Frequent Questions
What is competitive performance?
You are rewarded for your exposure to risk and expense. You performance is competitive with other investors who were exposed to similar amounts of risk and expense.
Why do advisors sell performance?
It helps them sell investment products. You do not question high expenses if you have high performance expectations.
Can Wall Street guarantee future performance?
It is illegal to promise future results. But, the does not stop unethical advisors. They promise future performance to gain control of assets. You have not record of the promise. It is your word against the advisor if there is a future dispute.
Why don't regulatory agencies protect me from false promises?
The agencies (SEC, FINRA, State) what is and is not said to you by financial advisors. It is up to you to require advisors to document their promises.
How can all advisors claim to rank in the top 1% for performance?
They don't. This is an undocumented sales claim that is used to deceive you into buying what they are selling. A very small percentage of advisors can provide audited, GIPS compliant track records that document their claims.
What is the most important performance number?
It is the net number after all investment expenses have been deducted?
What is a risk-adjusted performance number?
There is more than one way to calculate this number. The simplest is to deduct all expenses and a risk free rate of return (t-bills) from your rate of return to see what is left over. If the remainder is positive, it is the value that is added by the professional's knowledge and advice.
What should I expect if my performance is more volatile than the market?
You should expect to make more in rising markets - this is your reward. You should expect to lose more in falling markets - this is your risk.
Why is stock performance more volatile than bond performance?
Most of a stock's return is appreciation. Most of a bond's return is interest income. Appreciation is more more volatile than income because it is less certain.