When you are ready to begin investing, there is an important aspect to improve your odds for long term success. We many times are so caught up in the basic nuts and bolts of investing we fail to consider what our expectations for the investment are. We fail to actually set goals for our investments. Equally important are considerations related to what steps we need to take when our expectations are not met.

As a securities broker and or an investment advisor, we are many times mistakenly expected to make our clients wealthy. We are often thought of as the key to generating the higher rates of return. This is an unrealistic expectation.

At the end of the day, the securities market(s) gives you the return that you get. We are here to guide you on building and diversifying your portfolio based upon your risk tolerance, goals and expectations. We are also here to be your voice of reason when markets head south.

In the 1980s and 1990s we had the greatest stock market returns ever recorded. Everyone made fantastic rates of returns. This led many to expect the same incredible returns to carry on indefinitely into the future; those were misguided expectations.

That is why it is written in all prospectus’ “past performance is not indicative of future results.”

Since 2000 rates of returns have decreased dramatically. Fixed income yields have plummeted. And stock rates of returns are not what they were over the prior eighteen years either.

Many have taken on additional risk to reach the higher rates of returns that we once had. Alternative investments are in vogue as a partial solution to create the returns many have come to expect. The associated risks, often a huge loss of liquidity, are often hard to see.

The cold reality of the alternative investments is that they are fraught with risk and higher expenses and long odds acheiving success.

Markets will cycle up and down like a sailing ship dependent on good wind and strong sails. It is better to stay the course, watch your investment expenses and stay diversified. Let the seas propel you forward.

I would like to add a couple of other thoughts on expectations.

Change of Expectations

I have had a number of clients who over a period of time accumulated a nice nest egg. As I was managing their portfolios, which was often in excess of a million dollars, it became clear to me that they were having difficulty with the day-to-day and month- to- month fluctuations in the market.

Their accounts, which were invested in the stock market in one form or fashion, could drop almost as much money as they made in earned income that year. Too, they could increase by as much. It had a dramatic effect on them and we would have many discussions learning how to deal with their new concerns and expectations.

Unrealistic Expectations

Back in the nineteen eighties and nineties when we were in the biggest modern American bull market ever, a stock market that created a lot of wealth during that time.

I would lose clients over a mutual fund’s performance. Not because the performance was bad, but due to a competing broker convincing the client that their fund created greater rates of return than the mutual fund I had invested them in. The client would call and tell me that they wanted a mutual fund that provided 30 and 40% rates of return.

And, in and client’s case, one of the mutual funds I had invested them in was earning over 30% that year. But, that was still not good enough. They would move their account(s) in search for higher rates of return. Their expectations were very unrealistic.

Clients often could not see that this period of high rates of return was an aberration away from normal investment performance.

Customers forgetting their expectations

Along the same line of thought, early in my career I would try to convince clients to invest in stock and bond mutual funds. Many clients back then only understood CDs and savings accounts.

The interest rates at the time ran from 8 to 10%. Therefore, they did not see nor understand the need to take on additional risk. Nor did they see a need to diversify.

These customers would never invest in the stock or the bond market.

But a slick salesman with an oil and gas deal would call and they would bet a large amount of money with someone they had never met before and invest in something they did not understand.

The customer invested their money with people they did not know, and did not spend any time researching the investment or the people behind the investment.

Yet when I later asked them about the loss they incurred on the oil and gas investment, they shrugged their shoulders and blew it off. They would state that it was just a gamble.

They still would never invest in a traditional security.

The investment was like a casino bet. Yet any other time they would only deposit their money in a CD or a savings account. I cannot tell you how many times I have seen this happen.

Final note

By digging deep inside your thought process, create firm realistic expectations, and establish realistic goals you will improve your successful outcome. And hopefully help you sleep at night.

Corey N. Callaway

Investment Advisor Representative

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