Courtesy Baton Investing

Courtesy Baton Investing

The ominous new study revealing that U.S. millennials are severely struggling with financial literacy begs a few critical questions—and not just regarding younger generations, but also older Americans with respect to personal finance proficiencies. These include “What exactly do younger generations need to focus on to take better control of their personal finances?”; “What are key personal finance questions millennials and all others often don’t know the answers to, but should?”; and “Are there modern, highly accessible software/APP technologies that can help investors and others improve their financial literacy?”

Seeking answers, I connected with field expert, Phil Ash, who is the Co-Founder and CEO of Baton Investing —a subscription-based stock picking system with which Ash intends to “set a new standard of transparency and performance for investing companies.” An admirable endeavor in my book.

As concerning as the rampant financial illiteracy in America certainly is, Ash was quick to point out the equally, if not more, disturbing reality that even more knowledgeable and seasoned investors are needlessly falling short of their financial goals. In Ash’s estimation, this is due to the well-intended yet short-sighted utilization of widely employed, industry-standard personal finance strategies that he says are actually leaving investors in a lurch.

“Amid a seemingly endless number of investment options and well-intended approaches, far too many investors are underperforming the market and not earning the annual returns required to achieve their retirement goals,” Ash says. “Why? It’s because the investment industry has become hyper-focused on risk mitigation, causing advisors and individual investors, alike, to be overly cautious at the wrong times and in the wrong ways. The problem is exacerbated by Wall Street’s self-serving and misguided propaganda campaigns designed to make the marketplace all-to-comfortable purchasing high-fee, low-return assets.”

Below is Ash’s list of six unexpected but commonplace investing methods that he asserts are “likely to do more harm than good, or certainly undermine profit potential and result in opportunity loss.”

1. Over-Diversification. This is public enemy #1 and among the most widespread approaches of professional advisors and amateur DIY investors, alike. Simply put, you can’t beat the market if you’re so diversified that you essentially ‘are’ the market. Those invested even in one mutual fund are likely already over-diversified. In a recent poll, a majority of average investors indicated that, yes, “they expect to beat the market” yet they also indicated they currently have a “well-diversified portfolio.” This is an oxymoron that far too many just don’t understand. The over-diversification offense is most prevalent in 401(k)s and 529s, which constitutes many people’s primary investment assets, where target-date funds and poor-performing mutual funds are the only options. Any money needed in more than 5 years should just go 100% in a low-fee S&P 500 fund that, in most retirement plans, is the “best of the worst” options. The S&P 500 has historically delivered 10% returns and recovered from any downturn in less than 5 years. While the S&P does not offer exposure to cyclical small- and mid-caps, it does deliver international exposure. The bottom line is that it just doesn’t make sense to craft a diversified portfolio of high-fee actively-managed funds that rarely beat the S&P over the long-term.

2. Robo-Advisors. These tech platforms have done a great job of democratizing money-management services by reducing the typical financial advisor fee from 2% to 0.2%, but they perpetuate the problem of mediocre returns. They all continue to use Modern Portfolio Theory and the Efficient Frontier as the basis for their advice, which is basically a diversification strategy that veritably guarantees you’ll underperform the market. Of course, younger investors probably have enough of a time horizon for sub-S&P performance to work out okay. But for those in their 40s or later who have figured out that even the 10% historical annual returns of the S&P aren’t enough, then a higher-performing strategy than robo-advisors is in order.

3. Tax-loss harvesting. Believe it or not, this is a strategy utilized by many personal finance professionals and one of the robo-advisors key selling points. This is the practice of selling a loser security (that you were advised to buy) in order to eke out a small tax savings on some of your winners. Seriously? An investor is already behind the 8-ball and some minor tax benefits are being touted as the antidote? No, thanks. Investors need market-beating performance. They need winners. Tax-loss harvesting isn’t a bad tactic, but investors shouldn’t let related marketing hype excuse or overshadow an advisor’s otherwise paltry performance.

4. Imposing an Age Limit. Everyone, including 75-year olds, should put all the money they don’t need in the next five years into growth stocks. Yep, you read that correctly. If you don’t yet have your nest egg established, you need to keep growing your money. And, when determining the desired size of your nest egg, you would be wise to assume you’ll live for longer than you think. For pre-retirement folks, money needed in less than 5-years should be in a less-volatile passive portfolio (e.g., BND, GLD, SPY and cash) with perhaps the portion needed in the next 2 years completely in cash. Adjust the cash amount based on individual risk tolerance. For retirees, the less-than-5-year money may need to be in safe income-producing bonds and CDs. All other money should be long the U.S. market, as the S&P 500 has always fully recovered from any setbacks within five years. And if current income is needed, some of the long-term bucket can be invested in higher-yielding income stocks that may have price fluctuations.

5. Assuming $1 Million is Enough. Amazingly, many people in their 40s and even 50s have yet to crunch the numbers to figure out how much money they’ll need to retire comfortably. When asked, many reflexively assert the assumption that they’ll need $1 million. But if, for example, someone is currently living on $125,000 a year and expects to live on $100,000 a year upon retirement at age 65, they’re actually going to need $3 million to get them to age 95. This is assuming their conservative investment returns will simply cover inflation and that their social security will be nominal. Clearly in this scenario and so many like it, the numbers have not been adequately crunched. There is no shortage of online calculators that involve more complex parameters, but they aren’t necessarily more accurate because the multitude of assumptions (e.g., inflation rates, tax rates, health care costs, etc.) may not play out in reality. On the flip side, for those who do actually know their financial goal, very few know how much they must contribute annually or how much annual return they must make to realize their desired retirement nest egg. For those who started saving later in life, they likely need more than the S&P 500 historical average of 10%.

6. Believing Advisors Will Produce Gains Better Than You. Most advisors of merit won’t even talk to a prospective client if they have under $1 million, maybe even $2 million, to invest. That’s because their percentage fees on smaller accounts barely cover a week’s worth of country club dues. It’s also because higher net worth accounts can be managed more conservatively, thus presenting less risk for them. Regular folks, however, who fall under this $1 million principal benchmark still need market-beating returns, and most advisors simply can’t—or won’t—deliver. So, beware if an advisor does take on your “small” account. Because the fees won’t justify much effort on their part, they’ll likely just shove your capital in a standard set of underperforming funds and extract their fee before hitting the golf greens.

“Sadly, clients are often happy enough when the market goes up because they did ‘almost’ as well as the market,” Ash notes. “And, they don’t feel so bad when the market goes down because everyone is down. There would be a groundswell of angry clients and lawsuits if more advisors were taking intelligent risks that create more market deviation, sometimes good and sometimes bad. The entire advisor community is just pushing one massive investor herd in the same direction, so why do we even need them? Certified Financial Planners and Advisors have a fiduciary obligation to advise clients regarding the full array of personal finance options based on their individual situations. Currently, the breadth of advice and ‘expert insight’ being imparted is woefully sub-par.”

Given that Ash’s Baton Investing stock picking system has beaten the market by roughly 300% since 2003, he clearly knows a thing or two about what it takes to win on Wall Street. Hats off to Ash for helping protect and propagate our hard earned nest eggs.


“The Luxe List” Executive Editor Merilee Kern scours the luxury marketplace for exemplary travel experiences, extraordinary events, and notable products and services. Submissions are accepted at . Follow her on Twitter here:  and Facebook here: .

***Some or all of the information, accommodations(s), experience(s), item(s) and/or service(s) detailed above were provided and/or sponsored to accommodate this review, but all opinions expressed are entirely those of Merilee Kern and have not been influenced in any way.***