Is Your Advisor Adequately Explaining All Your Risk?

  • Market Risk?
  • Interest Rate Risk?
  • Liquidity Risk?
  • Volatility Risk?
  • Credit Risk?

A new article by Paula Vasan titled “Talking About Risk? Advisors, Industry Must Do Better“, takes the industry to task claiming investment risks are not well understood by advisors and not being well explained to clients.

Be aware when your risk is on the rise with Equity Risk Alerts.

Could you benefit from a few ‘sin stocks’ in your portfolio?

Are “sin” stocks like casino gambling good for your portfolio?

Investing in companies that offer a product or service that you don't agree with presents a dilemma. While you may not support their activities, it can be hard to overlook that traditional "sin" or "vice" stocks – tobacco, guns, alcohol and gambling – often produce some of the best returns. 

Unlike other industries, however, government regulations or an unsavory news report can sometimes send stock prices of these controversial companies plunging. These volatile investments may not be appropriate for all individual investors, but for those with a high risk tolerance, sin stocks present profitable opportunities. 

In a recent article in Kiplinger's Personal Finance magazine, a group of financial analysts offered their opinions of the outlook of sin stocks. We've detailed a few of their observations below: 


According to Mark Swartzberg of the brokerage firm Stifel Nicolaus, alcohol consumption is increasing in developing economies. As the world's middle class grows, purchases of premium brand liquors will increase. Two brands that Swartzberg sees with the most potential are Diageo (DEO) and Anheuser-Busch InBev. 

In the case of Diageo, Swartzberg told the publication that the London-based spirits importer is filling the needs of many American consumers who are drinking less beer and are moving to more high-end beverages, which offer larger profit margins. Belgian-Brazilian company InBev turned heads in 2008 when it purchased Anheuser-Busch – maker of Budweiser beer. It has continued to purchase corporations around the world, and its sales have continued to increase. 


For decades, legal gambling in the United States was limited to just a few states. In recent years, however, gaming has expanded to many new jurisdictions, so much so that casinos in new areas have begun to cannibalize the patrons from areas like Atlantic City. 

Foreign casinos in places like Macau seem to be thriving, but individual investors may want to stay away from markets like China if they have a low tolerance for risk. 


Gun sales were strong in in 2012 and 2013, after several gun control bills were introduced in Congress to address the ne number of shootings that involved semiautomatic weapons. Many firearm enthusiasts went on a buying spree out of fear that there would be tougher restrictions. The proposed legislation went nowhere, and gun sales have cooled. 

Nonetheless, Brian Ruttenbur, an analyst with the Stamford, Connecticut, investment firm CRT Capital Markets told Kiplinger's that Smith & Wesson (SWHC) may be a buy. He based his prediction on the fact that more states are allowing the possession of concealed weapons and a growing number of women are becoming gun owners.


On the surface, investing in tobacco may seem like an unwise choice. Less than one-fifth of Americans use tobacco today, compared to 25 percent 20 years ago. The situation is vastly different overseas. In countries like Russia and Indonesia, over half of the male population smokes daily. Despite the decline in the United States, worldwide smoking is actually up 34 percent from 1980, according to the Journal of the American Medical Association. Companies like Philip Morris International (PM) and British American Tobacco (BTI) have benefited greatly from the popularity of tobacco in Asia, Africa and the Middle East.

Within the United States, tobacco companies cannot be counted out completely. Lorillard (LO), the nation's third-largest cigarette maker has been at the forefront of the electronic cigarette industry. The company's blu eCigs brand currently has half of the market. The success of the e-cigarette industry currently depends on a favorable ruling from the U.S. Food and Drug Administration. 

For investors interested in buying such volatile stocks, it is imperative that they use SmartStops' portfolio risk alerts. Explore our website to learn more. 

Is Best Buy really a “sell?”

Best Buy has had to deal with competition from online stores.

Best Buy has had to deal with competition from online stores.

The past year has been a dramatic time for electronics retailer Best Buy (BBY). After nearly tripling its stock price, peaking at $45 a share in November 2013, the company's stock plummeted almost 30 percent after releasing its fourth quarter earnings report. The store had weak sales during what should have been a strong holiday season and fell far short of its goals. 

Over the past decade, Best Buy and similar retailers have faced difficulties competing with websites like (AMZN). The theory is that consumers use brick-and-mortar stores like showrooms. After finding the products they like, customers then take their business online. This phenomenon has been blamed for the decline of companies like Borders and Circuit City. Many individual investors may be concerned that Best Buy is next on the list. 

In a Seeking Alpha piece, a veteran trader who writes under the pseudonym "The Financial Lexicon" expressed the reasons why he thinks Best Buy will continue to be a viable investment for the foreseeable future. He first tackled the assumption that online retailers have a significant advantage over brick-and-mortar stores. 

Consumers have been drawn to websites like Amazon because they can avoid paying sales tax. This is becoming less true as many states are requiring online stores to collect taxes. The Financial Lexicon also noted that Best Buy will price match many products from online stores. According to the author, as long as the retailer effectively markets the advantages of shopping in person, it should be able to bring in more customers. 

In reference to the company's stock price drop after the holiday earnings report, the author said that investor behavior was "completely unwarranted."

"The disappointing holiday revenue results simply weren't as bad as one might assume based on the stock's performance," The Financial Lexicon wrote. "The reaction in the stock shows the shareholder base is not one that has a 'buy-and-hold' mentality, and not one that makes Best Buy a suitable buy-and-hold candidate for investors with low-to-moderate risk profiles."

According to the author, recent trading price action shows that Best Buy is attracting the wrong type of investor. Despite this, more experienced traders can still find success with Best Buy stock by engaging in short-term trades rather than exploring (short or long) buy-and-hold strategies. 

At the moment, the future of Best Buy continues to look uncertain. While reaction to holiday sales may have been overblown, shareholders cannot overlook that overall 2013 sales from the store's domestic and international segments declined significantly from the previous year.

The plight of Best Buy is the perfect example of why individual investors need automated risk management tools to help them actively manage their portfolios. Explore SmartStops' website to learn more.  

Will Bernanke’s exit postpone the taper?

Bernanke will be leading his last Fed meeting this week.

Bernanke will be leading his last Fed meeting this week.

This week, Federal Reserve Chairman Ben Bernanke will be overseeing his last Federal Open Market Committee (FOMC) meeting. Many financial analysts and economic experts are speculating whether the transition from Bernanke to incoming chair Janet Yellen will cause members of the Federal Reserve Board to reconsider tapering its bond-buying program. 

The Fed began the taper in December by reducing its purchases by $10 billion. The central bank is expected to make a similar decision this month – spending $35 billion on treasury bonds and $30 billion on mortgage-backed securities. At the Fed's last meeting, Bernanke indicated that the Fed would continue to move at a similar pace in 2014 as it did in late 2013. 

"I think the Fed is desperate to extract itself from quantitative easing, and it will continue to scale back the program and end it this year," said Bernard Baumohl, chief global economist of the Economic Outlook Group, to MarketWatch. 

He speculated that it would take a major event to push the Federal Reserve off course. This month has already experienced poor jobs numbers and a stock market slump and that has not seemed to phase Bernanke and his colleagues, Baumohl added. 

Under the current taper plan, the bond-buying program will be finished by the end of 2014. One finance expert, Jennifer Vail of U.S. Bank Wealth Management, told the source that she expected purchases to be done by September because the bank is ready to "get out."

The end of the bond-buying program could have an effect on your investments. By using SmartStops' investment analysis and portfolio management software, you can keep your risk to a minimum. 

Should you participate in your company’s 401(k)?

Should you join your new employer's 401(k) plan?

Should you join your new employer’s 401(k) plan?

Changing jobs often comes with new benefits, pay structure and a different 401(k) plan. Whether or not to join your new company's retirement plan is an important decision that you may have to make several times over the course of your working life. 

Here are a few factors you should consider when judging a new 401(k) plan: 

Fees – Some employer-sponsored retirement plans charge extra fees to cover administrative expenses. This may not be an issue for employees at larger corporations, as they are able to negotiate lower fees. Smaller firms, however, often do not have this advantage. Retirement plan providers are required by law to disclose information regarding additional costs, so be sure to read your plan's summary for more details. 

Investment options – Does your employer offer a diverse and solid group of stocks in its plan? Many financial advisors recommend that you consider the following when reviewing your plan's investment options: 

  • Expense ratio – If the plan costs more to maintain than the assets in it are worth, you may want to pass on this 401(k). 
  • Manager start date – 401(k)s often contain mutual funds. You should make sure that they have managers with a tenure of at least five years. 
  • Returns history – Look at your retirement plan's five and 10-year return ranking compared with similar funds in its category. The plan doesn't have to be at the top of the list, but it should be in the top half. 

Match contribution – If your employer matches any part of your contribution, you will want to confirm the stipulations of this program with your benefits manager. Some companies don't begin to match until after the employee has been working there for a set period of time – usually between six months and one year. There may also be a certain percentange of your income that you will need to deduct to qualify for your company's retirement plan. 

Roth option - Consider taking a Roth 401(k) option if your company offers it. You will pay taxes on contributions, but you will be able to make tax-free withdrawals. This may be a good idea if you anticipate that your future tax rate will be higher than your current one. As an alternative, you could put your money in a Roth IRA if your company doesn't offer the similar 401(k) program. 

Even if your employer's 401(k) is less than ideal, it may be the best option for you especially if you are a high-income earner. You should try to take advantage of every tax-deferred savings plan that you can. 

Wise investing and preparation for retirement involves being an active manager of your assets. With SmartStops' investment analysis software, you can keep your risk to a manageable level. Explore our website to learn more. 

Is there any truth to the ‘Super Bowl Indicator?’

Should you follow the Super Bowl Indicator?

Should you follow the Super Bowl Indicator?

On Super Bowl Sunday, an unlikely group of people may be the most vocal fans at your local bar: Wall Street traders. At this time every year, news pundits and financial analysts often bring up a stock market prediction scheme known as the Super Bowl Indicator?

The basic theory is that the stock market will post a gain for the year if a team from the National Football Conference (NFC) beats its American Football Conference (AFC) opponent. This year, market watchers will be rooting for the Seattle Seahawks over the Denver Broncos. 

So is there any truth to the Super Bowl Indicator? Since the Super Bowl's inception in 1967, the indicator has been correct 37 out of the past 47 matches – a 78.7 percent success rate. In that sense, yes, there is a correlation between the Super Bowl outcome and market performance. But any student of basic statistics can tell your that correlation does not necessarily indicate causation. 

In a 2013 MarketWatch piece, analyst Mark Hulbert raised skepticism on the theory saying: 

"Not only must an indicator have a good track record in order to make it worth following, but there also should be a sound theoretical explanation for why the pattern on which it rests should exist in the first place. And I am aware of no such explanation in the case of the Super Bowl Indicator."

He also noted that during the years that the indicator predicted incorrectly, it was often very wrong. The most infamous example occurred in 2008 when the NFC's New York Giants defeated the New England Patriots. That year, the stock market fell nearly 39 percent. 

Instead of concerning themselves with fad indicators, wise investors should consider actively managing their assets with portfolio risk management software.

How the next generation of investors views the stock market

Generation X an Y investors are devising strategies on their own.

Generation X an Y investors are devising strategies on their own.

When thinking about individuals who are concerned about investing and wealth management, Baby Boomers often come to mind. This is a logical assumption, as folks in this age group are nearing or have already begun retirement. There are, however, two other generations that make up a large percentage of those actively trading in the stock market. As members of Generations X and Y become more prominent, financial advisors and other professionals who develop trading strategies will need to reevaluate how they attract and work with these individuals. 

"Everyone sees the world through his or her own generational filter," Cam Marston, founder of consulting firm Generational Insights, told advisors at the Fidelity Inside Track conference, as reported by On Wall Street. "One of the main factors that distinguishes investors – and may be separating you from connecting well with them – is generation or age group. Age and life stage also dictate many needs and preferences."

Marston also noted that younger investors, especially those from Generation Y, have a much more skeptical view of the stock market compared to  their Boomer parents. Also known as Millennials, this group of young people witnessed the decimation of their parents' retirement portfolios in the 2008-2009 stock market crash and are wary of making similar decisions. Older Americans, on the other hand, continue to have confidence in the basic principles of the market and are more willing to ride out a storm.

Despite this negative attitude, research from Fidelity found that members of Generation X and Y are actively engaged in strategies to grow their wealth. The financial services company's 2013 Millionaire Outlook suggests affluent individuals in these generations are investing in a wide range of asset classes and developing their own ideas for portfolio management.  

Similar to their parents, young investors are likely to meet with a financial advisor or wealth manager, but their reasons differ greatly. Boomers tend to meet with financial professionals because they are truly seeking the advice of an expert. Millennials and Generation Xers, however, are more or less looking for affirmation, according to the study. They often go to advisors or managers after they've already made a decision, just to confirm that they made the right choice. 

The study also found that X/Y millionaires drift toward more aggressive investment strategies, as evidenced by their average of 30 trades per month. They spend much more time researching individual stocks than their parents and grandparents, and see themselves as knowledgeable about the financial services industry. 

At any age, investing in the stock market is inherently risky. Actively managing your assets and using SmartStops' portfolio risk alerts will keep you apprised of trends and help you make informed financial decisions. 


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