Moving Past the Recession

When investors  talk about the Recession of 2007-2009, some actually quiver. Although things have improved since then, nearly everyone took a hit. On top of that, some people are still suspicious of the role of the federal government in the market:  they think the government might be influencing interest rates. The dual impact of the recession and investor suspicion has led many investors to be too conservative with their investments as the market strengthens. In addition, investor reticence to hold onto equities as long as they used to is affecting investors’ chances of reaching their portfolios’ potential.

Investors should understand that the current market is very different from 2008. In addition, interest rates are primarily affected by supply and demand – not the federal government. Essentially, investors need to clear their heads and reevaluate how they approach the market.

According to Mark Matson, who recently appeared on the Fox Business Channel, investing gingerly and acting as though another recession is just around the corner could be very limiting. Mark discussed the basics of market supply and demand and explained a simple economic concept: if people aren’t buying a product or service, the demand is low and the price stays down; if a product or service is in high demand, the price will rise. The forces of supply and demand allow sellers to price more competitively. A common example of this principle can be seen in the price of oil, although there are a number of other factors that help to determine the price.

At any rate, the principle of supply and demand applies to the stock market as well. This causes problems for day traders who constantly have to worry about market ups and downs, as well as the timing of buys and sells. In short, this strategy is too risky for many investors.

Mark Matson and the advisers who follow his philosophy  are committed to owning and holding equities for the long term. Of course, it’s worth noting that not all strategies are the same, nor does past performance guarantee future results. Nonetheless, advisers who follow the Matson Money strategy coach their clients to hold onto their equities, because what’s hot today could be cold tomorrow. Additionally, they stress the importance of a diversified portfolio that has the potential to survive market gyrations even.

At the end of the day, investors should understand that supply and demand are the primary market movers. There is no reason  for investors to remain so conservative if their equity investments are well-diversified.


Will Financial Troubles In Greece Ruin Your Portfolio?

Do the financial problems of Greece make you wonder whether the gods and goddesses of Greek mythology would have thrown up their hands in frustration? While some might say yes and others might not, either way, Greece’s financial misfortunes have a lot of people talking. Mark Matson wants clients to understand that the news surrounding Greece’s current financial crisis isn’t as bad as it seems.

For years, Greece has had difficulty paying back borrowed money, including two separate bailouts received in 2010 and 2012 that roughly equate to over $240 billion USD. The bailout dollars represent billions of dollars owed to banks, private investors and a number of European countries like Germany, France, Italy and Spain.

Right now, Greece and its lenders are hashing out a third potential bailout that must be settled by Aug. 20 absent a second bridge loan. According to Reuters, this bailout, expected to be worth up to 86 billion euros ($94.5 billion), is likely to happen, but there is still work to be done. The question is whether Greece will be capable of paying back these billions of dollars. If Greece defaults or declares bankruptcy, creditors would lose their investments. Some fear that bankruptcy or default will cause a ripple effect that could damage other economies, including the United States.

Responding to The Concerns

Mark Matson gave his thoughts on these concerns during a recent segment of Matson Money Live! where he and his team broke down the logistics of the issue. They noted that investors should first understand that things seen on televised news shows or read in newspapers about the issue are often sensationalized to make it seem worse than it really is. Michelle Matson put it in perspective by saying one country, particularly a relatively small country like Greece, is unlikely to have the largest impact on the global economy.

In addition, even if the situation turns into a bankruptcy or default, investors need to understand that this would not necessarily mean that repayment will not happen. Historically, these events have happened before and have resulted in a number of different outcomes, including debt restructure plans, modified repayment arrangements and other solutions. Investors should also understand that government defaults and bankruptcies can happen anywhere around the globe. Take for instance the 2014 restructuring plan in the city of Detroit, Michigan after they declared bankruptcy. It can happen anywhere, but it doesn’t necessarily impact the global economy.

The credit default risk associated with emerging markets and municipalities is one reason why Matson Money does not invest in municipal or emerging markets bonds. Avoiding these investments decreases credit default risk for your portfolio, but is not a guarantee of portfolio performance.

Investor Questions: Have You Asked These Before?

If you’re an investor, there have probably been times when you’ve asked yourself a few tough questions. Some might include why am I underperforming the market? Why am I underperforming the benchmarks? Why am I in international stocks? And why do I need an adviser? When it comes to investing, these might just be a few of the things that you’ve contemplated because the answers to these questions are not always clear.

However, Zack Shepard of Matson Money shares some insight on a few of these troubling questions. As you read through the questions and answers, please note that they are suggestions from the Matson Money team and do not guarantee future results. Other advisers and investors may offer different recommendations.

1. Why Am I Underperforming the Market?

One simple answer may be that you are not invested in a well-diversified portfolio and have not held it for the long term. Mark Matson and the advisers who follow his investment advice often recommend a long-term, well-diversified portfolio to their clients, in part because investors who chase hot stocks or attempt to time the market have historically underperformed the market according to studies conducted by Dalbar, Inc., e.g. over the last thirty years, the S&P 500 Index has an annualized return of 11.06% vs. the average equity investor at 3.79%. In its 2015 Quantitative Analysis of Investor Behavior, Dalbar defines “Average Investor” as “The universe of all mutual fund investors whose actions and financial results are restated to represent a single investor. This approach allows the entire universe of mutual fund investors to be used as the statistical sample, ensuring ultimate reliability.” p. 29. “Average equity and average fixed income investor”, as used in the same study, is that subset investing only in equity or fixed income mutual funds. See p. 33 at n. 4. Dalbar’s average investor equity and fixed income fund returns are set forth in a table on p.5.

2. Why Am I Underperforming the ‘Benchmarks’?

The generic market indexes used as performance benchmarks are not engineered to reflect the three-factor model followed by Matson Money. The focus of Matson Money when it comes to structuring institutional equity mutual funds consists of mixing small cap and high book-to-market (value) companies with a small percentage of the S&P large cap companies, which does reflect the three-factor model recommended by leading financial academicians.

3. Why Am I In International Stocks?

Over the long term, investment in international stocks has historically provided the opportunity for better returns than the returns available to domestic only portfolios. According to historical index data, while the domestic large cap equity market as evidenced by the S&P 500 index periodically outperforms international markets at specific points in time, over longer periods of time, international stock indexes have often outperformed the S&P Index.  While past performance is no guarantee of future results, take a look at the following data as an example:

                                                                 2014 Return         2000 – 2014 Return

S&P 500 Index                                   13.69%                                  4.24%

MSCI EAFE Value Index                 -4.92%                                  4.35%

MSCI EAFE Small Cap Index         -4.92%                                  7.57%

MSCI Emerging Market Index     -1.82%                                  7.38%

We should also note that the indexes referenced above are unmanaged, cannot be invested in directly and their returns do not reflect any management fees, transaction costs or expenses. This graph does not reflect actual investor results and no representation is made that your portfolio would experience similar results. The S&P 500 Index is an unmanaged, market-weighted stock index based on the market capitalizations of 500 leading companies publicly traded in the U.S. stock market, as determined by S&P Dow Jones. The various Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Indexes are various versions of unmanaged, free float-adjusted market capitalization indexes designed to measure the equity market performance of 22 developed markets, excluding the US & Canada. This index information is used to demonstrate the need to focus on the long term, not the short term.

4. Why Do I Need An Adviser?

Advisers who follow the investment recommendations of Matson Money help investors stay focused in the long run, suggest ways to keep portfolios diversified & balanced and coach you to make thoughtful financial decisions on the market.

Some Investors Still On The Sidelines

Everyone is well aware of the market crash that happened around 2008-2009 when many investors ran to the sidelines, essentially scared out of investing in stocks. Five to six years later, some of those investors are still waiting, because they are unsure if they can trust the stability of the market.  However, the stock market is inherently unpredictable, and waiting around for the right moment to get back in is pointless. There isn’t a “right” time to jump back into the market.  It’s just a matter of  moving forward and putting the crash behind us.

Mark Matson recently appeared on CNBC to share his thoughts on whether or not investors can trust the market again. CNBC’s host asked Matson if the recent Fed statement about the economy was a green light for U.S. equities. Matson explained that investors should not focus on short-term Fed statements and should forget about currencies.  Instead, investors should think long-term about equities, which have historically been one of the greatest wealth creation tools. While every adviser has its own strategy and past performance doesn’t guarantee future results, Matson and his team of advisers follow  this investment strategy.

Matson also discussed the realities of how investors reacted during the 2008 recession and about how the market has rebounded. Even so, investors are still hesitant to invest. Matson suggests buying equities and holding on tight, because the focus should be on the long term. Investors should stop trying to predict the next 10% market move, no one can foresee the future of the market.


Investing Continues Past Retirement

When it comes time for you to retire, don’t think it is time to stop planning for your financial future.  You may still have a lot of life left to live and Matson certainly hopes that’s the case! A lot of people are excited to retire because they can stop working so hard and start enjoying every day to its fullest. While the perks of being retired can be substantial, you still need a game plan designed to allow you to continue to live comfortably without worrying daily about going broke. The notion that the cost of living during retirement will be cheaper is becoming less and less relevant.

Think of all the things you can do in your spare time: travel the world, take extended vacations, buy a boat and restore a classic car…the list can go on, and the list can get very costly. In order to do all the activities you want to do in retirement, you have to make sure you continue to manage your money wisely. Take it from Zack Shepard who is the Vice President of Communications at Matson Money. Matson Money manages approximately $6.2 billion for investors nationwide. Of those investors, some are in their retirement years and continue to plan for their financial future.   You should, too.

“Retirement activities often cost more money than expected,” said Shepard. “And people are vastly underestimating what a retirement is going to cost during year one and beyond.”

People must continually plan, even after leaving the workforce, as inflation can erode a poor financial plan very quickly. You might have a 401k to support you through your retirement years, but is it enough to cover all your future costs? It’s pretty much impossible to predict the future, and people may not be able to rely solely on their 401k and social security checks to make it through any given amount of time. Continuing your investing plan into your retirement years can help you continue your journey toward investing peace-of-mind. However, sometimes those plans need some guidance and advice. As you prepare to retire, or you are just starting your retirement, be sure you continue investing in your financial future.

Money Managing Tips for 2015

The year 2014 has wrapped up and many are ready to see what the New Year has in store for them. Every year some people make the same resolutions that involve dieting, learning something new, or making more money. However, it’s always a little hard to stick to our resolutions because we often just lose our willpower or motivation. Try making 2015 different by sticking to your goals. If improving your money management skills is on your list, then check out our tips for helping investors maintain their momentum through the year!


Sometimes money can be hard to come by the time you pay all your bills. However, there are ways to squeeze some fat out of your budget so you have something left over for saving and investing. Take a look at your monthly spending and figure out where most of it is going. A large portion is most likely being spent on the roof over your head and utilities – while it is hard to find extra cash in those expenses, consider going green to save money on utilities like using less electricity/gas and water.

For example, taking shorter, less warm showers can save on the gas or electricity needed to heat the water and use less water at the same time. Turning out lights when you leave rooms and switching to LED or fluorescent lighting can lower electric bills and raising thermostats one or two degrees in the summer and lowering them one or two degrees in the winter can make a dramatic difference in bills for heating or cooling your home. You can get big savings in your monthly food budget by switching your groceries to store and generic brands, stocking up on basic food staples during store sales and clipping coupons.


Once you get your budget under control and begin saving money on a regular basis by implementing some of the tips described above, you can begin working on ways to seek to grow those savings through investing. Investing in the stock market can be both exhilarating and risky, because the stock market fluctuates.  Sometimes it moves in your favor and sometimes it will go the other way. At any rate, investing the cash that you have saved wisely creates the opportunity to achieve benefits for your wallet as long as you realize that no one can predict where the stock market is going and there is no magic time to enter the market.

With that being said, Matson Money advises their clients to invest in diversified portfolios. A well-diversified portfolio reduces investment risk and creates the opportunity to achieve market rates of return without taking excessive risk with your savings.  Matson Money also recommends that clients focus on the long term and avoid trying to invest based on what’s being touted by the media on any given day. This approach creates opportunities to meet your personal investment goals without losing sleep every night over how your portfolio is performing.  Trying something new in 2015 could be exciting! But always recognize that not all stock market strategies are the same, nor do they all produce the same results. Start making small adjustments in the way your spend money now so you can start investing in your future tomorrow!

Mark Matson Appears on Fox Business

Mark Matson was featured on ‘After the Bell’ that airs on the Fox Business channel. The stock market can be a tricky game to play because it’s always going up and down, making it hard to predict the best time to get the highest returns. Matson explains on the show how to seek the highest returns from your portfolio regardless of what the market is doing. During the recession, many people panicked in the market and ultimately left it because it was an uncertain time. However, those people are trying to wait for the perfect time to jump back in and the matter at hand is: there is no perfect time.

It’s understandable that investors can be leery of the market based on the 2008-2009 recession where we saw drops in numerous stocks but that time is behind us. Take for instance a time when the market is high, that doesn’t promise a safe venture to jump aboard; you have to be in it for the long haul and hold your ground. Whenever you decide to enter the market, don’t hesitate because there aren’t any guarantees that it will stay the same and that’s why you must think of long-term investments.

A strategy to avoid in your portfolio is going in on dividend paying stocks with high quality names because they turn your high capital gains into income. And you don’t want to pay income on your gains, you want to have capital gains so that you can extend them. Choosing stocks that represent a good market value is like having a lot of assets but a distressed price, which can be a good long-term share of that company. So you may want to build a portfolio that offsets the volatility in microcaps and which in turn may avoid the value in their short-term fixed income. Building a diversified, global portfolio is the game, not selling people what’s trending or popular.

How To Develop A Scientific Investment Approach

I think people need to have an investment philosophy just like they have a personal philosophy. Now, an investment philosophy ought to be based on ideas that are empirically testable and that kind of leads to a scientific approach. So we try to base our investment philosophy on leading academic research that has been done over the last 50 years or so.

Capital markets behave in a way that we think you’d like to have them behave, the markets are where buyers and sellers come together and if a stock market is doing its job well, in an ideal stock market, both buyers and sellers are getting a fair price. That’s kind of the cornerstone of what we believe.

Now, prices fluctuate a lot so on any particular trade, either the buyer or the seller, will turn out to have gotten a better deal than the other side. But on average, over long periods of time, do both buyers and sellers get a fair price? The answer appears to be yes if you look at the numbers on the Dalbar study of 2012.

There may be other investment philosophies other than ours that work. But one philosophy that’s not going to work is to shift around all the time, try something for a while and try something else; you might experience unfavorable repercussions like paying unnecessary costs and taxes as are some of the findings in the Dalbar study points out. What you need to do is sit down and agree with the client.

Let’s create an investment philosophy that you can live with through thick and thin because about once a generation we get something like 2007, 2009, where the market drops by half. I’ve lived through it in ’73, ’74. If you’re lucky enough to live long enough, it’s going to happen again. So let’s think through how markets work and come out with an overall solution that is appropriate for you.

I think over the long haul, if you take the scientific approach, people may be more likely to be able to relax a little bit and might get the feeling that they are going to be okay. And I think that’s what the role of the adviser is, give them the opportunity for good returns, but give them a great overall experience.

Avoiding the Next ‘Madoff Situation

Bernie Madoff, we define him as a con artist and most people would. Con artists can destroy investors in two different ways. They can out right steal your money or they can speculate and gamble with it. And now once you identified Bernie Madoff or someone like him, then the idea is that you run from that person. You don’t walk, you run from that person.

There’s three steps to avoid the next Madoff and they all start with the word verify. In a presentation that I worked on, we call it ‘Verify, Verify, Verify’, and the first step is that you verify the financials of the company that you’re working with. Audited, audited financials by a third party; not some fake document they created. Remember, Bernie Madoff created and disseminated to his clients a lot of fake documents.

The second is that you verify that you have a third party custodian. See, Bernie Madoff actually held custody of assets, that made it easier for him to steal client assets. If you don’t have custody of assets, if there’s actually a third party, and you have verification through the custodian’s statements, then you know that you’ve taken a step to verify your manager doesn’t have access to your money to steal it. The third one is that you verify returns and this one is really important.

If I could give one piece of advice to an adviser out there, if something smells fishy or they think they may have run across someone like this, one is first they distance themselves from that person. And most of the time they are going to have to distance their clients from that person. And once they distance themselves from that person, then they can start to look into that person and maybe might have to call some regulators or something like that. And maybe they’ll have to look into the situation.

At Matson Money, we make every effort to avoid he fraudsters and con artists. In addition, we generally avoid these types of situations where fraudster flourish because we have a very specific investment strategy based on very specific academic tenants and we adhere to those. We have a set of core beliefs that our company was founded upon and if anything doesn’t fit within the parameters of our core beliefs or within the parameters of our academic investment strategy, it doesn’t work for us and it doesn’t work for our clients.

Well I think advisers want to provide something that’s great for their clients and sometimes they think that they need to find the next hot manager. Unfortunately, when you find the next hot manager, sometimes you neglect to do the due diligence that you need to do, in order to make sure it’s the right investment for your clients.

Inside the mind of the American investor

We’ve learned a lot about investing behavior in the last 15 or 20 years. Investors, left to their own devices, tend to trade more than they should. For some investors, this is probably due to over confidence in their ability to trade. People hold on to their losing investments and sell their winners and, to some extent, this makes emotional sense. When you sell at a loss, you feel a bad; when you sell for a gain you think ‘yeah I nailed that one.’ But, especially in taxable accounts, it’s a bad strategy. You should be delaying taxes, not accelerating them.

Another big thing that investors tend to do is chase performance. Investors buy the thing they wished they bought last year. Unfortunately, this is basically an attempt to time the market, which is generally ineffective. Investors tend to buy at peaks or near peaks and sell in troughs. This doesn’t serve them well even though it’s easy to understand why they do it.

One bias that a lot of investors have is that when it comes to buying stocks, they tend to buy things that catch their attention. They buy things that are in the news, that they read about, someone tells them about. Now if you think about it, there are thousands of stocks to choose from and investors generally can only buy a few. One of the ways that they narrow down the set is by focusing on the stocks that catch their attention, but those are not necessarily the best stocks to be buying.

The best course of action for the vast majority of individual investors is to buy a low-cost, well diversified mutual fund. Index funds or other passive investing tends to outperform active investing. Keeping your fees low is really important; that’s like money in the bank. Be sure you’re diversified and don’t spend your time trying to beat the market.

One way advisers can make use of behavioral finance is to sit down with your clients in advance, in a good calm time and talk about some common investor behaviors that can sabotage their portfolios. Especially behaviors like selling in a panic or deciding to buy that hot stock or asset class. Having the discussion before your client actually experiences it allows you to refer back to it and say ‘remember when we talked about this and I explained my investment philosophy is long run, buy and hold, don’t chase the latest performance, don’t panic when the market goes down.’ Having that discussion in advance can be really helpful.