Issue 16.10

A gentleman came to me seeking advice after attending one of those free dinner seminars. The salesman had recommended the purchase of an annuity. The man went home and Googled “Indexed Annuities” only to find numerous complaints and class action lawsuits surrounding them.  In his follow up meeting with the salesman he questioned why he would recommend a product that was so embroiled in legal problems. The insurance agent smiled and responded, “Oh that’s no big deal. All the companies I sell for are being sued.” I sat stunned for a moment and then said, “And that was his best sales pitch?” After a brief pause we both broke out laughing.

Why are these highly touted products the subject of so many complaints? I meet many people who own indexed annuities, but very few seem happy with them. Having researched Indexed Annuities for many years I have concluded that the problem boils down to three main misunderstandings. First, though they technically “track” a stock market index, in reality they often fall far short of market-like returns. Their methods for calculating earnings can be so complicated that it is not uncommon for these products to earn little or nothing even in good stock markets.

Second, salesmen claim that you cannot lose money with an indexed annuity. On the SEC website www.sec.gov it states “You can lose money buying an equity-indexed annuity” and then it goes on to explain several ways this might happen. My experience is that many people are ultimately so disappointed in the annuities that they surrender them early, incurring large penalties. Regarding surrender penalties that often last up to 10 years one might reasonably ask, “If the product is so great, then why do people have to be forced to keep them?”

Third, most people are not aware that the insurance company can unilaterally alter the payout terms on each anniversary. Once you sign the contract you are literally at the mercy of the insurance company for many years. Imagine buying a 10 year CD from a bank only to learn that they can lower the rate of return after one year.

The real problem is not the annuities themselves. They have their place in the right situation. The problem is the inherent conflict of interest that exists between a retiree who is seeking financial safety in a troubled world, and a salesman who is trying to recoup the cost of an expensive “Free Dinner.” (to be continued…)

Dan Wyson, CFP®  is author of the book “21 Financial Myths” and owner of Wyson Financial. 1173 S. 250 W #305 St. George 435-986-9525 – Securities offered through LPL Financial member FINRA/SIPC

Issue 15.10

My Grandpa had a contraption for every occasion. He was always looking for an easier way to do things. One of his most famous inventions was his ice cream maker. Long before the invention of automated kitchen appliances, if you wanted to make some nice homemade ice cream you had to do it by turning a hand crank mixer for about 30 minutes. My grandpa would rather read the paper than turn the crank so he came up with an idea.

In his garage he had a very old Model T Ford, but it still ran. One day he put the back of the car up on jacks so the rear wheels were off the ground. He then took the ice cream maker and mounted it to a wooden box so that it would stay in place. Sliding it over so that the handle on the crank was wedged inside the spokes on the old car’s wheels, he would start the car and let it run slowly. As the wheel turned, the crank would stir the ice cream. I still have a picture of grandpa reading his paper while the ice cream was mixing. Now the picture is cute and the invention was so much like Grandpa, but as I look back at that picture I can’t help thinking, wouldn’t it have been much easier just to turn the handle yourself?  In his clever attempt to simplify a task he had actually made it much more complicated.

It is not uncommon in financial planning to find portfolios that are unduly complicated. Sometimes as I review portfolios I have to chuckle and wonder if some advisors view confusion as a virtue. Perhaps they think the myriad of investments will make them appear smarter to their clients. An understanding of financial planning takes many years of work and experience, but this does not mean that a given portfolio should be so confusing that the owner cannot understand it.

Investing, like ice cream making, requires certain skills to get it right. But sometimes, like my Grandpa, advisors get carried away in a maze of complicated ideas when some good common sense will get the job done better, and still leave plenty of time left to enjoy a little dessert.

Dan Wyson, CFP®  is author of the book “21 Financial Myths” and owner of Wyson Financial. 1173 S. 250 W #305 St. George 435-986-9525 – Securities offered through LPL Financial member FINRA/SIPC

Issue 14.10

A family gathering never happened without a sampling of Grandpa’s famous potato salad. He wasn’t the cook in the home but there were a few things that he did better than anyone and he was quite proud of it. His potato salad was it’s own food group and every time we enjoyed it we would sit around the table and try to guess what he put into it. Grandpa was often asked why he would not share his secret recipe to which he would reply, “Well then it wouldn’t be much of a secret would it?”

I received an advertisement once that said in bold letters, “Learn how I turned $10,000 into $5,000,000 in one year in the stock market.” The ad boasted that the supposed stock market genius was willing to share his trading secrets with anyone who would send him a few dollars. I thought about how kind and generous this man was being. I figured he could have made another several million dollars more had he just taken the thousands spent on mailing those ads and invested then back into the stock market. Instead, for just a few dollars’ return he was going to give me his “secret recipe.”

The more I pondered his offer the more I thought back on Thanksgiving and Grandpa’s potato salad. Grandpa knew that once his secret was out everyone would be making it at home, and what then would be so special about those reunion dinners? Grandpa’s secret was so special to him that when he died he took it with him. Does it seem reasonable to believe that someone who had discovered a secret for making millions in the stock market overnight would be willing to sell that secret to strangers for a few dollars? What would be the point of it?

After many years I have developed a personal philosophy about these self-proclaimed hotshot investors. I have learned that those who really do have a system for astronomical returns keep their secrets to themselves. However, once their system stops working, they are more than happy to sell the secret to others.

I wish I had Grandpas secret potato salad recipe, but in the end it was only a salad. More valuable to me now are the memories and the lessons I learned from his statements of simple common sense.

Dan Wyson, CFP®  is author of the book “21 Financial Myths” and owner of Wyson Financial. 1173 S. 250 W #305 St. George 435-986-9525 – Securities offered through Linsco/Private Ledger member NASD/SIPC

Issue 13.10

All aircraft have four forces continually acting upon them. These forces work in two opposing pairs and they are Lift, Gravity, Thrust and Drag. The plane’s wings create lift, which allows it to climb. Working in opposition to lift is the force of gravity. Ask most people what a pilot’s greatest enemy is and they will jokingly respond, “Gravity.” Though gravity appears to be the enemy, the reality is that without gravity the force of lift would be ineffective. It is the constant stabilizing pull of gravity against the plane that allows the aircraft to climb. Without gravity, an airplane would soar off uncontrollably into space.

The plane’s engine generates thrust, which propels it forward. Acting in opposition to thrust is drag. As the plane accelerates, the balancing force of drag increases. Stick your hand out the window of your car while on a freeway and you will experience the effects of drag. Like gravity, even though drag creates a hindrance to the plane by holding it back, it also is absolutely necessary for the proper control of thrust. If there were no drag an airplane would rocket forward out of control. Airplane engineers spend long hours trying to overcome the opposing forces of gravity and drag, while at the same time realizing that they are absolutely necessary for safe and productive flight.

Over the years many people have come to me seeking financial advice. Some are concerned to the point they have considered selling off all their investments. Voices of fear that we all hear everyday have convinced them that they need to remove all risk from their financial lives. I often find myself teaching these people about flying. In investing (for that matter in all of life) there are opposing forces at work. Financial advisors generically call these forces “Risk.” Risk may sound like a bad word, a word that invites disaster, much like the word, gravity. But like gravity, risk is essential to productive financial flight. Without risk there is no growth. 

A non-pilot will look at a downed airplane and assume gravity was to blame. A pilot however, will look at the same crash and understand the culprit was insufficient lift. Without gravity a plane cannot generate lift. Without risk, your investments cannot generate growth. A wise pilot learns to use both to his advantage.

Dan Wyson, CFP®  is author of the book “21 Financial Myths” and owner of Wyson Financial. 1173 S. 250 W #305 St. George 435-986-9525 – Securities offered through LPL Financial member FINRA/SIPC

Issue 11.10

I recently returned from an annual fact finding trip to one of the companies where I invest money for many of my clients.  This particular investment has delivered solid returns even during the recession.  As I reviewed the firm’s financials, and discussed the bright prospects for the years ahead, I felt a little sorry for those who have missed out, and will continue to miss out because they have allowed their decisions to be governed by fear. I believe human emotion to be an investor’s worst enemy.  It leads to poor decisions and makes us vulnerable to those who can use that fear against us.

I am not blind to what is going on in the world.  I realize there are great challenges and our government appears to be somewhat clueless.  But I also know that with great challenge comes great opportunity.  In 1982 I was living in Las Vegas.  With mortgage rates at 18% and construction at a total standstill, I made the decision to build my first home.  The world was scared then, but I saw in that fear a wonderful opportunity.  I purchased a partially framed and abandoned house.  The recession provided cheap labor and materials and in a short time I was living in a beautiful new home.  Though the lights were literally out on the Las Vegas strip, I was confident they would come on again.  It wasn’t long before interest rates started dropping, the recession ended and my home skyrocketed in value.

If you listen to the daily talk show hosts you will be tempted to build a concrete bomb shelter in your backyard and hide there – with your gold bricks.  I for one have no interest in living my life in a cave.  And even though a gold coin is pretty, you can’t eat it, heat your house with it or wear it.  It doesn’t get bigger, it produces no product and it has never paid a dividend.

I spend my life studying markets of all types and I find much more good than bad in the years to come.  I believe there are opportunities today as good or better than any I have ever seen.  To be a successful investor does not require a perfect world, just opportunity.  I can tell you that while much of the world worries itself sick, smart investors are quietly gobbling up valuable assets.  The clients of Wyson Financial are among them.

Dan Wyson, CFP®  is author of the book “21 Financial Myths” and owner of Wyson Financial. 1173 S. 250 W #305 St. George 435-986-9525 – Securities offered through LPL Financial member FINRA/SIPC

Issue 9.10

It has been exactly one year since I did a series of seminars entitled “A Case for Optimism” in which I used historical data and current research to show that a market rebound was likely and that we could expect it would happen so quickly that those who were on the sidelines would likely miss out on much of it.  The stock market today is up over 60% from that time.

My 1999 prediction of the market crash of 2000 is a matter of public record as it was given in a televised address to the St. George Chamber of Commerce.  As the market recovered over the next few years I systematically moved some of my client’s profits to non-market products in an effort to take some money off the table.  Then in 2007, I recommended to my clients that they move substantial assets out of the stock market and into some alternative investments that proved to be just the right place while the market was falling.

Today I have strong feelings about where to invest for 2010.  Unfortunately, as a CFP® and as one of the very few people in Southern Utah who holds a Series 24 Principal Securities license, I am prevented from making specific public recommendations.  Unlicensed individuals may go on the radio and carelessly recommend a single product to all who are listening, but with my licensing I am held to a much higher standard.  I am required (and indeed should be) to know my audience and only make recommendations that are appropriate to all my readers.  Since it is impossible for me to know who reads my articles, and since no single solution is right for everyone, it is only prudent that I should reserve my specific recommendations for my individual client meetings.

I appreciate all the wonderful comments I receive each week from so many of my readers.  I apologize to those who look here for more specific recommendations.  In a strange industry twist, the more qualifications you have, the higher your licensing, the less specific you are allowed to be when speaking in public.  It is a source of constant frustration as I attempt to educate my readers who are continually bombarded with ads and commentary from those who, because they are not Certified Financial Planners® or Securities licensed, are ironically free to say just about anything they wish.

Dan Wyson, CFP®  is author of the book “21 Financial Myths” and owner of Wyson Financial. 1173 S. 250 W #305 St. George 435-986-9525 – Securities offered through LPL Financial member FINRA/SIPC

Issue 8.10

When I was 25 I decided to build a block wall around my yard. I wasn’t skilled in masonry so it took a long time to lay each row.  I was building in 20 foot sections, six feet high.  Every four feet I had installed rebar so I could pour cement down the holes in the cinder blocks and tie the wall to its foundation.  I had been advised to fill these cores as each section of wall was completed.

When I had finished the first 20 foot section I stood back and admired my work.  It was a great sense of accomplishment.  Now it was time to pour the cores with cement.  As I thought about all the work involved in hand mixing that much cement I decided instead to go ahead and start the next section first.  After all, pouring the cores took a lot of time and there was nothing visible to show for your efforts.

Over the course of the next six months I managed to finish eight more sections of wall giving me nearly 180 feet of privacy around my backyard.  The boring task of pouring the cores had been put off indefinitely.  I had decided to leave that “unrewarding” portion of the work for last.

Then it happened.  I awoke one morning to one of those horrible Las Vegas windstorms.  After one huge gust I looked out my window to see all 180 feet of six foot high fence laying flat and broken in my yard.  The memory of that image still bothers me.

A good portfolio, like a block wall, needs a core to provide stability in times of storm.  Broad stock portfolios have traditionally provided good long term returns but they must be stabilized with core investments often consisting of bonds, real estate and others.  The core portion is often boring and lacks the high short term potential of most growth investments.  Plodding along in the background however, the core is designed to provide stability to help protect you when market winds blow.  As our economy moves from recession to recovery, there will be a temptation for investors to lean too heavily towards the more exciting growth investments.  Growth is great, but if you are tempted to bypass the equally important core holdings, please stop by my office and I will show you a picture of that wall.

Dan Wyson, CFP®  is author of the book “21 Financial Myths” and owner of Wyson Financial. 1173 S. 250 W #305 St. George 435-986-9525 - Securities offered through LPL Financial FINRA/SIPC.

Issue 7.10

After a strong start to the year, the market ran into a buzz saw last week.  The cause for the pullback was a shift in focus from profits to politics.  The noise from Washington resounded louder than the real numbers coming from America’s businesses.  In just a few days, the market’s focus moved from economic recovery to political uncertainty. The landmark election in Massachusetts caused the greatest concern. 

It should not be a surprise that activities in Washington greatly impact the pace of this economic recovery and subsequent reaction by the market.  While I believe that government actions, regulatory reforms, and monetary policy of central banks will remain a headwind for this market, I do not believe that it will derail the economic recovery that has begun.

The U.S. economy is on the verge of creating jobs for the first time in several years.  The average work week and overtime hours have been on the rise and manufacturing activity remains in an upswing.  Housing is beginning to stabilize.  Companies are beginning to shift from spending cuts to investing for further growth by increasing production, starting new initiatives for growth, and re-establishing exploration, research, and development efforts.  Profit and sales growth are once again showing up on company’s income statements.  Simply put, this economy is slowly getting better.

Whether Washington acts as a tailwind to help or a headwind to impede, we will find out in the coming months.  Either way, it is the strength and resolve of America, not Washington, which holds the cards for our future.  As the uncertainties of politics and policy in January gives way to a February calendar filled with corporate earnings reports and fresh economic data supporting a recovery, I look for this latest period of weak market performance to be merely a pothole on our journey down the road to recovery. 

I will continue to look for ways to help my clients benefit from the recovery while leaving a significant portion in investments that provide current income.  I will also continue strong positions in areas that I feel will protect against future inflation, “when” not “if” it arrives.  It’s been almost three decades since we have seen serious inflation so many have forgotten how dangerous it can be, but current policy appears certain to head us in that direction.  Fortunately there are options for investors to take advantage of it rather than be run over by it.

Dan Wyson, CFP®  is author of the book “21 Financial Myths” and owner of Wyson Financial. 1173 S. 250 W #305 St. George 435-986-9525 - Securities offered through LPL Financial FINRA/SIPC

Issue 6.10

I recently heard a speaker say, “Of course I am preaching to the choir here.”  There is a lot of truth in that expression.  In many instances the people who need to hear something are the ones most likely to not be in attendance.

The FAA reports that pilots who take optional continuing education courses are less likely to be involved in an accident.  I wonder if the education reduces accident rates or is it that the safer and more conscientious pilots are the ones most likely to take the courses?

I’ve spent many years teaching courses on investing and financial planning.  Among other things, I currently teach continuing education classes at Dixie State College.  It is very rewarding helping people see and understand things in new ways.  I love teaching.  I love that glow that comes to a person’s face when a difficult concept suddenly comes together for them.

Ironically, as with flying, I have found that those who attend my classes at the college also tend to be the ones who are the most responsible investors to begin with.  Those most capable at managing their own money are usually first to seek out new opportunities to learn.  I am sure it is this attitude that has led them to success in the first place.  Unfortunately, the ones in the greatest need of financial help tend to be those who rarely seek it.  Perhaps they think they are without hope.  Maybe they are afraid of looking foolish.  They may even think they already know everything. The latter being the most dangerous to themselves.

Despite my lifetime of study in financial matters, I regularly travel long distances to hear lectures or attend classes taught by others in the industry.  My goal on those trips is to learn just one thing that will help me be a better advisor.  I have listened to the greatest minds in the industry, and some of the worst, but I have learned from them all.

I invite my readers who would like to learn something new, or brush up on something old, to join me at DSC this month (see accompanying ad).  I offer a special invitation to those who are normally not in “The Choir” to come join us and see what we all might learn together.  I promise you your time will be well spent. And don’t worry, I won’t ask you to sing.

Dan Wyson, CFP®  is author of the book “21 Financial Myths” and owner of Wyson Financial. 1173 S. 250 W #305 St. George 435-986-9525 - Securities offered through LPL Financial FINRA/SIPC.

Issue 5.10

One of my favorite college courses was statistics.  I love to dig for the truth behind the sales pitch.  On my first day of class the professor put a popular advertisement on the board that read, “Four out of Five Dentists surveyed recommend sugarless gum.”  We spent the next hour analyzing that claim and what it really said.  In the end we decided all we knew for sure was that they were able to find four dentists somewhere who recommended sugarless gum.  As it stood the statistic was worthless.

I heard a radio ad wherein an insurance salesman declared that none of his clients had ever lost a dime in the stock market.  That’s an impressive statistic!  Of course his ad failed to mention that since he doesn’t have a securities license, none of his clients had ever been in the stock market.  I suppose Steve Young could accurately claim to have not thrown a single interception in 10 years.  Of course in the 10 years since he retired he hasn’t thrown a touchdown either.

If ever there were a business driven by statistics it is financial planning.  I am grateful to my wise professor for giving me a healthy skepticism towards statistics.  Last week another advisor called to tell me his client accounts were up “60% this year.”  After some questioning I found that he meant they were up 60% since March of 2009, but prior to that they had lost so much money they were still deeply in the red.  He carefully left out that statistic.

Another advisor called to ask my opinion of an investment he was anxious to sell his clients.  He rattled off the glowing statistics as if reading directly from the sales brochure.  I simply replied, “As wonderful as it sounds, in reality that is an investment designed for people who can’t do math.”  He thought my answer was a bit abrupt but when you take responsibility for a person’s life savings you better understand what those statistics are telling you, and more importantly, what they are not saying.

Statistics are not all bad.  If we understand them and their relevance to our situation, they can help us make important financial planning decisions.  Unfortunately, when it comes to financial statistics it pays to remember that four out of five advisors are not Certified Financial Planners®.  Although I can’t say for sure what type of gum they chew.

Dan Wyson, CFP®  is author of the book “21 Financial Myths” and owner of Wyson Financial. 1173 S. 250 W #305 St. George 435-986-9525 - Securities offered through Linsco/Private Ledger member FINRA/SIPC.