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The Four Perils of Self-Managing Your Investments



The Four Perils of Self-Managing Your Investments

Self-managing your investments can be perilous to the long-term health of your portfolio.

Most of us have heard the old adage that an overwhelming percentage of drivers consider themselves above average (a mathematical impossibility). Known as “illusory superiority” in social psychology, this phenomenon has been taught to high school and college students for decades, and to this day remains an amusing example of human overconfidence.

Unfortunately for us humans, that overconfidence extends to a wide range of activities, not least of which are investment decisions. Many investors choose to manage their own investments, and a small minority do just fine. Sadly, the universe of self-managers is much, much larger than that small minority, and most don’t do very well on their own. They fall prey to any number of mistakes, and with significant costs: poor long-term returns, unnecessary risk, diminished spending ability in retirement, and even reduced quality of life from stress.

If you’re currently self-managing your investments, consider the following.

1. You’re Part of a Group that Dramatically Underperforms the Market

According to DALBAR, a research firm specializing in investor performance, most individual investors consistently trail the market. In their 2020 Quantitative Analysis of Investor Behavior, DALBAR examined the performance of mutual fund investors over the 20-year period ended December 31, 2019. This period included such notable events as the dot-com crash, the Great Recession of 2008, the 2010 “flash crash,” and the cryptocurrency crash of 2018.

The findings aren’t pretty. The annualized return for the S&P 500 over that time period was 6.06%, compared to only 4.25% for the average equity fund investor. Fixed income investors did even worse, earning a 0.47% annualized return compared to 5.03% for the Bloomberg-Barclays Aggregate Bond Index. Both groups of investors also underperformed their respective benchmarks over the trailing 10-year, 5-year, 3-year, and 1-year periods.

The authors explain, “Investor behavior is not simply buying and selling at the wrong time, it is the psychological traps, triggers and misconceptions that cause investors to act irrationally. That irrationality leads to buying and selling at the wrong time, which leads to underperformance.”

Be cognizant that if you self-manage in an attempt to outperform the market, the odds are stacked heavily against you.

2. Your Financial Well-Being Is More Than Just Your Investments

Setting aside the above and assuming you’re part of the small minority that can keep up with the market, don’t forget there’s more to your financial life than just your investments. Even with strong portfolio performance and a good asset allocation , there are plenty of chances to go wrong.

Consider taxes. By failing to place assets into the optimal account types, you could end up giving more back to Uncle Sam or your state than you need to. Dividends, interest income, and capital gains are all treated differently depending on where they’re placed, so a sound strategy is key. Likewise, your tax bill can vary greatly based on your net realized gains for the year – the difference between your realized gains and losses. Poor timing of sales can cause you to miss out on significant tax-saving opportunities, once again leaving you with less of your hard-earned profits.

The same is true of many other financial planning considerations. Take insurance. Buy too little and an unexpected catastrophe could wipe you out. Buy too much, and you steadily bleed precious premiums that could be working towards your retirement. Proper estate planning also entails a veritable rat’s nest of hazards. By assigning a bad trustee or executor, forgetting to assign appropriate beneficiaries, or failing to understand estate taxation, you could leave your heirs in a position starkly different from what you intended or expected.

And what about your retirement accounts? Do you have a tax-optimized withdrawal strategy for your IRA or 401k? Taking wealth management into your own hands extends far beyond pure investment strategy.

3. You Can’t Be On the Clock 24/7

Overseeing a comprehensive financial strategy takes time. That’s a big drawback if you enjoy family, friends, or hobbies – not to mention interruptions like vacations or the occasional flu. Most people simply don’t have the time, inclination, or training to properly manage a complex investment portfolio. And, the later in life, and the larger the portfolio, the more risk you assume in managing on your own.

To play devil’s advocate, it’s possible you immensely enjoy investing and it doesn’t interfere with your other priorities. Fair enough. But what happens if you suddenly become incapacitated or lose access to your account, even if only for a short time? Illness, accidents, family emergencies, and frozen computers happen. Often! In business there is a concept known as key person risk, and a common countermeasure is to create purposeful redundancy in subject matter expertise. As a self-manager, it’s unlikely you have trusted surrogates who could step in and manage your portfolio if you were unable to. That’s a big risk, and also a common element in the fourth and final consideration.

4. At Some Point, You Will Need a Contingency Plan

Too often, self-managers spend a lifetime painstakingly tending to their investments, only to eventually turn it over to a spouse or children who have no idea what to do. Without a solid plan for the inevitable handoff, it doesn’t take long for poor decisions, inactivity, or unscrupulous financial salespeople to eviscerate what took so long to build.

That’s a real tragedy, and it happens every day. The good news is that it is easily prevented – just start early. Even if you’re great at investing (which very few are), have a thorough understanding of estate and tax planning (true for even fewer people), and have the time and interest to manage your investments (fewer still), you can and should still plan for a transition. Find an investment professional whose philosophy matches your own, and test them out with part of your portfolio. If they end up not being a fit, you have plenty of time to switch. If you like what they do, you can work with them to build a financial plan that both honors the hard work you’ve contributed and leaves the portfolio in good hands when you’re gone.

Our Take

With the rise of robo-advisors and online investment tools, people are feeling more empowered to take investment management into their own hands. While there is a small minority of people who are relatively successful as self-managers, the majority negatively impact their overall financial portfolio and underperform the market. The right professional financial advisor can support your investment objectives and work with you on every facet of your financial life.

Have questions on anything in this article? Feel free to schedule a time with one of our advisors and we’d be happy to speak with you.

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Sushiswap developers propose to divert 100% of fees generated to Sushi’s multisig



Sushiswap developers propose to divert 100% of fees generated to Sushi’s multisig

  • Sushiswap developers have submitted a new governance proposal to the community.

  • The proposal seeks to divert 100% of fees generated on the platform to Sushi’s multisig.

  • The funds would be used for Sushi’s multisig for a year or until new tokenomics are implemented.

Sushiswap developers want to divert trading fees

Developers of the decentralised finance (DeFi) protocol, Sushiswap, have submitted a new proposal to the community. According to the proposal, 100% of the fees generated on the platform would be diverted to Sushi’s multisig for one year or until new tokenomics are implemented.

This latest cryptocurrency news comes as Sushiswap is currently facing a significant deficit in its treasury. The deficit threatens the protocol’s long-term operational viability. 

In his proposal, the Head Chef, Jared Gray, said;

“After reviewing expenditures, it’s clear that a significant deficit in the Treasury threatens Sushi’s operational viability, requiring an immediate remedy. In my original proposal, Sushi operated with an annual runway of 9M USD. However, after my detailed review, we reduced that requirement to 5M USD. We made the reduction possible by renegotiating infrastructure contracts, scaling back underperforming or superfluous dependencies, and instituting a budget freeze on non-critical personnel and infrastructure.”

Despite reducing the project’s annual runway requirement from $9 million to $5 million, the treasury still provides for only about 18 months of runway.

The developers are now proposing to set up Kanpai, a fee-diversion protocol. The proposal, if accepted, will lead to 100% of fees diverted to the Treasury multisig for one year or until the project’s new token distribution and reward schemes become active. 

Sushiswap’s fee-diversion solution is temporary

The developers pointed out that the proposal is a temporary solution to a long-term problem. The proposal was put in place because new tokenomics will take time to implement

The Head Chef said;

“Kanpai is a temporary solution to a long-term problem, and a new tokenomics proposal is on the horizon, which will help address the long-term value proposition of Sushi for stakeholders. Sushi must implement a holistic token model that allows the rebuilding of the Treasury and delivers value for all stakeholders while reducing the fiscal liability carried solely by the protocol.”

In addition to Kanpai, the Sushi team said it increased its funding by securing several multi-million dollar partner deals. 

However, the developers added that relying on business development deals is only part of a successful business model to secure Sushi’s future. In October, asset management firm GoldenTree invested $5.2 million in Sushiswap.

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Europe’s McGuinness pushes for global rules after FTX collapse



Europe's McGuinness pushes for global rules after FTX collapse

Mairead McGuinness, financial services commissioner for the European Union spoke to CNBC in Brussels.

Bloomberg | Bloomberg | Getty Images

BRUSSELS — Some market players are purposely avoiding regulation in the crypto space, the EU’s top regulator told CNBC as she called for a global approach to protect retail investors.

The European Union agreed in June on the Markets in Crypto-Assets (MiCA) regulation. This is meant to reduce risks for consumers buying crypto assets. In essence, the rules mean providers would become liable if they lose investors’ crypto-assets, but the regulation is only due to start 12 months from now.

“It will not come into effect for a year, but I think it’s already having an effect,” Mairead McGuinness, European commissioner for financial services, told CNBC Tuesday.

She said that firms in the crypto industry that want to be part of the regulated system — and therefore have the seal of approval from a regulatory authority — are “already acting in a way that our legislation is pointing.”

However, she added that some crypto players are choosing to, and are fundamentally against, stricter rules.

“Some of those who were involved in crypto, from the very outset, were doing it because they didn’t want to be part of the regulated, managed system. They want it to be separate from and in parallel to it. That’s a very dangerous path,” she said.

Recent crises in the crypto world have clearly exposed the risks for consumers. The recent collapse of FTX, an exchange once valued at more than $30 billion, and the crash of supposed “stablecoin” terraUSD both highlighted the risks associated with these assets.

U.S. interest

The European Union has been stepping up rules in this space and has pushed for a global approach. In meetings last month, McGuinness discussed crypto regulation with her U.S. counterparts.

“What I found in the U.S. is huge interest in what we were doing here, and the markets and crypto assets legislation. And I believe there will be developments there,” she said.

In the wake of the downfall of FTX, some U.S. policymakers urged the Treasury to do more to tackle the risks for investors. The U.S. Treasury was not immediately available for comment when contacted by CNBC.

In the U.K., officials are reportedly working on a new plan to regulate crypto as well.

“We have seen events, let me put it like that, in this crypto space. Which maybe is a wake-up call for those who thought that investments would only increase in value,” McGuinness said.

She added that crypto is like climate change, in that it needed a global approach.

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New crypto wallet designed by iPod creator Tony Fadell



New crypto wallet designed by iPod creator Tony Fadell

The creator of the iPod, Tony Fadell, designed a new hardware wallet for people to store their cryptocurrency.

The product, created by French crypto asset security firm Ledger, launched at the company’s annual Ledger Op3n event Tuesday. Its launch comes at a time when trust in centralized crypto platforms is fading as a result of the collapse of Sam Bankman-Fried’s FTX.

It’s called Ledger Stax and resembles a small smartphone or credit card reader. Measuring 85 millimeters long and 54 millimeters wide, it’s roughly the same size as a credit card. It is also about 45 grams, weighing less than an iPhone. Users can deposit or exchange a range of tokens, including bitcoin, ether, cardano, solana and nonfungible tokens, or NFTs.

The Ledger Stax sports a black-and-white E-ink display, similar to that of Amazon’s Kindle e-readers. It also includes magnets, so that multiple devices can be stacked on top of each other, like a pile of books or cash — hence the name Stax. Users can connect it to their laptop through a USB cable or their phone via Bluetooth.

“Many Ledger owners have multiple devices, some store their NFTs, some store different crypto, some have multiple because they have different clients that they store for,” Fadell told CNBC in an interview.

The display also has a spine that curves around the edge, “so you can see what’s on each one, just like an old CD or cassette tape or book,” he said.

The iPod for crypto?

Initially, Fadell turned down working with the Ledger team on Stax. “This was not something I wanted to do,” he said. “When they first approached me I’m like, ‘I don’t want to do it. No thank you.’ I was interested in crypto, I had crypto at the time but I’ve basically got a lot of other things to do.”

The Ledger Stax is the latest hardware crypto wallet from French startup Ledger. It’s roughly the same size as a credit card and sports an E-ink display.

What is DeFi, and could it upend finance as we know it?

Ian Rogers, Ledger’s chief experience officer and a former executive at Apple and LVMH, said he’s confident about the mass market potential.

“There’s no question about the need for security and there’s no question that we lead increasingly online lives,” he told CNBC. “Instagram, Nike, Starbucks, Amazon — many companies are finding real life use cases for digital assets. And so I think that we will grow with that.”

Not your keys, not your crypto

After the recent collapse of FTX into insolvency, crypto holders have sought alternative means of storing their digital assets. One is via cold storage, where a user’s private key — the code they need to access their account — is kept on a device that’s not connected to the internet.

Since these wallets are offline, they’re less susceptible to hacks or failures. Ledger says that, to date, none of its devices have been hacked.

Ledger has seen a boost in sales as a result of fears around the contagion from the FTX collapse. Last week, BlockFi, a crypto lender, entered bankruptcy after revealing Alameda Research, Bankman-Fried’s trading firm, defaulted on $680 million worth of loans from the company.

November “will be our all-time high biggest month ever,” Pascal Gauthier, Ledger’s CEO, told CNBC. “All the news that you’ve seen since the beginning of the year, from Celsius all the way to FTX, has really pushed a lot of users towards self custody.”

Ledger has sold more than 5 million devices to date.

However, a sharp downturn in digital asset prices could spell trouble for the company with retail investors becoming more wary. Only 21% of Americans feel comfortable investing in cryptocurrency, according to Bankrate’s September survey. That’s down from 35% in 2021.

The Ledger Stax will compete with a slew of consumer gadgets this holiday shopping season, including Apple’s new iPhone 14, at a time when budgets are being constrained by rising inflation.

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