I hope everyone made it through the storm safely. Unfortunately, I'm sure some people didn't. My house was right in the middle of where the flooding was worst. My neighborhood was completely cut off, but our house didn't suffer any major damage. However, just a couple of miles away, there was significant destruction. I feel terrible for those people, especially since many of them didn't have flood insurance.
Senay will be heading off to college in a little over a week. I'm feeling a mix of emotions – sad, but also very excited for her. I know she's going to have a lot of adventures, and I can't wait to hear all about them. Truth is, I hardly ever see her anyway. She's always hanging out at the beach, playing pickleball, attending youth groups, or just chilling with her friends.
The boys will be starting school at The Classical Academy on the 12th. We're currently in the process of purchasing new uniforms that fit them properly. Chris seems to enjoy school, Alex finds it a bit too easy and boring, and Jesse is quite social, perhaps a little bit too social.
Below, you can see Desmond and Penny enjoying a new orchid bloom.
Joe was an engineer and figured himself to be a pretty smart guy. He worked at an electrical plant in charge of quality control. He enjoyed his work, but as he reached his 50s, he began to pay more attention to the stock market. Joe knew that as soon as he retired, he would be relying on these instruments to fund the rest of his life.
He noticed an article in the Globe and Mail titled "Investment Returns Plunge: Is Your Portfolio at Risk?" The article, written by an equity strategist at JPMorgan, apparently had some critical information.
The article began with: "We caution investors to expect a lower return relative to prior years."
Let me interrupt my story for just a second. Yes, this is an actual article. And no, you shouldn’t read it. For years, I've been seeing articles where experts tell people to expect lower returns going forward. One, they've been wrong. Two, how can they possibly announce that with confidence? Do you mean that a trend that has persisted for 200 years is suddenly going to stop?
Okay, back to the story.
Joe continued reading the article. "Our base case assumes some alleviation but in a manner that sustains economic activity into 2024. Earnings growth provides the main tailwind to equities. Our 5,100 S&P 500 target implies a 23.1x P/E on the top-down earnings projection, which approximates the current level. Gradual supply-chain relief should favor the more economically sensitive value style."
Hmmm, thought Joe. This is pretty sophisticated. I need to follow these articles. It’s important that I understand this stuff.
Joe started to follow JPMorgan’s analysts. "These guys are smart. I don't understand a word of this. I guess I need to study more", thought Joe.
There was a JPMorgan branch downtown near where Joe worked. He decided to stop by and see what they had to say.
They sat him down in an advisor’s office, and the well-dressed man with a good haircut began talking about JPMorgan and its research capabilities.
The advisor said, "Our interest rate strategists forecast a continued rise in real interest rates that will lift the nominal 10-year Treasury yield even higher by year-end 2024. However, we expect the ERP [equity risk premium] to compress modestly from current levels as the pandemic recovery continues and economic policy uncertainty surrounding potential reconciliation legislation passes."
Joe’s eyes lit up. This is great! They can help me. It is so hard to understand, he thought. I’m sure these guys work with multi-millionaires. I’m so glad they are willing to work with me.
So Joe took his investments and signed them over to JPMorgan.
End of Story.
I have a secret—a secret that took me years to figure out. It is so well-hidden that few people ever understand it.
These investment firms intentionally make this complicated.
Joe’s experience is precisely what they were aiming for. Because, at the end of the day, JPMorgan started collecting some significant fees from his account. (It’s well worth it, thought Joe. As long as they can make me more money.)
What these guys are saying literally means nothing. It’s gobbledygook. I'm pretty sure they don't even know what it means.
What if they said, "A diversified portfolio of stocks and bonds will serve you well over time. You need to stick to a plan."?
While it’s an accurate statement, how is JPMorgan going to attract new clients? They have to sound fancy. They have to make it complicated.
I utilize understandable, long-term strategies with my clients. A diversified and balanced portfolio of stocks and bonds works, period.
I don’t think these analysts and mutual fund managers have evil motives. I’m sure that they genuinely think they are helping people. I’m sure they believe that people who invest money in their fancy, high-fee mutual funds will make more money. But these people don’t make more money. There is ample academic evidence to prove this point.
Financial institutions know they can make money from your portfolio. It creates this massive world of financial advice that is contradictory and overly complex.
CNBC figured out that people trying to understand their investments more will watch its channel all day. CNBC couldn’t care less if its "advice" helps you. They will have viewers if they parade enough guys in suits in front of the camera who spout fancy schmancy rhetoric.
That’s right. There is no reason for CNBC and Bloomberg. I certainly don't watch them
There is no reason for Money magazine to exist. They are just taking advantage of the same situation. If people are confused, they will buy a magazine with a cover that says "Top 10 Mutual Funds for Retirement Income." (I swear each issue has the same article with a different title.)
Money magazine and mutual fund companies make money. You do not. You get more confused and make more emotional decisions.
From now on, if you hear any artificially complicated language like this, you can laugh and say, "I’m on to you."
Be Blessed,
Dave
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