to live a worry free life after retirement?” If you do not know that answer maybe we can help you answer that question.  

Hal Tearse CPWA?