In 1999 the NASDAQ went up an astonishing 85%, and then followed that feat with a stunning –39% drop. Most investors would assume that 85% – 39% would leave them with a return of 46% for the two years combined. Would you believe it is only 12.8%, which averages to only 6.2% per year. Let’s see how this works. If we assume you start with $1,000,000 and it grows 85%, you have $1,850,000 after one year. The following year, your $1,850,000 drops -39%, leaving you with $1,128,500. Your money grew by only $128,500 over two years, for a total return of 12.8%.

Even more disturbing is the fact that the typical investor lost more money because they were late to the party and then hung on too long to falling favorites once the party ended. If your financial advisor must call you before making any changes to your portfolio, they will be too slow to react to changing market conditions. If your advisor works for a brokerage firm, bank, or most independent financial planning firms, they are not allowed to manage your portfolio, but can only suggest securities and investment products to you. They must call each and every client, one at a time, in order to make a change. When opportunities or threats present themselves, they are unable to act in a timely manner for all their clients. Worst yet, when you’re ignored and must call your advisor to take action, you still pay them for implementing your idea.

The major brokerage and financial planning firms have seen this problem growing so they have instituted two programs to hide from this threat. First, some of their salesmen have reinvented themselves as “consultants” to sell clients to outside programs or wrap accounts. Second, they have instituted fee programs. Both of these schemes still have the same old flaw, making you pay high fees for low flexibility and marginal service. Because wealthy individuals have become more informed they have insisted on a better way – that way is wealth management.

True wealth management is gaining control of your financial situation and creating a strategy to insure that your wealth is not squandered by taking speculative or unnecessary risks. The key difference between us and “them” is that we manage our clients’ portfolios. We work with our clients to understand their goals and then create and manage a complete portfolio. We take care of business, which to us is protecting and growing your money. If you’d like to understand the difference that professional wealth management can make, please call 805-495-4405 to R.S.V.P for one of our upcoming events.

Portfolio Development Thursday, February 15 at 6pm
How to create, monitor, and maintain an all-weather portfolio

Retirement Planning Tuesday, February 27 at 6pm
Covering pension & 401(k) rollovers, early retirement, and IRAs

Stock Options Seminar Thursday, March 8 at 6pm
Covering ISO and NQSO employee stock options

This article appeared in Westlake Magazine – February 2001.