Written by Dave Young, President of Paragon Wealth Management 

Step 4 - Avoid Unnecessary Debt

Debt can be useful if used properly. A few years ago I went to Africa. While I was on the trip I noticed buildings that were half built everywhere. Projects were at different levels of completion and then abandoned. When I asked my guide why the structures were halfway done, he responded, there is no banking system. There is no way for the common man to borrow money. People can only complete part of the building because they lack the funds to pay for building supplies right away. They build what they can pay for now, and then come back and build more next year when they have more money. 

If debt is used sparingly, for assets that appreciate or allow you to make more money, then debt makes sense. For example, a house, a car, or an education all make sense.

Using debts for consumables or things that go down in value makes no sense. Impulse buying or buying on emotion are a recipe for financial disaster. Before you make any major purchase, it is important to decide whether it is a “need” or a “want”. It is amazing how few purchases actually fall into the “need” category. If it is a “want” then a conscious decision should be made as to whether or not you can afford it. Generally, there is no reason to go into debt for “wants”.    

For example, most credit card debt is for things that hurt rather than help your financial situation. My definition of a credit card is, “A means of buying something unneeded, at a price you can’t afford, with funds you don’t have.”

Set a goal to live debt free. Put a plan in place to reduce and then eliminate your debts.  With 1.5 billion credit cards in circulation, an average household credit card balance of $8,562 and an average interest rate of 19%, it’s no wonder that one out of every 50 households filed for bankruptcy in 2005.

Accumulating debt is the exact opposite of accumulating wealth. If you are paying debts, you are helping someone else accumulate wealth. With the few exceptions mentioned above, avoid debt like the plague.

Step 5 - Follow a Sound, Long-Term Strategy 

Research has shown that most investors do not follow a strategy.  In other words, they do not have a disciplined, systematic process they follow to make investments.  Their portfolio of investments often represents a patchwork of uncorrelated ideas that were sold to them by various salesmen over their lifetime.

The first step to an effective strategy is to properly select your risk tolerance.  This means that you identify in advance how much risk or volatility you are willing to subject your account to.  For some investors that means taking no risk at all and being willing to accept low returns in exchange for zero volatility.  For others, it means to attempt to generate returns in excess of twenty percent and be willing to endure the necessary roller coaster ride to get them.  Most investors end up somewhere in between those two extremes. 

Identifying your individual risk tolerance is the single most important step to achieving long term investment success.  If it is set too low, you won’t generate the returns you should. If it is set too high, should market conditions become difficult, you will likely change strategies at just the wrong time and miss out on superior long-term returns.

Once your risk tolerance is set then you must follow a proven investment strategy that doesn’t simply involve “gut feelings.” Emotional investing is a recipe for failure.

What makes investing so difficult is that it is counter-intuitive. Usually, doing what “feels good”, doesn’t work.  This is why you must have a systematic investment process that you follow.

At Paragon, we follow an investment discipline that is designed to remove emotion from the investment process.  For example, one of the models that we use is based on investor sentiment.  This model measures how what percentage of investors are optimistic versus pessimistic at any point in time. Interestingly, when most investors are optimistic and think the market is going to go up….it goes down. Likewise, when most investors think the market is going to go down… it goes up. We measure this statistically and the model is extremely accurate.  The market usually does the opposite of what most investors hope, think or feel that it is going to do.  I have always said that once you begin to “hope” an investment will move in your favor, you are usually in trouble.

Our strategies are driven by quantitative models that seek to proactively position our accounts for the most benefit in ever-changing market environments.  For the past twenty years, we have developed and relied on rigid models to point us to the areas of the market to invest in.  These models identify the sectors of the market that rank in the top twenty percent over the past three, six, nine and twelve months.  Our portfolios are constantly adjusted as positions move in or out of the top twenty percent. 

We use five other models to determine how conservative or aggressive we should be positioned at any point in time. These models measure an array of fundamental and technical data that constantly compare what is happening in the market today to what has happened historically.  Following these systems and processes does not guarantee that we will always be positioned perfectly.  Historically, we expect to be wrong 20% to 30% of the time.  Even still, following this methodology has enabled us to significantly reduce risk and generate excess returns for our clients.  (See our ten year track record at www.paragonwealth.com )

When comparing investment alternatives we believe that you should measure whether or not the strategy you are considering meets the following, time tested criteria.  Your strategy should:

• ¨ Work over different time frames
• ¨ Provide effective rather than traditional diversification
• ¨ Work in both bull and bear markets
• ¨ Be disciplined yet flexible and evolving
• ¨ Reduce risk and provide downside protection
• ¨ Generate better returns than traditional stock indexes
• ¨ Have a proven long-term track record

Step 6 - Avoid Large Losses

Unfortunately, it has always been much easier to lose money than to make it.  In my business, I am constantly presented opportunities to invest in.  For every twenty proposals I see, I may invest in one.  Even with complete due diligence, some of the investments are losers.  My experience is that there are ten ways to lose money for each way there is to make it.  Money is slippery and hard to hold on to.

It’s not uncommon for money to come in large lump sums-in the form of a retirement plan distribution, an inheritance or a life insurance settlement.  People are expected to manage these large chunks of cash wisely, but there is no real training available on how to manage or invest large sums of money. To make matters worse, most people simply don’t have the time, resources, expertise or desire to manage their assets, and there are plenty of incompetent advisors, relatives requesting loans and scam artists ready to step in and take advantage. It’s no surprise, then, that most recipients of life insurance settlements in the United States completely lose their money within three years. 

Some investment losses are unavoidable. They come with the territory. The key is to minimize large losses that can quickly reverse the benefits of compound interest. Even though it can be time consuming, you should research thoroughly before turning over your money to someone else. This will increase your odds of avoiding investment scams and subpar money managers. 

For example, if you lose 25% of your account, you need to make 33% to get back to even, which is workable. If you lose 50% of your portfolio, you have to make 100% to get back to even, obviously a much more difficult task. A loss of 90% of your portfolio requires a gain of 900% to get back to even. Forget about it. A much better scenario is to follow a sound investment strategy that seeks to avoid those big, dramatic losses in the first place.

Step 7 - Be Patient

“A man watches his pear tree day after day, impatient for the ripening of the fruit. Let him attempt to force the process, and he may spoil both the fruit and the tree. But let him patiently wait, and the ripe fruit at length falls into his lap.” -Abraham Lincoln

It has been said that patience is the greatest of all the virtues.  We live in a world where it seems that patience has been forgotten.  In our instant everything world people want it all and they want it now.  They don’t think in terms of paying the price or investing for the long term.  They act on a whim rather than follow a long term plan.

Mountain View High School has a very successful track team with several runners being nationally ranked.  I asked their coach why his runners are so successful.  He told me that much of their success comes because they are taught to have the patience to pace themselves and wait for the right time to make their move to win the race.  Even with runners, exercising patience is one of the keys to success.    

In the fall I spend some of my spare time hunting for big game.  I focus my efforts on finding animals that have record book potential.  In order to locate them I have to backpack into places that rarely traveled and often I come back empty handed.  In my quest to find trophies I have traveled to some very dangerous parts of the world.  In order to succeed I have had to hunt in ways that differ from the traditional.  While there are several factors that contribute to my success, I believe that extreme patience has been the most significant.         

Patience is a key attribute for successful investors, but it can only work if you adopt the kind of smart investment strategy that we previously discussed.  Without the right strategy, all the patience in the world is essentially worthless. As soon as you put a solid strategy in place, it’s all about patience, self-control, patience and of course more patience.   

This is one of the most difficult steps for most investors, and it’s an issue we have to constantly reinforce with our clients. Patience goes against human nature, and a lack of patience has ruined many sound investment plans.  

We are constantly positioning our funds to take advantage of whatever the markets will give us. We never know in advance when we’re going to be rewarded. Sometimes, we spend months waiting. But we do know that following this process in the past has yielded tremendous rewards.  

The portfolios we manage, Managed Income and Top Flight, have both tested our patience during periods of underperformance. By exercising patience and staying invested, Managed Income has met its conservative objectives since its inception in 2001. Paragon’s growth portfolio, Top Flight has also generated outstanding returns and met its performance objectives since its inception in 1998. (See www.paragonwealth.com for more details regarding our performance). 

Clients who exercised patience during periods when our portfolios returns went flat or negative still received outstanding returns over time. It seems like the market does its best to make investors give up at the worst possible time.  For example, when you review our track record you see that our best returns almost always follow the years we have lackluster performance. Unfortunately, the investors that did not exercise patience and stay invested missed out on those returns, even though the overall strategy was good. As you can see, patience keeps you focused on the long term.  Patience is critical to long term investment success.

These seven rules apply whether you have a large or small amount of money. Building wealth is possible-if you follow the rules.

About the Author

Dave Young started his career as an entrepreneur. He successfully started 12 businesses in the early 1980s. In 1986, he decided to sell his businesses and invest the proceeds, but he was unable to find an investment company that met his needs. As a result, later that year he began managing his own portfolios.

Dave continued to research to find the best methods to invest that would produce most profitable returns. He believed in his methods so much that he invested his life savings and started Paragon Wealth Management. Over 20 years later, Dave continues to invest and research ways he can improve his business to serve his clients better. His methods have attracted national and local attention. He has been interviewed by BusinessWeek, CNBC, the Wall Street Journal, the Deseret Morning News and other national and local media. Visit www.paragonwealth.com to learn more about Dave Young and Paragon.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Photo from Wall Street Journal online

 The following article was taken from the Wall Street Journal online article on August 16, 2011. This article discusses some investing strategies that are used by one of the richest families in America: The Walton’s.

 Smart investing tips from Sam Walton

To view full article, please visit Wall Street Journal online.

After the stock market lost 20% of its value in October 1987, Sam Walton, then one of America’s richest men, was unfazed.

In less than a week, the value of his Wal-Mart stores stock had dropped almost $3 billion, reducing his wealth to a mere $4.8 billion. It’s paper anyway,” he told the Associated Press. “It was paper when we started and it’s paper afterward.”

Given the wrenching swings of the past two weeks, many of us may wish we could be so sanguine about our own losses. But even without a few extra billion dollars in the bank, there are useful lessons to be gleaned from the way the Waltons and other ultrarich families cope with investments and market volatility.

Just like us, the rich want to maintain their lifestyle, preserve wealth and hyave money for their heirs or philanthropy. And when it comes to investing, there are several ways the rest of us should take a cue from them:

The very wealthy have a plan. Sam Walton’s plan started in the early 1950s, when, on the advice of his father-in-law, he set up a family partnership, made up of him, his wife, Helen, and their four children, to own his two variety stores. By doing that, he began planning his estate and building family wealth years before he opened the first Wal-Mart in 1962.

Nowadays, most very wealthy people have a team of advisers and an investing strategy in place that should work even when the worst imaginary case becomes real. Small investors, too, should have a comfortable investment process that works in good times and bad.

A financial adviser can be invaluable in helping you with this, but so can a trusted family member or friend who will help you stick to your plan when you start to doubt it.

The very wealthy live below their means. Walton, who died in 1992, was famously frugal, driving an old pickup truck and flying coach. Many very wealthy people spend much more extravagantly, but even so, “most of our ultrawealthy clients have a lifestyle that is well below their means,” says Craig Rawlins, president of Harris myCFO Investment Advisory Services, which serves wealthy families.

When you don’t spend everything, he says, “you have a better opportunity to weather this volatility because you know there’s a cushion there.”

The very wealthy focus on risk, not return. Larry Palmer, managing director, private wealth management, at Morgan Stanley Smith Barney, said he has never had a client says, “My objective is to have my family wealth beat the S&P 500.” Rather, he says, clients focus on what kinds of risks they are taking with their portfolio.

The Walton family weatlh long has been tied to its Wal-Mart stock, now valued at $83.6 billion. But Sam also bought the tiny Bank of Bentonville in 1961, and it is now part of the family-owned Arvest Bank, an $11.5 billion banking company. Walton Enterprises also owns a chain of small newspapers that, along with other interests, offer diversification and push the family’s estimated combined wealth close to $100 billion.

Small investors need to similarly manage their portfolios, making sure that their holdings of stock and other volatile investments aren’t so great that they are putting more at risk than they intended to.

The very wealthy hang on. The super-rich don’t sell because they are fearful-though some may be selling right now for investment reasons, such as cutting the tax bite on holdings with big gains. The Walton family ownerships of Wal-Mart stock hasn’t changed since late 2002, when some shares were transferred to charitable funds.

In that sense, Sam was spot on. Though the Walton family’s Wal-Mart shares have dropped by more than $10 billion since mid-May, until the stock is actually sold, the losses really are nothing more than paper.

 Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Several of our clients at Paragon have been asking us how we got into the debt ceiling mess. This Wall Street Journal article gives a good summarty of what has brought us to this point.

A short history of the entitlement state.

Taken from the Wall Street Journal online

Even without a debt default, it looks increasingly possible that the world’s credit rating agencies will soon downgrade the U.S. debt from the AAA standing it has enjoyed for decades.

A downgrade isn’t catastrophic because global financial markets decide the creditworthiness of U.S. securities, not Moody’s and Standard & Poor’s. The good news is that investors still regard Treasury bonds, which carry the full faith and credit of the U.S. government, as a near zero-risk investment. But a downgrade will raise the cost of credit, especially for states and institutions whose debt is pegged to Treasurys. Above all a downgrade is a symbol of fiscal mismanagement and an omen of worse to come if we continue the same habits.

President Obama will deserve much of the blame for the spending blowout of his first two years (see the nearby chart). But the origins of this downgrade go back degades, and so this is a good time to review the policies that brought us to this sad chapter and 14.3 trillion of debt.

 FDR began the entitlement era with the New Deal and Social Security, but for decades it remained relatively limited. Spending fell dramatically after the end of World War II and the U.S. debt burden fell rapidly from 100% of the GDP. That changed in the mid-1960s with LBJ’s Great Society and the dawn of the health-care state. Medicare and Medicaid were launched in 1965 with fairy tale estimates of future costs.

Medicare, the program for the elderly, was supposed to cost $12 billion by 1990 but instead spent $110 billion. The costs of Medicaid, the program for the poor, have exploded as politicians like California Democrat Henry Waxman expanded eligibility and coverage. In inflation-adjusted dollars, Medicaid cost $4 billion in 1966, $41 billion in 1986 and $243 billion last year. Rather than bending the cost curve down, the government as third-party payer led to a medical price spiral.

LBJ lauched other welfare programs- public housing, food stamps and many more- that have also grown over time. Last year, the panoply of welfare programs spent about $20,000 for every man, woman, and child in poverty, according to Robert Rector of the Heritage Foundation.

Social Security’s fiscal trouble began in earnest in 1972 with bills that increased benefits immediately by 20%, added an annual cost of living adjustment, and created a benefit escalator requiring payments to rise with wages, not inflation. This and other tweaks by Democrat Wilbur Mills added trillions of dollars to the program’s unfunded liabilities. Believe it or not, these 1972 amendments were added to a debt-ceiling bill.

 None of these benefit expansions were subject to annual budget review and thus they grew by automatic pilot. They are sometimes called “mandatory spending” because Congress is required by law to make payments to those who meet eligibility standards, regardless of other spending needs or tax revenues.

According to the most recent government data, today some 50.5 million Americans are on Medicaid, 46.5 million are on Medicare, 52 million on Social Security, five million on SSI, 7.5 million on unemployment insurance, and 44.6 million on food stamps and other nutrition programs. Some 24 million get the earned-income tax credit, a cash income supplement.

By 2010 such payments to individuals were 66% of the federal budget, up from 28% in 1965. (See the second chart.) We now spend 2.1 trillion a year on these redistribution programs, and the 75 million baby boomers are only starting to retire.

We suspect that in the 1960s as now-with ObamaCare-liberals knew they had created fiscal time-bombs. They simply assumed that taxes would keep rising to pay for it all, as they have in Europe.

On Monday night Mr. Obama blamed President George W. Bush’s “two wars” for the debt buildup. But national defense spending was 7.4% of GDP and 42.8% of outlays in 1965, and only 4.8% of GDP and 20.1% of federal outlays in 2010. Defense has not caused the debt crisis.

Many on the left still blame Ronald Reagan, but the debt increase in the 1980s financed a robust economic expansion and victory in the Cold War. Debt held by the public at the end of the Reagan years was much lower as a share of GDP (41% in 1988 and still only 40.3% in 2008) compared to the estimated 72% in fiscal 2011. That Cold War victory made possible the peace dividend that allowed Bill Clinton to balance the budget in the 1990s by cutting defense spending to 3% of GDP from nearly 6% in 1988.

Mr. Bush and Republicans did prove after 9/11 that the Washington urge to spend and borrow is bipartisan. Republicans launched a Medicare drug benefit, record outlays on eduacation, the most expensive transportation bill in history, and home ownership aid that contributed to the housing bubble. The GOP’s blunder was refusing to cut domestic spending to finance the war on terrorism. Guns and butter blowouts never last.

Then came Mr. Obama, arguably the most spendthrift president in history. He inherited a recession and responded by blowing up the U.S. balance sheet. Spending as a share of GDP in the last three years in higher than at any time since 1946. In three years the debt has increased by more than $4 trillion thanks to stimulus, cash for clunkers, mortgage modification programs, 99 weeks of jobless benefits, record expansions in Medicaid, and more.

The forecast is for $8 trillion to $10 trillion more in red ink through 2021. Mr. Obama hinted in a press conference earlier this month that if it weren’t for Republicans, he’d want another stimulus. Scary thought: None of this includes the ObamaCare entitlement that will place 30 million more Americans on government health rolls.

This is the road to fiscal perdition. The looming debt downgrade only confirms what everyone knows: Congress has made so many promises to so many Americans that there is no conceivable way those promises can be kept. Tax rates might have to rise to 60%, 70%, even 80% to raise the revenues to finance these promises, but that would be economically ruinous.

Yet Mr. Obama and most Democrats still oppose any serious reform of Medicare, Medicaid and Social Security. This insistence on no reform reinforces the notion that our entitlement state to afford but also too big to change politically. This is how a AAA country becomes AA, the first step on the march to Greece.

Images:

1. Associated Press: With former President Truman at his side, LBJ signs the Medicare bill into law, July 30, 1965.

2. The Obama-Pelosi Blowout: *2011 estimate. Source: Office of Management and Budget.

3. Entitlement Nation: Source- Office of Mangement and Budget.

Disclaimer

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has be obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Many people have a difficult time selecting a financial adviser or firm to manage their hard-earned money. It can be a very confusing and long process. In the following video, David Young, founder and owner of Paragon Wealth Management, discusses the advantages and benefits of investing with a smaller investment firm rather than a larger investment firm.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article discusses when a non-deductible IRA contribution makes sense for investors depending on their individual situations and goals.

Does a Non-Deductible IRA Make Sense For Your Situation?

To view full article, visit Figuide

If you find yourself in the position of having too high of an income to make a deductible contribution to your IRA for the year ($110,000 for joint filers in 2011, $66,000 for Single and Head of Household), you may be wondering if it’s a good idea to make a non-deductible contribution to your IRA.

There are two opposing camps on this issue, and the deciding factor is how you’re intending to use the funds in the near term.

When It’s a Good Idea

If you’re intending to convert your IRA to a Roth and your income is too high to just make the contribution directly to the Roth account, the non-deductible IRA may be the right choice for you. This way you’re effectively working around the income limitations of the Roth contribution ($179,000 for joint filers in 2011 or $122,000 for single or head of household filers).

You also have more funds available in your IRA account, which provides you with the ability to take advantage of economies of scale - certain mutual funds have higher minimum purchase amounts, for example. Since the money is in an IRA you don’t have to track holding periods, non-qualified dividends versus qualified dividends, and your paperwork is reduced.

In addition, depending upon your state laws your money may be protected against creditors since it’s part of an IRA.

When It’s a Bad Idea

If you’re not planning to convert this IRA to Roth, you’re effectively increasing the tax cost of your investment gains (under today’s law). Since withdrawals of investment gains from your IRA are taxed at ordinary income tax rates (up to 35% under today’s rates), you’re effectively giving yourself a tax increase over the capital gains rate which is 15% maximum these days.

Instead of making a non-deductible contribution to your IRA, you could just make your investment in a taxable account. Then within this account you could make investments geared toward long-term gains rather than income or dividends, therefore deferring tax until you sell the investment. And when you do sell the investment it will be taxed at the currently much lower capital gains rate versus the ordinary income tax rate (which would be applied if you made your contribution in the IRA).

Conclusion

So- depending on what you’re planning to do with the account, a non-deductible contribution could be a good idea or a bad idea. You will have to make that call. Hopefully the information above will help you with your decision.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article discusses what a Roth IRA is and how it can be your best option for your retirement savings account.

What is a Roth IRA?

The view full article, please visit YourRothIRAGuide.com

Saving for retirement is something most people don’t want to think about when they are in their twenty’s but that is the perfect time to begin the process. The more money an individual can save for retirement, the more financially secure the golden years will be. There are mechanisms in place to help plan and save for retirement and the Roth IRA is one of them.

A Roth IRA account is an Individual Retirement Arrangement allowed under the United States tax law and named for its legislative sponsor Senator William Roth, late of Delaware. The Roth IRA has existed since 1998. A Roth IRA is subject to the same rules as a traditional IRA but with some exceptions.

A Roth IRA account can simply be a savings and/or investment account or an annuity and it must be designated as a Roth IRA when it is opened. Contributions to a Roth IRA account must be made from money earned through employment efforts. The effort can be self employment or employment through a legal business. The income can be wages, tips, salaries, bonuses, and professional fees. The Roth account holder will be required to pay taxes on contributions. The benefit is no taxes are required to be paid on earnings or on the principal that is withdrawn from the account at any time. Investments in a Roth IRA can be used for a variety of investments such as stocks, bonds or certificates of deposit. The investor must not exceed established income requirements to contribute to a Roth IRA account, the fund owner must not exceed maximum income criteria. The limits change year to year. A Roth IRA account holder can contribute up to a specified amount between 02 January and the tax deadline of 15 April of the following year. For 2011, the maximum contribution is $5,000. The contribution limit changes with inflation and account holders age 50 or older have the ability of making additional catch up contributions. For 2011, that is $1,000. You will not be able to contribute to a Roth IRA if your income exceeds the income limit. You will be able to continue contributions when your income decreases or the limit is raised.

If one spouse has a Roth IRA account, the other can contribute to the account provided the couple files a joint tax return. Anyone at any age can open a Roth IRA account. Minors can establish and contribute to a Roth IRA provided the minor has verifiable income.

Contributions can be made to a Roth IRA account as well as a 401(k) or 402(b) plan without any contribution effect on either account. A traditional IRA converted to a Roth IRA account can still reveive the current contributions during the year of conversion.

A Roth IRA account can be opened with any Roth IRA providers and they might be a bank, mutual fund companies, brokerage firms or insurance companies. Be sure to compare fee’s providers charge before choosing a Roth IRA account provider.

Photo taken from Wall Street Journal Online

Fiduciary responsibility, in simple terms, is the legal responsibility to put your clients’ needs ahead of your own. Some estimates claim that only 15 percent of investment advisers have this responsibility. Paragon Wealth Management has fiduciary responsibility, and we recommend that you only work with advisers who do.

Below are excerpts from an article taken from the Wall Street Journal Online. In the past investment advisers were the only ones to have fiduciary responsibility, but Wall Street has agreed to put its brokers under the same criterion.

Fiduciary Duty Hits the Street- Sort of
August 31, 2009

Written by Jane J. Kim

For years, most investment advisers have been deemed fiduciaries under the Investment Advisers Act of 1940.

Investor groups say the existing fiduciary standard has been defined and upheld by over four decades of legal precedence, including a 1963 U.S. Supreme Court case, Securities and Exchange Commission v. Capital Gains Research Bureau.

“If you have a precise definition of fiduciary duty, what that does is exclude a number of features of fiduciary,” said Rex Staples, general counsel at the North American Securities Administrators Association Inc., which represents state securities regulators.

Trying to define what constitutes a fiduciary duty is like trying to define the duty not to commit fraud – any application of it depends on the client’s particular facts and circumstances, say adviser groups. Proponents say a fiduciary standard can’t be defined given the complexity and changing nature of the business.

“For years, they’ve opposed the fiduciary duty,” said Barbara Roper, director of investor protection at the Consumer Federation of America, a consumer-advocacy group. “Now they’ve embraced it in order to gut it.”

Still, Wall Street’s support of a fiduciary standard boosts the odds that it will eventually apply to brokers. Now, the fight is over the standard itself.

Investment advisers want to extend the current standard under the Investment Advisers Act to all financial professionals who give investment advice, while the brokerage industry wants a new, federal standard to apply to any broker-dealer or investment adviser that provides personalized investment advice to clients.

Under the Treasury’s proposed Investor Protection Act of 2009, the SEC would have the authority to “promulgate rules” establishing a fiduciary duty. SEC Chairman Mary Schapiro said she favors a fiduciary standard that would that would be applied uniformly to all financial professionals.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

There are many factors in addition to your risk tolerance to take into consideration when it comes to developing your personal investment philosophy. The following bullet points are based on Paragon Wealth Management’s experience actively managing accounts for more than 20 years. 

• To succeed over the long term in dynamic markets that are constantly changing and evolving, the investment approach must be both disciplined and flexible.
• Stock market forecasts are entertaining and make nice headlines, but they are not useful for making money.
• Making investment decisions based purely on fundamental analysis is a mistake. Even if your analysis is completely correct, nothing happens until investors begin to buy or sell. At Paragon, quantitative models drive our investment process, followed by technical and fundamental analysis.
• Application of behavioral finance investment theory is useful in determining portfolio allocation. Crowd sentiment is an important factor that must be constantly measured.
• Traditional methods of fund selection focus on long-term track records, even though research has repeatedly shown that such data in not indicative of future performance. We focus on what the sector is doing now, not what it has done over the past three to five years.
• Spreading a portfolio across all major market segments in the name of diversification is a cop-out. Why invest in sectors that are going nowhere?
• Most low turnover managers are overpaid for what they do. How difficult is it to buy some stocks and watch them go up and down forever?
• Portfolio turnover, in and of itself, is not a bad thing. Also, simply focusing on fund expenses, rather than what an investor earns, is a big mistake.
• Matching the performance of the S&P 500 is not particularly impressive. If that is the objective, investors may as well purchase an index fund.

 

continued from last week…

Top 10 Wealth Management Mistakes

by Akash Joshi

Visit Financial Express to view the complete article

6. Communication hassles

Wealth managers usually will keep sending you a lot of mailers and documents to keep you abreast of your wealth position. Now, there could be an information overkill situation. However, you need to be clear about where your funds are being allocated and how are they being monitored. And this relationship should be clarified at the very beginning of the association. Moreover, it is prudent to work with those who ensure maximum confidentiality and address your communication needs.

7. Protection

Often enough, wealth management is considered to be just about growing a set capital and then deciding how to distribute these monies. Many times, the aspect of protecting and covering assets and lives is not looked into. And many wealth managers, especially those attached with broking firms, tend to overlook this factor as well, or would include this in the investment basket, by using the unit linked route.

This is a grave mistake. You need to insist to your wealth manager to include the insurance aspect as well. And it is most likely that your wealth manager will actually provide you with some sound advice here. “The commissions from life insurance are quite attractive,” says Nikam.

8. Neglecting succession/estate planning

There have been umpteen cases where the family members of the deceased have been involved in bitter legal wrangles over sharing the estate. And most of this happens because a proper legal will was not prepared. Planning the ‘will’ much earlier will ease much of the tension. Your philanthropic activities can also be scheduled in the will.

Moreover, wealth managers now offer trust services where trusts can be created for various purposes and their execution can be managed by the wealth managers. And trusts can be created even when you are alive and they will be managed according to your wishes and direction.

9. Involving family

Though it comes at the bottom of the rankings, not involving your family in the wealth management process could easily be one of the biggest mistakes. Experts recommend that speaking and sharing your overall plans with your family.

Discussing the life goals helps as the clarity, understanding and alignment of all family members is enhanced and therefore the wealth manager can then set up a solution that best fits your requirements. And with the family members involved, the sense of participation also increases, reckon wealth managers.

10. Overdependence

Lastly, wealth managers are human too and they make mistakes. Being completely dependent on them could be as counter-productive as constantly prodding them with suspicion. However, a healthy sense of accountability must be established where performances are questioned and monitored.

Having looked at all these factors, wealth management can be a rewarding experience that can help you fulfill your dreams and aspirations. It can, as a wealth manager says, enable you to see the fruits of your labour and enterprise be translated into happiness. It just requires some smart diligence.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following video will give you suggestions on how to select a financial advisor. The seven steps discussed, are tools developed to assist you when it comes to choosing a wealth manager.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.