June 2015: What the Farmer’s Market Can Teach You About Investing
I hope this finds you doing very well at the beginning of another purposeful month. May was action packed – full of meaningful holidays and new experiences. Each month our intention is to bring you relevant, realistic and valuable information that you can use to live an extraordinary financial life. Here is what we cover in June:
- What the Farmer’s Market Can Teach You About Investing
- Illumination’s Media Spotlight
What the Farmer’s Market Can Teach You About Investing
One of my favorite family activities is to go to our local Farmer’s Market on the weekend. We go there to let the kids run around, spend time with our friends and enjoy some of the food the market has to offer. Never did I think the Farmer’s Market could teach you so much about investing as it did for me this past weekend… As I walked around the Farmer’s Market this past weekend I couldn’t help but notice many exotic food and drink, all of the typical (yet organic) produce that you would find at the local grocery store (think apples, oranges, sweet potatoes, etc.) as well as plenty of unhealthy food choices (e.g.donuts, empanadas and ice cream).
Don’t get me wrong, some of these foods are very nutritious. At the same time, a lot of these options are things you’re probably never going to buy and just because it’s at the Farmer’s Market doesn’t make it healthy.
So what does this have to do with investing and your investment portfolio?
1. The Most Nutritious Foods (Investments) are Organic (Index Funds)
The closest thing to organic food in the investment world are index funds. An index fund is a investment fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor’s 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover.
These funds have no marketing gimmickry or unhealthy additives like your would find in many active funds and alternative investment managers. While the names are not “sexy”, the long-term evidence is clear – actively managed funds under perform the indexes they are a trying to beat – across all asset classes and styles.
There are two recent studies that provide the stats to back up my writing: 1. The SPIVA® U.S. Scorecard and 2. Vanguard’s The case for index-fund investing. Both of these studies show over 80% of all active mutual funds underperform their benchmark over a five year period. The same can be said over the decades and can have great implications on your financial health. Invest Organic.
2. The More Complex The Food (Investment) the Most Costly
At the farmer’s market you may stumble across so called “super foods” (chia seeds, orach, purslane, borage, etc.) which claim to be higher in nutritional yield. These super foods can be characterized as the alternative investments or investments that claim to provide only the upside and no downside. The more lavish the produce or investment vehicle, the more its going to cost. As appealing as these super foods are, you can get the same bang for your buck from healthy foods that you normally eat (Index Funds).
There’s an old investment tenant that goes as follows: “In investing, you get what you don’t pay for.”
Every dollar you pay in commissions, loads, expense ratios, bid-ask spreads, insurance costs, hedging costs, advisory fees and so on, is a dollar out of your pocket. You must know that the more complex the message or investment product, the greater probability an investment company or manager will be able to collect a high fee. It’s the primary reason why hedge funds are able to charge 2 & 20 (translation: 2 percent per year in management fees and 20 percent of the profits) and insurance companies can pay their brokers 50% of the premiums on certain hybrid insurance / investment policies.
Beyond the cost, most of these investment products or strategies fail to deliver when it comes to what they are selling – better performance or less risk and market beating results. The typical result of the purveyor of the complex investment is a lack of liquidity, high costs, similar risk levels and lower returns.
3. All Foods (Investments) Are Not Healthy Even at the Farmers Market (Or From Your Financial Advisor)
There are plenty of foods that you can find at the Farmer’s Market that can do a quite number on your blood pressure, cholesterol and blood sugar levels. For every booth selling an organic apples or organic green beans, there’s a booth selling Philly cheese steaks or donuts bigger than your face. The lesson is clear, just because it’s at the Farmer’s Market doesn’t make it healthy.
The same can be said for what your financial advisor may be selling you. Just because it’s an investment product from your financial advisor doesn’t mean it’s good for your financial health and goals. Over the past month, we have reviewed several portfolios of new clients that could be described as a lunchbox full of financial junk food. One portfolio including an equity indexed annuity that has earned a grand total of 14% over the past 5 years vs. the index its tracking gaining in excess of 70%. Another portfolio had high-cost, loaded mutual funds with fees in excess of 1.75% on top of the advisors 1.5%, leaving their client with a 3.25% portfolio rate of return just to break even.
So when it comes down to it, make sure your Farmer’s Market and investment portfolio are there to enhance the quality of your life. Both can be accomplished by keeping things simple (enjoying the company of your friends, the good weather, healthy food as well as a low-cost index fund portfolio) and avoiding the unhealthy and complex food and investments that will leave you unsatisfied and a step behind.
Illumination’s Media Spotlight
Here’s our monthly compilation of interesting articles and videos designed to keep you informed and engaged in the areas of personal finance, the economy and life. We hope you enjoy this month’s edition. Please send us your thoughts on this month’s articles and suggestions for future posts.
Our Appearances
Craft City List Radio Show: Where Business, Beer and Investing Collide
Investing in Your Financial Life
Behavior Gap: Do the Drill: A Lifeboat for Investors
New York Times: New Math For Retirees and the 4% Rule
The 4 Hour Workweek Podcast: Rick Rubin on Cultivating World-Class Artists (Jay Z, Johnny Cash, etc.), and Breaking Down The Complex
Fast Company: Why You Should Forget Work Life Balance
Esquire: Interview with Talent Agent, Scooter Braun: No One’s Gonna Remember You
Wall Street Journal: Why Some Entrepreneurs Feel Fulfilled – but Other’s Dont
“Those who do things that count, never stop to count them.” – Unknown
With every word we write and every communication we make our intention is to help you ‘have it all’. We want you to live with intention and utilize all of your unique resources to live your best financial life. When you begin to do that, it’s not about the “count” but living in a way that truly counts.
Question of the month: How do you (did you) balance your career and family life? What is (was) one tip that helps you to be at your best at home and at the office? Please e-mail me back and let me know.
All the best,
Matt and the Team at Illumination Wealth
The opinions and forecasts expressed are those of Matt Rinkey, President of Illumination Wealth Management (IWM) and may not actually come to pass. Mr. Rinkey’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Illumination Wealth services. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of IWM’s services. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Rinkey or Illumination Wealth nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Entities including, but not limited to IWM, its officers, directors, employees, customers and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. The analysis contained is based on both technical and fundamental research. Although the information contain is derived from sources which are believed to be reliable, they cannot be guaranteed. Past performance is never a guarantee of future results.