For you to get where I’m going with this, you must read on. It’s our choice. We can decide to grow some more or we can decide to let “Them” whip us into a frenzy. Look, the stories that are told today are almost always the bad side of the situation. So ask yourself: How many good stories have you had happen to you in your life up to now? How important were those stories to you? Have they meant anything to you? Did they cause you to change for the better or for the worse? If I make it to the age of 97 in July 2021, I want these two crises to help me to change for the better! So I’d like to share one of these short stories that put me on a new road in my career in 1984.
Here goes. One of my clients called me to his office to introduce me to two people and, as we stood, my client told these two people that, “Jim Hollon is a wizard with money. Take him to my conference room, pick his brain and do whatever he tells you.” For the rest of the story, one of those two people who became clients that day introduced me to a new client that handed me $70 million to invest for him. That was in early 2000, when the 2000 correction started. Today, he still trusts me with all of that money.
Will you believe that that client has not called me wringing his hands over these two crises? Why not? They changed for the better and they like the change. Well, this brings us to how we will deal with these two crises. First, let’s ask at once with such magnitude, “Do you want to watch the world change and leave you behind, or will you deal with this huge wake-up call?”
For starters, the world will never be the same anymore. It has to quickly adapt, change and move on. We will make do with what we have, so, as we watch today’s news, ask yourself, “Why are people in several states protesting the lockdowns?” Is it that they want to move on? Are they willing to deal with the crisis, adapt and move on? You bet. They will make things happen.
Now, let’s deal with the financial crisis that has been created. Do you want to throw it down and join the group of people who will always be the needy, or will you analyze why your 401k, 403b, or your personal portfolio is in shreds? Do we know the reason they are in shreds? For the years since 1990, I quote Professor Assar Lindbeck in his awards ceremony speech, December 10, 1990, to the recipients of the Nobel Prize for Economics 1990. His first paragraph is as follows: “Financial markets fulfill an important function in modern market economics. It is largely via such markets that savings in various sectors of a national economy are transferred to firms for investment in buildings and machines. Moreover, financial markets reflect the future prospects of firms.” Now, will this apply to all nations, not only the US economy, and as well to individuals? You bet so! That presentation is a masterpiece and a must read. Why? What could you learn that has happened since December 10, 1990? For starters, in 1991 a company started an asset allocation plan based on what was learned in the research that won three people the Nobel Prize. You should see the results of this firm’s return numbers for the last 28 years. But, now there are two companies with asset allocation plans using the Nobel Prize research. Guess what? One has a lot less cost than the other.
This writer has had his clients in these asset allocation plans since 1999. What a 20-year experience that has been for me. My clients have made a lot of money. So, who else has tried the research? A lot of broker dealers, wealth management businesses, some huge RIA advisory firms, etc., will tell you they follow it, but check for some results. Does this lead to the explanation for why some portfolios are in possible shreds today? What’s the reason for that? Maybe this leads me to the next paragraph.
Here goes. Could it simply be total (or as near as possible) diversification? Just look at the numbers quoted in the latest Dalbar Reports. I have.
This leads me to my latest research which prompted me to write this article and share. Quoting the editor’s column Broker Words from the April, 2020, issue: “My mother—from time to time— would sum up social, economic or political discord with the phrase, “May you live in interesting times.” What a mother! Do you think this will apply to all of us in the coming years? How could this not happen? The lockdown for me has given me some time to do some very interesting research. Really, it does not involve me at my age, but my analysis of what I have discovered has caused me to wonder how my life could have been different should I have had to deal with what others have had to do in these years since I made my changes in 1981. What is my new research? The next paragraph will deal with it.
Target date plans and asset allocation plans have just caused me to question some of the things I see. Is it my thinking I would wonder? Curiosity finally caused me to hunt some answers to those concerns. My research deals with analyzing five company’s target date retirement plans. You will find that some companies have more than one plan and the cost in each plan is different. Why so? How do you know, without doing your own research and knowing which one they sold you? Do you know that the difference in cost in each different plan most likely has a different return result? Do you wonder why, in most plans, that in the 20 years leading up to retirement the risk is drastically reduced? Could these be the years that many families have had their children achieve adulthood and so now they can put more money aside to help catch up on their own savings for retirement? It’s questions like these that caused me to spend many hours poring through Morningstar data pages of all of these plans to help me answer my own questions. Now, I do have answers. Has this article caused you to think about what you could learn that might help you get to your golden years in style? If you need help to find what caused your portfolio to shred, help is available.
For teasers, one of the studies shows one firm alluded to earlier in this article has a cost basis point of 1.14 percent less cost than the other. So, let’s compound a $1,000,000 retirement plan for the next 35 years that someone might live after retirement and see what the difference might be in their cost alone. If we compound $1,000,000 times the 1.14 percent difference in cost to maintain the account for the next 35 years—just the cost to keep the money there—would be approximately $450,000. Plus there would still be an extra loss of .89 basis points in return for those years.
Can you see why my lessons learned make me question why someone would not consider the asset allocation way to grow their assets?
Are you awake now? “May you live in interesting times.”