Mullooly Asset Management » fiduciary

My 401k Account: What Do I Do Now?

Thomas Mullooly — Sat, 26 Feb 2011 16:01:40 +0000

Because your 401k account is growing more and more important to you, the roller coaster swings in the stock market really frustrate the hell out of you. You have worked hard, and focused on managing your career, not your 401k. Now must you focus on managing your 401k too? So what do you do with your 401(k)?

I’ve heard many say their 401k is an out-of-control pool of money. They have no guidance, no information and are too damn busy to monitor this on a daily — or even monthly — basis.

But this 401k account is the money you will need to retire on. Pensions and social security may not be guaranteed to be there down the road. I meet a lot of folks who are hoping the market is rallying when it is time to retire. Otherwise, they are screwed in big trouble.

My 401(k): How Do You Get This Money Under Control?

Your day to day responsibilities at work do not include reviewing the mutual fund choices in your 401k at work.
You’ve called the “Help Desk” for more information about the investment choices in your 401k, and find lots of young, helpful, cheery people. The person you won’t meet… the one who is willing to say “you dunce, get OUT of that fund before it’s too late!”

You have asked:

Your broker,

401k Help Center: Not Always Helpful
Your financial adviser,
The folks on the toll free line …for guidance.
And you’ve tried managing this money on your own.

My 401k: Why can’t the Help Desk actually… “Help”?

The help desk will not help you because:
They either work at a call-center. Five minutes later they may (conceivably) be answering calls for a pest control company. Or may not even be in the same country as you.

You may be lucky enough to be speaking with a representative from the company, someone who may actually hold a securities license. But they don’t know you — or your situation, how much help will they actually be? Will they say “Oh no, you didn’t invest in THAT fund, did you?”

Here is the Big Problem: The Call Center guy is *prohibited* from offering investment advice.

Isn’t that the dumbest thing you have ever heard? But it is true. Yet they continue to boast “if you need help, just call.” What many 401k investors do not know is that the help line is limited to only discussing the choices available to you in the 401k plan, and help you make a transaction between funds. No advice!

Lovely, right?

So the people on the company 401k “help line” cannot “help me” with the “help” I need the most?
Right. The folks at the other end of the line are either unlicensed employees of a brokerage firm (or licensed employees of a brokerage firm). Unable to take the fiduciary responsibility of providing investment advice.

My 401-k: Can my broker/financial planner help me?

It’s possible. But just suppose: you meet with your planner or broker once or twice a year to review. Then, what happens if the markets change right after we meet? What if the money in my 401k account is neck-deep in emerging market funds, and all hell breaks loose on the other side of the globe? Or what if we have put everything into bonds and interest rates begin to climb?

It would be nice to think your broker or financial planner will call you.
Nice, yes. Just probably not realistic. Why? Because your broker or financial planner is busy trying to get his clients money (where he/she gets PAID) out of harm’s way first. He or she maybe even moving your other investments outside your 401k account. Wouldn’t you want to be one of the first people alerted, instead of an after-thought?

Managing your 401k account is not an easy task. Investing your 401k is not something to be handled part-time. Asking an investment advisor for help with your 401k is a great way to start getting control of your retirement account.

Back On Offense

Thomas Mullooly — Tue, 12 Jan 2010 06:31:08 +0000

Just what the heck does that mean…”back on offense?”

When I refer to “offense” and “defense” I mean which team currently controls the momentum of the market.

If the defensive team is on the field, then “supply” is in control. If the offensive team is on the field, then “demand” is in control. When the market is on defense, news can be interpreted as either “no news” or “bad news.” Meaning “surprises” (good and bad) usually bring lower prices. Nearly everything can become a reason to sell.

When the offensive team is on the field, “demand” is in control of the football. We don’t know how long we’ll have the ball. It could be “3 and out” or it could be a sustained drive culminating in a touchdown. We don’t know the outcome.

But we know the plays to run when which side is in control.

See, a lot of folks (in my line of work) just run “offensive” plays, all the time. Yes, ALL the time!

And when the things don’t work out, they lament “well, right now the market is bad.”
What kind of _____ answer is that?

I’ve got a fiduciary O-B-L-I-G-A-T-I-O-N to my clients to make sure we invest this money prudently. If we are on defense, the first play in my playbook is to STOP buying. There is an entirely different set of plays I run whether we are on offense or defense.

You should know the market can go UP even when we are on defense. Or markets can just hang around doing nothing. Defense means the risk of losing money is greater.

Here’s an example: in this recent defensive period, the Dow Jones climbed to their highs for the year, but most individual stocks — and most sectors — pulled back and stalled. You probably noticed in the 4th quarter that your accounts stayed flat, while the Dow moved up. Most stocks and most sectors pulled back to the middle of their trading band. So we didn’t get hurt during this defensive period.

Ok, for this time around…defense was on the field and didn’t give much yardage. But we can spend more time talking about defense later.
For the present time, we are back on offense.

Which means the chance of making money is better now than in the recent period (when we were on defense). Yes, the market can (and does, sometimes) go down while on offense. But the odds of making money in the market improves when on offense.

Some areas will out-perform others. My work keeps us in those areas. But the tone on offense is a rising tide. And a rising tide lifts all boats in the harbor…good and bad.

So a lot of lousy investments may go up when we are on offense. When the football goes into defensive hands, the lousy investments will be exposed. Warren Buffet said “It’s only when the tide goes out that you learn who’s been swimming naked.”

We have the football. Let’s get to work.

Getting help for your 401(k): the process

Thomas Mullooly — Sat, 28 Mar 2009 13:31:10 +0000

How to get help with your 401k from Mullooly Asset Management.

This process will also help you with your 457 deferred compensation plan — or your 403(b) annuity at work.

First, if Mullooly Asset Management has never worked with an employee from your company before, we will need to get the list of investment choices available to you in your plan. You can fax them to us at (732)223-9600, or you can send us the link to the website (if we don’t need a password), or you could copy and paste the list into an e-mail or Word document.

We are not looking for your specific investments, or your most recent statement! What we need is an inventory — a list — of all the choices available to you within your plan.

We will need a day or two to review the choices available in your plan, take a look at the charts, and come up with a game plan.

We will then call you back — or set up by convenient time for us to speak — and review the best performing choices available to you in your plan at the present time. This phone appointment should take no longer than 15 minutes.

Unlike financial planners or others in the investment advisory business (many use asset allocation pie charts), the recommendation you will be given will be based on what is working — right now — and are the best choices available in your plan today. One of our core beliefs is “when the charts change, we change.”

We will then alert you — usually by e-mail — when it is time to add, subtract, move money into, or out of — a particular investment in your 401(k) plan.

There are some years where we might make three or four changes. There will be other years where we make significantly more changes. The whole concept is to keep your money invested in the strongest asset classes at the current time.

Since Mullooly Asset Management is a fee only investment advisory firm, we have no product or investment to sell you. We take a fiduciary obligation to manage your money strictly with your best interests in mind. Unlike brokers (employees of brokerage firms) and some financial planners (who may work on a commission basis, or a “fee-plus commission” basis), a fee only investment advisor’s only income comes from the fees generated by offering advice.

Therefore, it’s in everyone’s best interest (the Fee-Only advisor and the client) to avoid large risks and losses.

After we have had a chance to review the choices available in your plan, we encourage you to meet with us over the phone and be sitting in front of a computer with Internet access.

We use computer-sharing software. This will allow you to see the charts of the choices in your 401(k) plan, as we describe the process to you. This will also give you a visual demonstration of how we manage the risk for our clients. We can usually accomplish everything on our agenda in less than 15 minutes over the phone with you.

We are not going to judge your prior investment performance. We are primarily concerned with which investments are working today in the plan — and how to invest your money properly right now. Since the future is unknown, it is a waste of time to predict what markets will do in the future.

At the conclusion of the call, if you are satisfied with what you’ve heard, we would be delighted to send you an investment advisory contract for you to review and sign.

You read your monthly statements… don’t you?

Thomas Mullooly — Sun, 31 Aug 2008 01:44:21 +0000

Pretty sad story reported recently…but sad, as in pathetic.

Guy Wyser-Pratte, who is known on Wall Street as a shareholder activist and runs a $500 million hedge fund, recently reported that the private banking operation of J.P. Morgan Chase had “somehow” allowed many small electronic transfers out of his personal account, over a period of time (15 months). Each transaction represented only several thousand dollars. However, the total of these withdrawals was more than $300,000. But these electronic transfers were not authorized.

Did he get all of his money back?

No. The end result of his saga, apparently will be a recovery of just $50,000.

Why?

Apparently, Mr. Hotshot Wall Streeter never bothered looking at his monthly bank statement. Look…if you don’t contact your bank or broker within 60 days from the date the statement is printed… you are essentially saying “I agree” with everything printed on that statement. And you probably won’t have a leg to stand on if you come back six months (or a year), later announcing some discrepancies found on your statement. The responsibility is yours.

Now, Wyser-Pratte claims that since he opened that account “years and years ago” he doesn’t recall signing a document agreeing to that “60 day” stipulation.

He’s right…he probably didn’t sign anything like that. But maybe he should look on the back of his bank statement! It’s usually written there…every single month. It ticks me off that some big shot takes his eye off the ball and tries to put the blame on someone else.

If you get a statement from a bank or broker — and you don’t do anything regarding a possible discrepancy you may find within 60 days from the date of this statement, you are accepting the statement as it’s printed. Essentially, you are out of luck. Please don’t tell me you are as careless as Mr. Hotshot Wall Streeter.

Didn’t this guy have someone reconciling his bank statements? Scary! Additionally, Wyser-Pratte states that the monthly statements have become so complicated he had trouble deciphering them. Wow! And he manages money for a living?

This is just one of the reasons why I encourage new clients to review their first few monthly statements with me. It’s important that you understand what’s happening inside your account. The first step is understanding how to read your monthly statement. Look, more and more transactions are taking place electronically. You supply your routing number and account number over the phone and you are giving the keys to your bank account to someone. It’s a little scary, but it’s 2008. We will have to exercise a little more diligence than we did yesterday, and it comes down to having a certain level of trust.

Or — is it giving away a certain level of trust? What are your thoughts?

Auction Rate Preferred: the bail-out

Thomas Mullooly — Sat, 09 Aug 2008 21:39:11 +0000

In one of my most recent posts I discussed the “ready to explode” product issued by brokerage firms called “auction rate preferred securities.”

Well, that didn’t take long.

In this past week UBS (the parent company of PaineWebber), announced they are spending $19 billion (yes, billion with a B) to buy back auction rate preferred securities their brokers had sold to their clients. Citigroup (which owns Smith Barney), announced they are doing the same — for $7.5 billion. Merrill Lynch announced that they will buy back $10 billion of these securities sold by their brokers over the next few months.

That is $36 billion these brokerage firms have whipped out their checkbooks for… and we haven’t even heard from Wachovia or Morgan Stanley yet!

Understand that the auction rate preferred market is a $300 billion market. It’s a lot bigger than people realize. And it’s been around longer than most people know. I went on sales calls in the 1980s and marketed these investments as alternatives to commercial paper to universities and small publicly traded corporations.

So everyone is feeling the heat from these brokers walking away from this market… individuals can’t get out of these investments, which were sold to them as money market alternatives. Some publicly traded corporations have had to show losses on their books along with anyone else who listened to their broker and used these products as an alternative to short-term investments like treasury bills and commercial paper.

One of the best questions you can ask whenever considering an investment you are unfamiliar with, is this: “OK, sounds good. Now how do we get out of these things?”

Bear Stearns executives arrested

Thomas Mullooly — Sun, 22 Jun 2008 03:55:54 +0000

Oh boy, these kinds of headlines are never good.

Two former Bear Stearns portfolio managers were arrested this week, not because they did a poor job of managing money. They were arrested because they misled investors in a few ways:

They told investors they personally had more money than they actually had in the fund (one of the two managers had removed $2 million of his own money when it appeared trouble was brewing).

In speaking with Barclays Bank (at the end of February 2007 – right after removing some personal money) “As you can see,” one of the managers wrote, “despite the sell off in the subprime mortgage market, our fund continues to do well, quite well, in fact.”

In April 2007 they expressed concerns privately in emails, but just days later, they held a conference call with investors, telling them there are “no serious long-term problems with their investments.”

I’m not going to speculate on the merits of the case. But this is a good opportunity to remind readers of one of the major differences between brokers and investment advisers: investment advisers carry a fiduciary obligation to their clients, brokers do not. An investment in a hedge fund, which is an unregulated investment portfolio, is definitely NOT like dealing with a traditional stockbroker and brokerage account (not even close).

But still, in this case, it appears there are brokerage firm employees possibly not disclosing some very relevant information. The way the story has been told through the media this week, it is difficult to say the money managers were on the same side of the table as the clients.

There is a good recap of the events you can check out at: Bloomberg.com’s website.