An investment makes sense only if you see a return – either the value increases and/or it produces income of some type.
Most investments have a sponsor, syndicate or other entity that has a stake in you investing in it now.
Years ago, when traditional open ended mutual funds were more popular, the sponsor at many professional dinners I would attend was invariably a wholesale sales representative for one of them. In exchange for paying a fee, they would get a few minutes to address the group. Without exception, they would cite a study done by Dalbar that said if you missed the 10 best daily market increases every year, your return over time would be much less than if you were always invested. The implication was that nobody knew when those days would be or if something was overvalued in the market, and we should always be fully invested – in their fund, of course.
When I would ask what the return would be if we missed the 10 worst days of the year, they would reply that they didn’t have that information and would get back to me. They never did.
I continue to see that thinking all the time from the investment sales side. It doesn’t matter what the investment is, to them there is never a bad time to invest in whatever they are pushing. That’s how they get paid.
In many cases, the sales squad did not live or work through a bad market or economic cycle. In other words, they weren’t born yet when inflation was even higher than the last few years, interest rates exceeded 15%, or the stock market crashed in 1987 and melted down again in 2001. Often, they weren’t adults when the real estate market collapsed in 2009. They say “that won’t happen again”, and “it’s different this time.” That’s how they get paid.
Today, I see real estate syndicators acting as if prices and rents always go up. They don’t. I see stock analysts telling us that any company associated with “AI” is a good bet. I heard that with “dot com”, and it wasn’t true. Every situation is unique.
I am not making a blanket statement that the sky is falling. My point is that there are always risks, and at different times and in different situations certain investments do not warrant your capital when evaluated on a risk return basis. My job is to make sure my clients make smart investments that work for them. Not to pay the sales squad. That’s why I get paid.
The Bottom Line: Filter the sales noise to invest successfully.
–Michael Ross, CFP®