We all make excuses to avoid tasks that we feel are unpleasant, take time, or that make us uncomfortable.  Often, making financial decisions is one of the tasks.  These are some reasons why people are not more proactive about taking control of their finances.  Do you recognize yourself in any of these?

Top 10 Money Excuses

Stocks had strong gains in 2012.  The S&P 500 Index with dividends reinvested closed the year 3.3% above its previous record set in October of 2007.  While it has certainly been a wild 4 ½ year ride you may be surprised to find out that the time it took for the stock market to recover its value from our most recent recession is consistent with past cycles.  Take a look at this article from DFA that examines what 2012 held for investors.  Down To The Wire – A Look Back at 2012

One of the areas where we help our customers is with tax planning.  Tax planning is always complex, but it is especially difficult as 2012 draws to a close.  With so much uncertainty about taxes in 2013 take a moment and consider these tax planning tips.

Often, at the end of the year, the financial press assembles lists of which mutual funds have done well during the year, and which ones have performed poorly.  Those mutual funds which have performed well are held up as having been good places to put your money.  What is usually never reported is that it is very probable that the mutual funds that did well earned their high returns through luck as opposed to skill.

Think about it this way – if you flip a coin 10 times and get heads 8 of those times were you skillful?  If you flipped a coin 10 times the next year it is equally as likely that you will get heads only 2 times.  Over time, year after year, you would expect to average 5 heads each year.  You would be the average mutual fund.

But how likely is it that 50% of the actively managed mutual funds that you have to choose from today will beat their benchmark over time?  The answer is that the odds are pretty dismal.  Due in large part to high fees the odds are stacked against you, and you may be astounded by how few mutual funds do well over time.

For example, 77.19% of “large cap core” managers didn’t beat their benchmark in 2011.  And, over the the ten years ended December 2011 an amazing 94.58% of managers didn’t beat their benchmark.  Put another way, you had a 5.42% chance of picking the right mutual fund ten years ago.  When it comes to actively managed mutual funds the deck is stacked against you.  Take a look at this study to see just how badly active management fails.

So why do people continue to buy these funds that promise to beat the market?  In large part for two reasons.  The first is hope.  The dream of hitting it big and buying the next big winner is enticing.  The problem is that no one has a crystal ball to determine what that winner will be.

The second is marketing and commissions, which adds costs that in turn hurt performance.  Wall Street spends millions of dollars each year touting the mutual funds that have done well in the past.  A broker or financial advisor may tell you that they predict that a certain mutual fund will do very well, and that you should buy it.  But if you take a look at how the advisor is compensated it is likely that the advisor will have commissions paid to them from the very same investments that they say will do well.  This is at the least a possible conflict of interest.  Alternatively, an advisor may not earn commissions but try to prove their worth by telling you they can pick the best investments.  Sadly, they have the same odds as you of picking the right mutual fund, and those odds are terrible.

So what should you do instead?  Consider building a portfolio of low cost, broadly diversified, passively managed mutual funds that harness the power of the market over time, rather than charging a higher fee in the losing effort to beat the market.  Don’t be enticed by the “Best Mutual Funds To Buy” lists.

If you are like most people you save for retirement using a 401k, 403(b) or 457 plan  through your employer.  Unfortunately, many retirement plans suffer from high fees and poor investment choices.  Craig Larsen wrote an article for the Daily Herald that discusses how high retirement plan fees can hurt your retirement prospects.  High Retirement Plan Fees

If you would like to calculate just how much high retirement fees may be costing you visit www.401kfee.com where you can get a personalized estimate.

As we approach the end of the year we have the opportunity to review our finances and build a plan achieve our goals.  Sometimes these goals include getting out of debt.  In this article in Kiplinger Magazine, Craig is quoted on how to approach paying down multiple credit cards.

When clients face a big change in their employment situation near retirement it can have a big impact on their plans.  Developing a comprehensive financial plan when this happens is critical to ensuring a confident retirement.  Craig Larsen was quoted by Wall Street Journal on how he is helping clients through the bankruptcy of American Airlines.  You can read the story here.

On December 12th Craig Larsen testified before the House Committee on Small Business Subcommittee on Economic Growth, Tax and Capital Access.  His testimony focused on the impacts that tax and regulatory uncertainty are having on small businesses and job creation.  In his testimony Craig detailed how the uncertainty is hindering job growth.  He gives examples of how the actions of both Republicans and Democrats in Washington may be hurting instead of helping economic growth and job creation.  You can find a copy of his testimony here.

Craig Larsen (far left) Testifies Before Congress

Go anywhere funds have become more popular since the the stock market drop in 2008.  The managers of these funds have the leeway to chose different asset classes in an attempt to deliver strong returns.  However, just like any form of management that tries to beat the market, this approach may not be able to deliver what it promises.  Craig is quoted in this article that discusses go anywhere funds.

Senator Thad Cochran reported more than 200 trades in his 2010 financial disclosure.  It is very unlikely that trading this heavily will result in better performance than investors could achieve by simply investing in a broadly diversified portfolio of low cost index mutual funds.  Craig Larsen is quoted by Bloomberg in this article.