Five Rules for Investment Success

Rule 1: Lower Your Investment Costs

Rather than wasting time worrying about things beyond your control - like the direction of the stock market, interest rates, or inflation - focus on things you can control in order to improve your odds of investment success. A simple thing to control is the cost of your investments.

You can reduce your investment costs by choosing “no load” mutual funds over funds that pay sales commissions. After all, how does paying a 5.75% upfront commission improve the odds that a fund will make you money? Another easy way to control your costs is to select mutual funds with lower than average expense ratios. (You can read more about mutual fund expenses and fees in a previous post here).

Rule 2: Know What You're Paying for Advice

Another thing you can control in the investment world is how much you're paying for financial advice. Make sure your advisor discloses all sources and amounts of income so you know exactly what you're paying. You might be surprised at how much the "free advice" you receive from your broker is costing you! (FYI - The hidden costs (i.e. sales commissions) of annuities and life insurance can be especially high.)

You can avoid hidden costs by working with a "fee-only" advisor. Unlike advisors that use the term "fee-based", "fee-only" advisors are paid directly by their clients, never receive sales commissions, and have an incentive to recommend low cost investments and insurance. (See if your advisor would be willing to sign a Fiduciary Statement like the one I use here.)

Rule 3: Ignore Your Emotions

All of us are familiar with the saying “buy low, sell high”, but following your emotions when you invest usually leads to doing the opposite. Think twice before going along with the crowd during manias like the dot-com boom and avoid panicking during market declines. Make sure you follow a clearly defined investment strategy so you can take emotions off of the table when making investment decisions.

Rule 4: Don’t Forget About Taxes

Whether or not you realize it, you have an investment partner involved in every decision you make: Uncle Sam. In addition to taxable investment accounts, make sure you're using tax-favored accounts like 401(k)s, 403(b)s, Traditional IRAs, and Roth IRAs whenever possible.

For most investors it makes sense to have a combination of "tax-deferred" accounts (e.g. 401(k), 403(b), Traditional IRA) and "tax-free" investment vehicles (e.g. Roth IRA, Roth 401(k)) in order to balance current and future tax savings. Keep in mind that Uncle Sam won't forget about you later in life!

Rule 5: Understand Risk

All investments involve risk. If you invest in stocks, you face the risk that stock prices could tumble. If you hold more stable investments like bonds and CDs, you face the risk that the return you receive won’t keep up with inflation over time.

That’s why most investors diversify into a mix of different types of investments. Make sure you understand and are comfortable with the risk you’re taking with each individual investment as well as with your portfolio as a whole.

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com

Our Fiduciary Statement

One of the biggest things that differentiates us from other financial advisors is that we, as Registered Investment Advisors, are held to a fiduciary standard by federal and state law.

Below you will find a copy of our fiduciary statement. The purpose of this statement is to outline the responsibilities we have toward our clients in easy-to-understand terms.

Does your advisor have a fiduciary statement? If not, feel free to offer ours as a guide.

If he or she will sign it, then you know you're working with a fiduciary. If not, then maybe it's time to look for a new advisor.

Fiduciary Statement

I will act as a fiduciary at all times as defined by federal law.

I will put the interest of my client first at all times - ahead of my own and my firm’s interest.

I will disclose all compensation in writing.

I will not receive any third-party compensation contingent upon the purchase or sale of a financial product.

I will not receive any fees from the referral of client business.

I will disclose potential conflicts of interest and will manage unavoidable conflicts in the client’s favor.

-Neil Vannoy, MBA, CFP®

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com

Stimulus, response.

The current market volatility has me thinking of one of my favorite Far Side cartoons that features an amoeba yelling at her husband for never "thinking", only "responding".

It's human nature to want to "respond" (e.g. sell your stocks) when you encounter a "stimulus" (e.g. your stocks just declined in value). Unfortunately, the stimulus-response method of investing is one of the surest ways to lose money over time!

That's not to say you shouldn't make changes to your investments. It's possible you could have too much of your portfolio in stocks and need to reduce your exposure to the day-to-day risk of losing money known as "market risk".

Or it could be that you're facing a large amount of "inflation risk" because you responded to the 2008 market crash by moving your money to CDs, treasuries, and other "safe" vehicles that might not keep up with inflation over time.

(On a side note, I think the idea of investors having to choose between "returns" and "safety" is somewhat of a false dilemma used by salespeople to push financial products. To avoid this and other conflicts of interest, make sure your advisor is held to a fiduciary standard.)

If you've read previous blog posts or newsletters - or have seen a couple of the weekly "Smart Money Segments" I do for the local NBC station - you've probably heard me mention the importance of following an investment strategy when analyzing your portfolio for possible changes.

As an investor, you owe it to yourself to have a clearly defined investment strategy based on your risk tolerance, time horizon, and goals. That's the only way to make sure that any "stimulus" you encounter in the markets will be followed by a "response" based on logic and not emotion.

To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com

Top Myths About Financial Advisors and Financial Planners

Myth 1: You have to meet strict requirements before calling yourself a financial advisor or financial planner.

There aren’t any requirements to meet before you can call yourself an “advisor” or “planner”, so don't assume that someone using the title "financial advisor" or "financial planner" has the necessary qualifications to "advise" or "plan" anything! Most people that use those terms are really just salespeople.

If you want to make sure your financial advisor has proven qualifications, then look for someone with the CERTIFIED FINANCIAL PLANNER(TM), or CFP® , designation. These individuals have put in hundreds of hours studying for an intense two-day examination, undergone background checks, agreed to a abide by a code of ethics, and are subject to continuing education requirements.

Myth 2: A financial advisor will try to sell me something.

Most advisors do earn their living by “selling” investments and insurance products and have to get there clients to buy something in order to make money. This can lead to conflicts of interest.

You can eliminate this conflict of interest and make sure your advisor is focused on “advice” rather than “sales” by working with a fee-only advisor that doesn’t accept commissions from his or her recommendations. This places the focus on advice rather than sales.

Myth 3: My financial advisor does my planning for free.

There’s no such thing as a free lunch. An advisor that does “free” planning likely earns commissions from his or her recommendations. While commissions aren’t inherently bad, they can lead an advisor to recommend something that might be better for his or her pocket than yours.

A lot of the products that are recommended as the result of "free" financial advice carry high commissions, fees, and surrender charges that can negatively impact your future investment returns. On the other had, fee-only advisors that charge for their advice and don't have any financial incentives to recommend one product over another, are free to recommend the best, lowest cost alternative to you.

Since "free" planning can end up costing you thousands more over time, make sure you focus on the "total cost" of your financial planner's advice rather than only focusing on what you pay out-of-pocket.

Myth 4: My financial advisor has to put my interests first.

Only advisors that are held to a “fiduciary” standard are legally required to put your interests first. Although they are prohibited from using deceptive sales practices, brokers and insurance agents are not held to a fiduciary standard.

Unlike other financial advisors, Registered Investment Advisors are held to a fiduciary standard and are legally obligated to put their clients' interest above their interests and the interests of their firm. Go to www.FocusOnFiducuiary.com to lean about the fiduciary standard and why it's important.

Myth 5: Only wealthy people need financial advisors.

If anything, people that aren’t already wealthy need sound financial advice because they can’t afford to make mistakes with their money and a financial planner can help them avoid costly mistakes and stay on the right track financially.

While many financial advisors focus on attracting only wealthy clients, there are many top-notch advisors that reach out to the "middle market". Look for a fee-only advisor that works on an hourly basis, since an advisor that bills for his or her time is less likely to care about your net worth or investable assets.

Go to www.GarrettPlanningNetwork.com to find a fee-only advisor that bills on an hourly basis near you.

Myth 6: “Fee-only” and “fee-based” advisors are the same.

These terms aren’t interchangeable! Don't be fooled by Wall Street's attempt to blur the line between "fee-only" and "fee-based"!

“Fee-based” should really be called “fees and commissions” since fee-based advisors earn a fee when you hire them and receive commissions from the products they recommend (read: "sell")! On the other hand, fee-only advisors never receive commissions from their recommendations, so this huge conflict of interest is removed.

Myth 7: A financial advisor looks at all areas of my finances.

Many advisors only look at a limited area of your finances – like investments or insurance – so if you want a comprehensive planning, it’s important to find an advisor that has the appropriate qualifications and experience to analyze all areas of your finances, from cash flow, to retirement, tax, and estate planning.


To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.