The Transparent Truth about Investing

Judy Hubbard Hulsey

There is a lot of noise in the investment industry. So much of this chatter can be attributed to business marketing and the media seeking to sell a story. Unfortunately, sensation and hysteria are often employed to motivate us to action. When they are our motivator poor decisions can be the result.

Women Investors

Making good decisions in the midst of compelling and conflicting messages urging us to take immediate action needs time and consideration. Some women wrongly believe that they cannot make wise investment decisions, or that they need male advice to become a smart investor. I personally believed this about myself 20 years ago and I have seen it with my clients. Of course, this isn’t true. With some education and knowledge, women can learn to make strong investment decisions for themselves.

In fact, research has shown that when under pressure, women can often make better informed decisions. Under normal conditions, both men and women can be data-driven and decisive. However, when under pressure, men are likely to take greater risks, while women seek to become more informed in order to make more careful decisions.

Making Better Investment Decisions

My goal, as an investment advisor, is to hear your concerns, provide education and information, and bring a tailored approach to empower you in making better investment choices. That way, you can differentiate between valuable information and noise as it pertains to your investments.

Making better investment decisions also involves managing risk. I believe we can no longer do it the same ole’ way. Choosing an investment goes beyond completing a risk profile questionnaire. Investments should be specific to your situation.

My first word of advice is to simply avoid making investment decisions based on the herd mentality. Advice provided on the news, overheard at the water cooler, or offered by a friend or adult child does not necessarily translate into making sense for you.

My second word of advice is to find an advisor you are comfortable with and who listens to your needs, understands your situation, and can give you professional, objective advice. In the following, I offer answers to some of your questions as you enter the world of investment.

Answers to the Most Often Asked Investment Questions

In my years practicing as a wealth advisor, the following are questions often asked of me:

1. How Do I Approach the Risk of Investing? I Do Not Want to Lose Money.

There are several types of risk, but two are most prominent: Inflation Risk and Portfolio Risk.

Inflation Risk. When our money or investment portfolio does not keep up with increasing costs of living, we experience inflation risk. This means we are, in effect, losing money as we cannot afford to purchase the same goods with the same amount of money.

Portfolio Risk. Also known as volatility. Studies show that extreme volatility hurts a portfolio in spite of a mathematically good rate of return. You can have a higher average return and still earn less money than you might with a portfolio with a lower average return that is more stable. Observe two investments with an initial deposit of $100,000 each in the chart below.


Chart compares two examples of portfolio volatility

As you can see, although the first investment shows a greater average return, the second investment actually results in a greater account balance. In summary, you ought to seek to minimize portfolio volatility within your risk profile and portfolio allocation.

2. What are the Pros and Cons of Index Funds?

Index Funds are great for those who are not going to seek professional advice and those who want the lowest fees. While you might save money on fees, investments in index funds expose you to the downside swings of the indices. For instance, when the market drops 36% as it did in the S&P 500 in 2008, so does your index fund. Is the lower fee justified by the risk? It depends upon how volatile do you want your portfolio to be.

3. Why Would I Ever Want to Pay a Fee?

A. Fees are important, but they are not the most important consideration.

Let me begin by saying, I don’t believe in paying unnecessary fees. However, I find that people are often less attentive to the rate of their returns and the risks of their investments, and more focused on reducing fees. Because I believe you get what you pay for, you might opt to pay a little more in fees for a better result than less for a poorer quality product that might cost more in the end.

There are money managers who are expensive relative to others in the industry. At a glance, it might seem imprudent to spend more. But if that manager outperforms others, it might be well worth paying higher fees. At the end of the day, focusing on the net result in your pocket rather than on fees can go a long way.

B. Who likes paying fees during market downturns? There’s more to the story.

Again, the number one priority ought not be the fee, but rather what you get for that fee. For example, if you are in the S&P 500 and the market goes down, your investment goes down at a similar rate. By utilizing the expertise of an alert money manager, your account is likely to experience less risk and much less loss during these downturns. Their attentiveness to your investment is worth the fee.

C. Explicit or implicit fees.

Explicit fees are the fees that you see reported on your account. Implicit fees are embedded in your investment. Typically, both fees are present. Be very concerned when anyone tells you there are no fees.

4. What is the Best Attribute of an Annuity?

The guarantees of an annuity are its best attribute. At the very least, an annuity ensures your principal upon death, minus any withdrawals. In addition, you can purchase extra features such as guaranteed withdrawals (income) for life. However, you have to look at those additions closely in terms of price and need. I find that people are often sold options that sound great, but are not necessary. So, while an annuity might make sense, it’s important to look at the full financial picture because they are not very liquid and the cost may be high for what you receive. Annuities tend to make the most sense for an individual who may be sued, has poor spending habits, has money they will not need and desire to pass it on to the next generation, or experiences mental challenges.

5. Friends Tell Me They Lost Money in the Market. What Does that Really Mean?

Markets will go up and markets will go down. If you are concerned about losing money in a downturn, you would do well to reevaluate your risk tolerance and time horizon in those investments. Money expected to be used in five years is typically considered reserves or savings, not an investment.

What this Means to You

Education matters. I see people, including those with a financial advisor, frequently taking on much more risk than necessary. Given the importance of money in our lives, it is vital to have a clear understanding of investing and to work with a person you trust to manage your investments. Beware of a “trustworthy” advisor. Being a nice person does not necessarily qualify them to provide you with expertise in managing and understanding the cyclical nature of an investment while being able to translate that into an appropriate portfolio customized for you. I look forward to the opportunity to serve you.


Important Disclosures: The information provided here is of a general nature and is not intended to answer any individual’s financial questions. Do not rely on information presented herein to address your individual financial concerns. Your receipt of information from this material does not create a client relationship and the financial privileges inherent therein. If you have a financial question, you should consult an experienced financial advisor. Moreover, the hiring of a financial advisor is an important decision that should not be based solely upon blogs, articles, or advertisements. Before you hire a financial advisor, you should request information about the financial advisor’s qualifications and experiences. Past performance is no guarantee of future results. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Examples provided are for illustrative (or “informational”) purposes only and not intended to be reflective of results you can expect to achieve. Judy Hulsey (“Judy”) works with Allgen Financial Advisors, Inc. (“Allgen”), which is an investment advisor registered with the SEC. Neither Judy nor Allgen provide personal financial advice via this material. The purpose of this material is limited to the dissemination of general information regarding the services offered by Judy and Allgen. It is not intended to be a solicitation or offer to sell investment advisory services to residents of any state in which Allgen is not currently authorized to do so. The Disclosure Brochure, Form ADV Part II, which details the business practices, services offered, and related fees of Allgen, is available upon request.