Fund Trader Pro, LLC
Chief Investment Officer
William 'Bill' DeShurko started in the investment industry in 1987, learning early the financial perils of bear markets during Black Monday (October 1987) when the DOW dropped more than 20% in a single day. That lesson has guided Bill's investment strategy ever since. During the "Tech Wreck"in 2000 - 2001, frustrated by the losses in typical "buy and hold/diversified" portfolios, Bill created the computer based algorithm used today at www.FundTraderPro.com. The strategy behind the algorithm was tested using data from 1972 - 2005 by Professors Samuel L. Tibbs and Stanley G. Eakins. The results were co-authored with Mr. DeShurko and resulted in the paper, "Using Style Index Momentum to Generate Alpha" that won the Charles H. Dow Award in 2007. The Charles H. Dow Award is the most prestigious annual award given for the best paper that advances technical analysis in the year. The award is granted by the Market Technicians Association, the home of the Chartered Market Technician® (CMT) Program, the preeminent, global designation for technical analysis.
His blog can be found at: www.deshurkoblog.com
Author of: "The Naked Truth About Your Money" a primer for the Millennial Generation and all new investors to help with making responsible financial decisions. Available at: https://www.amazon.com/Naked-Truth-About-Your-Money/dp/1592576508/ref=sr_1_1?ie=UTF8&qid=1485467128&sr=8-1&keywords=deshurko
Contributor to multiple financial news sites including; www.HorsesMouth.com, www.MarketWatch.com. www.Kiplinger.com, www.theStreet.com and more...
Bill is also a board and finance committee member for Homefull Inc. a non-profit group seeking to end homelessness in Dayton Ohio.
Managing Member and owner of 401 Advisor, LLC a registered investment advisor, since 2004
BA. Economics, University of Rochester
The opinions expressed are those of Bill DeShurko. Past performance is not a guarantee of future success. Consider all risks before investing and it is always advisable to consult with a professional before making investment decisions.
AI Marketing Video Bill DeShurko
No, please wait! Just kidding!!!!
My words of advice are this: Avoid any insurance product that is pitched for "tax deferral". May sound good now but such products are ridiculously overpriced, destroy liquidity and just push you into higher tax brackets when you do want your money. Let me broaden that to say, don't invest in anything that does not stand on its own investment merits without any alleged tax benefits. Never invest in anything where you need to borrow back your own money to spend it. Other than municipal bonds, in 30 years I can't think of a tax advantaged investment that I didn't regret using for my clients.
What to do: Start building a very solid boring portfolio of high quality large company stocks. Stocks are tax deferred until sold. Unlike annuities and insurance products, when cashed in you pay lower capital gains taxes instead of higher ordinary income rates. Individual stocks have no insurance or management fees. In 30+ years every single account of substantial size that a client has inherited looks nearly the same - filled with bellweather stocks (yes many pay dividends that are taxable, but like capital gains at a lower tax rate). Reinvest dividends when paid and take advantage of compounding.
Read about investing - not the BS "How To..." books, but focus on books about or that interview real successful investors. Read about Warren Buffett. Read the series of books by Schwager - The Market Wizards, The New Market Wizards... Also "Just One Thing" by John Mauldin. Anything by Michael Lewis. By 40 you will be your own market "guru"!...and pretty darn wealthy!
Not only are taxes lower on dividends then an IRA withdraw, but think of it this way; if you take regular distributions from a mutual fund within your IRA, what happens if the market declines? You would be liquidating shares of your mutual funds to meet your distribution requirements. This depreciation accelerates the lower and longer the market declines. When the market does recover, your account will be worth less than what you started with because you have fewer shares.
On the other hand, if you have a portfolio of solid dividend stocks, you can live off your dividends and not sell any shares of stock even during a market downturn. When the market recovers, your portfolio should too.
Even though you lose the tax advantage, I recommend using dividend stocks in your IRA as well and match your distributions to the portfolio's dividend yield.
With the aggressive risk index, you are assuming capital gains. "Aggressive risk" means high probability of loss as well. What if your account balance went down by 20% - 30% just when you found the perfect home? You can benefit more by keeping your money liquid, available, and no market risk and shopping for a bargain on your real estate.
Many people feel like they are being foolish with leaving money in low interest deposit accounts. But consider this, the market value of every stock listed on the NYSE adds up to about $13 trillion. The NYSE includes investors from all over the world. The total value of all deposits in U. S. banks only is about $10 trillion depending on which definition you are using. My point is, $10 trillion is not sitting in banks because people are stupid. Low interest is the price for safety and it appears that investors value safety about the same as they value potential capital gains in the market.
There are two answers to your question. First, perfomance based fees are prohibited except for accredited investors by the SEC. While there are several categories of accredited investors, like institutions a minimum requirement for an individual is $1,000,000 net worth. Accredited investors are deemed by the SEC to be more sophisticated and more capable of understanding investments and investment risk. The reasoning is this: mathematically charging a performance based fee the advisor can benefit from utilizing multiple high risk strategies. Hitting a home run on one portfolio and making nothing on others could still provide much higher compensation then a level, much lower fee. Performance based fees can promote risky strategies and advisors misleading about that risk.
Second reason is more practical. No advisor can control the stock market. Is it fair to punish an advisor for something out of their control? From 2000 - 2002 most indices recorded three consecutive years of losses. While you might argue that the tech wreck was "foreseeable", no one could have been expected to see the events of 9/11. Point being if advisors received no compensation in bear markets, the industry would have been wiped out by the end of 2002. I'll also add that this job is relatively easy in bull markets, but I work my tail end off during bear markets to minimize losses and look for opportunities. If my clients lose say 15% when the index funds are down 40%, isn't that worth payng for?
Not paying in a down market would be like asking for your money back if you went to a baseball game and your team didn't win - why pay to watch your team lose?
On a serious and final note - this is not meant to justify poor long term performance. In the short run some strategies will lag while others lead. More conservative strategies have given way to riskier growth strategies. What's important is that you understand the strategy your advisor is implementing for you and why. If he/she can't give you a clear investment policy for your account, then you should consider moving on.
You assume that an "aggressive" mutual fund will make you more money than a less aggressive mutual fund. Why? Aggressive means more risk. Risk means there is an increasing possibility that your investment does not perform as expected.
There are no mutual funds that buy penny stocks, that should tell you something about the penny stock market.
Buy a solid stock mutual fund or ETF like SPY or the Vanguard S&P 500 Index Fund. Yes, they will go down in value during a market correction, but you will own the 500 largest companies in the U. S. Market and the value loss will be due to market fluctuation, not permanent loss from a company(s) going out of business.