What do John F. Kennedy, Michael Dell, Barbara Walters and Will Ferrell have in common? All are known for giving famous college commencement speeches. Across the nation students are donning cap and gown to parade across a stage in front of proud friends and family. But before getting the coveted diploma, they must endure a graduation speech.

Winston Churchill famously told graduates to “…never, never, never give in.” U-2 rocker Bono challenged Penn grads to work on poverty and health issues in Africa “… because we can, we must”. Steve Jobs said that Stanford students should “stay hungry” and “stay foolish”.

But some of the best advice given to graduates was by Chicago Tribune writer Mary Schmich in a 1997 article known widely as the “Sunscreen Speech”.

Besides encouraging grads to “wear sunscreen”, Schmich gave some great advice about life that has much value for investors.

Schmich tells grads:

Don’t worry about the future. Or worry, but know that worrying is as effective as trying to solve an algebra equation by chewing bubble gum.

It seems that worry about the future is our new national pastime. With 24/7/365 “news” networks, countless internet “pundits” and even our smart phones spewing a constant stream of mostly meaningless drivel, it is a battle not to take up the latest worry du jour. But worry about what might happen in the future distracts us from what we can control today like making smart money decisions or putting your financial house in order. It has been said that no one can add a moment to their life by worrying and the opposite is true – anxiety can steal both quality and quantity of life.

She also says:

Keep your old love letters. Throw away your old bank statements.

At our Data Destruction and Donuts event last weekend we saw clients ditching the old bank statements, but I think successful investors need to go a step further. Toss out the old financial habits that have not served you well. Things like over-spending and under-saving or procrastinating on starting the estate plan or college fund. Take some time to think through how everything you do today will affect you in five years.  Keep that which will help create the future you want and throw away things that could derail your plan. An outlook that asks “What good will this do for me?” instead of “What harm will it do?” can help make your financial (and other) decisions bring more rewards and fewer consequences.

Finally, Schmick writes:

Do one thing every day that scares you.

Schmich believes (and I agree) that life lived in pursuit of safety is a life without growth, color and richness. A friend of mine says, “If comfort is your goal, success is not in your future.” While safety, security and comfort are all good things, they’re pursuit often ends in stagnancy. Investors open to change, new ideas and the unfamiliar can bring opportunities for growth and success. (Please keep in mind investing involves risk including loss of principal.)

As the world changes it brings opportunities for fresh big ideas. “What you are afraid of is never as bad as what you imagine. The fear you let build up in your mind is worse than the situation that actually exists,” said Dr. Spencer Johnson in his book Who Moved My Cheese?

We believe that today’s graduates will live in a world with a bigger future than we can even imagine today. The biggest impediment to that big future is our fear of the scary stuff along the way.

-David Morrison

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Stock investing involves risk including loss of principle.

The challenge in today’s market is a matter of perspective. For many it can be hard to ignore the constant clutter and loud volume of media analysts pitching today’s hottest stock. It seems like every economic data point is over-analyzed, over-interpreted, and over-emphasized.

Then there are the privileged few; the “clairvoyant” investors who must know something the rest of us don’t. But are they really using a crystal ball or are they just sticking to their plan? I think their secret is a long-term perspective.

I’ve been reading the book Abundance by Peter Diamandis and Steve Kotler which gave me some interesting perspective on trends and the future. Think about this: by 2020 nearly 3 billion people will be added to the Internet’s community. That’s 3 billion new opportunities for discussion, ideas, wisdom, creativity, insights and experience. The upside is immeasurable – never before in history has the global marketplace touched so many consumers and provided access to so many producers. This long-term perspective is important because it reframes how we look at certain economic signs.

Consider these examples:

The U.S. economy – overall continues to be sluggish in the first quarter of 2012 and will likely continue to appear that way for the next couple quarters. This is due in part to a focus on a few short-term economic statistics like retail sales. Overall retail sales were down 3/10^th of a percent in last week of March*, which is pretty anemic. Extrapolated (which will invariably happen), the figures come out to a dismal number for the year. But in all likelihood the real numbers will be closer to the year-over-year number of +4.5 percent*. The net effect of this short-term focus is nervous economic data  that only confuses and frustrates investors focused solely on the now.

Corporate earnings – are surprisingly resilient despite the sluggish economy. I believe the real indicator of prosperity are corporate dividends, the payments a company makes to its investors. Too often investors focus on corporate earnings (or how much money companies made), which can be easily manipulated from quarter-to-quarter in an effort to beat analyst expectations. Focusing on the long-term dividend growth reveals companies are actually doing well.* This could be due in part to new efficiencies in their key resources of people, products and time/energy. Couple that with new technology in all facets of business from manufacturing and design to delivery and sales, and we see the benefits of looking at these companies in the long-term.

Fiscal leadership – is struggling with a familiar debate: stimulated spending to spur economic growth, or austerity (spending less). But the U.S. is not alone. Over in Europe France is grappling with similar struggles amid an election (with a vote on Sunday). And in the European Union we’ve seen changes in leadership in 11 of the 17 countries recently. I think a short-term focus can have a polarizing effect, akin to the one woven into this argument. This dispute isn’t new or unique but action and agreement continues to be elusive despite a long-term desire for something to be done.

When we focus on the short-term, the here and now, we tend to lose sight of our end goals. Sometimes taking a step back is all that’s needed to see the growth and potential of the next few years. Abundance was a nice reminder that we’re at the cornerstone of potential economic growth, all we need to do is look past the trees to see the forest.

-Steve Booren

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*Source: LPL Financial Research, Commentary Call, May 1, 2012.

**Past performance is historical and is no guarantee of future results and the payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Stock investing involves risk including loss of principle. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The answer is simple, the average investor bought high and sold low.

Superficially buying high and selling low doesn’t make sense, but the root cause can be explained by emotional investing behavior. Investors tend to buy when times are good and sell when troubles in the market arise.  They often don’t get back into the market in time to capture much of the later upturn in stock prices, and as a result are always behind the curve.*

There can also be a tendency to over respond to losses as opposed to gains.  For investors confronted with confusion, uncertainty, and financial loss, the natural reaction is to retreat. If an account falls too much in a short period of time, investors can be tempted to panic and either reduce or sell their investments. Of course you do need to keep in mind that no strategy ensures a profit or protects against a loss, but as a result they would not have been be in the market to participate in the rallies that often followed market declines. (*Please keep in mind history is no guarantee of future results.)

This behavior is magnified by a herd mentality.  It’s the tendency for individuals to mimic the actions, rational or irrational, of the larger group.  I believe this occurs for two reasons:

• First is the pressure of social conformity, a powerful force often encouraged by the media.
• Second is the group-think mentality. It is unlikely the larger group could be wrong. Instead, they might know something the average investor doesn’t.

But overcoming these obstacles could be easy. I think it’s best to:

• Have a financial game plan and refer back to this plan when markets become volatile. Remember, market cycles are a normal part of investing.
• Diversify your portfolio so it’s spread among different asset classes and geographies, including foreign investments.
• Invest regularly, not just when the markets are up and everyone feels good. Investing regularly is also referred to as “Dollar Cost Averaging”.

I think the real reason the average investor underperforms the market is because of their own emotional investing behavior. Too often popular financial magazines and advertisements contribute to this behavior by providing misleading information. Coupled with a tendency to adopt a herd mentality these lead to poor investment decisions such as buying high and selling low.  I think the best way to help avoid these mistakes is by developing a plan and sticking to it. From my point of view, a solid diversification strategy and regular investing will take you a long way to becoming a wise investor.

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Please remember there is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors consult your financial advisor prior to investing. The opinions voiced in this material are for general information purposes only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Stock investing involves risk including loss of principle.

*Source: Dalbar QAIB – Quantitative Analysis of Investing Behavior, April, 2012.

Those who followed last week’s Supreme Court arguments on President Obama’s health care law got a lesson in Constitutional Law. While the scope of the three-day hearings was breathtaking it is disheartening as we likely will not hear the outcome until June.  While legal issues dominated the conversation, economics also came into play. The question: Is the market for health insurance so unique that the federal government can penalize someone for not buying it.

This is no small matter. The federal government has never before required citizens to buy a private good or service. If the Federal Government could force people to buy something, as Justice Kennedy said, it would “fundamentally change the relationship between the individual and the government.” If it can make us buy health insurance, what Constitutional principle prevents it from making us buy something else?

Ironic as it is the Federal government regulations that require hospitals to serve everyone in their community, regardless of their ability to pay for services or if they are insured.  This is a significant cost in the healthcare economy. Here we go again where regulation is a source of the problem – more regulation is not the solution. (See “wiki emtala”)   The government argues that “not buying” health insurance foists costs on everyone else because the system ends up taking care of people anyway. In other words, those of us who do buy insurance end up paying more because others ride for free.

The problem is that this argument could be made about many types of activities. Eating broccoli can be good for you, not eating it could mean you are less healthy, which in turn foists costs on others. Everyone dies so everyone needs a burial plot or some other arrangement.  Can the government force you to buy broccoli or burial plots?

The Obama Administration says that health insurance is different, and a mandate is Constitutional. But is there really a natural barrier (a “limiting principle”) that would prevent the government from going further down the mandate road?

From an economic point of view…no limiting principle exists. Every marketplace is governed by the laws of supply, demand and price. And these factors are determined by people who choose to “be in” or “not to be in” a particular market.

What about education? Could the federal government require all parents to buy prepaid college tuition for their kids? Many people don’t save for their kids’ education and then have their schooling subsidized (grants, subsidized loans, etc.) by those who do save, and who therefore pay full freight.

The advocates of the law say that everyone will eventually need health care, so making us buy insurance just changes the timing of the payment and prevents people without insurance from imposing costs on others. But, on average, those who would be forced to buy insurance by the new law are younger and healthier and therefore don’t drive up costs anyway.

In the end, no limiting principle was articulated for the Court and our best guess is that the individual mandate and directly-related insurance provisions are stripped from the law. But, it also seems possible that the whole thing could get struck down because the mandate was so important to the law.

On the other hand if the mandate is allowed, a 200+ year history of Constitutional limits on the economic power of the federal government is gone. For some, that would be like eating broccoli at every meal for the rest of our lives. The proof is in pudding. As the odds that the Fed will embark on a new round of quantitative easing decline, the stock market has moved higher. Equity investors now realize they don’t have to pray for more Fed ease to keep the bull running.

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Source(s):

• Brian Westbury, Chief Economist, First Trust Economics
• LPL Research
• The Wall Street Journal
• www.wikipedia.org

The economic forecasts set forth in this commentary may not develop as predicted and there can be no guarantee that strategies discussed will be successful. Stock investing involves risk including loss of principal.
The opinion voices in the material are for general information only and are not intended to provide specific advice or recommended for any individual. To determine which investment(s) may be appropriated for you, consult your financial advisor prior to investing. All performance referenced is historical and is so no guarantee of future results. All indices are unmanaged and may not be invested into directly.

“To put the problem in the simplest terms,” Smith said, “The interests of the client continue to be sidelined in the way the firm operates and thinks about making money.”

That’s a bold statement coming from an employee who spent almost 12 years working for one of the largest financial service firms in the world. But it highlights an important issue: can financial firms, advisors or anyone with ties to Wall Street be trusted with your life and financial future? Do they really make clients their number one priority?

Financial Advising used to be considered a noble career. It was a way to help people prepare for future and plan for their goals. Sadly that slowly devolved culminating in 2008; the year trust died. Bonuses, greed and deception drove millions of people out of the money they worked hard to earn. The financial industry was portrayed as a team of greedy, white-collar workers gambling clients’ pensions for their own personal gain. A few in our industry messed up and we all took the fall for it.

Today the qualities of a worthy financial advisor are in line with the profession’s roots. Trust, honesty, and a desire to help clients are the qualities we continually try to achieve. I believe trust is the most important quality a financial advisor and client can share, but it’s also the most difficult to earn.

I can relate with Greg Smith. I left a similar high-profile firm to start Prosperion Financial Advisors for some of the same reasons he listed in the article. I believe in assisting people to accomplish their goals, not using them to achieve mine.

Our goal at Prosperion is, and always has been, to serve our clients exceptionally well. We want to help them work toward their goals and plan for their future. This is based on three principles:

1. We understand and appreciate the level of trust you place in us. After all, we’re talking about more than just your money – we help you manage your future, your retirement and your legacy.

2. We believe exceptional service means availability, quality advice and a clear-cut actionable plan. Our advisors are dedicated to your growth personally and financially.

3. We know trust can’t be bought or sold; it has to be earned. We’re not perfect, but we’re dedicated to helping our clients with a clear plan and the confidence needed to handle the bumps along the way. Through this process we hope to continually earn and maintain your trust.

Our job is to help you plan for your future. It’s as simple as that. I want to thank our clients for the trust they put in us and make a promise to continue to work hard for them. As an industry we have a lot of work to do in regaining the trust of the public. At Prosperion I believe we’re on the right track.