think your IRA is doing well?

Aside from being a highly celebrated former day-drinker, manfriend is also a highly proficient financial planner at an internationally recognized wealth management firm.   I don’t really know what this means, he typed it.  He’s been lurking around the blog and wanted to share some info.  Read it, he knows what he’s talking about!  (I have no idea what any of this means but I know he’s a genius)

74% of all investors (albeit the consumate day-trader or faithful 401k participant) are currently under the illusion that they are doing well and making respectable headway in whatever piece of retirement planning they may be involved in. The shocking statistic is that despite impressive performance from say, roughly the last 18 mos., 83% of investors in this country are still not back to even from the crash from 3 yrs. ago. In fact, the S&P 500 itself, which has enjoyed historically notable gains in the last year has barely returned to the levels it enjoyed before the financial crisis in the fall of 2008.

M. Murray a financial planner with Merrill Lynch Global Wealth Management  explains the current sentiment:

“…everyone is languishing in this state of seemingly perpetual complacency and the fact is that they or their financial advisor have done very little to exceed the natural returns of the market. They are either paying an annual underlying fee or upfront commision to basically keep pace with the market. They could pay virtually no fees to buy an index tracking ETF (exchange traded fund) and end up doing better than they have been”.

Murray  expands on this sentiment to explain that the average mutual fund right now holds over 600 individual positions; this is where the index tracking elements comes into play, mutual fund investors can do little to escape the direct correlations that  their current holdings will inherently have with the broader indices.

The solution? -A return to traditional blue chip equities which is considered in many circles to currently be the best kept secret in retail finance. Thompson explains,

“Brokers are rarely a proponent of holding equities these days because they afford little opportunity for them to gleen the subtle but significant fees they survive on. The truth is that there are some wonderful offerings right now with upside potential paying reliable dividends around 4% that only assume 40% of the overall markets volatility. That make makes them safer than most folks bond funds over the last, say five years!”

Thompson sites Exxon-Mobil, Kimberly Clark, and Unilever as specific examples, just to name a few. In terms of putting high-quality stocks together to form the equity portion of your portfolio it’s interesting to note that Wharton recently performed a study revealing that whereas volatility diminishes significantly as one increases their individual positions from 1 to 26, there is little reduction in volatiltiy as one adds equity poitions between 26 and 1000. So basically 30-ish positions is the magic number because as everyone knows the fewer equity positions you hold the greater the upside-capture potential.

Need help? The most legitimate firms on the street have abandoned mutual funds since the crash of ’08 and are embracing safe, high quality blue chips (many of which are deriving revenue from international sources) for the equity component of their financial plans. Merrill Lynch for example touts a strategy that has tripled the returns of the market since it’s 2004 inception. 5 yr. returns come in at 97%, 3yr. 52% and when the S&P was down 37% in 2008 this high-quality stock strategy was down only 9.2%. This coupled with arguably the lowest fee structure in the industry makes this traditional approach very appealing.

Next month: The dangers of the fixed income/bond fund you currently hold in this rising interest rate environment! You may be in trouble! 



  1. This is really interesting! Thanks for putting this up. I am going to look into it further. What does Manfriend suggest we do if we are already contributing to mutual funds? Diversify?

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