Things Every Investor Should Know Before Investing

By
Jeff Motske, CFP®
March 22, 2018
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Due to the nature of my profession, I am solicited for financial advice in all aspects of my life from all types of people. Similar to a doctor who gets asked about symptoms at birthday parties, people often ask for my opinion or input on financial matters, particularly investing. As most doctors will tell you, it’s hard to give advice when you don’t know the particulars.

However, if someone is really eager or serious for guidance on investing, I will suggest that they do their homework. The information they’re looking for isn’t found on the stock exchange or the Finance section of a newspaper.  Most times, the information you need to start with is found a lot closer than you would expect.

The first thing to take into account are your financial goals. As I’ve mentioned before, being aware of your financial “why” can highlight good habits, change inefficient patterns, refocus priorities and ultimately develop a plan to help you achieve your financial freedom. Therefore, you need to be specific. Do you want to retire in 30 years? Perhaps you want to buy a house in five years or start a business in two. In these scenarios, your goals act as targets, and with the help of a good financial planner, you can develop an action plan with measurable steps to incrementally achieve them.

Another thing to be aware of is your risk tolerance. This isn’t a measure of whether you like to bungee cord jump or skydive. Rather, this is an indication of how much volatility in your investments you are comfortable with. This is something that needs to be determined for the individual as well as the household. Risk tolerance is a very personal indicator, and there are times that couples don’t see eye to eye. When new clients come in, we have them complete a risk tolerance questionnaire to not only to see how individuals may or may not be working together but to also figure out the most effective plan to achieve their goals. The last thing we want you to do is tackle investments that won’t achieve your goals in a timely.

As you can tell, these items are all very personal. What you’re saving for, how long and hard you’re willing to work towards your goals, and what your income and lifestyle needs are, both current and future, will all be factors in planning how to invest. I bring this up because so many clients come in referring to the advice their friends, neighbors or coworker gave them. As I’ve mentioned before, I’m all for educating one’s self. Let’s discuss your options. But please don’t think that investing in what your child’s Little League coach is investing in is automatically the best option for you.

Let me put it another way. I’ve been athletic all of my life, playing high school and college baseball and an avid golfer. Knowing that, I’m not going to start a new exercise regime with a leisurely walk around the block or bench pressing 400 pounds. It’s not that I don’t believe these fitness goals are valid – they’re just not valid for me. The same idea can be applied to your finances. If any of the factors I’ve mentioned are not aligned, you may discover that the grass isn’t always greener on the other side, and that you need to be wary of the barb wire in between.

I know it sounds odd, that investing should be more complicated. But the truth is knowing your financial self is much important than knowing the stock market when you first start investing.

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By Trilogy Financial
July 28, 2023

Password managers are a key resource in maintaining your security. They allow you to keep track of your passwords and encrypt them before they leave your device. Some password vaults can also generate and change passwords for you in one click, as well as securely store other types of data like credit card information. Password managers may remind you to change passwords regularly, evaluate their strength, or scan the dark web to check if any of your logins appeared online. A password manager also makes sharing your data with family and friends safer.

When using a password manager, you’ll only need to remember one master password. Combine it with multi-factor authentication (MFA)and biometric authentication to increase your security.

While they can increase your security exponentially, even reliable password managers can’t keep you 100% safe online. Following are a list of possible risks and ways to mitigate them:

  1. Not all devices are secure enough. Password managers can be hacked if your device is infected with malware. Users should invest in a trustworthy antivirus that will secure all devices first and reduce risks.
  2. Not using biometric authentication. NordPass, RoboForm, and Keeper all offer a biometric authentication option, such as requiring a fingerprint or face scan which offers another level of protection.
  3. Utilizing a Bad password manager. Not all password managers are created equal. Make sure the software you use does not lack the necessary security features to effectively protect your credentials at all times.
  4. Forgetting your master password. Select a password manager that has a reset feature or store your master password in some physically secure place. Be sure to enable account recovery options.
  5. Know what data is in your password manager. Be sure to know which accounts are stored in your password manager so in the case of a breach, you know which accounts to take action on, thus leaving the attacker with less time to cause more harm.

In a digital landscape where cyber threats are on the rise, using a password manager is a proactive measure that can overall protect your personal information and maintain robust online security. It simplifies the process of managing passwords, strengthens your defenses against unauthorized access, and provides peace of mind in an increasingly interconnected world. If you don't already, consider integrating a reputable password manager into your digital routine to enjoy the benefits of streamlined and fortified password security.

 

By
Steve Hartel, MBA, AIF®
March 19, 2018

In 2001, the Securities and Exchange Commission (SEC) adopted a new rule to supposedly prohibit mutual fund names that may mislead investors about a fund’s investments and risks. The rule required a fund with a name suggesting that the fund focuses on a particular type of investment (e.g., “stocks” or “bonds”) to invest at least 80% of its assets accordingly. Previously, funds were subject to a 65% investment requirement.

This rule resulted in many funds changing their names, changing their investments, or both. In general, things are better now than they were before the 2001 rule. However, today’s mutual fund names and categories can still be confusing and/or misleading.

Blurred Boundaries

For example, let’s look at names that connote where the fund buys its investments. These names usually contain words like “Domestic,” “International,” “Global,” and “World.” Imagine a Domestic Large-Cap fund, whose name suggests it buys large, U.S. companies. But if the fund owns mostly companies in the S&P 500 Index, those companies might be generating up to 50% of their revenues outside of the U.S. The large multinational firm might be based in the U.S. but do business in countries all around the world. The opposite may be true of funds with “Global” or “World” in their name; those companies based in foreign countries may be deriving some or all of their revenue from dealings with the U.S.

Undefined Jargon

Another confusing category of funds is called “smart beta”. Investopedia defines Beta this way1:

“Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which calculates the expected return of an asset based on its beta and expected market returns.”

Got that? Let’s assume you totally understand beta and CAPM. So, what is “smart” beta? If beta is a measure of volatility, then a reasonable person might assume that “smart beta” is a more intelligent measure of volatility, right? Let’s see if the definition of smart beta contains the word “volatility.”

Investopedia defines smart beta this way2:

The goal of smart beta is to obtain alpha, lower risk or increase diversification at a cost lower than traditional active management and marginally higher than straight index investing. It seeks the best construction of an optimally diversified portfolio. In effect, smart beta is a combination of efficient-market hypothesis and value investing. Smart beta defines a set of investment strategies that emphasize the use of alternative index construction rules to traditional market capitalization-based indices. Smart beta emphasizes capturing investment factors or market inefficiencies in a rules-based and transparent way. The increased popularity of smart beta is linked to a desire for portfolio risk management and diversification along factor dimensions, as well as seeking to enhance risk-adjusted returns above cap-weighted indices.

Hmm. Not a single mention of volatility. Are you confused yet?

Growth, Aggressive Growth, Capital Appreciation, Equity Income

Growth sounds good, but how is it different from capital appreciation? Don’t they mean the same thing? Does aggressive mean faster, riskier, meaner, or something else? Equity income funds are supposed to be stocks that pay dividends, right? So, what category do you think the Dividend Growth Small & Mid-Cap Fund3 is? It has both “dividend” and “growth” in its name, but are they separate or together? Does the fund invest in companies whose dividends are growing, or does it invest in growth companies that also pay dividends? An investor would need to read the fund’s prospectus to find out for sure. I’m sure all good investors thoroughly read those prospectuses from cover to cover.

Reporting Problem

The SEC requires mutual funds to report complete lists of their holdings on a quarterly basis. So, the manager of the hypothetical Blah-Blah Domestic Large Cap Fund could buy a bunch of foreign small-cap stocks on January 1 and hold them until March 28. Then, the manager could sell them and replace them with domestic large-cap stocks, and report on March 31 that the fund was properly holding domestic large cap stocks as required. On April 1, the manager could buy back the foreign small cap stocks and repeat that process every quarter.

Conclusion

Mutual fund names and categories are more informative than they used to be, but they can still be quite confusing or misleading. Investors (and advisors) need to do their due diligence, fully read those prospectuses, and closely follow the actions of the fund managers. Is your advisor recommending mutual funds? Are they confident of what’s really in those funds? Are you? If you have any questions about the mutual funds in your portfolio, email me at steve.hartel@trilogyfs.com and I if I can’t answer your question, I will find someone who can.

  1. https://www.investopedia.com/terms/b/beta.asp
  2. https://www.investopedia.com/terms/s/smart-beta.asp

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