Sell In May And Go Away










It’s an adage thrown around this time of year.  The notion that markets do worse in the summer, or according to some, from mid – May to October.  Is there any wisdom to it?

Conceptually, it does make some sense as the summer is slower and quieter with folks on vacation, at the beach, etc..  Hence, there is less volume which perhaps leads to lower returns.  And a look at historical data does indeed reveal some seasonal tendencies:

The average monthly returns (excluding dividends) for the S&P 500 by month since 1950

Jan       Feb        Mar      Apr      May      Jun       Jul         Aug       Sep        Oct       Nov     Dec

1.03     0.05     1.17      1.48     0.21     -0.03    0.98     -0.09    -0.52    0.94     1.50     1.62

It is a fact that June, August and September have been negative, historically, but notice how July makes up for all of it!  And October has been pretty good on average, contrary to popular perception (likely stemming from two big crashes 1987 and 2008 which were in October).

So it turns out that, historically, an investor would have under-performed a buy and hold strategy by around 1.5% annually for being out of the market (S&P 500) from May – October. (That’s without taxes and transaction costs, heaven knows what they add to the cost)

Perhaps very skilled traders might benefit from taking more aggressive trades seasonally – but it’s risky even for them, especially in any one year.  And if there are some seasonal tendencies based on low volume historically, who is to say they will continue into the future with more and more trading occurring electronically (That is even when the traders are on the beach!)

So my best guess is that 99% of us should NOT sell in May and go away but instead create, monitor and stick to a longer term financial plan, even if it gyrates through summer and winter alike.

Cruising On Autopilot Checking The Engine








In our last post here, I pointed out the importance of featuring managed portfolios, usually target date funds, in 401k line-ups as research has shown that the majority of participants lack the time and interest to select and monitor their portfolios.  Cruising on autopilot, in other words.

That said, when one cruises on autopilot, they still need to occasionally check the engine, right?

So let us take a closer look at target date funds (TDFs):

The basic concept is that a participant only needs to select the date that most closely corresponds to their anticipated retirement year.  The fund provider creates portfolios of stocks, bonds, cash and for some “alternative asset classes” that are risk/return appropriate based on the investors’ time horizon – and then gradually and automatically adjusts the mix as the investor moves to and through retirement.  This adjustment is known as the “Glide-Path” But here is where TDFs differ and why we still need to check the engine:

When investors are more than 25 years away from their retirement age – virtually all funds allocate a high % of the portfolios to equities.  However when one is AT retirement age there is a wide gap – with funds ranging from 25% equities to 60% equities – also the allocation adjustments can vary dramatically through retirement.  Which approach is better is of course in the eye of the beholder (i.e., investor, adviser, participants, Et. Cetera).

The important point here is to be aware of the allocation mix and to understand the glide path approach of the provider and make sure it fits into your overall financial and retirement planning strategy.

Cruising on autopilot is a good thing for many investors, especially 401k plan participants, but it never hurts to check the engine.








Numerous studies reveal at least 80 Percent of 401k or 403b plan participants just don’t care about the nuances of investing and portfolio management.  They have expressed that they don’t have the time and/or interest to create and monitor their own 401k portfolios – they just want to know they are doing the right things and they will have enough money when they are older.

These folks need access to managed solutions – globally diversified between equities, fixed income and cash.  And they come in two flavors:

1) Risk Based:  under this approach your participants can choose a managed portfolio of funds and/or ETFs based on risk (Conservative, moderate, aggressive etc) and it’s up to the participants to move among the risk categories as their situation warrants.

2) Glide path :  Otherwise known as “target date”.  With this approach, the 401k participant simply picks the year they estimate will be closest to their retirement age, and that’s it!  A fund company will then manage a portfolio based on the time horizon and gradually adjust the risk mix to become more conservative as one moves to and through retirement years.

Of course some folks will want to do it themselves and adjust their portfolios which is why a plan sponsor also needs to offer “stand alone” investment choices.  But it should be known that for the majority of the participants  - who will rarely pay attention to the portfolio details – a managed choice is the way to go, which is why Cerulli associates projects that over 63% of all 401k contributions will go into target date funds by 2018.

So if you sponsor a qualified retirement plan or 401k, make sure to feature low cost managed account solutions – risk based and/or glide path – to provide the majority of your participants what they need to achieve long term financial security!

Benefits of a 401k Advisor







401k plans need financial advisors.

A plan I dealt with briefly had more than half its assets in a GIC fixed annuity.  Why on earth would the participants do that?  If the average participants’ age was 45 – that means they have, on average, another 40, 45 years to and through retirement – so why so much fixed income and so little growth?  Is it conceivable that if that 401k plan had a trusted financial advisor the participants would have been more appropriately invested?

When I meet with 401k participants for individual consultations, I usually have enough time to share investment concepts I have learned (the hard way) over the last 27 years to influence their investment behavior in a positive way.

Sometimes, in these meetings or group discussions, I find out participants have not properly named beneficiaries on their accounts, therefore exposing their heirs to unnecessary hassles and taxes.  A gentle reminder is often enough to get them to complete the beneficiary form and save problems for everyone down the line. Many participants are unaware that – in the absence of adequate corporate benefits and government entitlements – they will need to defer at least 10% of their income to have a decent chance of maintaining their lifestyle in retirement.

Many times pointing this out – perhaps with a nice power point chart – provides the needed nudge to get them to defer more.  Numerous studies have revealed that 401k or 403b enrollment meetings  conducted in person – rather than remotely – yield better results.

If you are a 401k or 403b plan sponsor, it may not be easier to find a financial advisor that you trust – but if you do, they will be worth their weight in gold.







This was the title of a USA today cover story published on Friday February 12th – without the (Just kidding).  The article is absurd and an insult to its readers.  But more important, this type of “fear mongering” with pictures of sharks circling a dollar sign is hurtful to investors that take this as advice – which I’m sure many do.

Here is the opening paragraph:

“The persistent pounding global stock markets are taking seems to be taking on a more sinister tone and more dangerous phase, with emotions and fear taking on a bigger role in the rout, investors questioning the ability of the world’s central bankers to calm the market’s frayed nerves and a volatile environment in which selling begets more selling”.

And here is the main Quote embedded in the story:

“The main fear today is that we’re in uncharted waters, with the U.S. and global economy slowing while the major central banks have interest rates at or near zero”.

Ridiculousness.  If one studies history, there is absolutely nothing new here.

The article was published in the February 12th 2016 edition of USA today.  And if one didn’t know the market was about to make a complete recovery from its worst start ever before reading this garbage.. you may have had a clue after reading it!  And that’s because the fear mongering in the financial media is usually the worst right before it’s about to turnaround – meaning if you follow the advice of  (main stream) financial media – you will usually be doing the opposite of what you should be doing.

The news and especially financial news is a short-term focused source for information – which is diametrically opposed to the truth of investing:  it is long-term.