10 More Things Your Financial Adviser Won’t Tell You

From: 10 More Things Your Financial Adviser Won’t Tell You
Straight shooting financial advisers share their best tips and secrets.
Interviews by Michelle Crouch

1. If you ask me, “How are you getting paid?” and I say, “Don’t worry about that. My company pays me,” that’s not a good sign.

2. Sure, I can help you buy 100 shares of IBM. But why pay me, when you can do it on E*Trade for less than you’d pay for a large pizza. 

3. You pay a carpenter to redo your kitchen, a plumber to fix your toilet, a tutor to help your kid get into college. Yet when it comes to the most important area of your life—your financial future—suddenly you think you’re qualified for a do-it-yourself project?

4. We’ve all heard it a thousand times: buy low and sell high. But when the stock market was at historic lows last year, none of you would put your money in.

5. If you’re getting your stock tips from Jim Cramer’s Mad Money and CNBC, you’re waaaay late.

Read the complete article here.

13 Things Your Financial Adviser Won’t Tell You

I found this great article on the Reader’s Digest Web Site 

Interviews by Michelle Crouch
From Reader’s Digest

1. Certified financial planners and NAPFA-registered financial advisers take a pledge to put their clients’ interests ahead of their own, but traditional stockbrokers aren’t held to the same standard, even if they’ve given themselves the title “financial adviser.”

Sources: Jim Joseph, certified financial planner, Rockville, Maryland; John Gugle, CFP, Charlotte, North Carolina; Geoffrey Hakim, founder, Marin Capital Management, San Rafael, California; Mark Stein, CFP, president, AeGIS Financial Advisors, Phoenix, Arizona; Terri Hickman, financial consultant, Grand Junction, Colorado; and Dana Anspach, principal, Wealth Management Solutions, Scottsdale, Arizona.
2. Do some digging before you hand me the keys to your future. Use BrokerCheck at finra.org to see if I’ve been in trouble.
3. If I work on commission, I typically make money whenever you buy a new product, and I’ve probably got monthly quotas to meet. That’s why I always seem to call with something to purchase at the end of the month.
4. I may have other incentives to get you to buy. If I sell to enough people, I could win a trip to the Caribbean, a new laptop, or a big bonus. (The guys behind the product may also have bought my dinner at Morton’s last week and sponsored our corporate golf tournament.)

You can read the complete article here.

Diversifying a Portfolio with Real Estate

Real estate as a wealth generator is hardly a new idea. People owned property long before the advent of stock exchanges and other capital markets. In more recent times, large corporations and institutions have held commercial real estate in their portfolios.

 But individual investors have not traditionally had ready access to a professionally managed, diversified real estate portfolio. This has changed in the last few decades with the development and growth of real estate investment trusts, or REITs. Now individuals can add a real estate component to their portfolio to improve overall diversification.

What is a REIT?

A REIT is a company that owns, operates, and/or finances real estate property.1 Most of this discussion will address equity REITs, which manage different types of income-producing properties, such as hotels, office buildings, industrial facilities, apartments, and shopping centers. As commercial landlords, equity REITs typically generate dividend income from the rent paid by tenants. Many REITs in the US are traded on the public stock exchanges.

Publicly traded REITs offer investors several potential benefits:

  • Real estate exposure. While publicly traded REITs account for only a small portion of the real estate investment universe and the equity market, academic evidence suggests that REITs have similar returns to the overall real estate market .

  • Low correlations with financial assets. Over longer periods of time, historical correlations of REITs and stocks have been generally low. (Correlation refers to the co-movement of asset returns. When two assets are positively correlated, their returns tend to move together; when negatively correlated, their returns are dissimilar.)


  • Diversification. A REIT holds a portfolio of properties, which may specialize by property type and industry, or be broadly diversified according to industry and region. With the more recent advent of real estate securities overseas, investors can further diversify their exposure among foreign developed markets.
  • Higher yield, regular income, capital appreciation. Since REITs have to pay out a large fraction of earnings as dividends, they tend to offer higher-dividend income than equities, and this may benefit certain income-oriented investors. Total return of the shares is tied to income and change in market value.


  • Distinct asset class. While REITs are considered equity vehicles and can have significant exposure to the size and value risk factors, they are generally considered to be a separate asset class, due to their low long-term correlations with stocks.
  • Liquidity and transparency. Publicly traded REITs can be bought or sold whenever the stock market is open for business. The availability of market-determined share prices can reveal information about the market’s assessment of the company’s prospects, including the ability of the firm’s management team.


  • Tax treatment. REITs operate as “pass-through” corporations in which most income goes directly to shareholders. They typically pay little or no taxes on corporate income.3


Investing in REITS

A REIT mutual fund that manages a portfolio of REITs typically offers more diversification than owning a single REIT. Most REIT funds are either actively managed or indexed. An active fund manager seeks to pick securities that appear undervalued—an approach that often results in over-concentration in a single category, which may raise risks and potential costs, including transaction costs and management fees. On the other hand, an index fund tries to replicate a benchmark, such as the FTSE NAREIT Equity REIT Index or the Dow Jones US Select REIT Index. Although index funds may have lower fees, securities held in the portfolios may experience buying and selling pressure when indexes are reconstituted.

 Our preferred approach is a structured strategy. Rather than trying to replicate an index, a manager may choose securities based on risk-return characteristics, diversification benefit, and favorable price negotiation. By keeping costs low and trading efficiently, a structured REIT strategy seeks to generate improved returns over time. Advantages of this approach include broader, more systematic exposure to the REIT universe at a lower cost.

 Adding a real estate component to a portfolio may be a good diversification move. But strategy and implementation are crucial, and before investing, you should consider how a real estate strategy and the REIT you select may affect your portfolio. Some factors that may come into play:

  •  Asset coverage. Most actively managed stock funds and indexes include REITs in their equity holdings. This creates the potential for overlapping asset class exposure for investors who add a REIT component in their portfolio. Treating REITs as a separate and distinct strategy helps you achieve more precise risk exposure in the asset class weights. For example, investors with significant direct ownership in real estate may want to exclude REITs from the equity component in their portfolio to better control their overall exposure.


  • REIT category. Equity REITs may operate property in a specific area of expertise, such as retail, office and industrial, hotels, or health care facilities. Residential REITs own and operate apartment buildings and multi-family commercial dwellings, rather than single-family homes. Mortgage REITs, which lend money directly to real estate owners or invest in existing mortgages or mortgage-backed securities, are generally excluded from the equity REIT universe because they perform more like fixed income instruments, with income based on interest payments. Hybrid REITs combine the strategies of equity and mortgage REITs.


  • Diversification. As with financial assets, owning a broad mix of REITs can help reduce specific risk in a portfolio. This diversification eliminates exposure to a single REIT category, manager style, or geographic region. Also, adding international real estate can further enhance the potential diversification benefit.4 Correlations among international REITs are low across countries, regions, and equity markets, making them a useful complement to equities in developed and emerging markets. 

Risk Considerations

REITs carry stock market risk, as well as risks specific to individual real estate properties, sectors, regional markets, and the operating firm. The securities are also subject to market pressures that may push share prices above or below the value of the underlying real estate. However, identifying a market premium or discount in a REIT is difficult since the underlying asset value reported by a REIT is based on an appraisal, which may be several months old. REIT returns also depend on the buying, selling, and operating decisions of management.  

 A manager may adopt risky strategies, such as heavy leveraging or lack of diversification. They may pay too much for properties, acquire poorly performing properties, change strategies regarding property mix, or make other business decisions that compromise performance. Investors holding foreign REITs or REIT funds are also exposed to risks specific to the country, such as legal structure, investment restrictions, ownership rules, tax treatment, and currency risk.

 All of this underscores the importance of knowing your risk tolerance, carefully analyzing REIT fund managers, and diversifying to eliminate exposure to a single REIT manager or category.



1. Equity REITs make up about 91% of the REIT market. Mortgage REITs, which compose about 7% of the market, loan money to real estate owners or invest in existing mortgage-backed securities. Hybrid REITs combine the strategies of equity and mortgage REITs and make up about 1% of the market. Source: National Association of Real Estate Investment Trusts, Inc. (NAREIT).

2. Joseph Gyourko and Donald B. Keim, “Risk and Return in Real Estate: Evidence from a Real Estate Stock Index,” Financial Analysts Journal 49, no. 5 (September-October 1993): 39-46.

3. A US REIT must invest at least 75% of its assets in real estate and derive at least 75% of its income from real estate property or interest on real estate financing. It must also distribute at least 90% of its income to shareholders to maintain tax-advantaged status. This pass-through provision allows REIT investors to have access to the same cash flows as investors in private real estate equity. REIT shareholders, however, generally must pay taxes on income they receive from a REIT.

4. Over the 20-year period from 1990 to 2009, the annual return correlation between US REITs and the US stock market was 0.498 (1.0 denotes exact positive correlation in returns).


The information presented above was prepared by Dimensional Fund Advisors, a non-affiliated third party.

Diversification neither assures a profit nor guarantees against loss in a declining market.

REITs vs. US Stocks

Annual Returns: 2000-2009

Year Dow Jones US SelectREIT Index CRSP 1-10
Index (US Market)
2000 31.04% -11.41%
2001 12.35% -11.15%
2002 3.58% -21.15%
2003 36.18% 31.61%
2004 33.16% 11.97%
2005 13.82% 6.16%
2006 35.97% 15.47%
2007 -17.55% 5.83%
2008 -39.20% -36.70%
2009 28.46% 28.82%

US Equity REITs are represented by the Dow Jones US Select REIT Index.
The US equity market is represented by the CRSP 1-10 Index.


Average Annualized Returns: 1990-2009

Data Series 1 Yr 3 Yr 5 Yr 10 Yr 20 Yr Std Dev(20 Yr)
Dow Jones US Select REIT Index 28.46% -13.65% -0.07% 10.67% 8.69% 20.41%
CRSP Deciles 1-10 Index (US Market) 28.82% -4.79% 1.13% -0.33% 8.46% 15.38%

Returns in USD. Inception dates for Dow Jones US Select REIT Index is January 1978; CRSP Deciles 1-10
Index inception date is January 1926.

Indices are not available for direct investment, and performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

The Center for Research in Security Prices (CRSP), at the University of Chicago Booth School of Business (Chicago GSB), is a nonprofit center that also functions as a vendor of historical data. CRSP end-of-day historical data covers roughly 26,500 stocks—active and inactive—listed on the NYSE, Alternext, Amex (formerly AMEX), NASDAQ, and ARCA exchanges. OTC bulletin board stocks are not included.

Mastery in One’s Career – by Stewart Emery

By Stewart Emery
MASTERY in one’s career and consciousness growth simply requires that we constantly produce results beyond and out of the ordinary. Mastery is a product of consistently going beyond our limits. For most people, it starts with technical excellence in a chosen field and a commitment to that excellence. If you are willing to commit yourself to excellence, to surround yourself with things that represent this and miracles, your life will change. (When we speak of miracles, we speak of events or experiences in the real world, which are beyond the ordinary).
It’s remarkable how much mediocrity we live with, surrounding ourselves with daily reminders that the average is the acceptable. Our world suffers from terminal normality. Take a moment to assess all of the things around you that promote your being “average.” These are the things that keep you powerless to go beyond a “limit” you arbitrarily set for yourself. The first step to mastery is the removal of everything in your environment that represents mediocrity, removing those things that are limiting. One way is to surround yourself with friends who ask more of you than you do. Didn’t some of your best teachers, coaches, parents, etc.?
Another step on the path to mastery is the removal of resentment toward masters. Develop compassion for yourself so that you can be in the presence of masters and grow from the experience. Rather than comparing yourself and resenting people who have mastery, remain open and receptive; let the experience be like the planting of a seed within you that, with nourishment, will grow into your own individual mastery.
You see, we are all ordinary. But a master, rather than condemning himself for his “ordinariness,” will embrace and use it as a foundation for building the extraordinary. Rather than using it as an excuse for inactivity, he will use it as a vehicle for correcting, which is essential in the process of attaining mastery. You must be able to correct yourself without invalidating or condemning yourself, to accept results and improve upon them. Correct, don’t protect. Correction is essential to power and mastery.

Poetry is Being – Not Doing

 I was given the following poem by ee cummings almost 30 years ago:
Poetry is being, not doing.
If you wish to follow,
    even at a distance,    
    the poet’s callling,
You’ve got to come out of the
meaurable doing universe into
the immeasuable house of being.
Nobdy else can be alive for you –
Nor can you be alive for anyone else. 
If you can take it – take it and be.
If you can’t – cheer up and go about
other people’s business and do or undo
til you drop.
e.e. cummings
Apparently someone created the poem from the text by ee cummings that follows:
ee cummings on poetry
…so far as I am concerned, poetry and every other art was and is and forever will be strictly and distinctly a question of individuality…poetry is being, not doing. If you wish to follow, even at a distance, the poet’s calling (and here, as always, I speak from my own totally biased and entirely personal point of view) you’ve got to come out of the measurable doing universe into the immeasurable house of being…Nobody else can be alive for you; nor can you be alive for anybody else. Toms can be Dicks and Dicks can be Harrys, but none of them can ever be you. There’s the artist’s responsibility; and the most awful responsibility on earth. If you can take it, take it–and be. If you can’t, cheer up and go about other people’s business; and do (or undo) till you drop.

The Seven Deadly Financial Sins

There are a lot of people out there who say wonderful things better than I do.  Sometime’s it is better just to point to the good stuff that others have written.

I rediscovered this article (The Wages of Financial Sin is Debt (Among Other Things) written by Laura Rowley in 2008. 

Enjoy and learn.

Laura wrote:

 In any case, I was inspired to create my own list of seven deadly sins. Commit these violations, and you’ll create a financial hell on Earth for yourself:

• Sin No. 1: Failing to identify what thy money is for.

• Sin No. 2: Not living within thy means.

• Sin No. 3: Believing that material wealth will solve all thy problems.

• Sin No. 4: Shopping while feeling sorry for thyself.

• Sin No. 5: Not saving for college because thou expects financial aid (or a higher power) to take care of it.

 See Sins 6 & 7 and a more detailed article here:


Ben Stein: 4 lessons from the recession

In a recent internet article, Ben Stein (economist, writer, actor, etc.) discusses 4 lessons from the recession –  

 The lessons are: 

1. Economic forecasting is still an extremely difficult gambit and nowhere near a science. It is a lot more like astrology than mathematics. 2. Financial market forecasting is even more troublesome than economic forecasting. 

3. The amount of lying and deception by the financial sector of this country has been breathtaking. 

4. The government has no special abilities to forecast or predict a darned thing. 

He concludes with some interesting lessons for the investor: 

A look back at what the financial crisis has taught us.

There is much more that could be said about the lessons of the crash and the recession, but there are lessons to be learned about individual investor behavior that are critical, too.  

One important one: liquidity in a very secure form is a beautiful thing. Those persons who had a lot of cash or Treasury bonds or otherwise insured savings had a much more restful and happier recession than others with almost all of their money tied up in stocks or real estate.  

If I had only one lesson to offer investors, it would be to keep invested in both stocks and bonds and keep plenty of liquidity in good times and bad.  

Secretary Geithner’s “stress tests” which reassured investors about banks, was a brilliant idea and has worked wonders. But the timing and efficacy of government bailouts is very much in doubt on any short-term basis, and brings up a final important lesson: It is up to the prudence and foresight of the ordinary investor to save the ordinary investor and his or her family. The government will not and cannot do it for you.  

You must be diversified between different asset classes and you must maintain liquidity. And you have to assume that the worst can happen and plan accordingly, which means having not just a bare minimum but somewhat more. We have just had a scary episode and a close shave, and we do not know for sure that the nightmare is over.  

Learn the lessons and act as if the worst could happen again at any time. It can and it will. Let us pray a recovery is happening — but let us also tighten our helmet straps. 

And another little note … my much-missed father used to tell me with great approval Adam Smith’s famous quote regarding prophecies of doom for America, “there is a lot of ruin in a nation.”  

I was moved to recall this when I saw Warren Buffett’s optimistic read on the economy at a great ‘town hall” he gave with Bill Gates at Columbia recently. In answer to a query about the short-term future of the market, he waved aside “what’s going to happen tomorrow” and instead said, regarding America, something like, “If you have a good farm, with good crops and good soil and you know you’re going to have five droughts in the next fifty years, you don’t let it affect you that much.”  

I am paraphrasing here, because I saw it on CNBC while eating dinner, but perhaps Buffett’s meaning was, “Don’t sell America short.” At least not for the long run.  

You can read the complete article here