Investment Articles

As existing populations in developing economies become richer, they shift towards a higher protein, more resource intensive diet, and millions of new meat eaters come to the table annually. This dietary shift is driven primarily by rising household incomes. On average annual incomes are forecast to rise by just under 300%from US$ 5,300 to US$ 16,000 by 2050 (Alexandratos, N. World food and agriculture: outlook for the medium and longer term).

The recent decades of unparalleled global economic expansion, most pronounced in developing and emerging economies, has resulted in the proliferation of a new middle class that has purchasing power beyond their basic needs. In fact, per capita meat consumption in developing countries has doubled since the early 1980s.

Whilst livestock production has historically been supported by grazing and crop/food waste, an increasing demand for meat has led the global livestock industry to become increasingly reliant on grain as a primary livestock feed. According to the United States Department of Agriculture (USDA), in modern intensive livestock farming where the majority of feed is grain based, 7kg of grain are required to produce one kilogramme of beef (Fortune Magazine, 2009, As world population expands, the demand for arable land should soar. At least that’s what George Soros, Lord Rothschild, and other investors believe).

On a global average basis, given that part of the production is based on other sources of feed, such as grazing land and organic waste, 3 kg of grain is required to produce 1 kg of meat(FAO, 2006, Livestock’s long shadow).

As meat production now depends on grain as a key input, any increase in demand for meat results in an acceleration of demand for arable and grazing land area. At least 35-40% of all cereal produced in 2008 was used as feed for livestock(FAO, 2006, Livestock’s long shadow). This leaves an estimated 43% of cereal production available for human consumption after losses from harvest, post-harvest and distribution are taken into account.

In percentage terms, the effect of increased income on diets is greatest among lower and middle-income populations which currently consume the lowest percentage of animal products (Devine. R., 2003, La consommation des produits carnés, INRA).

This indicates great potential for increased meat demand on a global basis given that low-income countries which account for 5.1 billion of the world’s population consume less than half as much meat (as a percentage of dietary energy intake) as high-income countries which account for only 1.3 billion of the world’s population (FAO, 2008, The state of food insecurity in the world 2008).

According to the UN FAO, consumption of animal products per capita in industrialised nations will increase modestly from 825 kcals per person per day today, to just fewer than 900 kcals per person per day by 2050. Yet in East Asia meat consumption is expected to rise from around 400 Kcals per person per day to around 625 Kcals per person per day, an increase of over 56%. Meat consumption in South Asia meanwhile is expected to double from 200 Kcals to 400Kcals(Food and Agriculture Organisation of the United Nations, 2006).

In summary, this shift towards a protein-based diet will continue to drive farmland investment returns as values continue to increase in the face of exponential growth in demand for soft-commodities.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors. For more information, download FREE investment guides at the DGC Asset Management website.

If you are like most people, your initial reaction to the question posed by the title to this white paper is “no.” However, for many investors, the answer is “yes.” With all of the investment options available today, many investors are intimidated, confused and frustrated by the investment process. Recent studies also support the suggestion that many investors are perfect targets for investment fraud or already are victims of investment fraud. For instance,

A recent study by Schwab Institutional found that 75% of investor portfolios were unsuitable for investors given their financial situation and goals;

A recent study by CEG Worldwide concluded that over 94% of those holding themselves out as wealth managers were more product salesman than wealth manager;

The 2010 IPT Elder Investor Fraud Survey reported that investment fraud is the number crime against the elderly, affecting an estimated 7.3 million older Americans, or one out of every five senior citizens. Since that number only counts the instances of fraud actually reported, the number of victims is undoubtedly higher.

One of the problems with avoiding investment fraud is the difficulty in detecting some types of fraud due to the subtleness or complexity of the fraud itself. Another problem with detecting fraud is the personal biases and beliefs that each investor has regarding investing. The purpose of this article is to alert investors to some of the more common elements of investment fraud so that investors can prevent unnecessary investment risk and financial loss due to investment fraud.

Fraud and Cognitive Biases

The common response to investment fraud is to call for greater investor education programs. However, a recent law review article in The Elder Law Journal suggests that investor education programs may be largely ineffective due to cognitive issues such as cognitive biases and/or cognitive deficits of investors. Cognitive biases are personal beliefs that impact our decisions. Cognitive deficits are impairments in mental ability, including impairments due to aging.

In the article, “Deception, Decisions and Investor Education,” the author, suggests a model of fraud victimization, which she refers to as the “deception/decision cycle.”1 As investors are provided with investment information, they filter the information through their personal beliefs, beliefs based upon a combination of actual experience, education and first impressions. An Investor’s beliefs, or biases, may or may not be accurate, but they can become so ingrained, or “anchored,” within a person that the person resists any conflicting information.

These biases may be strengthened even further by what are known as “truth” and “authority” biases, a person’s tendency to accept a statement as true, especially when the statement comes from someone with actual or perceived authority or expertise. The individual investor, whether because of issues such as cognitive biases/deficits, the complexity of the investment information of the sheer volume of such information, may fail to recognize the deception involved in the fraud.

Asset Allocation and Cognitive Biases

A perfect example of how cognitive biases can negatively impact investment decisions is a common misperception involving asset allocation. When you mention asset allocation or diversification to most investors, they think in terms of quantity rather than quality. Consequently, a large percentage of investors have portfolios that are diversified in terms of types and numbers of holdings within the portfolio, but the portfolios are not “effectively” diversified due to the high correlation of returns, or overlap, between the investments.

Portfolios that are not “effectively” diversified are sometimes referred to as being “pseudo” diversified since they appear to be diversified, but they do not actually provide an investor with the benefits of a truly diversified portfolio. The high correlation between the investments results in an investor having less downside protection than they would have with a truly diversified portfolio.

As an example, most people would consider a portfolio consisting of a large cap fund (IWB – iShares Russell 100 Index), a small cap fund (IWM – i Shares Russell 2000 Index), an international equity fund (EFA – iShares MSCI EAFE Index) and a bond fund (AGG – iShares Barclay Aggregate Bond Index), to be diversified since it consists of four different types of funds. A review of a correlation of returns matrix for a portfolio of the four exchange traded funds (ETFs) representing the four categories over the time period 8/31/2003 to 8/31/2011 tells a different story.

IWB/IWM – 0.93 IWB/EFA – 0.91 IWB/AGG – 0.05

IWM/EFA – 0.81 IWM/EFA – (0.03) EFA/AGG – 0.11

Analyzing rolling periods of returns often provides a better picture of trends and the persistence of trends. An analysis of rolling five year periods of returns for the referenced ETFs provides the following information:

2010-06

IWB/IWM – 0.966 IWB/EFA – 0.970 IWB/AGG – (0.308)

IWM/EFA – 0.896 IWM/AGG – (0.325) EFA/AGG – (0.432)

2009-05

IWB/IWM – 0.985 IWB/EFA – 0.991 IWB/AGG – (0.282)

IWM/EFA – 0.977 IWM/AGG – (0.338) EFA/AGG – (0.340)

2008-04

IWB/IWM – 0.967 IWB/EFA – 0.999 IWB/AGG – (0.445)

IWM/EFA – 0.973 IWM/AGG – (0.518) EFA/AGG – (0.4650

The higher the matrix number, the higher the correlation of returns and performance. A negative matrix number indicates a negative correlation of returns, which means that the two investments behave differently during various market conditions.

The matrix clearly shows a high correlation of returns between the large cap and the small cap ETF, and a high, albeit varying, correlation of returns between the international ETF and the large and small cap ETFs. The matrix clearly shows a low correlation of returns between the bond ETF and the other three ETFs. An argument can be made that a portfolio consisting only of the large cap ETF (IWB) and the bond ETF (AGG) would produce similar results.

Since fees and expenses are relatively low for most ETFs, cost is not that much an issue with a portfolio of ETFs. Since many financial advisers do not use index funds or ETFs in making recommendations, the negative impact of “pseudo” diversification can be seen in a portfolio of load-based mutual funds, again representing the four asset categories used in the ETF portfolio. The mutual funds represented are American Funds Growth Fund of America (large cap equity), Oppenheimer Discovery (small cap equity), Fidelity Worldwide (international) and PIMCO Total Return (bond).

2010-06

Am/Opp – 0.922 Am/Fid – 0.981 Am/PIMCO – 0.705

Opp/Fid – 0.948 Opp/PIMCO – 0.688 Fid/PIMCO – 0.597

2009-05

Am/Opp – 0.922 Am/Fid – 0.981 Am/PIMCO – 0.519

Opp/Fid – 0.948 Opp/PIMCO – 0.636 Fid/PIMCO – 0.451

2008-04

Am/Opp – 0.893 Am/Fid – 0.989 Am/PIMCO – 0.052

Opp/Fid – 0.935 Opp/PIMCO – 0.482 Fid/PIMCO – 0.148

The data shows the correlation of returns over rolling five-year periods in order to show not only the correlation of returns, but also the trend in correlation of returns. Once again, we see the same high correlation of returns between the equity-based mutual funds, with a lower correlation of returns between the bond fund and the equity-based funds that we saw with the ETF portfolio. The results are consistent with studies that have shown an increase in correlation of returns between equity-based investments over the past decade, especially during periods of increased volatility in the markets.

The correlation of returns matrix exposes the false illusion of diversification created by the bias of assessing diversification on the quantity of funds or types of funds alone. This bias is sometimes difficult to remove, as diversification based on quantity and type seems to make sense. Unfortunately, that is exactly what unscrupulous financial advisers are relying on, as they try to exploit the “truth” and “authority ” biases.

Portfolio Optimization and Cognitive Biases

If you have had an asset allocation plan or portfolio optimization plan prepared by your financial adviser, look at the plan and see if there is anything in the plan that gives you the projected risk, return or correlation of return data on the actual investment portfolio the financial adviser recommended to you. Investors rarely see such an analysis using the investor’s actual investments, primarily because the commercial asset allocation/ portfolio optimization programs used by most financial advisers are not designed to produce such a “real world” analysis. And yet, the calculations can be done using Microsoft Excel.

In many cases this failure to provide a “real world” portfolio analysis results in recommendation-implementation gaps, often leaving investors with portfolios significantly different from the asset allocation/portfolio optimization plan provided to them by their financial adviser, especially with regard to exposure to unnecessary investment risk.

The calculations required to calculate the projected risk, return and correlation of returns statistics for an investor’s actual investment portfolio are complex. Consequently, most investors are unable to calculate the actual portfolio’s statistics themselves or to otherwise detect an investment adviser’s fraudulent behavior.

Too often an investor falls prey to the “trust” bias or the “authority” bias and just accepts the plan given to them without questioning the accuracy of the plan or the failure to provide a “real world” analysis of the actual investment portfolio that their financial adviser recommended. But you should question your financial adviser and ignore any “trust” or “authority” biases, especially since the portfolio optimizers often produce recommendations that are counterintuitive and/or contrary to existing legal standards.

Some examples may help to prove my point. Two of the most important factors in constructing a suitable investment portfolio are the investor’s risk tolerance level and the investor’s investment time horizon. With that in mind, an experiment with two popular online asset allocation calculators provides some interesting results.

The first asset allocation calculator asked about risk tolerance, but did not even ask about investment time horizon. The regulators take the basic position that anyone with an investment time horizon less than five years should generally avoid equity-based investments since they might not have enough time to recover any losses suffered in the market. With the first calculator, we ran the same set of personal investment parameters, with the only exception being that we varied the risk tolerance level in each scenario. The results are shown in Appendix A.

Two clear issues emerge regarding investor protection. First, regardless of the investor’s risk tolerance level, the calculator recommends a portfolio consisting of approximately 60% equities and 40% bonds/cash. Second, the calculator completely ignores the “low” risk tolerance entry, exposing the risk averse investor to an undesired level of investment risk due to recommended equity allocations.

With the second asset allocation calculator, information was requested on both the investor’s risk tolerance level and the investor’s investment time horizon. Once again, the same set of personal investment parameters are used in each analysis, changing only the risk tolerance level and/or the investment time horizon. The results are shown in Appendix B.

If you accept the regulators’ position regarding a minimum five-year investment time horizon for equity investments, then the second calculator’s equity allocation for the 3-5 year time horizon is questionable, as it recommends a 30% allocation to equities for the low risk investor and a 45% allocation to equities for a moderate risk investor.

Expanding the time horizon out to 5-10 years, the low risk investor get the same portfolio recommendations that the 3-5 year time horizon/moderate risk investor got, which obviously raises questions. Strangely, the moderate risk investor with the 5-10 year time horizon receives a recommendation that increases the bond allocation to 65% and lowers the equity allocation to only 45%.

Increasing the investment time horizon to 10-20 years produces basically the same recommendation for both the low risk and moderate risk investor, with the recommended equity allocation only varying by 5 percentage points. The calculator appears to overweight the investment time horizon and basically ignore the low risk investor’s preference to avoid investment risk.

The last example is just further evidence that most asset allocation/portfolio optimization software programs are highly unstable and susceptible to mistakes, so much so that they have been criticized as “estimation-error maximizers” by industry expert Richard Michaud. Investors who wish to protect their financial security would do well to replace any “truth” and/or “authority” biases with a healthy dose of skepticism and a willingness to question their financial advisers.

Investment Fees and Expenses and Cognitive Biases

Investors look to their financial advisers for advice and generally defer to any recommendations provided by their adviser. Again, this is often the results of both the “truth” and the “authority” biases. Many financial advisers limit their investment recommendations to actively managed, commission-based products, which may not be in an investor’s best interests.

The negative impact of biases grows even deeper once the impact of fees and expenses is considered. Fees and expenses on index funds and ETFs are usually low since there is little or no active management of such investments. Fees and expenses on actively managed mutual funds can vary, with some even assessing annual fees and expenses in excess of 1.0% per year. Fees and expenses are important to investors since they reduce an investor’s return.

Assume that we have two funds, Fund A and Fund B, both with relatively similar performance returns. Fund A is an index fund/ETF. Fund B is an actively managed fund that has an R-squared rating of 93, which means that approximately 93% of Fund B’s return can be attributed to the performance of a benchmark index, in this case the index represented by Fund A. However, Fund B’s annual fees and expenses are 1.0% per year, while those of Fund A are 0.25% per year.

Since most of the return of Fund B can be attributed to an index rather than the contributions of active management, why would an investor pay three times more in annual fees and expenses for Fund B? Before investing in Fund B, it is useful to see just how beneficial the active management has been and exactly what the active management is effectively costing the investor.

One commonly used method for making such assessments is known as the active expense ratio. The active expense ratio was introduced by Professor Ross Miller, a finance professor at the State University of New York at Albany. Professor Miller basically compares a fund’s R-squared rating with the excess annual fees charged by the fund to determine a fund’s “effective” annual fees and expenses.

In our example, the active expense ratio calculates to an effective annual active expense ratio fee of 3.02% for the active management of the fund, a little over 200% higher than the stated fees and expenses. For the four mutual funds in our sample portfolio, the active expense ratios were as follows.

American Funds Growth

R-Squared – 98.34

Stated Expense Ratio – 0.69%

Active Expense Ratio – 4.44%

Oppenheimer Discovery

R-Squared – 93.43

Stated Expense Ratio – 1.34%

Active Expense Ratio – 4.63%

Fidelity Worldwide

R-Squared – 97.58

Stated Expense Ratio – 0.71%

Active Expense Ratio – 3.06%

PIMCO Total Return

R-Squared – 68.43

Stated Expense Ratio – 0.56%

Active Expense Ratio – 0.53%

There are those who may argue that the active expense ratio is misleading. However, when an actively managed fund derives most of its performance from an index and an investor can obtain that same index’s performance at a much lower cost, one has to question the wisdom of reducing one’s investment returns by paying “money for nothing” and reducing one’s investment returns. Why pay three times more for essentially the same results?

And yet investors do it every day, impacted by “truth” and “authority” biases they may not even be aware of. Some investors have no choice, as their company’s retirement plan may only offer actively managed, commissioned-based investment options as a result of their plan’s fiduciary being influenced by their own “truth” and “authority” biases. Armed with the knowledge of both these biases and active expense ratios, it would not be surprising to see both plan participants and plan fiduciaries act to provide more meaningful investment options within retirement plans.

Wealth Management and Cognitive Biases

“Anchoring” is one of the strongest cognitive biases and, with regard to investing and wealth management, one of the most potentially destructive influences on wealth preservation. Anchoring can be defined as a reluctance to retreat from existing beliefs and decisions and a resistance to even consider new or opposing information.

The difficulty with addressing anchoring bias can summed up with the observation from noted economist John Maynard Keynes that “the difficulty lies not so much in developing new ideas as in escaping from the old ones” and that “worldly wisdom teaches us that it is better for reputation to fail conventionally than to succeed unconventionally.” Beliefs often become truths, regardless of whether such beliefs are valid, often resulting in unnecessary risk and financial loss.

A perfect example of the potential negative impact of anchoring can be seen in investors that adopt a buy-and-hold approach to wealth management, or, as buy-and-hold critics often refer to the strategy, the “buy, forget and regret” approach. It is interesting to note that the buy-and hold approach to wealth management is apparently derived from an ongoing misinterpretation of a famous financial study.

A 1986 study, commonly known as the Brinson-Hood-Beebower (BHB) study, concluded that approximately 94% of the variability of a portfolio’s returns was attributable to the portfolio’s asset allocation mix. The study made no representations whatsoever regarding the impact of asset allocation on a portfolio’s actual returns, only on the variability of a portfolio’s returns.

Nevertheless, financial advisers and investment companies misrepresent the study’s findings to support their buy-and-hold argument, claiming that all an investor has to do for investment success is to set up an appropriate initial asset allocation and maintain that allocation since the BHB study proved that asset allocation determines 94% of an investor’s returns. The problem is that many investors have read or heard this mantra so often that they have fallen prey to the “truth” and “authority” biases and the misrepresentations are now firmly anchored into their personal beliefs.

It is interesting to note that the buy-and-hold approach is not derived from the works of the early pioneers of wealth management, Nobel laureates Dr. Harry Markowitz, the father of Modern Portfolio Theory, and Dr. William Sharpe. In fact, Dr, Sharpe has recently stated that investors should change their asset allocation in response to changes in market values. A recent study by asset allocation expert Roger Ibbotson has rebuffed the buy-and-hold strategy, stating that active management and asset allocation have about the same impact on a portfolio’s performance.

There are many investment professionals who would argue that the buy-and-hold approach is fundamentally sound and does not constitute investment fraud. These professionals usually claim that anything other than a buy-and-hold approach, with an occasional rebalancing to restore the original asset allocation parameters, constitutes market timing, which is both costly and ineffective.

From a legal perspective, what buy-and-hold advocates fail to realize is that the buy-and-hold approach completely ignores the proven cyclical nature of the market and t the Prudent Investor Act, whose guidelines which are often used by regulatory bodies and the courts in determining questions of fraud and prudent fiduciary conduct. The Prudent Investor Act clearly states that a fiduciary should make changes in an investment portfolio when changes in the market or economy dictate such changes are necessary in order to protect the portfolio against unnecessary risk and losses.

The classic definition of market timing involves having all of one’s assets either in the market or out of the market. The potential tax implications and the difficulty in perfectly timing the stock make such a strategy practically impossible. Reallocating some of one’s resources to reduce risk exposure is not market timing, but smart, defensive investing.

Smart investors would do well to heed the advice of noted investor Ben Graham, who warned that “the essence of investment management is the management of risks, not the management of returns. Well managed portfolios start with this precept.” Various studies support Graham’s postion, with such studies documenting the fact that avoiding losses has a much greater impact than missing potential returns.

Many investors suffered unnecessary investment losses during the recent 2000-2002 and 2008 bear markets due to their cognitive biases regarding the buy-and-hold approach to investing and their refusal to objectively consider other investment approaches. Unfortunately, these same investors will likely continue to suffer unnecessary investment losses unless and until they recognize their cognitive biases and objectively examine their investment strategy. As George Santayana pointed out, those who cannot remember the past are condemned to repeat it.”

Conclusion

Investment fraud is a pervasive problem. While various statistics are often cited as evidence of the problem, the truth is that such numbers are only a small percentage of the actual cases of investment fraud, as many cases go unreported and many victims of investment fraud are unaware that they are victims due to the subtlety or complexity of the fraud itself.

An emerging theory of investment fraud is that investors are susceptible to investment fraud due to cognitive biases and/or cognitive deficits that impair their ability to properly analyze investment situations and the recommendations of their financial advisers. It is imperative that investors become aware of and overcome potentially harmful personal biases, such as “truth” bias, “authority” bias and anchoring, in order to properly analyze investment options and better protect their financial security.

© Copyright 2011, InvestSense, LLC. All rights reserved.

This article is for informational purposes only, and is not designed or intended to provide legal, investment, or other professional advice since such advice always requires consideration of individual circumstances. If legal, investment, or other professional assistance is needed, the services of an attorney or other professional adviser should be sought.

Notes

1. Jayne W. Barnard, “Deceptions, Decisions and Investor Education,” Elder Law Journal, Vol. 17, No. 2 (2010), 201.

APPENDIX A

Low Risk Portfolio

Investment Parameters > Age: 50 > Assets: $250,000 > Risk Tolerance: Low > Tax Bracket: 25% > Economic Outlook: Moderate > Income Needs: 4%

Recommended Allocation > Large Cap Equity – 23%, Midcap Equity – 13%, Small Cap Equity – 9%, Foreign Equity – 14%, Bonds – 23%, Municipal Bonds – 18%, Cash – 13%

Moderate Risk Portfolio

Investment Parameters > Age: 50 > Assets: $250,000 > Risk Tolerance: Moderate > Tax Bracket: 25% > Economic Outlook: Moderate > Income Needs: 4%

Recommended Allocation > Large Cap Equity – 21%, Midcap Equity – 14%, Small Cap Equity – 10%, Foreign Equity – 16%, Bonds – 26%, Municipal Bonds – 18%, Cash – 0%

High Risk Portfolio

Investment Parameters > Age: 50 > Assets: $250,000 > Risk Tolerance: High > Tax Bracket: 25% > Economic Outlook: Moderate > Income Needs: 4%

Recommended Allocation>Large Cap Equity – 20%, Midcap Equity – 16%, Small Cap Equity – 13%, Foreign Equity – 17%, Bonds – 24%, Municipal Bonds – 0%, Cash – 10%

APPENDIX B

3-5 Year Investment Time Horizon

Low Risk Tolerance: Bonds – 70%, Large Cap Equity – 15%, Small Cap Equity – 5%, Foreign Equity – 10%

Moderate Risk Tolerance: Bonds – 50%, Large Cap Equity – 25%, Small Cap Equity – 10%, Foreign Equity – 15%

High Risk Tolerance: Bonds – 60%, Large Cap Equity – 20%, Small Cap Equity – 10%, Foreign Equity – 10%

5-10 Year Investment Time Horizon

Low Risk Tolerance: Bonds – 50%, Large Cap Equity – 25%, Small Cap Equity – 10%, Foreign Equity – 15%

Moderate Risk Tolerance: Bonds – 65%, Large Cap Equity – 20%, Small Cap Equity – 5%, Foreign Equity – 10%

High Risk Tolerance: Bonds – 40%, Large Cap Equity – 30%, Small Cap Equity – ]15%, Foreign Equity – 15%

10-20 Year Investment Time Horizon

Low Risk Tolerance: Bonds – 30%, Large Cap Equity – 30%, Small Cap Equity – 20%, Foreign Equity – 20%

Moderate Risk Tolerance:Bonds – 25%, Large Cap Equity – 35%, Small Cap Equity – 20%, Foreign Equity – 20%

High Risk Tolerance: Bonds – 20%, Large Cap Equity – 40%, Small Cap Equity -20%, Foreign Equity – 20%

James W, Watkins, III is an attorney, a CFP® professional and an Accredited Wealth Management Adviser®. His areas of expertise include wealth preservation, asset protection, investment fraud and fiduciary law. He is CEO of InvestSense, LLC, a registered investment adviser firm located in Atlanta, Georgia. For additional articles and information, visit the company’s website, http://www.investsense.com. Mr. Watkins can be contacted at tawj3@yahoo.com, and followed on LinkedIn and on Twitter @InvestSense.

The abundance of investment products and investment information available today can be intimidating and confusing to many investors, both novice and professional. Over my twenty-plus years as an attorney and investment adviser, I have tried to help others focus on some of the critical information in order to avoid unnecessary investment losses, to help level the playing field against some of the ne’er-do-well that continue to defraud the public and plague the financial services industry.

Speaking with a colleague the other day, he commented on the fact that a lot of the important information we get through trade publications such as InvestmentNews rarely seem to get mentioned in the mainstream media and press. And when we mention such information to clients, they often comment on how useful such information would have been.

After my conversation with my colleague, I started thinking about some of the “inside” information I have shared with my clients that produced the most reaction and appreciation. In hindsight, I think three numbers have stood out the most to me and my clients. The three numbers every investor should know are as follows:

1. “75″ – The number “75″ is actually important for two reasons. First, a study by Schwab Institutional found that approximately 75% of investor portfolios were poorly structured and unsuitable for their investors given the investors’ financial needs and goals. I believe that this is primarily a result of the fact that (1) stockbrokers are not required to act in a client’s best interests, and (2) investors are often mislead by portfolios that appear to be diversified because they hold a number of different types of investments, but such portfolios are often not truly, effectively diversified.

The second reason that the number “75″ is important is because research and history have shown that approximately two-third, or 75%, of stocks follow the general trend of the market. This simply supports the popular Wall Street adage, “don’t confuse brains with a bull market.”

2. “94″ – While there are many firms and individuals in the financial services industry calling themselves wealth managers, a study by CEG Worldwide, a well-respected financial services consulting firm, concluded that only 94% of those calling themselves wealth managers or claiming to provide wealth management services failed to meet the criteria used to qualify as wealth managers. The criteria that CEG used in their study to determine true wealth management was based primarily on advisers who practiced wealth management as a process as compared to those who simply used “wealth management” as a marketing ploy to push product. This is the same criteria that investors and fiduciaries should use in choosing a financial advisor to work with.

Secondly, one expert has suggested that this number (OK, actually 93.6, which rounded off is 94), and the study that produced it may have caused more damage to investors than any other number/study. The number comes from the famous 1986 Brinson, Hood and Beebower (BHB) study that stated that 93.6% of the variation of a portfolio’s returns could be explained by the portfolio’s asset allocation.

The study did not say that asset allocation explained 93.6% of the portfolio’s actual returns, but rather the variation of the portfolio’s returns. Nevertheless, dishonest brokers and advisers misrepresented, and still do misrepresent, the BHB study’s findings to convince investors to choose an asset allocation and rigidly adhere to it, despite the proven cyclical nature of the markets. This is the mantra of the” buy and hold” approach to investing, an approach that some have suggested is better described as the “buy, hold and regret” approach to investing. Just ask investors how well that worked during the 2000-2002 and 2008 bear markets.

Unfortunately, given the current budget issues that exist at the time I write this post, static asset allocators may soon get yet another costly education. Dr. William Sharpe, a Nobel laureate for his work in the area of investment management, now stresses the need to be proactive and adjust portfolio allocations when changes in the economy and/or the market dictate such moves.

3. Zero – This number represents the number of variable annuities (VA) and equity indexed annuities (EIA) an investor should own. As a former compliance officer and a current securities attorney I have heard all the convoluted and conniving justifications for these atrocities. I have written posts and articles warning investors about these products. While there may be a few limited instances where they may make sense, such as wealth preservation for high net worth investors, the way they are marketed to the masses is extremely questionable.

One Wall Street Journal article reported that variable annuity salesmen were told to treat potential annuity clients as “blind twelve-year-old,” and to “put a pitchfork in their chests,” and provide questionable responses to potential client’s questions. VA salesmen and VA advertisements often tout that by purchasing a VA the investor will never run out of money.

What is often not made clear that in order to guarantee that lifetime stream of money, you give up all rights to the money invested in the VA. Once you annuitize your VA, the balance goes to the insurance company once you die, not to your heirs. In most cases the insurance company offers various choices for payout, such as joint survivor and a guaranteed period, but these options generally result in lower periodic payouts and, in some cases, additional fees.

One of the most onerous aspects of VAs is the excessive fees that most VAs charge, especially with regard to the so-called death benefit. VAs typically guarantee that in the event the VA owner dies with out having annuitized the VA, the owner’s heirs will receive either the accumulated value of the VA at the time of the owner’s death or the amount of the owner’s actual investment in the VA, whichever is greater. So the VA issuer is only insuring the amount that the VA owner actually puts in the VA.

Meanwhile, the insurance company assesses the VA’s annual death benefit fee not on the basis of their actual legal obligation, which is the amount of the VA owner’s actual investment, but rather on the accumulated value of the VA. One study estimated that the actual expense of the annual was approximately 0.10-0.12, but that the insurance companies often charged approximately 1.50%, or approximately fifteen times the estimated value, resulting in a nice windfall for the insurance company. The additional fee also cost a VA investor by reducing this investment return.

EIAs are also problematic. EIAs are generally sold with the pitch that investors can earn the same return that the stock market does, with the guarantee that even if the market is down, the EIA investor is guaranteed a minimum return. What many investors are told is that the potential return is usually capped at a relatively low number, say 10%, and then is reduced even more by a “participation rate,” usually an additional 2-3% reduction. In short, the EIA investor is looking at annual rate of between 2-7%. If the market is up 20% or more for the year, just who is getting the benefit of the excess over the investor’s return?

There may be other significant numbers that I have omitted. However, investors and fiduciaries that remember these numbers and the reasons for their significance will be in a better position to protect both their financial security and/or their clients’ financial security.

James W. Watkins, III is an attorney, a CFP professional and an Accredited Wealth Management Adviser. His areas of expertise include wealth management, wealth preservation, wealth protection and fiduciary law. He is CEO of InvestSense, LLC, a registered investment adviser firm located in Atlanta, Georgia. For additional articles and information, visit http://www.investsense.com. Mr. Watkins can be contacted at tawj3@yahoo.com, and followed on Twitter @InvestSense.

Venturing into the world of investments can be simultaneously rewarding and overwhelming. These days there are so many wide and varied opportunities for investment, from gold or other precious metals to stocks and bonds or restaurant ventures. The list can go on and on. It is important to consider your interests for investments as well as how much money to invest. Investing can be short term in buying a few shares of a company in the stock market and trading them, buying more and trading again in order to earn a profit. It can be investing long term in a company or endeavor or in stocks and bonds.

When setting on the road to investing, there are many tips and tricks that can help. Here are a few things to keep in mind when investing:

Research- this is a big one. Research thoroughly the intended area of investment. Use the Internet to conduct in depth research. Facts and figures as well as consumer experiences can all be found online. Contact professionals in the field, many will consult over the phone or via email free of charge for the first talk. Experienced investors are a valuable resource to garner investment information from. Find out their niche, why they chose it and the successes to be found. Most investors are willing to share tips and tricks, just not reveal all their information.

Update- even after researching and deciding upon one or more avenues of investment, continue to stay up to date on the news and information about the chose areas of investment. Stay in the know about the changes and evolvements that are always going on. The best way to do this is to subscribe to regular informational updates via email or websites that have live or short term streaming information.

Diversify- once you have set upon the road of investing, diversification is important in order to keep the level of risk to your overall portfolio low. By investing in several places instead of simply one, when one thing is low, likely the others will be holding steady or growing. This keeps you from potentially losing out on everything if things are spread out.

Investments are a great way to support the economy while securing and furthering your own finances at the same time. Those who do not wish to risk money can invest in secure options while others can play the game if they so choose.For more information on investing in investment opportunities usually or normally not found in the marketplace, click here!

Sean Johnson is an Investment Advisor for http://www.inquest.biz an Investment Referral Service for investors requesting information on specific investments.

Everyone needs a system of accounting and keeping track of expenses and income. This is no different for investors. There are many options available for those who are trying to keep track of their investments such as using balance sheet accounting to keep on top of the ups and downs of the investments. This is a simple way to do your checks and balances that lays out all of the information at a glance. While there are many styles of this type of accounting you can be sure that it is still very accessible and can be the easy way to manage your investment information.

If you are not interested in using balance sheet accounting to keep track of your investments you may want to consider a software program that can really help you keep on top of the success of your investment portfolio. Some of these great programs can give you prodding when there are things that need to be done on your investment portfolio. They can even tell you when your investments are dropping below a level that is comfortable for you after you set up some parameters. These are a great way to let technology help you stay focused on your goals.

You can also bypass using balance sheet accounting by hiring a professional to help you work through the accounting process of your investment portfolio. This is a great option because it helps relieve a great deal of the pressure of constantly having to stay on top of the day to day ups and downs of the investment process. In addition, the professional can advise you of potential issues on the horizon and what you can do about minimizing any losses you may be in danger of experiencing. This is a nice way to make sure you are not missing any red flags on the investments.

Whether you choose to use a balance sheet accounting system, a computer software aid or the assistance of a professional, you want to be sure to keep tabs on your investments. This will enable you to make changes before you have issues when there are problems headed your way. You also want to be aware of what you are investing and how much you can expect in returns. You want to be sure not to allow this information to take over your daily life. Constantly looking at your investments can be overwhelming. For more information on investing in investment opportunities usually or normally not found in the marketplace, click here!

Sean Johnson is an Investment Advisor for http://www.inquest.biz an Investment Referral Service for investors requesting information on specific investments.

An expanding population, scarcity of resources and a changing climate happen to be three trends that define current times. Alone, each factor constitutes a major issue, but when combined and intertwined as they are, they become all the more serious. As time passes, the paths of these factors will become all the more linked and their effect upon the global economy will become ever more pronounced. Sectors at the nexus of this coming together offer investors the best prospects for capital growth and income in the short, mid and long-term.

The agricultural sector is perfectly positioned to take advantage of these fundamental changes in demand for food and our apparent inability to deliver it. Demand for agricultural commodities is ballooning, and will continue to do so as demand for food from an extra 75 million people per annum, a shift to high protein diet in developing nations, and the use of food crops as an energy source by way of biofuels drive fresh demand. Yet at the same time increasing our ability to supply these commodities is diminishing, a fact that can be blamed on a multitude of factors including climate change, a definite lack of further farmland and diminishing yield increases from the green revolution.

Production of grains, as measured on a per capita basis, started to decline around the mid 1980’s and the availability of agricultural land per person started to fall in the very early 1960’s.

Two years ago In 2008, grain stocks were at their lowest level for over four decades and resulted in the biggest spike in agricultural commodity prices since records began.

Of course we saw these price correct themselves towards the end of the year, Yet since then price have continued their rising trend despite the recent financial crisis reigning in demand. The global food supply sits in a precarious position, pressured from above and below by both increases in real demand and limits to increasing supply.

It could therefore be argued that the land that is capable of producing such commodities will become a more valuable resource as time passes. It is then safe to say that Investors savvy enough to look at agriculture investing by way of investing in farmland will be best positioned to take advantage of this supply and demand mis-match.

Here are the facts:

The global population expands by over 200,000 people daily.

The current population sits around 6.7 billion people and there are approximately 1,402 million hectares of farmland, 138 million hectares of perennial agricultural land and 3,433 million hectares of meadows or what could be termed pasture to feed this amount of people.

The grand total of food-producing land on the planet amounts to about 4,973 million hectares. this means that each person on the planet has about 0.74 hectares when you include all types of agricultural land. Bear in mind that this land must also continue to produce all of our cotton and rubber, as well as every ounce of grain and meat, and grain to feed the meat, and the biofuels that we all require.

These calculations lead us to conclude that, based on current levels of agricultural productivity, we require an extra 148,460 hectares of land every single day to feed the 200,000 or so new mouths to feed. This equates to a total area of land, solely to grow crops, that is approximately the size of Greater London, or 100% larger than New York City, Tokyo and Singapore combined.

The real picture is alarmingly different, where we should be adding a huge amount of land to agricultural production on a daily basis, we are in fact reducing the amount of land available for agricultural purposes and for the last three years the total area of farmland has diminished substantially.

These numbers demonstrate dramatically the challenges posed to feeding an ever-expanding population with a strained farming base. This has led to sharp increases in farmland prices across the world and the value of good quality agricultural land is driven by rising demand and diminishing. To be more specific, continued rising demand for the commodities produced by farmland, i.e. food, will continue to drive values higher, whilst at the same time, restrictions on expanding the amount of farmland place a downward pressure on supply, again pushing up values.

It is a complex picture with many factors to measure and take into account. As commodity prices rise, demand for land increases, and supply also rises if more land is brought to production. At the same time, if yields increase then less land is required, but if production capacity is lost, as we are more often witnessing due to climate change, urbanisation and land degradation it is more likely that more land, which is not available will be needed, therefore existing farmland becomes more valuable and prices rise.

Farmland investment should be viewed at worst as a mid-term strategy and ideally as a long-term hold, but understanding the short-term fundamental drivers such as commodity prices allows the savvy investor to identify the best opportunities to purchase. The objective of the Investor should be to clearly understand the longer term trends, thus empowering the investor to make the correct decisions.

It is my opinion that investing in farmland will provide the investor with by far the best opportunity for mid to long-term capital appreciation and sustainable income. Choosing the right market in which to invest should be a decision taken based on the current pricing of the asset compared to its true value. Our farmland valuation model is available for investors as part of our farmland investment guide, free to download from the DGC Business Consulting website.

A lack of credit and depressed market sentiment are also playing a role in presenting off-market opportunities for investors to acquire assets at good prices, and a very simple analysis of the revenues generated from a farm, minus production costs, will tell the Investors if that land is good value. If one were to buy farmland in the UK at todays average price of around £14,000 per hectare, we know that we could grow 7.5 tonnes of wheat and sell it for around £160 per tonne creating a revenue of £1,200, minus production costs of about £300, leaves a net annual income of £900 for a £14,000 investment, equating to an annual return of 6.4%. Buy farmland in south America for $4,000 per hectare and your ROI shoots to around 16%, and in Australia you can buy land so cheaply right now that you could return an income equivalent to 40% annually.

Many opportunities exist for private investors to take advantages of these trends without taking on the complex operational responsibilities associated with farmland ownership. For more information on farmland investment opportunities available for private investors, contact David Garner at DGC Business Consulting

Download the Farmland Investors Guide at http://www.dgc-ai.com

In times of a rapidly expanding population, low interest rates, inflation and murky equity markets, investors are searching for assets that will grow in value, produce a regular income, and retain value in the event of a crash. Essentially we need a safe haven for our cash and that is leading many investors towards the agricultural sector as 75 million new mouths to feed every year and a changing diet in developing economies supports the theory that agribusiness will do well in the mid to long term.

There are a number of options open for investors choosing this sector, from agricultural investment funds, ETFs, direct investment into agribusiness companies, or trading soft-commodities such as wheat. My problem here lies in the fact that these investment strategies do not tick all of our boxes. Funds incur management fees, and over the lifetime of a mutual fund investors lose 80% of their gain to management fees, commodities can be volatile in the short term, and investing into agribusiness companies does provide any level of non-correlation.

So what is the alternative? More and more canny investors, both private and institutional, are snapping up what little good quality agricultural land is left in the hope that as time passes, and the population continues to grow, the land we have will become more valuable in the face of a higher demand for food. We also know that well tilled land will produce an income every year from the growth and sale of crops, replacing the lost risk-free income we no longer achieve from holding cash. Of course, if someone somewhere finds an alternative to food then the value of farmland will fall, but I think we can all agree that we will all have to eat at some point and therefore arable land retains value even in the worst of circumstances.

So how does the small investor source a piece of agricultural land large enough to farm commercially? And how do we reduce general agricultural risk such as exposure to poor weather, commodity prices and quality farm management? There are opportunities for the smaller investor to take part in large farmland investment transactions, either pooling capital with other investors in order to purchase better and larger land parcels, and other very interesting structured vehicles allowing the small investor to purchase a small piece of a much larger, commercially managed farm, with the farmer shouldering the general agricultural risk and paying the land owning investor a fixed annual income. This methodology provides the farmer with much needed liquid capital to expand operations, whilst providing the investor with risk-managed exposure to high-yielding farmland, income, principle protection and capital growth.

Where should one consider purchasing farmland? We have been actively investing in the UK, Latin America and Australia since 2007, and have consistently achieved an annual income of between 7% and 12% depending on the location of the farm and the structure in which we invest. At the same time we have also captured all of the capital growth in the value of the land, growing our wealth even through the recent financial crisis.

For further information please feel free to click to download our complete Agricultural Investment Guide.

Download the free Agriculture Investment Guide at http://www.dgcassetmanagement.com/

Picture yourself as clueless about the investment world looking for the best investment guide, a guide that could get you up to speed on investment basics and more with little effort on your part. If you don’t know stocks from bonds and mutual funds, I think you would agree that if you could find the right guide that it would be the best investment you could make. With so many books out there, how do you sort out the best guide, one that talks to YOU?

There is a world of difference between the best investment guide and a get-rich-quick book. Many popular publications on the subject of investing are timely in nature and are soon outdated or worse. For example, people who bought some of the popular real estate investment books written in the years leading up to the 2008 financial crisis were sorely mislead, and soon bankrupt if they followed the advice given. The best investment guide for most people focuses on investment basics and sound investment strategies that don’t change from year to year.

In sorting things out, a good way to get a handle on any non-fiction book is to leaf through the table of contents. Does the publication cover the subject areas of interest to you, in a sequence that seems to make sense and is easy to follow? Most people need an investment guide that starts at the beginning and assumes that the reader is a new student to the subject with little prior knowledge of the subject matter. Then it progresses step by step from the basics to investment strategies that work in any economic environment.

There is no reason in the world why learning needs to be boring or difficult. The best investment guide will keep the reader’s interest because it is written in a down-to-earth fashion in plain simple English that’s easy to understand. For example, bonds and the bond funds that invest in them are an investment alternative that most people should consider, but few understand. If this subject is introduced using a real-life example of one person lending money to another virtually anyone can relate to it and get the picture.

An investment guide written for people without a background in finance should first cover the basic financial characteristics common to all investments before getting into specific areas like stocks and bonds. Every investment in the world can be stripped down to its basics in terms of what it brings to the investor’s table. Deciding whether an opportunity is right for you is simple if you know how to compare its investment characteristics with your needs for liquidity, safety, profit potential, and other factors. With these basics covered, our best investment guide then turns its focus to the specific investment alternatives of interest to all average investors: like stocks, bonds and mutual funds.

At this point in the learning process the average person should have a handle on their investment options, and is ready to progress into investing concepts and investment strategies. After all, to succeed and make money as an investor you also need to know how to play the game. The world’s best investment guide, if you can sort it out from the others, is really a complete guide to investing for beginners that starts with investment basics and takes you all the way to the finish line.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com.

If you are a newbie in investing your potential sums, then it is a must that you go through or follow a financial alternative investment guide. You will cross a number of them online on the internet or in the magazines, newspapers, television shows, seminars, etc. in addition, to help you out in this process and make it easy for you, there are financial consultants who can guide you completely and reliably in the process.

In this messed up economy, each person needs a good financial alternative investment guide to assist them in the process of investment. Particularly, if you are a beginner, then you require a better guide in order to make your navigation through rough water quite smooth and effective, ahead. Investment is never a complex term neither it is confusing. The thing is you need to understand it precisely and apply it wisely. Let’s see in brief how to go for it in the below financial alternative investment guide.

Preliminary, you require getting hold in the universe of investment, along with the investments that you already have made in your past. It is not at all sophisticated task, if you follow a better guide for investment, as there are only few investment alternatives, basically. Secondly, you have to grasp and make yourself aware regarding the investment procedures and apply a good strategy of investment that will function effectively for you in times, both good as well as bad. Hence, having a good financial alternative investment guide for beginners will be helpful to you.

In other terms, one should comprehend to invest in a successive way in the long run. This is the second step in your guide. If you attempt to skip the first step, you will never be able to understand the next step, as they all are interlinked and associated with each other. Without knowing about the second step, one will never be capable of putting their knowledge about investment that they have been learning in the first step.

If you desire to gain good interest rates on your investments income of three percent or more, there are many investors who are transferring their sum in to the bond funds. This is indeed not a safer mode of investment. Just understand the simple logic, when the rate of interest rises, the bond values falls down considerably. This is a basic investment fact, on which one can count on the risk ratio of their interest rates. If you feel that the rate of interest may change as it has been always doing and will never rise in the upcoming future, bonds are not all a good alternative during this time.

For more information on financial alternative investment guide, you can refer cash value life insurance to seek further advice or guidance. It is the best guide for you, particularly for a newbie trader. If you follow this financial alternative investment guide, right in the beginning, you will be prevented from going in to the wrong ways and thereby, suffering great losses.

Did you know that there is a financial alternative outside of the market?

I put together a free video that reveals a 200 year old financial tool that banks and Wall Street have been trying to keep secret from you…Visit my website here to watch now: http://financial-alternative.com/

Selecting an investment plan is a crucial decision. You would be the sole decision maker in going for an investment plan. Also you would be the only one who would be bearing all the risk associated with the investment. So you need to make a plan wisely. Unless you have enough funds put aside and a secured income, you must never opt for higher risk investment. They can drown you till throat.

Always keep in mind the below mentioned three golden rules of investment:

1) No investment plan is completely secure. There is always certain degree of risk involved in all.
2) Risk and return works here in a parallel way. Higher risks means higher return and lower risk means lower return but more safety.
3) Never ever invest in any plan blindly without understanding the complete details of the plan.

The only thing that you need to do is setting a goal before investment. “What is that you want to achieve through your investment?” Is the question to be answered before making any investment decision? Below are some of the goals that answer the above question. Some may go for a particular goal, while some opt for combination of goals. Find below the kind of goal that exists:

1) Safety: When the individual is opting for this goal wants that the risk associated with the original investment must be minimal. There are no higher returns on this, but the safety of original investment is highest.

2) Income: In this type of investment goal, the individual is targeting a constant flow of income through his investment by making some regular payment. In this case there might or might not be a decrease in the original investment done.

3) Growth: Here the individual goes for long term investment. Also the risk here is higher than above two. He might get a dividend on the invested amount or might not. He wants to take the benefit of the appreciation in the market value.

4) Speculation: This is the most risky investment of all the above. Here there are changes that you get higher return in short duration by investing in new and fast growing companies stocks and shares, but there are also chances for little or higher loss. You can even lose your entire investment amount.

Thus you must know to make a proper blend of your risk and return. If you have Rs.100, invest Rs.60 in safety, Rs.20 in income, Rs.10 in growth and Rs.10 in speculation. Just remember the quote “never put all your eggs in single basket”. This way you ensure yourself about that you would be getting a decent return on your investment, though there is risk associated with it. Never invest just like that anywhere, before making a plan have a keen eye on business and financial newspaper in your area.

Always keep into consideration the below mentioned points:

- Never invest all the funds that you have. Keep a part of it aside to take care during any emergencies.
- Keep yourself as the final decision maker, in selecting an investment plan.
- Always seek advice from a trustworthy, professional and licensed advisor.
- Before investing in any company have a look at its track record. Don’t just invest because it’s fast growing and successful.
- Before investing make a plan of it.
- Never make an investment decision just on the basis of any unsolicited information obtained.
- Never select an investment plan from an unknown person.

Hope this information would be helpful for many to make any investment decision.

Visit Investment Guide For best investment plans and it’s simple understanding guides.