Keeping Up with the Jones's

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As global financial markets continue on a similar trajectory in line with prior months, the bull market shows little sign of losing momentum.  Earnings continue to beat analyst expectations, and increased consumer confidence and market sentiment has households less worried about saving, as consumption and investment pick-up.  At Samra Wealth Management, we believe there are select opportunities remaining in 2018, however, investors who are recently coming off the sidelines, should remain cautious.  This month’s issue of The Samra Report focuses on: investing without a plan, where to derive market insight, and the issue with over-diversifying with low-cost index funds.

During the later stages of a bull market, fundamentals tend to play less of a role to technical’s and investor sentiment.  We are now seeing investors who were scorned by the Great Recession (2008-2012) finally coming off of the sidelines, in search of higher yields.  With the recession now in the rear-view mirror, investors find themselves experiencing pre-recessionary déjà vu.  Investors are entering the financial markets, playing catch-up with risky investments.  However, investors should be made aware of the risks of investing without a plan, especially true as they experience the wealth effect.  The wealth effect: a “Change in aggregate demand caused by a change in the value of assets such as stocks, bonds, gold, and property”, was seen up until the market decline of 2008.  As individuals watched the values of their stock portfolios and homes skyrocket, they were led to believe they were wealthier.  During the later stages of a bull market, investors have a tendency to adopt the “self-direct” mindset.  Believing, they can outperform the market, or at the very least outperform their financial advisor.  Although this may be true, these investors are responsible for making two mistakes: (1) taking on excessive risk, in an attempt to outperform an advisor or benchmark; (2) over-diversification: occurring “when the number of investments in a portfolio exceeds the point where the marginal loss of expected return is greater than the marginal benefit of reduced risk.”  At Samra Wealth Management, it is our belief that every investor should have a plan.  A dynamic plan taking a snapshot of the client’s current financial position, and providing quantifiable progress towards the client’s end-goals.  The client’s wealth management plan should encompass outside assets such as real estate, debt and other assets, and incorporate the clients: social security plan, insurance plan, trust & estate plan, and succession plan.  Although large wirehouse’s have incorporated financial planning, the conflict of acting as a broker-dealer and as a fiduciary still exists, as financial advisors attempt to meet their client’s needs not through portfolio construction, but, by selecting off-the-shelf prepackaged investments, typically containing expensive mutual fund options.

At a time where information flows freely, investors need to be selective in what sources they derive market insight.  At Samra Wealth Management, we believe there is a need for oversight, and increased regulation with regards to how financial data is disseminated.  Three of the largest areas of concern are: financial media, mutual funds companies, and testimonials from industry moguls: (1) Financial media sources such as The Wall St. Journal, CNBC, and Bloomberg Radio are not in the business of providing investment advice.  They are in the business of generating revenue, mainly from advertising.  (2) Mutual fund companies employ wholesalers, as a method to reach financial advisors through marketing activities such as lunches, or golf outings, as a way to connect with client facing financial advisors to promote sales.  However, regardless of the economic cycle, these mutual fund wholesalers tend to disseminate upbeat information, as they are compensated similar to the advisor, on increased assets flowing into their mutual fund products.  (3)  The largest violators tend to be those who are unaware of their actions.  Industry moguls such as Jack Bogle and Warren Buffett, two of the most respected names in the industry, have been quoted recommending low-cost index funds as opposed to working with a financial advisor.  A flawed philosophy, as it suggests the financial advisor’s role is restricted to the management of brokerage and retirement assets.  At Samra Wealth Management, we believe it is the advisors role to make the client aware of flaws in their financial plan.  A diversified portfolio of low-cost index funds will not take the place of a long-term care policy, life insurance planning, disability insurance planning, succession planning, asset protection and the list goes on…

With investors moving out of active management, into passive index funds, it is clear that these investors are steering towards cost savings, as opposed to quality portfolio management.  During a bull market, passively managed index funds track and mimic an underlying benchmark, leading to a few concerns.  With over 50% of the top 25 index funds managed by Vanguard, investors are clearly seeking out a brand name, as opposed to the best managed investment vehicle.  As the largest mutual fund company in the world, Vanguard does a lot well, however, it is unrealistic to believe that they excel in every area.  With the majority of index funds tracking a benchmark, there is little to no downside protection.  As the index fund follows the benchmark up during a market rise, the index fund also depreciates in value when the market declines.  Although index funds allow investors to diversify across market segments and across the globe, this raises many red flags.  Investing broadly without sufficient market insight, amongst investment vehicles benchmarked against major indices, provides little downside protection.  Although investors of the largest index funds can claim their investments have kept up with the major indices, it should be known that the largest index funds (SPY, VFIAX, IVV) declined further in value during the great recession, as the table below shows.

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Blindly following investment advice from industry moguls, may work perfectly fine during times of market recovery, however, investors should note that their asset allocation may not correlate to their financial planning needs, furthermore, the absence of alternative investments could eliminate any downside portfolio risk.





All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only.  This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor.

Stock Index prices are listed as of the close of business January 31, 2018, and do not take into consideration any reinvested dividends.





Burrows, D. (2018). Warren Buffett: Why Index Funds Trump Hedge Funds. [online] Available at: [Accessed 30 Jan. 2018]. (2018). The 25 Largest Mutual Funds - MarketWatch. [online] Available at: [Accessed 30 Jan. 2018].

Mutikani, L. (2018). U.S. consumer spending rises; savings drop to 10-year low. [online] U.S. Available at: [Accessed 30 Jan. 2018].

Samra, I. (2018). Modern Portfolio Theory & your Portfolio. [online] SAMRA WEALTH MANAGEMENT. Available at: [Accessed 27 Jan. 2018].