The recent volatility that has been characteristic of financial markets has continued this week. With that in mind, utilize this market volatility as a reminder to focus on the long term and to manage your risk. Many investors have increased their exposure to stocks in a bid to increase their potential returns. This is return chasing and it almost always results in lower potential returns in the long run.
SEC Panel Backs Broader Definition of Accredited Investor (Think Advisor)
The SEC is determining how to revise the 32 year old definition of an accredited investor.
Accredited investors are allowed to invest in hedge funds and other private investment entities.
Currently, there are only income and net-worth thresholds. However, due to inflation, these thresholds have become easier to meet, as they have remained unchanged since 1982. Basically, these thresholds are used to determine whether an investor knows enough about investing to understand the risks of an investment.
However, many investors who meet this threshold may not understand enough about investing to clearly understand the risks going in. Conversely, there are many sophisticated investors who do not meet these thresholds as well.
Recommendations around the definition include: allowing investors to qualify to become an accredited investor through a demonstration of knowledge (either through having passed a test or holding a designation), limiting the amount of assets that investor could invest with a fund, potentially creating a third-party accredited investor identification system, and to strengthen protections for investors who purchase such funds through a broker or advisor.
Before the Advice, Check Out the Adviser (NY Times)
This article touches on an important concept within the financial services industry, fiduciary versus suitability requirements. To give a quick recap:
Commission-based or wrap-fee based brokers/registered representatives (they can call themselves advisors, but they share more in common with salespeople) are held to the suitability standard. The suitability standard means they only have to sell you a financial product that matches your circumstances, but is not necessarily the best for you.
For example, they can choose the product that gives them a higher commission and their firm a larger fee, rather than recommending a product that would save you money or be the best in your circumstances.
Fee-only advisors (I am a fee-only advisor) are bound to the fiduciary standard at all times. A fiduciary standard means I must act in your best interest 100% of the time.
Fee-based advisors who provide both commission based and fee based services and must act in your best interest only when they are giving you advice. If they are selling you a product, they are held to the lesser suitability standard.
The article urges investors to double check the standard of care they are entitled to. A financial salesperson is not held to a fiduciary standard even if they use the term advisor in their title. You can double check an advisor via FINRA’s BrokerCheck or the SEC’s Investment Advisor Search.
How Much Should You Tip Housekeeping? A Travel Tipping Guide (CNN Money)
CNN Money has put together a travel tipping guide. The one-page guide is a quick read and includes tipping suggestions at hotels, airports, and tours.
My Life As An Expat Retiree (CNN Money)
As Americans we are fortunate to have an extremely high standard of living. This standard of living, however, comes at a price. Our relative cost of living is substantially higher than many countries abroad. Several retirees share their experiences with moving overseas after they retire, including how it has helped them stretch their retirement savings while living well.
The New and Improved Social Security Statements (Investment News)
Social Security is once again mailing out estimated benefit statements to workers who have not signed up for an online account. Workers not yet receiving benefits will receive statements at ages “ages 25, 30, 35, 40, 45, 50, 55 and 60.”
Additionally, it should be easier to find your estimated benefits for full retirement age. Social Security now highlights your full retirement age benefits on the top right corner of the front page.
Summary of Global Markets for Friday October 17, 2014
Click the image above to zoom in and see the full Global Market Summary.