Applying the lessons of history to your portfolio

Last fall, financial advisors Anthony and Dina Isola came into our firm to talk shop one afternoon. We were blown away by their passion for saving the retirement portfolios of their clients, many of whom are teachers and professors who are inundated almost daily with bad product pitches at their schools.

Within a few weeks, we were talking about hiring them. It’s one of the best decisions we’ve made so far – an absolute grand slam from a culture perspective.

Tony’s background as a trader-turned-educator-turned-Certified Financial Planner makes him a highly unique animal in our menagerie. He comes to work ready to crush it every day, and he’s armed to the teeth with knowledge about how the machine takes advantage of the investor class at every turn. Dina’s detail-oriented work assures a smooth client experience for all who come to them for help.

Tony’s also got a great blog, called A Teachable Moment. When we set it up for him, we had no idea how consistently good his stuff would be each week.

For example, this bit about the application of history lessons is so crucial:

How can investors act as applied historians and use this skill set to create wealth?

There are several minefields that could easily be avoided with some knowledge of the past:

• Most market corrections don’t turn into bear markets.
• Using leverage to boost investment returns often ends badly.
• The president has very little control over the global economy.
• Buying new financial products at market peaks is a poor idea.
• Bull markets last much longer than bear markets.
• Stocks are six times more likely to be up 20% than down the same amount. (Michael Batnick)
• Uncertainty is always present and it is not a wise choice to use it as an excuse not to invest.
• Stocks will do the best job of protecting future purchasing power over long periods of time.
• Investing in the fastest growing world economies will not guarantee higher investment returns.
• Most recessions haven’t turned into depressions.
• Investment costs, savings rates and time in the market are the biggest components in generating healthy investment returns.
• Factor investing won’t work for most people because of their cognitive deficiencies.
• There is a large behavior gap between total mutual fund returns and what investors actually receive.
• The great majority of mutual fund managers will underperform low-cost index funds because of costs.
• Diversification works, just not every year.
• Stocks can stay massively over- and undervalued for very long periods of time.
• Real returns after inflation are the only returns that matter.
• Stocks are in a bull market 85% of the time.

All of the following can be proven with applied historical analysis. This is a much better strategy than relying on your gut, or believing a compelling story, when allocating money.

Josh here – all of this is easy stuff to keep in the back of your mind when making investment decisions that could materially affect your outcomes years or decades from now.

If you’re not reading Tony’s stuff, you’re really missing out. Check out the rest of his post at the link below:

The United States of Market History Amnesia (A Teachable Moment)

If you want to talk to Tony and Dina about how they work with client households each day, get more information here.