What You Need to Know Before You Invest Your Money

MarketPlus Investing® Helps Investors Choose What’s Right for Them

By SJS Investment Services President Kevin Kelly, CFA.

With countless investment options available to you, with so much written about the state of the markets, the state of the economy, and the state of the world, deciding how to invest your money - whether it be your own or an organization’s - keeps getting more complicated. Smart investors do their homework, seek out people they can trust, and find investment strategies that work for them. In words, that sounds easy. In practice it isn’t very easy at all.

SJS Investment Services has spent decades helping people choose what’s right for them when it comes to investments through our proprietary investment process called MarketPlus Investing. And through it all, we have discovered the three most important things investors need to know about themselves before they invest.

WHO ARE THE PEOPLE YOU CARE ABOUT AND HOW DO YOU WANT TO TAKE CARE OF THEM?

In the course of conversation, SJS Investment Services gets to the core of what’s important. It might be a person or a cause, but until we know who you care about and how you want to take care of them, we don’t know enough about you to fully guide you.

WHAT IS YOUR TIME WINDOW? (OR, HOW LONG IS YOUR RUNWAY?)

How long before you or the people you care about need your money? This makes a big difference when determining an appropriate investment vehicle for you or your organization. Some individuals have a time window of twenty years or more. Others, including organizations, want investments that cover their expenses next month or next year. Between the extremes are an infinite number of scenarios, and each imply a different investment strategy.

HOW RISK AVERSE ARE YOU?

When asked this question, investors are often quick to say that they are comfortable with risk. But the reality is that many investors are more risk averse than they think. That’s why SJS Investment Services digs deeper than just this question to find out the real answer. And more importantly, we ask about necessary or desired return on an investment*, so we can help design an investment portfolio appropriate for you.

At SJS Investment Services, these three questions are just a part of getting to know you. The more we know about you, the better we can design a MarketPlus Investing portfolio for you. Because MarketPlus Investing is our proprietary science-based process of structuring investment portfolios to help people achieve their specific financial goals, there are countless options. And the more we know, the better we can apply the academic models, the market trend analysis and consider ever changing key indicators on your behalf. SJS Investment Services through MarketPlus Investing seeks to develop the right portfolio design to meet your needs.

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Important Disclosure Information:

*There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.

Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. This material has been prepared for informational purposes only.

Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.

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What Is The Value Of Your Advisor? – Looking Out for Your Best Interests

By SJS Senior Client Portfolio Manager Tom Kelly, CFA.

Last year, I wrote a piece entitled What is the Value of Your Advisor?, which highlighted some of the aspects of your relationship with your SJS advisor, such as designing portfolios to support your goals, reviewing your current investment approach, and recommending revisions that might make sense for you. Our approach is centered around sitting on the same side of the table as you, acting as a fiduciary, being bound ethically to act in your best interests.

Unfortunately, some in the investment business haven’t always shared this approach. With potential misaligned incentives, some firms focused on selling complex high-fee products that have led investors to sacrifice net-returns to costs and commissions, losing a lot of money unnecessarily in the process.

One example was recently highlighted in The Wall Street Journal article, “Bankrupt in Just Two Weeks – Individual Investors Get Burned by Collapse of Complex Securities.” Investors seeking high returns poured their portfolios into leveraged exchange-traded notes, which are unsecured debt instruments that follow an underlying index of securities. Exchange-traded notes are often pitched as offering steady payouts and high upside compared to typical investments such as bonds or indexed mutual funds. But the devil is in the details, and the notes can come with high fees and complexities such as being redeemed at a moment’s notice when it favors the issuer, not the investor. The Securities and Exchange Commission (SEC) even issued an Investor Bulletin in 2015 to inform investors of the significant investment risks and complexities of these instruments.[1] The swift market collapse in March left several notes virtually worthless when they were redeemed by the issuing banks, leaving investors with significant realized losses.[2]

As the economic adage says, “There’s no such thing as a free lunch.”[3] Unfortunately for some, the cost of that “free lunch” was their entire life’s savings. In the investing world, we know all too well that there is no such thing as a long-term investment that is both safe and highly profitable. That’s why we design portfolios specific to you to help you achieve your financial goals, carefully balancing your risk tolerance and ability with your return needs.

So the next time you hear about a hot tech stock or a “can’t miss” investment product, pause and remember this cautionary tale. We’ll be here with our disciplined, time-tested approach to investing. We invite you to give SJS a call! We are happy to buy you lunch, but if makes you feel better, we will split the check too!

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Important Disclosure Information and Sources:

[1] “Investor Bulletin: Structured Notes”. SEC Office of Investor Education and Advocacy, 12-Jan-2015, sec.gov.

[2] “‘Bankrupt in Just Two Weeks’—Individual Investors Get Burned by Collapse of Complex Securities.“ Akane Otani & Sebastian Pellejero, 01-Jun-2020, wsj.com.

[3] There’s No Such Thing As a Free Lunch. Milton Friedman, 1975, Open Court Publishing Company.

Advisory services are provided by SJS Investment Services, Inc., a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.

Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.

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Suggested Reading

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What Is The Value Of Your Advisor?

By SJS Senior Client Portfolio Manager Tom Kelly, CFA

At SJS, we are constantly analyzing the markets – how they’ve been doing, where they may be going, what we’re doing about it. While it makes for lively discussion, we believe that making any significant changes to your portfolio based solely on headlines is investing on speculation rather than evidence.

Market timing can have an effect on your return, but not in the way you may hope. The lure to buy or sell based on the news is certainly enticing, but the average investor ends up with meaningful underperformance in both the equity and fixed income markets when doing so.

The 2018 DALBAR Quantitative Analysis of Investor Behavior shows, time and time again, that average investors fall into psychological and behavioral biases that often cause them to buy and sell at the wrong times, costing nearly 2% annually in the equity markets, and more than 4% in fixed income, over a 20-year period.[1]

Another classic example of how investor behavior can impact returns comes from Peter Lynch’s famous Magellan Fund. The Magellan Fund doubled the S&P 500’s return during Lynch’s 1977-1990 managing tenure, posting a 29% annualized return. However, he found that the average investor in his fund posted a return of only roughly 7% a year during the same period.[2} Money would leave when the fund had hiccups, only to flow back in after it was back on track, missing any recovery.

One approach to combat the emotions that may tempt us to buy and sell at the wrong time is to have a trusted advisor. Someone who can help us see compelling valuations when times feel tough, and help identify risks when investing feels like a “sure thing.”

Numerous studies have shown the estimated value of a financial advisor to be worth anywhere from 1.6 to 4.1 percent, annually. [3],[4],[5],[6]

While each of these studies applies a different research methodology, SJS strives to implement many of the “value-add” services they highlight. We believe the value of your SJS advisor includes:

• Designing portfolios to support your goals.

• Consolidating and simplifying your holdings.

• Helping you optimize expected returns based on the risk you are willing to assume.

• Reviewing your current investment approach and recommending revisions that might make sense for you.

• Monitoring and managing your taxable investment activity.

• Communicating with your tax, legal, and financial professionals.

• Benchmarking portfolio returns on your quarterly reports.

• Adjusting your portfolio based on market conditions and your situation.

If you have questions, feel uncertain about the markets, or simply need a listening ear – give your SJS advisor a call. Your family, your future, your legacy depend on sound investing.

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Sources:

[1] Quantitative Analysis of Investor Behavior (QAIB) Report. Dalbar, 2018.
[2] Heads I Win, Tails I Win: Why Smart Investors Fail and How to Tilt the Odds in Your Favor. Spencer Jakab, 2016.
[3] Advisor’s Alpha. Vanguard Research, 2014.
[4] Capital Sigma: The Sources of Advisor Created Value. Envestnet|PMC’s Quantitative Research Group, 2015.
[5] Alpha, Beta, and now…Gamma. Morningstar, 2013.
[6] Value of an Advisor Study. Russell Investments, 2017.

Important Disclosure Information:

Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

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