Three Financial Lies that can Reset or Ruin your Retirement.

A version of this writing appears in MarketWatch’s Retirement Weekly.

The financial sector still gets a bad rap.

Seven years after the financial crisis.

Justifiably so.

banker hand cuffs

In his 2013 book “Finance & The Good Society,” economist Robert Shiller describes a utopia where finance can benefit today’s society. He identifies how financial innovations of the past, like insurance and pensions for example, improved the lives of the masses. The lauded professor at Yale shares his suggestions about the future of finance and how the industry can reform and prosper by serving the common good.

Can you imagine?

Yea, me neither.

I’m sorry to be cynical but you have a better chance of finding a unicorn in your driveway and taking it for a trot over a magical rainbow.


The halcyon days for finance are over.

Today, in the shadow of the Great Recession, forgotten by Wall Street and insidiously faded into the fog of averages, the financial industry is more than ever a marketing machine designed to convince the masses to purchase products they don’t need and to stick with investments that offer more risk for less reward.

The pundits seek to convince, not enlighten. They warn (scare) that if we don’t invest in the manner they suggest, we are in great danger of outliving our money, the boogey-man of inflation will inevitably arise from under our cash and devour our nest egg while we sleep.

From behind their manipulated statistics, these ‘experts’ communicate in serious tones a cozy belief that your household balance sheet has recovered from the Great Recession.

You know better.

Now, more than any other period since 2008, retirees and those near retirement, are vulnerable to the lies that appear pervasively in financial media.

Survival depends on you knowing the difference between white lies that don’t matter and dark fabrications that have the potential to derail your retirement planning.

There are three financial lies you must ignore to preserve your wealth right now.

 Lie #1 – Cash is trash.

Many financial talking heads consider holding cash dangerous to their livelihoods. Why maintain cash when money could be allocated to expensive managed accounts or locked up in investment vehicles where ongoing fees can be charged.

These cunning souls know if they can convince you to remain invested at all times, especially when markets are sliding, then the financial firms they represent can continue to make a predictable revenue stream to appease shareholders.

The Real Value of Cash

The experts hope you fall victim to the behavioral pitfall labeled anchoring.  When emotionally connected to a loss, you’ll wait for that losses to recover to your original purchase price before taking action, even if the current value reflects a change in fundamentals. The opportunity cost of sticking with losing investments and waiting for recovery can be detrimental to your financial health.

Gregory L. Morris, author of “Investing With The Trend,” showcases how it takes on average, five years to recover from a 20% loss in stock prices (as represented by the S&P 500). Five years can add up to a healthy stream of fees if you ‘stick with the program.’ Don’t you think?

So, let me ask: How many five-year periods can you survive in the span of a human life, to break even?

Never underestimate the value of cash as a component of your long-term asset allocation.

Mainstream media will never embrace the concept of holding cash. They’ll tout long-term returns as the reason to remain invested in both good times and bad. Most individuals lack the “time” necessary to truly capture 30 to 60-year stock return averages.

For individuals trying to save for retirement, there are several important considerations with respect to cash as an asset class:

  1. Cash is an effective hedge against market loss. 
  2. Cash provides an opportunity to take advantage of market declines.
  3. Cash provides stability during times of uncertainty (reduces emotional mistakes)

It doesn’t mean you should be 100% in cash. Holding an increased allocation to cash during periods of uncertainty provides both stability and future opportunity.

When inflation is low and stock valuations as measured by Robert Shiller’s CAPE ratio is at 23x earnings which has historically represented the peak of secular bull markets, the significance of holding cash is revealed.

As the chart above outlines, if you purchase stocks when the CAPE is 6x and switch to cash at 23x, the adjusted return of $100 increases dramatically over time. Of course, cash will lose out during periods of above average inflation like in the 1970s, however holding and investing cash during periods of low valuations produced substantial outperformance compared to waiting for lost capital to recover.

At this juncture, increasing portfolio cash to 20-30% to weather the storm will not kill your returns. As a matter of fact, your portfolio will survive. You won’t need to alter your retirement plans.

Lie #2: Stocks average 10% a year.

SP total returns holding period

This lie may be the most lethal. Recently, I heard a pundit on a popular financial channel flippantly throw out a statement to an afternoon television audience. He said not to worry: Stocks average 10% a year if you hold tight.

Currently on their Twitter feed, a popular roboadviser called WealthFront which is an electronic portfolio asset allocator, regularly shares a chart alone and within blog posts. It shows how the growth of a dollar invested in the stock market appreciates to roughly $34,000 if invested from 1871 through 2015.


The president of the United States was Ulysses S. Grant.

Orville Wright of the Wright Brothers was born in August of that year.

Is 10% completely false. No.

Misleading, yes.

Is it realistic to base return assumptions for retirement planning on numbers many pundits share in the national media?


From 1871 to present the total nominal return was 8.08% versus just 6.86% on a “real” adjusted for inflation basis. While the percentages may not seem like much, over such a long period the ending value of the original $1000 investment was lower by an astounding $270 million dollars.

Since 1900, stock market appreciation plus dividends has provided investors with an average return of roughly 10% per year. Historically, 4%, or 40% of the total return, came from dividends. The remaining return (60%), came from capital appreciation that averaged 6%.

There are several fallacies with the notion that the markets long-term compound at 10% annually.

The market does not return 10% every year. There are many years where market returns have been sharply higher, significantly lower or flat lined.

The analysis does not include the real world effects of inflation, taxes, fees, and other expenses that subtract from total returns.

SHOCKER – You don’t have 144 years to invest. Using ‘perpetual’ holdings periods for something as finite as a human life is plain irresponsible.

Lie #2 will allow false hope to permeate your retirement planning outcomes. Incorporating unrealistic return projections increases the likelihood of shortfall surprises later in retirement. Perhaps at an age where returning to work is highly unfeasible.

Then what?

This whopper will indeed sneak up on you. If you’re three years from retirement or in retirement, now’s the time to re-visit the return estimates that were used in your financial planning analysis.

 Lie #3: Annuities = bad.

For years, several well-known money managers and syndicated financial superstars, have overwhelmed print, social, television and weekend radio media outlets with negative and false information about annuities.

It’s like saying repeatedly – a paycheck for life should always be avoided.

The wide universe of annuities are given an unfair rap as financial professionals with an agenda play on investor misunderstanding. With irresponsible blanket statements like ‘annuities are high commission and good for brokers, not for you,’ this group exploits the masses’ ignorance for their own gain.

They play on a human behavioral pitfall called heuristics. Heuristics are mental shortcuts we employ to digest the onslaught of information we’re slammed with daily. As busy individuals with access to limited information, we create rules of thumb to quickly come to conclusions and make decisions.

Annuities, specifically variable annuities, a blend of insurance and mutual funds, have been the subject of bad press and regulatory scrutiny for decades. Justifiably so. With exorbitant fees and generous commission structures these products were sold inappropriately in many documented cases.

Today, novice recipients of the adverse messages recall how they were told, read or heard somewhere that annuities must be avoided. So it must be true.

What an injustice to investors who would benefit from these products.

To mitigate the risk of outliving a nest egg or as a replacement for conservative investments like bonds, deferred-income and immediate annuities can be used effectively to supplement Social Security and portfolios that cannot carry the retirement income responsibilities alone. These annuity types are affordable and can play an important role in a holistic financial plan.

To understand the truth about annuities avoid the ‘real story’ touted in media and advertising. There’s something ‘Fisher’ about this bullshit. As in Ken Fisher.

Instead, check out your resident state’s department of insurance website for objective information. Meet with a Certified Financial Planner who is compensated on an hourly fee basis to understand annuity types and to determine if a lifetime income option, in addition to Social Security, is suitable for your personal situation.

Unfortunately, dystopia thrives within the financial industry.

Now more than ever.

As we appear to be entering the storm of a bear market in stocks.

To survive you must dig deeper, stay vigilant, possess a healthy dose of skepticism.

Because pundits will not disappear as quickly as your wealth can.

And finance and the good society shall remain just a fairy tale.

All charts are the courtesy of Clarity’s Financial Chief Investment Strategist Lance Roberts.

4 Lessons From Dead Muses – Keep Your Cool, Keep Your Money.

I find stock market history fascinating. It’s a sickness. I know many in the financial services industry suffer from the same affliction so this isn’t a shocker.

wall street bull

I shake my head as we seek to match up current market behavior to years past. It’s 1937. No, it’s 1987. Frankly, current markets are comprised of multiple personalities of decades of market history so I find the exercise beneficial.

The study allows me to be less of a deer in the headlines through market cycles and provide clear, concise guidance to clients. It allows me to say confidently – “This time is NOT that different.” Sure, it feels different to you because you haven’t lived through a similar cycle – Investors before you have gone through this. Something like it.

Or worse.

We always seek to find patterns. In everything. It makes us feel smarter. Finding (or creating) patterns creates an illusion of control. I guess when humans were hunting for food, uncovering patterns was the way to find a food source (and avoid becoming a hearty meal). With investing, becoming too overconfident in a perceived trend can lose you money.

What stands out throughout my detective work, is the predictability of our emotional behavior when facing investment decisions. The same mistakes are made, repeatedly.

Did you know that most retail investors lost money during the greatest stock bull market in history? Seriously. How? Oh, by getting in to the markets late in the cycle – only to suffer great losses from the tech bubble in 2000.

sentiment cycle

Investors commit capital at Euphoria, Thrill, Excitement, even though they claim to seek “value.” Let’s face it – we are addicts to chasing performance. There’s enough household financial carnage to prove the fact. You can’t time market entry/exit perfectly, however many investors bailed out big time at the market bottom in March 2009 – specifically at the Point of Maximum Financial Opportunity.

Smarter investors had the common sense to avoid an “all or none” decision. In other words, they didn’t sell out of stocks completely, they just buffered their portfolios by raising more cash to weather the storm yet they remained invested and took advantage of the market’s cyclical bull now going on five years.

 As I prepare my second book on lessons from Wall Street sages long dead, I came across a first edition of a classic from 1896 titled “Ten Years In Wall Street” by William Worthington Fowler. 

A section “How To Make Money In Stocks” outlines common mistakes of the “Wall Street Operator.” The lessons are worth repeating and stand the test of time. Not surprising we are making the same mistakes over 100 years later! I’ll list them straight from the mouth of the dead along with ways to avoid these mistakes.

1). Time fights on the side of the man who buys stock at a fair price and pays for it, inasmuch as the material interests of our country are steadily advancing. Owning companies at attractive or cheap price levels based on fundamentals and paying cash, not  margin, places greater odds of success on your side. Time. Let’s just say for those who can hold a stock position longer than a week.

Currently, sentiment wins out over valuation. No matter what I examine – a Gordon growth model, CAPE, Q-Ratio: Stocks aren’t cheap.

In the long run, valuations using historical earnings determine returns. However it can take years for these long-term valuation metrics to adjust stock prices accordingly. Be selective at this juncture. Do your homework. There aren’t many bargains out there right now.

2). The man who can keep his position in spite of the temporary condition of prices, is the man who, in the end, wins. I’ll add – If you pay a fundamentally sound price. So, if I paid a good price for the risk taken, the short-term gyration of that price is not going to shake me out of a position. I may even use a dip to purchase additional shares.

For example, I purchased additional shares of Boeing (BA) for several allocations in mid-July when sentiment turned negative which turned out to be good strategy.

3). The frequency of operations is another fruitful cause of losses. Frequent trading for most, is an unsuccessful venture. Brad M. Barber from the University of California, Davis and Terry Odean finance professor out of Berkeley conducted a study of active traders back in 2000 which still proves timeless.

Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that traded most earned an annual return of 11.4 percent, while the market returned 17.9 percent. The average household earned an annual return of 16.4 percent, tilted its common stock investment toward high-beta, small, value stocks, and turned over 75 percent of its portfolio annually. Overconfidence can explain high trading levels and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth.

Trading is Hazardous to Your Wealth.

If you’re compelled to trade actively, isolate a small portion of your cash in a separate account designated solely for trading. I have nothing against trading especially if you can use it to gain knowledge about stocks.

You need to do your homework and study technical analysis. One of the best books to read is “Technical Analysis for Dummies,” available on Amazon.

3). The practice of selling stocks short will be found, in the end, to be invariably a losing business. Decent short sellers make headlines. Professionals can hold out longer when they’re on the wrong side of the trade. Most of the population should stay away from this hot mess. You can’t win. I wouldn’t bother with it. Want to protect your portfolio? Increase cash.

4). Cut short your losses and let your profits run. Most investors do the opposite. They’ll hold on to losers “hoping” they’ll come back and sell winners too soon. Keep in mind the dog doesn’t always return home. It’s better to face the fact and move on.

Since we hate losses twice as much as we appreciate gains, I understand the burning desire to get even. It’s a losing strategy. Before you purchase a stock, have a sell discipline in place.

I use negative changes to cash flows, operating margins, a breakdown in the charts to alert me to a possible sell candidate.

Dead sages are great muses.

Old lessons remain good lessons.

They’ve made the mistakes first.

Learn from them.

The Cleansing Fire.

What moves you forward? What compels you to change? Walk away? Stay? How much will you deal with before you say no more? What pushes you over the edge?

An awakening perhaps. And I never said it would feel great. Awakenings appear to wreak havoc on my immune system. Currently, I’m fighting the flu; as I grow stronger  my horrible chills and muscle aches loosen their grip.

I will be cleansed and better for it. A person in sync with restful mind and spirit.

Never to be fooled again.

Anger as prevention. Anger as my safety belt. Lack of anger allowed me to be fooled, less skeptical, more open. Stupid.

I’m using anger as white-hot catalyst for change. And it’s good. Anger is healthy; it should be embraced if you can control it. Despite what Dr. Phil or Drew or Oz say – anger if channeled properly, can be your lifesaver.

But can you control it? Sort of like Drew Barrymore in Firestarter. I’ll allow the heat of anger to do my bidding. I’ll maintain the upper hand.


The torch of anger, colored in passion I’ll point toward my goals. I’ll allow it to turn the fear to liquid, then steam, then gone.

The torch of anger, colored in disdain (a sickish yellow), will flame on those people, those companies, those entities which forged the anger-fire path. I’ll take them to ash, sweep it aside and move on.

The torch of anger, colored in love (a blue flame) will be directed toward protecting, guiding those in my inner circle, I’ll cast a warmer heat of love and gratitude. The bad anger inside me will never harm them.

Maybe then the anger will cool.

But then I’m afraid I’ll feel nothing.

And something is better than nothing.

If my blood goes cold, so shall I.

Random Thoughts:

1). It’s acceptable to feel anger toward Wall Street, the Federal Reserve & the bankers. They messed up. They almost caused the entire foundation of the system (whatever that is), to crumble. Today, four years after the financial crisis, they’re still worth your anger as many have not been prosecuted for their crimes (ratings agencies who rated junk AAA appear to have made it through unscathed), the Fed is keeping rates at zero so you earn nothing on savings. The stock market is run by programmed traders who can suck up the bandwidth and wreak havoc. Remember flash crash? It certainly can, and will, happen again.

2). It’s acceptable to feel anger toward those who fool you (even though it’s mostly your fault). Use it as a cleansing fire. Use it as a way to burn their memories out of your head. Don’t look back.

◕ ‿ ◕ ~ LM

3). It’s acceptable to direct anger inward. If it pushes you to break a chain, get out of a rut, protect yourself against evil, sever a tie, head toward freedom, to greatness, to peace. Then by all means use it. Use it generously.

So for many reasons anger will walk with me and come when summoned.

I’ve tamed this beast.

Bring on the next.

I’ve never been so ready to fight, succumb, surrender. Out of strength. Not weakness.

How about you?

Captain America to The Hulk in the movie The Avengers:

“I think it would be a good time for you to get angry.”

The Hulk (Bruce Banner): “I’m always angry, that’s my secret.”

And what an empowering secret it is.