Fisher Investments is a private money management firm located in Camas, Washington. It was founded in 1979 by Ken Fisher, who served as the company’s CEO until 2016, although he still serves as Chairman and co-CEO.
They are a pretty big operation for a regional independent, with $100 billion under management and 3,500 employees, with an international branch with offices in the U.K., Ireland, Germany, Japan, Australia, and Dubai. They have been recognized as one of the top 300 regional money managers in the U.S. for 6 years running now.
Fisher Investments has also dabbled in mutual funds, and they still run the Fisher Global Return Fund, which is at least competitive with funds in their class in spite of charging some of the highest fees in the industry. Their other fund, the Purisima Global Return Fund, was liquidated in 2016 due to poor performance.
What caught our eye with this company is seeing one of their current ads offering investors a guide to what they believe are the 13 retirement investment blunders to avoid. We were sure that at least some of these might actually be blunders, but the fact that this is coming from an industry so prone to make blunders themselves, we decided to have a look at the list ourselves to see which of their blunders are actual blunders and which ones involve them making blunders.
We’ll go through these 13 blunders for you and add our thoughts so you can decide for yourself which are the real blunders and which are not, as well as helping you think about these more than just the reading and obeying that they surely expect we will do.
Blunder #1: Placing Big Bets – From looking at Fisher’s funds, we expected that their strategy would be to spread things around as much as possible, so it wasn’t surprising that they warn investors not to put too much of their money in a single investment, what they consider to be “big bets.”
The fact that you shouldn’t do such a thing is a common belief, and the example that they provide is owning too much of your company stock, one we cannot disagree with. The reason is that we should be making these decisions based on merit, and you working there or liking the company personally doesn’t qualify or even mean anything.
There are some cases where this would make sense, for instance if they match your contributions, which they often do, although you still should never blindly do such a thing and you need to ensure that this makes the deal worth it, especially if you are required to hold the stock.
Not aligning your portfolio towards performance is the real blunder here, and doing this right will require that you concentrate your assets in what Fisher would consider to be big bets. As long as you don’t just let these bets ride when they turn into bad bets, you can avoid the genuine blunder that is made here. Big bets can especially be a blunder if you place them and then handcuff yourself and become helpless when it is time to take back the bet.
Fisher includes not mixing emotion with investment decisions as being part of this blunder, and this is a big one. This one isn’t brought up as much as it should, so they deserve credit for this. Emotion and investing are like drinking and driving, they just don’t mix.
If we just refine this one a little and understand Fisher’s big bets as those being disproportionate to their merit, this is definitely a blunder we need to avoid.
Blunder #2: Being too conservative when investing – This is the biggest blunder retirees and just about every other type of investor makes. We can’t even have a discussion about investing in retirement, investing for retirement, or any other sort of investing that people tend to make without pointing out how badly they do with this huge blunder.
Fisher tells us that people invest over the long term but approach volatility over the short term, where they end up favoring bonds, but over the time horizon that they are using, stocks both produce much higher returns and are actually less volatile. He hits a home run with this one.
We admit that we are pretty jaded toward companies who provide investment advice, and even struggle to describe how incredibly stupid it is for investors to favor bonds over stocks over the long term. Bonds have their place, but only when it is reasonable that they will outperform stocks over a certain period, as if it is more likely that stocks will outperform, it makes no sense to go with a clearly inferior choice.
Fisher even bringing up how these things work in the longer run therefore warms our hearts and definitely has him standing well above the crowd. While we still wonder whether he really mean this and only would advise their investors be in bonds when there is a clear advantage to do so, as presented, his insights are dead on.
Blunder #3: Not falling for Ponzi schemes – This one is an easy one, as this falls under the bigger blunder of a lack of due diligence. Being suckered by a Ponzi artist or anyone that mismanages our money, whether by fraud or incompetence, is something that indeed needs to be avoided.
Fisher uses this as a pitch for their firm using a third-party custodian, as is common in the industry, versus giving Bernie Madoff and his ilk our money and having them both custodians of the money and making investment decisions with them.
The real blunder here is one of placing too much trust in those who decide how our money should be managed, using a third-party custodian or not. It’s far better to use the Russian style of trust but verify, and this includes our looking at what they are doing for us closely and especially looking to see if there is a better way, instead of placing blind trust in advice that may not be very good.
We can integrate this one with bond investing, where we’re told that we should put a large chunk of our long-term investing in bonds, and just believe it without questioning very much.
Blunder #4: Paying excessive fees – This is another blunder within a bigger blunder, which is not paying attention enough to your net returns and now they stack up. Fisher goes after annuities with this one, and some annuities have some pretty high fees and suck up a lot of your wealth in the way he describes.
Annuities also happen to be low return investments, returns that start out pretty watered down and get diluted even further with these fees. The fees aren’t the real problem though, it’s what we have left after it’s all said and done, and focusing on fees themselves is in itself a blunder.
This one therefore needs a little repair, directing us not so much towards fees but ensuring that our return net of fees is competitive. This brings in a lot more investments than just annuities.
Forgetting About Inflation is a Big Blunder Many Retirees Make
Blunder #5: Ignoring the insidious effects of inflation – We’re really starting to become impressed with Fisher’s list, and this blunder is indeed a big one. Fisher cautions us that even small changes in inflation can meaningfully reduce your spending power over the longer run, and we do need to resist the temptation to see these smaller changes as not being very significant but ignore their cumulative effects in the presence of rising inflation.
Fisher points out that inflation is very low now but that wasn’t always the case, and is a recent development in fact. Inflation may be a puppy dog now but this dog can grow pretty big and can bite off big chunks of our savings. We need to prepare for these things as putting out a fire is a lot harder when we first allow it to grow out of control.
It’s also worth mentioning that inflation risk is the big risk that we face when we invest in bonds longer term, involving holding them at times when it is not strategically sensible to do so. When interest rates are rising, bonds are the last place you want to be, yet many do not hear this alarm even when their house is burning.
Fisher points out that the problem is choosing a too conservative investing plan, which ends up being poorly equipped to manage rising inflation. Given that these strategies so poorly manage everything, and that they try to do this by being so heavily weighted toward bonds which do so terribly during these times, this one also deserves applause.
Blunder #6: Relying on common knowledge and acting on investment clichés – Fisher just hit the biggest blunder there is in the investment world period right on the head here. This is exactly what is wrong, with everyone just doing the same things but no one really thinking about what they are doing very much.
The work that we do here involves thinking a little more than people do, which is not at all, and sharing the perspective that a little thought provides. Getting your head on straight with your investments is not rocket science, and can be accomplished pretty well and far better than the norm with only the ability to reason.
We have that ability, we just don’t use it for some reason when it comes to our money, instead preferring to defer to the mindless approach that just about everyone uses.
Fisher points out some, for instance the idea that we should proportion bond allocation based upon age. This strategy is not a sensible one regardless of your age, and while the principle of needing to manage risk more as we get older is a valid one, this is not a good way to accomplish this.
Fisher rightly points out that this neglects the biggest risk most retirees face, the risk of running out of money. There are so few money managers that get this that it’s not even funny, and Fisher’s understanding of this is incredibly unusual. We would think that being comfortable in retirement should be seen as the goal itself, but somehow, it escapes the attention of virtually all retirement advisors, and at best, is given short shrift if even considered at all.
Fisher also speaks about the tendency of investors to follow the crowd off the cliff, especially with the risk of jumping on to something just to see it crash down with everyone tumbling. He cautions against chasing hot stocks or sectors, calling this late for the party, but this view commits the blunder of assuming we have no choice but to fall off the cliff when we encounter it.
This is a huge blunder that Fisher falls for as well, being scared to invest in hot investments because you’re worried about it not continuing forever, and you then assume that you have no choice but to follow the crowd off the cliff. This blunder is so bad that it’s right up there with the worst of them as it deprives investors of much better returns just by assuming that we are too inept to manage this, or not even considering that there is a way to do it.
This is at the very least one of the biggest clichés that investors fall for, being afraid of good performance like this. The key to successful investing turns out to be the opposite of this, to seek performance, not be so afraid of it.
Blunder #7 – Trying to time the market: The fact that so many advisors think that it’s bad to time the market is one of the biggest harmful clichés out there, and will have investors willingly cause their portfolios great injury that could be so easily avoided if they did not buy into this misguided manifesto.
Fisher compares trying to time markets as similar to seeking the fountain of youth and finding disappointment. There may not be a fountain of youth out there, but there are some real opportunities in timing your investments that are placed right in front of our faces at times, where we just need to grab them.
This one unfortunately collapses into Fisher revealing why he may find timing markets so challenging, where he believes that big moves come without warning and recover without warning as well.
If you just assume this and not even look around to see how valid this may be, timing markets would indeed be pretty challenging when you assume that it won’t work at the outset, and it’s therefore wise that Fisher does steer away from this until at least until he understands how to predict these things.
He does advise that we are allowed to get out when we are extremely confident that “a bear market is imminent,” but why the bar is set this high isn’t really explained properly. He does try to use Benjamin Graham’s view that in the short run the market is a voting machine but in the long run it is a weighing machine to support his view, but this view misses that it’s votes that it weighs on this timeframe as well.
This is supposed to tell us that in the long run, fundamentals win out, but even if this were perfectly true, it is senseless to expose our portfolios to big wounds along the way that are unnecessary. The fact that a stock may go up over time based upon long-term fundamentals also does not mean that just riding this is the optimal approach or even a good one.
All Investment Decisions Must Be Based Upon Merit, Not Popularity
Blunder #8: Buying gold or other commodities – While we don’t completely agree with this one, Fisher does bring up some good points about how the investment world seeks to scare people away from stocks in favor of the greater safety of gold.
We do agree though that holding gold or similar investments as a general hedge is a bad idea. Fisher points out how stocks have continued to go up through some pretty tough times indeed, although he doesn’t point out that the Great Depression was clearly an outlier here.
The real reason why stocks win this game is that they do go up significantly more than inflation over time, where gold or other commodities do not, they just tend to rise in price along with inflation.
We don’t want to interpret this too broadly though and assume that this means that gold does not ever have its place, and if it is outperforming stocks for any reason for a time, this would be a sensible time to do it.
Blunder #9: Buying annuities – We already know that Fisher is no fan of annuities, and he goes into several of their drawbacks, including their lack of liquidity in times of greater need, where you may have to pay high surrender fees to cash them in. We want to add that this also loses the ability to change course to better manage changing circumstances, where with an annuity you are stuck with the income stream only and are completely tied up strategically.
Fisher also mentions the tax disadvantages of annuities, which generate income that is taxed at normal rates versus the more friendly capital gains that stocks provide. They also come with higher fees and provide little or no protection against inflation.
Annuities are generally quite inferior, and should only be considered by those who have an abundance already and prefer the security of lifetime guaranteed payments over the desire to make more money if this is money that they aren’t expecting to ever need or spend. As Fisher points out though, we need to understand that guaranteed income of a certain amount does not mean guaranteed spending power and therefore need to be careful to build in inflation risk.
Blunder #10: Mismanaging retirement withdrawals – Fisher discusses how retirees tend to take too conservative of an approach and end up running out of money as a result, or how they may be too aggressive and lose too much of their money. They also may be too stingy with their withdrawals, or too liberal and end up not having it last long enough.
Far more people err on the side of being too conservative with their investments and too liberal with their withdrawals, both placing the success of their plan in jeopardy. They pay far too much attention to short-term volatility and how this might affect the risk of their running out of money without even looking at how we may improve our chances by seeking higher returns and managing this risk that way.
Blunder #11: Ignoring international stocks – Fisher is big on international stocks and he includes ignoring them as one of the blunders people make. He speaks of the need for the greater diversification that international stocks provide, and it does provide some, even though world markets are so connected.
What we always want to ask ourselves whenever we consider diversifying more is whether the benefits of the diversification that is being sought are sufficient to justify whatever costs may be involved. In the case of international stocks, this means lower returns, which will remain the case at least until this gets turned around one day and international stocks take the lead.
We don’t want to ignore these stocks, but we at least need to have them worth their cost, and they fall short of this. We should only diversify to the extent that it is to our benefit overall, and certainly not when it is so much in our disfavor. If the performance gap between U.S. and foreign stocks wasn’t so wide, if this were close, then perhaps this would be a good idea, but this is a prerequisite.
Blunder #12: Letting political beliefs influence investment decisions – Fisher tells us that political or ideological bias has no place in our investment decisions, and there’s no real debating this as this would serve to misdirect us away from what is really going on and risk coloring it with our biases.
This does not mean that it would also be foolish to analyze political parties or ideologies to seek to understand how they may affect things like the economy or the stock market, as we don’t want to be blinding ourselves to these things either.
Partially seeing the picture, as Fisher directs us toward, by doing things like going back 50 years to get the facts on these things, is simply not enough. We need to make sure that we do not color the facts, but we then need to go out and discover the facts and not be influenced too much by what may have happened in the 1970s with completely different people in power on both sides.
This brings up another blunder that we make, our being willing to not view events by relevance. More recent events are often more relevant to the present due to their closer proximity. There are also other factors that need to be accounted for, such as the uniqueness of the current political situation and the particularly high damage that policies that by definition are unfriendly to stocks can inflict.
Blunder #13: Trying, but failing to diversify – Since people diversify way too much, it would actually be better if they failed to diversify more. Fisher does discuss the popular phenomenon of investors thinking that they are more diversified than they actually are, simply by mixing different stock funds, and it’s true that investors don’t really get that holding more stocks does not protect you against a major form of risk, market risk, where stocks go down together.
It’s not that Fisher is pushing us toward other asset types besides stocks, he actually wants us to own a good amount of international stocks as well, his vision of proper diversity. Once again though, more diversity is not an end in itself and is only valuable when it provides a net benefit to the investor when returns are also accounted for, and just adding diversification is not enough.
This list has its issues but was far better overall than we expected, perhaps having to explain why each and every blunder or at least most of them are in themselves blunders based upon unexamined strategies.
Some of Fisher’s insights aren’t the sort you see very often in material directed toward the public, with some even looking to shed light on things that few others even understand. The fact that he is telling us that we need to adjust our level of aggressiveness to need, where the need to have your money last is not only on the list but is seen rightly as the goal itself.
In a desert so full of rocks, it is refreshing to see someone of Fisher’s ilk actually provide some real gems that will actually serve to point investors in the right direction instead of the wrong one that is so typical, where at least some of them may avoid to some extent the indignity of clutching so tightly to poor investments and not even have the presence of mind to regret this once they actually do put themselves in the poorhouse.
We can never just turn over our thinking to someone else, we should at least be willing to listen, even if that means discarding the same old foolish ideas time and again. Once in a while you do run into something different that makes more sense, but we have to be thinking on our own to ever be able to tell.