While it is important to review an advisor’s past performance, if you are not aware of the dangers outlined in the following article, it is easy to be misled.

How to Avoid Choosing the Wrong Investment Advisor

by Kim Renners
visit Physicians Money Digest to view the complete article

The volatility of the market returns along with the cracking of the Wall Street foundation has left many uncomfortable with the idea of just “staying the course.” Before you switch firms, or advisors, here are some important considerations.

The Dangers of Reviewing a Firm’s Past Performance

A common mistake individual investors make when evaluating or selecting a financial advisor is to overrate the importance of an advisor’s past performance. There are reasons why this approach is flawed. Let’s examine some briefly:

The Time Frame May Be Too Short. When looking at an investment “track record,” many clients will ask for gross returns on a 1-year, 3-year and 5-year basis. This is simply not enough data to make any concrete conclusions about an advisor’s skill vs. randomness or even dumb luck. Even 10 years of data may not be enough.

Comparisons of Results Likely Not “Apples-to-Apples.” Even the common question, “How did your portfolio perform (last year)?” can lead to misleading answers in cases where portfolios are designed for individual clients. For example, many clients have customized portfolios based on their risk tolerance, age, time horizon, tax bracket, objectives and a variety of other factors.  As a result, it is entirely possible that Client A could see returns of 3%, while Client B could boast a gain of 20% over the same period. Both of these investors could be equally satisfied — or not — and neither of these results may give you any helpful advice about your particular situation. Only in situations when two investors have very similar goals, circumstances and objectives is any comparison worthwhile.

Past Performance is No Guarantee of Future Results. Anyone who has ever watched an investment firm’s commercial on TV, listened to an ad on the radio, or read one in a newspaper or magazine is familiar with the phrase “past performance is no guarantee of future results.”  While this is required by the firm’s legal compliance department, and can be easily discarded as “legalese” by consumers, it is crucial for investors to understand. To illustrate one aspect of this principle, examine the chart below showing the returns of leading investment asset classes over the past 28 years.

Factors for Choosing a Financial Advisor

Independent Custodian. Ideally, an investment firm does not custodian, or hold, its clients’ investments in the firm. Rather, the firm should have arrangements with a number of the largest independent custodians (such as Charles Schwab, TD Ameritrade, etc.) to hold their investments for safekeeping, while the investment firm manages the accounts. This “checks and balances” arrangement prevents the insular secrecy that allowed Madoff, Stanford and other criminals to operate.

Client-Aligned Fee Model. In addition to a transparent business model, you want to look for a firm that has a clear fee schedule. With an “assets under management” (AUM) model, advisors charge a clearly defined fee (typically a percentage of AUM). Contrast this with the traditional, convoluted transaction-based model that most brokers utilize, where a client pays based on trades in the account — regardless of whether the trade added value or not. In a fee-based model, not only do clients understand exactly what they’re paying, they also know the firm’s interest — seeing the portfolio increase in value — is the same as their own. The more money in your portfolio, the more money the firm earns.

Your Biggest Expense? It’s Not Fees

Many investment clients focus primarily on management fees and expenses when evaluating advisors. While such costs are important, for most physicians, the annual fees might range from 50 basis points (0.5%) on the low end to 300 basis points (or 3.0%) on the high end. Instead of haggling over fees, individual investors need to focus on their largest expense: Taxes.

The cost of federal and state income taxes, and capital gains taxes, on a portfolio depends on many factors — the underlying investments, the turnover, the structure in which the investments are held, the taxpayer’s other income and state of residence, and other issue. For higher-income investors such as physicians, taxes will nearly always be high. To gain perspective of how much taxation reduces your returns, consider this one statistic: Over the period from 1987-2007, stock mutual-fund investors lost, on average, 16% to 44% of their gains to taxes, according to a report on CNN.

Given that some investors are losing up to half of their gains to taxes, you’d think this would be a focus of value-added investment firms. Unfortunately, you’d be wrong. Mutual funds provide no tax advice to their investors, apart from the 1099 tax statements they issue in January. In fact, stockbrokers, money managers, hedge-fund managers and financial advisors typically don’t offer tax advice because they are prohibited from doing so. “Tax advice” could include specific techniques for limiting tax consequences of transactions or more general “tax diversification” in portfolios. As a result of these limitations, most investment clients are not getting the tax advice they need.

With the unraveling of some of the country’s leading investment firms behind us and volatility and tax increases ahead of us, many are wisely re-examining their financial advisor relationships. If you are one of these, be sure to focus on the right factors in evaluating potential new advisors so you make intelligent, well-informed decisions.

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 provides a basic overview of the importance of asking for a track record and what to look for from potential advisors.

Getting The Record Strait

by Jack Waymire
visit Worth to view the complete article

How do you know how a financial advisor has performed for his or her clients? By asking for the advisor’s track record-and reading the fine print

All investors ask prospective financial advisors what type of performance to expect from the advisor’s stewardship of their money. Advisors’ responses are sometimes true, sometimes exaggerated and sometimes dishonest. How can an investor figure out what’s true and what isn’t? By looking for the characteristics of track records you can trust-and the warnings for records you can’t.

The Sales Pitch

Representatives and advisors who cannot provide legitimate track records must still convince you they can produce competitive results. They will make sales claims describing the results they have produced for current clients. For example, they may claim they have produced 20 percent returns, using references to back up the claim. But sales claims, even those supported by references, are not legitimate track records. You need …

Disclosure & Documentation

All legitimate track records are based on disclosure and documentation. Disclosure is usually in the fine print, but it should describe the methodology used to produce the track record. Documentation is your record of what is communicated to you before you sign on with an advisor.

Composition of Track Records

The most reliable records are based on the performance of all of the advisor’s portfolios. Second best is a composite of portfolios that still contains a large number of accounts. Be leery of track records based on a limited number of portfolios, which may include only the best performing accounts.

GIPS Compliant

The formula an advisor uses to calculate his or her track record should be in compliance with Global Investment Performance Standards, an industry code established by the CFA Institute.

Third Party Auditors

Independent third parties with no relationship to the advisor or money manager are the best auditors. Beware of unaudited track records and auditors you’ve never heard of.

Investment Expenses

The most reliable track records should reflect all of the fees that would be deducted from your account: advisory fees, money management fees, custodial fees, marketing fees, administration fees and transaction expenses. Expenses can range from 1.5 percent to 3 percent and occasionally even more.

The Free Lunch

Watch out for track records that appear to be too good to be true or an advisor who claims he can produce high returns for low risk. High returns for low risk do not exist.

The Hot Product

Many sales representatives and advisors will show you the performance of hot products (specific mutual funds and hedge funds, for example) and represent the results as their track records. Unfortunately, it’s virtually impossible to know when they began recommending the funds to their clients. In my experience, they usually selected the funds after the performance occurred.

Bottom Line

Some investors feel awkward asking potential advisors for their track records. Don’t. It’s your money.

 

It can be difficult to navigate the waters of selecting an advisor.  Understanding the importance of a track record is a good place to start.

Does Your Investment Advisor Have a Track Record?

by Howard Aschwald
visit Wealth Management Exchange to view the complete article

With the recent market turmoil, investors are looking for more credibility and transparency from their investment advisors. Many investors have become disappointed with the investment results achieved by their advisors. Their performance doesn’t look like anything they were shown in the presentation made by the advisor when they signed up. Perhaps it’s because the track records shown to them in the presentation were not actually achieved by the advisor directly.

According to a survey of 4000 investors conducted by the Paladin Registry, 91.4% of investors want their advisor to have a track record of their investment performance. Paladin Registry concluded that track records were not typically available from advisors. Most advisors have not found it necessary to have their own track record, since many investors still find it acceptable to just let the advisor choose investments for them.

These advisors are similar to professional buyers that shop on behalf of the investor to scout out investment opportunities. The investment managers for the major endowments (the ultimate professional buyers with just one client) are credited (or debited) with a track record. It is only a matter of time until individual investors, with 91.4% preference for real track records, begin to demand the same from their advisors.

Track Record: Reflection of Advisor’s Investment Judgment

It is perfectly understandable why investors want to see a record from an advisor that has management control (discretion) of their investment accounts. A track record is a reflection of the advisor’s investment judgment and decision making that is independent of an advisor’s presentation skills. If an investor is going to turn over control of the buy and sell decision to an advisor, then it would be prudent to see how that advisor has handled other decisions in the past.

Even if advisors are simply selecting mutual funds or choosing separate account managers on behalf of their investors, they should have a record of their past choices that would closely match how they intend to invest client funds. It’s not enough (and fairly misleading) to site the record of a mutual fund or separate manager unless that record coincided with the actual results achieved by the advisor’s clients in the past.

Investors should be careful when an advisor claims to pick only “the best” manager(s) or fund(s). They may say that they have a due diligence process for screening managers and it could look very impressive, but how can an investor know if that process truly worked without the advisor’s record to go with it.

Psychologically, the advisor is transferring the success of someone else’s track record and using that in their sales/consulting presentation. Under those circumstances, an investor should heed the maxim that “past performance is no indicator of future results”. As a side benefit of using an advisor with a track record, a client can be sure that the advisor/manager will be extra diligent in his management process since the client’s results will be included in the manager’s future performance record.

CFA’s Global Investment Performance Standards (GIPS)

Fortunately, there are global standards on how track records are to be calculated and presented. The CFA Institute’s Global Investment Performance Standards (GIPS) are the criteria that institutional investors require of their investment managers. These standards allow clients to evaluate track records from any firm in the world that adheres to them.

In much the same way that public corporations have to present accounting data in accordance with Generally Accepted Accounting Principals (GAAP) in the U.S., investment managers have to present their track records in compliance with GIPS. In this way, it is possible to make consistent comparisons across managers. Furthermore, the records of mutual funds, which are GIPS compliant and audited, can be compared directly to the records of separate account managers.

Calculating Performance Uniformly

Any advisor who has investment control (discretion to make buy and sell decisions) over accounts can adopt GIPS. The requirements are not difficult to implement and manage. The standards require managers to calculate performance in a uniform way and present their results into meaningful composite reports. There is broad leeway to include and exclude performance results from each composite, but the standards greatly diminish the potential for “gaming” track records by including only the best performing accounts or showing a potentially misleading “representative” account.

While managers can legally show records that are not GIPS compliant (with enough fine print to protect them from regulators), most institutional clients will not accept them. In addition, most institutional clients expect managers to not only have GIPS compliant records, but have their results audited by an independent third party as well.

Investors are looking for their advisors to be more responsible and accountable for the results of the advice and management they are providing. At the very least, individual investors should expect their advisors to provide them with separate account investment managers who have audited and GIPS compliant track records.

Not Asking For Too Much

Individual investors should be very leery of any advisor who shows a track record of a separate account manager or mutual fund and then implies that would have been his choice five years earlier. Finally, if the advisor has the responsibility to manage the client’s investment assets, asking the advisor for an audited written track record, is not asking for too much.

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.

 

Choosing an advisor with experience is critical, but it’s not just a matter of years under their belt it is also a matter of results.  What is their track record? How have their portfolios preformed? The following article outlines questions to ask before determining who will manage your investments.

Sizing up a Financial Advisor

by Chris Parry
visit InvestorGuide.com to view the complete article

 A majority of investors are hesitant when looking into using a financial advisor. This is in part due to the fact that the financial service industry does not have the best track record. For example, many financial advisors work off commissions from certain

businesses which they receive for selling the products of that company. This creates an incentive for some financial advisors to sell certain products that will help them financially but may not be the right move for an investor. If you want to make the right decision with your money, using the expertise of a qualified, unbiased professional financial advisor may be the best way to create a financial plan which is ideal for you.

Getting referrals from acquaintances and friends for financial advisors is a good place to start but you should also look into each advisor on your own as you must ask as many questions as possible to make sure you are comfortable letting your financial advisor handle your investments. Below are some of the points which you should make sure of before choosing a financial advisor.

• The financial advisor should work for you on only a fee basis not on a commission based compensation structure. Advisors who work on commissions are generally more likely to recommend frequent transactions which may not be in your best interest. Also, an advisor who works on commissions may have ulterior motives because they make money both when you buy and when you sell securities.
• A financial advisor working for you must know the risks you are willing to take and stick to those terms. A good way to do this is to look at historical performance of the potential portfolio in bear markets to get a feel for how the value of that particular asset mix can fluctuate. An advisor who knows what risks you are willing and not willing to take will adjust your portfolio as need be to keep it focused on your financial goals.
• An advisor should work with you to set goals for your target rate of return. A fee only advisor can show you different models and different types of investments that have the potential for reaching the goals that you have set.
• Make sure the advisor writes a policy statement for you. A policy statement should have well laid out instructions that cover the following goals and risks: target return, tolerance of risk, time horizon, tax restraints, and also encompass any regulatory issues.
• The advisor should be active in rebalancing your portfolio. If there is a situation where an asset does not sit well with the originally specified target allocation, then they should either sell it or at least modify the exposure of your portfolio to it until the target, which you specified, is achieved.
• The advisor you choose should give you a quarterly report of your financial portfolio’s performance and its market value. They should determine if the market value of your portfolio is growing at a rate which will allow you to achieve your set financial goals. They should also be up front in telling you changes that they think you should make. 

 

 

How important is experience when it comes to selecting a financial advisor? According to Forbes, experience is the first thing to look.  The following article list experience as one of 10 things to evaluate when making a choice of advisor.

 

How To Select A Financial Advisor

Investors ought to be concerned with the quality of investment advice whenever an investment’s performance diverges from the investor’s perception of the riskiness of the investment. Performance that diverges from expectations is a signal that something might be wrong, and in the last year too many people got that signal. It was hard to ignore.

There is no simple formula, no single set of questions to ask or guidelines to follow when searching for a new advisor. One must, of course, know the different types of services offered by the different types of advisors–a subject covered in my last column. (See Know Your Broker Better.) But if you are thinking about changing brokers or advisors or whatever, or if you are wondering whether your current advisor is the right one, you can probably use some suggestions about how to find a competent investment advisor.

Here are 10 things to think about.

1. Experience–An advisor should have an appropriate amount of education and business experience. While a “finance” or business degree is not required, an advisor’s level of education is important. Experience is even more crucial. Advisors who have not experienced at two least two market cycles probably don’t have enough perspective.

2. Condescension–Beware of any advisor who belittles your concerns about risk, or who encourages you to buy investments you don’t fully understand. Fancy or complicated investments are rarely good ones.

3. Writing–An advisor should give you something in writing that describes the investments the advisor will recommend or make. Beware the advisor who tries to push a single product, or who says you have to decide right now lest you miss an opportunity.

4. Compensation–An advisor should tell you how he or she will be compensated, and how much the fees are for each transaction. Be suspicious of high-fee products, like variable annuities. And always remember that an investment account is like a bar of soap; every time you touch it, it gets smaller.

5. Wherewithal–An advisor should have sufficient financial wherewithal to make good a mistake or worse. An advisor should either be part of a large organization (like a bank, or a national or regional brokerage firm), or, if they are from a small firm, they should carry “errors and omissions” insurance. When dealing with local firms, small firms or solos, you must ask about insurance. If the advisor appears offended by the question, or says “no,” that advisor cannot to be relied on to invest your money.

6. Referrals–A referral from other professionals (e.g. a lawyer, or an accountant) can be a good place to start, especially when accompanied by statements like “I’ve sent other clients to this person, and they’ve been happy,” or “I’ve known this person professionally for 20 years.” Beware of referrals by professionals of their friends or relatives; these referrals are not objective.

7. Internet Search–Conduct due diligence. Run a Google search. Check the FINRA Web site (www.finra.org) under “Broker check.” Ask for examples of what the advisor has done in the past for clients, and ask how that worked out, especially in bad market conditions. Be curious. If anything makes you uncomfortable, go elsewhere.

8. Remain Vigilant–If you are not capable of or inclined to review periodic account statements, employ another professional to keep an eye on your advisor, even if you must pay for that service. It’s like getting a second opinion before surgery–you need to do this.

9. Track Record–Past performance is not an indicator of future profits, but it is definitely an indicator of risk. Avoid managers and advisors who claim to way out-perform the market or their peers. It probably means they are taking more risk.

10. Risk/Reward–Beware of advisors who tell you they can increase your income without increasing risk. What most investors don’t realize is that an increase of just 1% per year in the yield of a bond portfolio means taking on significantly more risk. The more an investor “needs” the income, the more important it is to make sure the investor’s principal is secure. “Chasing yields,” as it is known, can be a dangerous strategy.

Investors cannot afford to put blind trust in an advisor or a financial services company. When selecting an advisor, investors cannot be shy. They must know the questions to ask, and be able to spot the warning signs when something is amiss. It’s a tough task, and even smart people too often get it wrong. The only thing harder than finding a good advisor may be making investment decisions without one.

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.

 

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.

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 the fiduciary responsibilities that financial advisers have to their clients.

When Are You an Investment Fiduciary?

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Under what circumstances is the financial planner a fiduciary? As Trone puts it in his position paper, “At the risk of oversimplifying a complex subject, an investment fiduciary generally is defined as a person who has the responsibility of managing someone else’s assets. If one accepts the premise that a large majority of financial planners provide investment advice, then when might a financial planner be considered an investment fiduciary?”

In attempting to answer that question, Trone says, we should first qualify and refine the previously stated general definition of an investment fiduciary to make it industry specific. A financial planner may be considered an investment fiduciary under these circumstances: (1) when the financial planner is registered with the Securities and Exchange Commission or (2) when by actions the financial planner provides comprehensive and continuous advice.

The advantages of this industry-specific definition are that it is applicable whether the financial planner is (1) a registered representative or a registered investment adviser; (2) commission or fee-based, or (3) operating with or without client discretion.

But as simple and as straightforward as this definition might appear, the determination of fiduciary status is still difficult and is ultimately decided by the courts or arbitration boards who review the facts and circumstances of each situation. A financial planner may be deemed an investment fiduciary with one client, but not with another. To illustrate this difficulty, consider these two examples drawn from Trone’s paper.

Example 1. A client has several different brokers and money managers, as well as a portfolio of stocks and bonds that the client has managed on her own. The client asks the financial planner to review her existing portfolio of stocks and bonds, and to make recommendations as to which securities are no longer appropriate and should be sold. The financial planner uses several different rating agencies to evaluate the portfolio and make several “sell” recommendations, which the client accepts.

Question: Is it likely the financial planner will be considered an investment fiduciary in this example?

Answer: Probably not. The financial planner did not develop a comprehensive investment strategy that reviewed and included all of the client’s investment holdings (the services were not comprehensive). It is also implied that the investment review was a one-time or occasional request, and was not an ongoing service provided by the planner (the investment advice was not continuous).

Example 2. A client sells his business for a sizable fortune and, for the first time, has considerable investable assets to manage. He turns to his financial planner for assistance. The financial planner develops an asset allocation study, prepares an investment policy statement, implements the investment strategy with appropriate money managers and mutual funds, and on a periodic basis provides performance reports showing how the client is progressing toward meeting his goals.

Question: Is it likely that the financial planner will be considered an investment fiduciary in this example?

Answer: Very likely. The investment advice is comprehensive and continuous.

The specific industry challenge is to clearly identify the demarcation between executing a brokered transaction and giving investment advice. The compliance regulations and suitability standards of the National Association of Securities Dealers and various market exchanges adequately address the practices associated with the selling of an investment product and the execution of a brokered transaction. But when the investor is provided comprehensive and continuous investment advice, a higher standard of care is justified and warranted-specifically a fiduciary standard of care.

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.

continued from last week…

Top 10 Wealth Management Mistakes

by Akash Joshi

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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.