New year, new solutions

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

There are few traditions as optimistic in spirit as resolution setting. While losing weight, enjoying life more, and living a healthier lifestyle typically top the resolutions charts, many Americans seek to create better financial outcomes in the upcoming year. The GoBankingRates.com 2017 Financial Resolutions Survey listed ‘save more, spend less,’ at the top of the list of financial resolutions, followed by paying down debt and increase income.

shutterstock_352783094

If you aim to create better financial outcomes in the upcoming year, and beyond, here are five steps to bring you closer to your goal:

  1. Look within. The more you know about investment principles and the long-term historical record of the market, the better outcomes you can expect to achieve. Making your investment education a priority is proven to make a significant difference in outcomes. The American Association of Individual Investors (AAII) found that investing knowledge enhances risk-adjusted returns by at least 1.3% annually. Over 30 years, the improved portfolio performance can lead to up to 25% greater wealth.
  2. Control what matters most. What matters even more than picking the right stock, is controlling the impulses and biases that prove self-destructive, like trying to time the market or trusting your gut. For better investment outcomes, you must know your emotional triggers and come up with strategies to defuse them from sabotaging your success.
  3. Think purchasing power. Purchasing power is the most common objective and destination of a long-term investment strategy. It is the experience most investors want. Investors know they like the lifestyle they now enjoy and want to do what is needed to keep that lifestyle in the long-term. To do so, you must appreciate multi-asset class diversification and accept market volatility to increase future purchasing power.
  4. Benchmark against your goals, not market indices. Instead of looking to the Dow Industrial Average to gauge the adequacy of your performance, look to your goals. Personal benchmarking motivates positive savings behavior and helps you tune out the noise of the markets. Don’t allow yourself to get bogged down, nor hyped up, by the current buzz. Instead, let personal goals and the long-term historical market record guide your decisions.
  5. Stack the deck. By working with a trusted advisor who provides behavioral coaching, you stack the deck in your favor. Research has found that when an advisor applies behavioral coaching, performance increases from 2-3% per year. In times of uncertainty and market volatility, which you are bound to encounter, your advisor will help you stick to your financial resolutions.

For 30 years, Brinker Capital has provided investment solutions based on ideas generated from listening to the needs of advisors and investors. From being a pioneer of multi-asset class investments to using behavioral finance to manage the emotions of investing, our disciplined investment approach is the key to helping investors achieve better outcomes.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

 

Stress Contagion, the DOL and You

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes & Founder, Nocturne Capital

Yawn.

YAWN.

Yaaaaaawwwwwwn.

Are you yawning after reading this? I’m fighting back the urge myself after writing the word three times—what gives? The answer to this extreme suggestibility lies with what scientists call mirror neurons—neurons that fire when an action is being performed and when that same action is being observed. The original discovery of mirror neurons took place in a sleepy, somewhat overlooked research lab in Parma, Italy. Scientists there were studying the brains of macaque monkeys in an effort to understand how the brain organizes motor behavior. As Martin Lindstrom explains, the scientists quickly discovered some things that challenged their assumptions about how the brain works:

“They observed that the macaques’ pre-motor neurons would light up not just when the monkeys reached for that nut, but also when they saw other monkeys reaching for a nut.” (Buyology)

Whether an action was performed by the monkey or merely observed, the effect on the brain was identical.

Stranger still was what they observed one sweltering afternoon when a graduate student on the team entered the lab with an ice cream cone. One of the monkeys, still hooked up to the monitoring apparatus, was staring greedily at the frosty treat. As the student brought the ice cream closer for a lick, the macaque’s pre-motor region began lighting up the screen:

“It hadn’t moved its arm or taken a lick of ice cream; it wasn’t even holding anything at all. But simply by observing the student bringing the ice cream cone to his mouth, the monkey’s brain had mentally imitated the very same gesture.” (Buyology)

shutterstock_153551429Mirror neurons are the reason why you cry in a sad movie, cringe at the sight of someone else eating something gross, or close your eyes when the chainsaw-wielding local stumbles upon the unsuspecting group of college kids at the lake house. Mirror neurons are why “unboxing” videos exist (seriously, it’s a thing), because it’s nearly as fun to watch someone else open a new gaming system or expensive toy as it is to do it ourselves. To truly apply this learning, give your children a video of other children opening presents at their next birthday party and tell them Dr. Crosby told you it’s more or less the same thing!

At this point you as a financial advisor may be thinking, “this all makes sense” and simultaneously wondering, “what does this have to do with me and my work?” It has been my anecdotal experience that just as married couples tend to resemble one another over time, the clients of financial advisors tend to behave much like the advisors with whom they work.

There may be some self-selection at work here but even more powerful are the cues that clients take from their advisors with each interaction. If your office has CNBC on loop and is stockpiled with magazines devoted to the hot stocks du jour, don’t be surprised when clients lead with griping about performance instead of sticking to their plan. Likewise, if you telegraph panic and are prone to complaining about politics and capital markets, don’t be surprised when your own fears land on your doorstop in the form of hand-wringing clients.

shutterstock_108406256The DOL’s “conflicts of interest” rule was announced yesterday, and with that will come the questions and uncertainty inherent in any new piece of legislation. Bearing in mind the concept of stress contagion, I would encourage you to consider the ways in which your clients will look to you as a leader and follow your example when sifting through their own feelings about this legislation in general and your value to them in specific. Change, it would seem, is coming, but one of the core beliefs of The Center for Outcomes is that periods of disruption provide opportunities for differentiation for the truly prepared. Whatever changes may come, your value to your clients and your position as a leader are steadfast and must be positioned as such.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Five Answers for the Voices in Your Head

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes

Many investors are waking up this morning to the unsettling realization that trading was halted in China last night after another precipitous market drop. When paired with rumors of hydrogen bomb testing in North Korea, the recent acts of domestic terrorism and a long-in-the-tooth bull market, it can all be a little frightening and overwhelming.

It’s at a time like this that it’s best to temper the catastrophic voices in our head with some research-based truths about how financial markets work.

For each of the rash, fear-induced common thoughts below (in bold), we have countered with a dose of realism:

“It’s been a good run, but it’s time to get out.”
From 1926 to 1997, the worst market outcome at any one year was pretty scary, -43.3%; but consider how time changes the equation—the worst return of any 25-year period was 5.9% annualized. Take it from the Rolling Stones: “Time is on my side, yes it is.”

“I can’t just stand here!”
In his book, What Investors Really Want, behavioral economist Meir Statman cites research from Sweden showing that the heaviest traders lose 4% of their account value each year. Across 19 major stock exchanges, investors who made frequent changes trailed buy-and-hold investors by 1.5% a year. Your New Year’s resolution may be to be more active in 2016, but that shouldn’t apply to the market.

“If I time this just right…”
As Ben Carlson relates in A Wealth of Common Sense, “A study performed by the Federal Reserve…looked at mutual fund inflows and outflows over nearly 30 years from 1984 to 2012. Predictably, they found that most investors poured money into the markets after large gains and pulled money out after sustaining losses—a buy high, sell low debacle of a strategy.” Everyone knows to buy low and sell high, but very few put it into practice. Will you?

“I don’t want to bother my advisor.”
Vanguard’s Advisor’s Alpha study did an excellent job of quantifying the value added (in basis points) of many of the common activities performed by an advisor, and the results may surprise you. They found that the greatest value provided by an advisor was behavioral coaching, which added 150 bps per year, far greater than any other activity. At times like this is why investors have advisors so don’t be afraid to call them for advice and support.

“THIS IS THE END OF THE WORLD!”
Since 1928, the U.S. economy has been in recession about 20% of the time and has still managed to compound wealth at a dramatic clip. What’s more, we have never gone more than ten years at any time without at least one recession. Now, we are not currently in a recession, but you could expect between 10 and 15 in your lifetime. The sooner you can reconcile yourself to the inevitability of volatility, the faster you will be able to take advantage of all the good that markets do.

Brinker Capital understands that investing for the long-term can be daunting, especially during a time like this, but we are focused on providing investment solutions, like the Personal Benchmark program, that help investors manage the emotions of investing to achieve their unique financial goals.

For more of what not to do during times of market volatility, click here.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Chasing Markets

Jeff RauppJeff Raupp, CFA, Senior Investment Manager, Brinker Capital

Back when I was in the U.S. Army, one thing I dreaded was the two-mile run as part of the Physical Fitness (PT) Test. I am not a runner. While most people would scoff at the notion of a two-mile run being intimidating, I looked at it as 13-14 minutes of pain. It was timed, and the better finishing times naturally resulted in a better score. Seemingly anything above 15 minutes resulted in a fail and, of course, more running.

One of the things I had the most trouble with was finding the right pace. I’d have instances where I’d try to run a balanced race only to end up having to sprint the last few hundred yards to reach my desired time. Then there were the times where I’d go out too hard and find myself stumbling into the finish line. The hills on the courses would complicate things – I’d kill myself trying to keep a constant pace uphill and downhill.

shutterstock_175699433After struggling with this for months, I came up with a better solution. We always ran as a group, and I found that I could usually find a few people that would consistently run around the same time I was looking for. Then my objective would be to keep up with them knowing that as long as I finished somewhere in their vicinity, I’d hit my goal.

The other day someone asked me whether investors’ financial goals should be to try to outperform the market, and with my response I thought there were a lot of similarities to my past running strategy.

An investor starts with an objective they’d like to get to, how much money they have, expected cash flows and their time horizon. From there it’s a matter of finding the right mix of asset classes that historically has shown a high probability of achieving the returns necessary to reach the objective(s). That mix can be thought of as your strategic plan.

Along the way, the market is a useful reference point. Investing isn’t a smooth journey, so when your strategy has drawdowns or grows faster than you expected, knowing how markets performed helps you determine if that’s just market volatility or if something may be wrong with your plan. Changing your strategic plan along the way can be dangerous, particularly at market extremes. If you’re always chasing the runner that looks the strongest at the moment, there’s a good chance you’ll burn out before the finish.

The views expressed are those of Brinker Capital and are for informational purposes only.

Happy Holidays from Brinker Capital

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer, Brinker Capital

I wanted to take a moment to wish all of our advisors, the clients they serve, our strategic partners, and all friends of Brinker Capital, a wonderful holiday season.

We are thankful for the many partnerships we have with you and the continued support you show us. We are looking forward to another year of commitment to taking great ideas and applying a strong discipline to provide better outcomes.

On behalf of Brinker Capital, Happy Holidays!

“During this holiday season, please pause and take a moment to remember and thank, in some fashion, our men and women in uniform both past and present.”
~Chuck Widger, Founder & Executive Chairman