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Wealth Management Strategies from Jentner Wealth Management

Warren Buffett’s Million-Dollar Bet There has been much debate over stating, “He is correct that hedge- the years as to whether high-cost fund fees are high, and his reasoning is hedge funds can outperform low-cost convincing. Fees matter in investing, no funds. Another way of stating doubt about it.” the argument is: Which investment philosophy will better reward However, Mr. Seides continued, “Fees investors—active or passive? will always matter, but market risk sometimes matters more. My guess In 2008, Warren Buffett issued a is that doubling down on a bet with challenge to the hedge-fund industry. Warren Buffett for the next ten years In his view, the hedge-fund industry would hold greater-than-even odds of charged exorbitant fees that couldn’t victory.” be justified by their performance. So INSIDE THIS ISSUE Mr. Buffett bet that an S&P 500 index Does sometimes fund would provide a better 10-year beat ? Do hedge Warren Buffett’s cumulative return than hedge funds funds sometimes beat index funds? after fees, costs, and expenses. Ted Sure. The beat Mr. Buffett’s Million-Dollar Bet . . . 1. Seides, co-founder of Protégé Partners chosen Vanguard’s S&P 500 Admiral LLC, accepted the challenge, and fund in 2008, the first year of the bet. President’s Word . . . 2. the two parties placed a $1,000,000 But then the S&P 500 index fund beat Why Investors Keep Buying Actively bet. They agreed that in the end, Protégé’s hedge fund each of the next Managed Investments $1,000,000 would be contributed to a five years. In fact, the hedge fund’s charity selected by the winner. lead was so large after the first year May Be Your Best that it took four more years for the Mr. Seides’ Protégé’s hedge fund is index fund to finally pull ahead of the Inflation Fighters . . . 2 a fund-of-funds, meaning it delivers hedge fund. This reinforces the fact the average return of the five best that active managers will outperform The Market’s Ups and hedge funds as selected by Protégé’s index (passive) investors on occasion. Downs? ...... 3 managers. However, their ability to maintain this outperformance remains elusive. In Continue Warren Buffett’s Earlier this year, Mr. Seides conceded 2015, the hedge fund narrowly beat the defeat ahead of December 31, 2017, index fund, but in 2016, the index fund Million-Dollar Bet . . . . . 3 the final date of the bet. He admitted gained 11.9% compared to Protégé’s the strength of Mr. Buffett’s point, 0.9%. By the end of 2016, the index... Keep Your Digital Info (continue this article on page 3) Safe ...... 3

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THE PRESIDENT’S WORD Why Investors Keep Buying Actively Managed Investments Many sophisticated investors keep trusting active and market timing even though the historical data show that passive management results in better returns. Historical evidence indicates that But once I let historical data reshape Bruce Jentner, CFP®, President seeking superior -term investment my thinking, I concluded that over returns is difficult at best and, for most the long term, active management • Yet, the historical performance of investors, unattainable. Even though almost always underperforms actively managed funds selected by the there are some who earn superior passively engineered index and asset- most financially literate investors was, returns occasionally over class management. In spite of the on average, lower than index funds. periods of time, the attempt to repeat overwhelming evidence, why do so this over an extended period results in many people continue to purchase What are the conclusions? lower performance. actively managed investments? Why • Sophisticated investors appear to do people continue to seek economic be overconfident in their investment Those of you who have heard me gurus who can tell them when to be in abilities. • The incentive for brokers to sell speak over the years know that I am or out of the market? actively managed funds creates a conflict not a fan of active and According to the research,* between brokers and their clients. selection, of market timing, or of • People of higher financial status tactical allocations based on market generally have higher financial literacy. Don’t take my word for it. Do your own predictions. What some of you may • Higher financial literacy helps people research. Determine what is in your best not know is that for the first half of my become aware of the advantages of interest. career, I employed all of these methods, passive (index) funds. believing this was in the best interest • In spite of this, the most * Financial Literacy and Investments: of my clients. sophisticated investors Who Buys Actively Managed Funds? by Sebastian overwhelmingly rely on actively Müller and Martin Weber managed funds. Stocks May Be Your Best Inflation Fighters The stock-market rally continues Stocks can be scary to own, but they mistakes, ending up with much lower in spite of much media skepticism. may be your best inflation fighters. returns than they would have if they Investors may be tempted to move out Though stocks fluctuate in value, they ignored the news and stayed invested.* of the because they are have historically beaten inflation. Since concerned by the predictions calling for World War II, diversified investment Do not let short-term predictions of a market correction. Who can blame portfolios of stocks have earned the stock market derail you from a them? returns that were 4% to 5% greater successful investment experience. Work than inflation. Although forecasters say with a qualified investment professional But this may be a mistake for those those high returns may be over for a to design a risk-appropriate, diversified planning for retirement. Despite while, the consensus is that diversified portfolio of stock and bond index funds relatively slow economic growth, stock investors are still likely to earn at that you can live with no matter what inflation remains a silent threat. While least 2% to 3% more than inflation. the daily markets do. Be smart. You the current 2% to 3% inflation rate is owe this to yourself and your family. If historically low, it can pose a problem It may feel painful as you endure you have any comments or questions, for investors who are hiding in fixed- fluctuating returns; there will be plenty please let us know how we can help. income investments or cash. of periods when stocks lose value and * “Dalbar’s Harvey: Individual Investors Brilliant the markets look scary. But investors at Mistiming Markets,” Moneynews.com by Dan who buy and sell routinely make timing Weil THE FALL 2017

Can You Handle the Market’s Warren Buffett’s Ups and Downs? Million-Dollar Bet Everyone knows the stock market fluctuates. But not everyone is willing to be (continued from page 1) patient. Are you? ...fund had gained $854,000 cumulatively Some really intelligent investment Some investors have found investing compared to the hedge fund’s cumulative professionals can get you in at to be a street paved with gold, while gain of $220,000. the bottom of the market. Some others have truly experienced a extremely smart investment nightmare on Wall Street. To avoid the Active investment managers are very professionals can get you out at the nightmare, diversify, be patient, and bright people. They know a lot about top. But there are two basic problems: don’t follow the crowd. the companies they invest in. They have 1. They are never the same people. good reasons for making investment History suggests the way to make 2. They never get it right all of the decisions based on their prediction of money in the market is to invest with time. the future. The fact is there are hundreds broad diversification and stay with it. of thousands of people who are also Wouldn’t we all like to find someone If you are not comfortable with that, buying and selling investments based who can tell us when to get in and don’t get in. Get help to determine on their beliefs of what might happen. when to get out of the stock market? if you are truly an investor willing to But it is virtually impossible for anyone With hundreds of millions of people accept the inevitable fluctuations of to consistently get it right. Every time investing in hundreds of thousands the markets. If not, it may be best for someone believes it is the right time to of companies throughout the world you to avoid investing and instead sell a company stock or bond, someone else is willing to purchase that company with trillions of moving parts, it defies save your money using guaranteed stock or bond because they believe it is the odds that anyone can consistently bank deposits and insurance-company the right time and price to buy. Who is predict what the markets will do over deposits. Although your long-term right? the next several years, let alone the returns are likely to be more modest next several months. than the market, if you do not have the patience to stay invested The paradigm fed to us by the financial media is that we (or someone we hire) Warren Buffett, one of the most throughout market fluctuations, must pay attention to daily events in successful investors during our you may be better served using order to earn meaningful returns and lifetime, said, “Unless you can watch guaranteed accounts. avoid permanent loss. It is important to your stock holdings decline by 50% remember why they take this position. without becoming panic-stricken, you They are in the of attracting should not be in the stock market.” subscribers and viewers in order to Why would Warren Buffett say sell advertisements and commercials something like this? Because human to support their business. This does nature is in conflict with successful not make them bad people. It is just investing. the reality of their business model. However, their business model does There are two things that cause a not necessarily support your long-term stock to move: the expected and the successful investment experience. unexpected. Therefore, diversify, and be patient. Thousands of books and Warren Buffett’s opinion is that the magazine articles explain how to get financial “elites” have wasted $100 billion rich quick in the stock market using or more over the past decade by refusing a variety of strategies and gimmicks. to settle for low-cost index funds, New charts, graphs, and trends are according to his discovered all the time. But the truth shareholder letter from February 2017. is there are no shortcuts, and you will And in the final analysis, Mr. Buffett’s bet not outsmart the market over the Daniel J. Bloom, CFP®, NSSA® on passive investing paid off. We believe it long term. Director of Financial Planning is likely to pay off for you too. Jentner Wealth Management 3677 Embassy Parkway, Akron, Ohio 44333 330-668-1000 1-866-JENTNER

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Wealth Management Strategies from Jentner Wealth Management Keep Your Digital Info Safe Our business mission is to help our 2. Use a password-manager clients achieve their dreams and application (like LastPass, 1Password, goals by protecting and growing or Dashlane). These password their financial resources through managers create and store strong, prudent financial management. While unique, random passwords for each this requires sound investment of your online accounts. Then, you access your password manager management, it also includes prudent online using a long, personally THE JENTNER REPORT steps and habits to protect digital relevant, and secure password information. that you can remember or using a The Jentner Report is published quarterly by Jentner Wealth Management, 3677 Embassy fingerprint-recognition application. Parkway, Akron, Ohio 44333, 330-668-1000. There are a variety of identity- © 2017 Jentner Wealth Management. All rights theft protection services available reserved. Information has been obtained from 3. Use two-factor authentication sources believed to be reliable, but its accuracy (such as Identity Guard, LifeLock, whenever available. Some online and completeness and the opinions based there- PrivacyGuard, and IDShield), and we accounts like Amazon and your on are not guaranteed, and no responsibility is assumed for errors and omissions. Nothing in would encourage you to consider bank’s website may allow you to this publication should be deemed as individual subscribing to one. However, each of use a randomly generated investment advice. Call Jentner Wealth Manage- ment for consultation before making an invest- us must also develop habits to protect code on your mobile phone ment decision. Any performance data published our financial resources. Let’s review whenever you attempt to log on. herein are not predictive of future performance. This authentication code confirms it Investors should always be aware that past three habits for your consideration: performance has not been shown to predict is actually you logging in. the future. Jentner Wealth Management is not a certified public accounting, tax, or legal firm. We 1. Use a different random password do not engage in the preparation of tax returns for every online account. You These habits may seem a bit or provide legal advice. If in doubt about the tax might ask, “How in the world can cumbersome, but the internet is not or legal consequences of an investment decision, it is best to consult a qualified expert. I remember different, random going away, so we must adapt. With passwords?” See recommendation advantage and convenience come The Jentner Report is printed for our clients cyber-security risks. Therefore, learn and select investors. If you have received this by #2. mistake, please contact us to have your name good habits to protect your digital removed from our mailing. and financial resources.