David Robinson, CFPA

DIY investments can often be compared to blindly guessing without the guiding hand of a professional, and the results speak for themselves.

Once again last year, investors’ gains lagged well behind average market returns. And once again, the cause was poor investment management decisions. 

Reaching findings consistent with a longstanding pattern, a recent 

, a well-regarded advisory research firm, found that investors’ returns were significantly lower than the market’s in 2018. While the S&P 500 dipped 4.38%, the average stock fund investor lost more than twice that amount—9.42%. These investors were “blown away by the market turmoil,” DALBAR stated when releasing the study in late March.

Common among investors’ errors was darting in and out of the market instead of staying in it consistently. All too often, investors become afraid when the market drops and sell low, and then get back in when it comes up, buying high. And while they’re out of the market, they miss out on the few up days that can make a huge difference over time.

 showing inferior results stemming from poor investment decisions. Among them was a 10-year study from Morningstar finding that the average fund investor lagged behind average fund returns.

Beyond just a lack of basic investing knowledge and information, the cause of this disparity for many individual investors is mistakes stemming over-confidence and irrational biases. Though these mistakes cost them plenty in missed returns, many individual investors are acutely concerned with saving on investing costs, so they choose not to hire advisors.

Considering the findings of the DALBAR and other studies, such highly cost-averse investors are clearly pennywise because, in many cases, getting professional advice and investment management may improve their net returns. Of course, the results obtained by some advisors also fall short of the market. But many others (with good credentials) produce much better results in the long run, especially if they insist that their clients’ hold well-diversified portfolios.

Individuals who reject professional advice to save money tend to believe they can do just as well on their own.

Various studies have demonstrated this over-confidence, including landmark research by Terrance Odean, a finance professor at the University of California who focuses on 

, which is the human elements of financial decision making. Odean found that 

 stems from over-confidence in general, especially among men. Single men tracked in one study traded 67% more than single women, with inferior results, Odean found, generating widespread publicity focusing on his conclusion that, by this measure, women tend to be better investors. Part and parcel of trading too much is a tendency to dart in and out of the market, incurring losses. 

Various behavioral finance studies have shown that losses are highly impactful psychologically for investors, perhaps more so than gains. The prospect of loss—loss aversion--has been 

shown for decades to be a dominant motivator

When the market is headed down, fear of loss prompts people to sell, so they end up selling low. This is irrational because the whole idea of maintaining a long-term portfolio is to take out gains gradually—preferably, when the market’s up--as needed to pay expenses in retirement, rather than liquidating rashly in reaction to an episodic market event, when the values may be down. These investors also hurt themselves by operating under 

, a common cognitive bias shown to account for error-prone behavior. Recency bias drives the assumption that an investment’s future performance is likely to resemble its recent past. Investing this way is actually illogical because, if a stock has been doing well its price has been bid up, meaning that there may not be much room for growth.

And in terms of scientific statistical probability, a stock’s future performance is most likely to resume its long-term past average—not its recent past performance. (This is known as 

.) By investing in a stock only because it has gone up recently, you’re likely setting yourself up for a loss.

This is like driving while looking strictly in the rear-view mirror. The idea is to focus on factors coming at you, rather than those behind you. This isn’t to say that it’s categorically unwise to invest in stocks that have been doing well lately. It’s just that investors should have reasons that support the case for future growth.

Such concepts aren’t widely understood by individual investors, who don’t have professional market backgrounds. This isn’t to say that some investors with the right educational backgrounds, given enough motivation, time and access to research data, can’t make sound decisions. But most people can’t do this at a high level. Instead, they’re focused on making a living—a strong reason to be careful with their hard-earned money by seeking professional guidance in what is an increasingly specialized technical field.

David Robinson, a Certified Financial Planner, is founder/CEO of 

, an SEC-registered firm in Phoenix that provides fiduciary services to help clients achieve their financial goals. His practice focuses on helping wealthy individuals with custom financial plans, using a holistic approach to grow/protect wealth, manage taxes, identify insurance solutions, prepare for retirement and manage estate plans.

Articles

It can be encouraging to make investments on your own behalf, but as investing becomes more specialized you may not get the same results a dedicated professional will.

How DIY Results Lag Behind Market Performance

Think of finding the right financial advisor like finding a new hire. You need to interview them and make sure they're a right fit for your needs.

Shopping for a financial advisor isn’t easy. The services they offer can be complicated and choosing can be confusing because various types of practitioners call themselves advisors.

Typically, when you meet with advisors to check them out, they talk about their expertise and offer assurances that they’ll always serve your best interests. However, consumers don’t know how to evaluate these claims because they don’t know what questions to ask.

Here are some of the right questions you should be asking a potential advisor.

At issue here is whether the advisor is working as a fiduciary—a legal term for a professional who always puts your interest above their own. Fiduciaries, who earns no sales commissions for portfolio construction, are different from non-fiduciary advisors, who operate under a different regulatory standard, known as the sales-practice standard.

Generally, fiduciary advisors make a living from fees for advice, not product sales, which can cause conflicts of interest. If an advisor is a broker (essentially an investment salesperson), they’re not a fiduciary and shouldn’t be calling themselves an advisor. 

Many consumers mistakenly associate fiduciaries with large brokerages, but this is fundamentally wrong. Brokers aren’t subject to Securities and Exchange Commission rules regulating advisors as fiduciaries. Instead, they operate under the sales practice standards of the Financial Industry Regulatory Authority.

Many advisors call themselves wealth managers, but precious few of them provide a full array of wealth management services. Along with investments, wealth managers advise clients on tax planning, cashflow analysis, executive compensation, estate planning and, potentially, many other areas.

For instance, small-business (e.g., dental practices) planning, to college planning, to real estate transactions, and charitable giving strategies. Be wary of those who call themselves wealth managers but are ill-equipped to provide all the services you need to reach your investment goals. 

What would be the total costs in working with you? 

That is, how much do you charge for advice, what investments would you recommend and how much would they cost?

What credentials do you hold and how do these support your claims of expertise? 

Relevant credentials include applicable academic degrees, certifications and licenses. One certification to look for is a CFP®—certified financial planner, a widely respected credential that reflects extensive knowledge, expertise and experience in financial planning.

Could I see a typical sample portfolio and a financial plan? 

Though client portfolios vary, an example portfolio can give you an idea of the advisor’s leanings regarding portfolio construction and management. And a typical financial plan can yield insights into how an advisor approaches retirement planning issues. One thing to look for is how much of the clients’ money is tied up in inaccessible accounts, where funds can’t be withdrawn without long waits or painful penalties. Say you’d like to see an anonymous plan and a portfolio for someone with a comparable income, risk tolerance and retirement horizon to your own.

How would you determine my asset allocation? 

What criteria would you use? This is extremely important because it signals an advisor’s philosophy of risk versus returns.

How much contact do you have with clients? 

If I hire you, when will I see you again? What if I want to make an appointment to see you? What if I need to quickly get cash out of an accessible account? Will you give me your cell number? Some advisors hold quarterly meetings with all clients, but many don’t. After the initial planning sessions, some clients never see their advisors again, even for an on-screen meeting. Make sure that your advisor is avaible as much as you need them.

Will you be the only person I’d be working with? 

If not, who else? Are you a one-person shop or do you have associates or partners? Would you be making decisions on recommendations for my account, or would they? Some advisors just make the sale and then farm out the work to less experienced people. Ensure that you’re comfortable with how they operate.

Will you create an investment policy statement (IPS) for my account? 

This a blueprint for the management of your investments that includes a description of your risk tolerance and investment goals, and general guidelines governing how your investments should be managed.

Using an IPS helps avoid doubts about whether investment management moves being considered would be acceptable. IPS documents are quite common in institutional financial management, yet many advisors of individual investors also use them. It’s a helpful tool for keeping your advisor on 

If an advisor is reluctant to answer these questions, move on. In finding the right steward for your financial affairs, there’s no room for ambiguity.

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9 Questions to Ask When Shopping for An Advisor

The market is a volatile place, and so it's easy to think in the short term. Don't let that happen, stay discipline with your investing goals. 

Warren Buffett famously said that like dieting, successful investing is far easier to understand than to accomplish—because it requires discipline. Perhaps nowhere is investing discipline more important than regarding the never-ending din of market information blaring at investors through various media outlets.

Long a problem for investors trying to maintain focus, this market noise has become appreciably louder for most consumers since the internet has become widely available.

Since then, there has been not only nonstop television coverage of financial markets on CNBC (and, more recently, Bloomberg), but also from a myriad of websites that investors can visit at 3 a.m., worrying about daily market gyrations instead of sleeping.

So that they don’t miss anything, investors often volunteer to be bothered by market noise regularly by signing up for email alerts. And as if this weren’t enough, purveyors of this market noise have exploited the public obsession with mobile phones by distributing apps and issuing text alerts making sure investors can’t escape market noise by leaving the house. Now, they can hear this din wherever they can find cell service.

The reason this noise is dangerous is that it compels short-term thinking and over-reaction that can wreak havoc with long-term portfolio gains. Market volatility is a fact of investing—and not a bad thing in and of itself; it enables investors to buy stocks at lower prices.

John Bogle, credited with inventing the index fund, said the question isn’t whether your investments will go up and down in value, because this will inevitably happen. Rather, he said, the question is whether this volatility will bother you enough to make you over-react and do “something dumb.”

If you over-react to volatility, this increases the chances that you’ll sell low, only to buy high when you want to get back in later, after prices rise. As Buffett has pointed out, volatility and risk are two different things.

Focusing on price alone isn’t really investing. Rather, it’s speculating. Whereas, investing is about seeking value. Obsession with short-term market movements makes sense for traders who make a living by accumulating small gains and seeking to limit losses on as many stocks as possible. They don’t care about long-term trends, but the average investor managing a retirement portfolio definitely should.

Trading on volatility doesn’t improve long-term returns. One way to get a sense of this is to look at the volatility of the S&P 500 index and U.S. bond yields. Over one-year horizons, these two measures 

. However, over long periods—15, 20, 30 years--the averages of the two are much closer.

This shows that reacting to short-term price movements carries no advantages over the long term. Even if the entire market is tanking, it’s important to remember that it has always bounced back, often quite soon. Many recent dips have popped back up in the ensuing days or weeks, and the average recovery time from most steep declines has been a matter of months.

Furthermore, trading too much has high costs, including taxes on gains. If you’re in a high tax bracket and you jump in and out of stocks regularly from listening to market noise, you’ll be triggering ordinary income tax on gains—as much as 35 percent. By contrast, if you trade occasionally rather than regularly, after owning stocks for at least a year, the long-term capital gains rate (15 to 20 percent) applies.

All this reactive trading racks up high trading costs, including commissions and advisory fees. Frequent trading tends to increase costs incurred by the 

, the trading process that determines the price buyers pay.

Instead of listening to and trading on short-term market noise, investors are better off ignoring it and focusing on the long-term, mustering the discipline to stay true to their plans, to reach their long-term goals.

Rather than heeding market noise, long-term investors would be much better off paying attention to:

		Maintaining a well-diversified portfolio with investments selected for value, 

—buying fixed dollar amounts of stock regularly to garner more shares when prices are down.

		Minimizing fees and taxes to contain costs and increase net returns.

		Doing regular cash-flow analyses to assess gains against goals and determine whether you’re on track with your investment plan.

This is a far better course than trading on market noise (which compels trading by others, in turn making gains harder to get).

Many declines, as well as upsurges, are driven by 

 designed to trade automatically in response to certain price movements. Many of these programs sell automatically when the average price of a stock has declined by 10 percent. This trading is so massive it depresses prices. Much of the noise you hear about volatility stems from this type of institutional trading.

So, instead of listening to market noise and haplessly trading like a scared rat caught in a maze and bombarded by stimuli, put your phone down, relax, and keep your eyes on the prize: your long-term portfolio.

Keep Calm When the Stock Market Plunges It Can Create Opportunity

David Robinson, a Certified Financial Planner, is founder/CEO of RTS Private Wealth Management, an SEC-registered firm in Phoenix that provides fiduciary services to help clients achieve their financial goals. His practice focuses on helping wealthy individuals with custom financial plans, using a holistic approach to grow/protect wealth, manage taxes, identify insurance solutions, prepare for retirement and manage estate plans.

The 24/7 news cycle covers all topics, creating a din of noise that can often be overwhelming. This is especially true when it comes to following the market, and it's just as important to sift through what's important and what really isn't.  

The Importance of Ignoring Market Noise

Establishing a 529 plan as soon as possible will allow the accumulation of tax-free investment gains.

Beginning this year, a new windfall is available to parents of children attending private elementary and secondary schools.

A highly tax-advantaged investment plan for funding college education expenses, long a staple of many parents’ investment portfolios, now allows the use of this money for expenses incurred from private elementary and secondary schools, including parochial schools.

Effective this year, federal rules permit the use of these plans, called 529 plans, twelve years sooner by allowing withdrawals for qualified education expenses of private and secondary schools. Previously, money invested in 529 plans could only be tapped without penalty for post-secondary education expenses.

These plans are administered by states and, within limits, many offer tax deductions, with some even offering tax credits, on the money put into them. And there are no state or federal taxes on withdrawals to pay qualified education expenses.

To get the most out of these plans, consider this example of what some call “super-funding” a 529 account — a financial strategy accessible to wealthy families. Let’s say you have a young child about to enter the first grade. You have been making substantial contributions to a 529 in recent years. Before your child enrolls, you have $200,000 in your 529 account and have chosen from the plan’s menu of available investments to grow your money, primarily mutual funds. When your child enters school, you withdraw $10,000 a year, the maximum allowable pre-college withdrawal per child per year, toward tuition, room-and-board and other qualified expenses associated with your child’s private school enrollment. Qualified expenses also include books, software and equipment, according to 

 in Phoenix, AZ. By making these $10,000 withdrawals from a 529 plan to pay for grades one through twelve, you avoid having to pay nearly $2,500 per year in taxes, including taxes on investment gains, saving about $30,000 by the time your child graduates from high school.

Even after these withdrawals, if your account is growing at 6% a year from gains on investments within it, you’ll have more than $370,000 left for college without making any contributions beyond the initial $200,000. The example assumes all the money will be used for education purpose as IRS rules limit 

contributions to the amount necessary to pay

 qualified expenses. Depending on how much your eldest child’s college education costs, you could have a substantial amount left over to educate your other children — and you should plan to do so to stay within IRS rules.

It gets better. A few states allow tax deductions on contributions to plans sponsored by other states, which encourages parents to cross state lines to use plans that may be superior to those offered by their home state. Like 401(k) plans, these plans can vary considerably in investment options, fees and potential returns. A key reason for this is that states choose different financial institutions to hold their plans.  

With all the potentional tax advantages, it is a good idea to shop around the country for the best 529 options. Look for plans in states that enable a tax deduction on contributions in your home state and also offer the best potential returns. State-by-state information can be found on the website, 

These plans are not limited to paying for elementary and college education costs for your children but could also be allocated to extended family, including nieces, nephews and grandchildren. Even your own education expenses, should you choose to go back to school, could be funded by monies left in a 529 account. Therefore, if one of your children gets a scholarship, you can — and should – allocate unused 529 funds to pay for education expenses of other family members.

So if you have children headed for private elementary or secondary school and do not currently hold a 529 plan, the windfall provided by the new rules makes it time to consider one. Even if you plan on utilizing the public school system for your child's elementary education, establishing a 529 plan as soon as possible will allow the accumulation of tax-free investment gains.

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The tax advantages of establishing a 529 account now apply to expenses incurred by private elementary school. Knowing the benefits is important to saving money on a lifetime of education. 

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Awareness of this practice and the metrics involved is powerful ammunition for a highly effective price-cutting strategy.

If you’ve ever negotiated what you think was a great deal on a car lease, you might want to think again.

Perhaps you whittled down the retail price that your lease was based on — something that many consumers (including busy physicians) fail to do. But even if you did this, the dealer still may have made thousands on marked-up financing charges.   

Awareness of this practice and the metrics involved is powerful ammunition for a highly effective price-cutting strategy. You can save 

 of dollars per month on a luxury car lease by following these five steps:

		Do your homework. Determine area dealers’ asking prices by using the "build” feature on the manufacturer’s website. Look closely at any pending manufacturers’ discounts or rebates, which cost the dealer nothing. These discounts are sometimes buried deep in manufacturers’ sites because many people are willing to pay full price. Also, find out what the car you want is going for in your area by checking consumer auto sites like 

. This will give you some baseline data for your negotiations.

		Go to the dealer and negotiate the sale price downward, just as you would when buying a car. Start with manufacturers’ discounts, then seek an additional discount out of the dealer’s end by telling them you’ll give them a few thousand less. Always offer a specific number, rather than asking them what they can do for you. Dealers are often willing to go way down because of the money they’re planning to make from you if, like most consumers, you fail to take the next step.

		Discover the money factor. Also called the buy rate, the money factor determines the interest rate you’ll pay as part of your lease rate — a big part of your monthly payment. The money factor is usually in decimal form, often with four or five decimal places. Dealers use it to calculate the interest rate to be applied to the negotiated retail price — the annual percentage rate (APR).

To increase interest charges for lessees above what they pay lenders to finance the car, dealers simply jack up the money factor. This way, they can cut the sale price to the bone and still make a killing — while buyers mistakenly believe they’re getting a great deal. 

How can you learn the money factor? Simply ask the dealer. This request typically isn’t regarded as unreasonable, and few people ask because they aren’t aware of it. Once you get the number (often abbreviated on lease documents as MF), just multiply it times 2,400 — an industry financing constant — to get the APR. For example, if the money factor is .00150, the equation is: .00150 x 2,400 = 3.6 percent. If the result isn’t equal to or less than prevailing APRs for car purchases, you’ll know they’re marking up the money factor — and that there’s room to talk it down.

Getting the money factor, instead of just negotiating the APR, is a way of communicating to dealers that you know this is how they quantify the markup on financing. Thus, it has intimidation value.

But if you want to cut to the chase, you can just ask the dealer “if they’ll give you the lease at the buy rate,” says Oren Weintraub, owner of 

 a service that negotiates car leases and purchases for consumers at dealers nationwide. “If they won’t give you this rate, you can create leverage by letting them know another dealer offered it to you.”

      4. If the dealer won’t cooperate, move on to the next one. You may be able to get tips on which dealers to visit from web postings on chat sites where people discuss deals on leases in your area. When you read about a dealer that gave someone a rock-bottom lease rate, that’s because the buyer negotiated both a low sale price and a low money factor.

On these sites, you’ll see chat about residual value — the price the lessee agrees in the lease contract to pay for the car at the end of the lease if they decide to buy it. You want to find cars with high post-lease residual value — preferably, north of 55 percent — because this can lower your lease rate. Cars with high residual values tend to be models that retain their value well. As a rule, luxury cars tend to retain their value better proportionately. You’re more likely to find leases on cars with higher residual values toward the end of the model year. (It’s rarely a good idea to buy a car you’ve leased, as your goals conflict. If you want to buy a car, it’s usually better to buy it without leasing it first.)

     5. Get a handle on all additional charges before agreeing to a deal. These include tax, destination charges, title, acquisition fees and surrender fees. Dealers often charge high destination fees on luxury models. Like everything else, these charges are negotiable. Also before signing, make sure that all optional equipment is specified in the lease, including the brand and model of tires. Some dealers deliver cars with tires inferior to those on test-drive models.

By taking these steps, you’ll show dealers you’re a savvy consumer and wear down their resistance. After all, they make their best deals with uninformed consumers.

David Robinson, a Certified Financial Planner, is founder/CEO of RTS Private Wealth Management, an SEC-registered firm in Phoenix that provides fiduciary services to help clients achieve their financial goals. His practice focuses on helping wealthy individuals with custom financial plans, using a holistic approach to grow/protect wealth, manage taxes, identify insurance solutions, prepare for retirement and manage estate plans. 

Show dealers you're a savvy consumer and save on a car lease with awareness of marked-up financing charges and the metrics involved; powerful ammunition for a highly effective price-cutting strategy.

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Having an estate plan is important for anyone with a positive net worth. It’s essential for ensuring that your loved ones receive assets and property according to your wishes, avoiding unintended consequences and preventing a huge mess for your family to sort out while they’re still grieving your passing.

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To assure the post-humus distribution of property as intended, dentists — like anyone else with substantial net worth &mdash; have a critical need for a proper estate plan that covers all contingencies. As you never know when the grim reaper will come calling, the time to have an estate plan is now, no matter how young you are or how good you feel. After all, you could get hit by a truck tomorrow.

If you don’t have an estate plan, there are some key moves to consider making now:

 found that 64 percent of American adults don't have one. Nearly half of those without a will said they just hadn't gotten around to it. If you die without a will, your estate is distributed according to the laws of your state —not necessarily according to your wishes. After all, who’s to say what those wishes were if you didn’t write them down in a will? The antidote to the potential for unintended bequests is to engage a qualified estate planner, usually an attorney, to draft a legally binding will.

· Establish a living trust. If you become incapacitated, a living trust allows your appointed trustee to manage your assets on your behalf. If you don’t have a living trust, your state of residence might appoint a legal conservator to make decisions about your assets — an expensive process involving probate court.

· In community property states, pay attention to how your real property is titled. These are states where spouses are generally considered to be equal owners assets acquired during the marriage. In these states, the best way to title this property is as community property with rights of survivorship. This way, when one spouse dies, the other receives a 100 percent step-up in cost basis on the property’s value. This means that upon the sale of the property, the surviving spouse doesn’t have to pay capital gains tax on the increase in the property’s value from the time it was first acquired by the couple.

· If the property is instead titled under joint tenancy, the surviving spouse may receive only a 50 percent step-up in cost basis, which can result in capital gains tax upon the sale of the property. In second marriages, if the physician’s goal is to not give the property to the new spouse, the property shouldn’t be titled with rights of survivorship. This is a highly complex area, especially when moving from a non-community property state to a community property state, so it’s imperative to get qualified professional advice.

· Make annual tax-free gifts to family members to reduce the size of your taxable estate and help your grown children when they most need it, perhaps to buy a house. As of this year, federal tax laws allow tax-free gifts of up to $14,000 per person and $28,000 per couple. Making such gifts regularly can be part of an effective strategy to reduce potential estate taxes. This year, estates of more $5.49 million for single individuals and $10.98 million for married couples may be subject to federal estate tax of up to 40 percent. In addition, some states impose their own estate or inheritance taxes.

· Write a letter of instruction for regarding what is to become of your personal belongings (not listed in the will) and provide a guide to them (e.g. saying where your car keys located). This can help bereaved family members avoid arguments over who is to get what personal property and prevent confusion over where everything is kept.

· Be sure that the beneficiaries designated on your financial accounts (IRAs, 401(k) plans included) are what you truly intend. If there’s a conflict, these assets will go to the beneficiaries designated with the financial institutions. So be sure to double-check the beneficiaries listed with the institutions and make sure they’re consistent with your wishes. Also, keep in mind that beneficiaries who are minors are legally prevented from owning assets and that the age upon which they can do so varies from state to state.

· Remember that while you don’t want to be without an estate plan, the longer you live and the more your circumstances may change after establishing one, the greater the chance that you’ll need to update your plan. So be sure to revisit your plan with your estate planner at least every three years, or soon after a significant change in your wealth or after a major life change such as divorce, marriage or the death of a relative.

David Robinson, a Certified Financial Planner®, is founder and CEO of RTS Private Wealth Management, an SEC-registered advisory firm in Phoenix, Ariz., that provides fiduciary services to help pre- and post-retirement clients achieve their financial goals. He specializes in helping wealthy individuals — such as physicians, executives and professional athletes &mdash; prepare for the future by creating custom-tailored financial plans that employ a holistic approach including growing/protecting wealth, managing taxes, identifying insurance solutions, preparing for retirement and managing estate plans.

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Life is full of unexpected surprises, and unfortunately, death is one of them. Though you may not be ill or expect it to come, death does not cater to our plans. That's why it's important to make sure your assets are taken care of in the event something happens to you. Continue below for crucial estate planning tips. 

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Medical professionals are naturally mindful of the risk of claims on their assets, but many wrongly assume that having adequate professional malpractice insurance is protection enough.

They’re overlooking other types of claims — those having nothing to do with their professional practices. Like people in other professions with substantial assets, dentists and other high-earning health care professionals can easily find themselves targets of litigation for personal liability.

In many states, certain types of financial accounts can protect assets from judgments. These may include deferred annuities, life insurance (whose cash value is often protected) and qualified retirement accounts. But if these accounts offer protection in your state for the assets held within them, marauding plaintiff’s attorneys will go after other assets.

Perhaps greater prudence lies in managing risks to prevent mishaps, death and injury — and resulting claims on your assets. The first line of defense is your behavior, as governed by your best judgment and common sense, to prevent damage from occurring.

· Your home. The bigger and more elaborate your home is, the more liability traps it may involve. A large home with extensive electronics inside and gardens outside often means a lot of foot traffic by tradesmen, cleaning people and others. It never occurs to many homeowners that if these people are injured at your home, this could mean a lawsuit. Many of these people are private contractors uninsured for work accidents, so consider being proactive to prevent accidents. What kinds of risk are contractors taking regarding ladders, electricity or toxic substances? What is their level of insurance, if any?

· Recreational facilities at your home. The big liability here is a swimming pool, but serious accidents can also occur on trampolines, go-cart tracks and other action activities for kids. Again, managing safety prevents accidents that can bring claims. Keep a close eye on your pool when children are swimming, and consider hiring a lifeguard for kids’ pool parties.

· The poor judgment of people close to you. Even if your behavior is steady in ways that minimize risk, you must use your best judgment about the behavior of people close to you and how it may create risk. Lending your house, boat or car to children, relatives or friends can be a deep liability trap. If your teenager is irresponsible, this is a no-brainer. If your teen has a wild party in your home while you’re out of town and a guest drives home drunk, bringing claims from serious injury or death, this will make it easy for plaintiff’s attorneys to “bring you in” as a defendant, as they like to say.

Or, if your teen cracks up your car after drinking or using drugs, the same can happen. Your teenager may be highly responsible, but how about his or her friends? How about their friends’ friends, who might take the wheel or introduce alcohol or drugs into the evening’s activities? And it may not be a teen whose actions bring claims down upon you; it could be your spouse or brother-in-law with a drinking problem.

· Co-signing on loans for vehicles and real estate as a favor to friends and relatives. When lawyers are building a case, the first thing they look for is the name of a co-signer with the assets to shoulder the liability. As with your own property or vehicles, you can’t always manage this risk.

Of course, this kind of proactive risk management requires attention, alertness, consistency, diligence and, often, telling people close to you things they don’t want to hear and creating family friction. So instead, some choose to dismiss their risk by relying on legal strategies they see as clever but that may be based on myths. These myths include:

· Putting your assets under the name of your spouse or a relative necessarily safeguards them from judgments. Not so. Retitling assets for this purpose is known under the law as fraudulent conveyance.

· Assets held in a revocable living trust are protected. In most states, this protection can come from an irrevocable trust, but not from a revocable one.

· Vehicle or homeowners’ insurance necessarily covers all judgments completely. This is wrong because judgments may exceed the limits of coverages. And while vehicle liability coverage levels may be more or less standard, coverage limits on general liability umbrellas attached to homeowners’ policies are often too low. If you have substantial assets to protect, you should consider a liability limit of up to $5 million. Before arranging this coverage, it’s a good idea to touch base with your attorney.

It’s a good idea to go over options for asset protection with your financial advisor and/or your attorney.

By exercising care and discretion to prevent mishaps — and having the right financial accounts and insurance as backup — you can manage risk and prevent, or at least limit, hurtful judgments against your assets.

David Robinson, a Certified Financial Planner®, is founder and CEO of 

, an SEC-registered advisory firm in Phoenix, Arizona, that provides fiduciary services to help pre- and post-retirement clients achieve their financial goals. He specializes in helping wealthy individuals — such as physicians, executives and professional athletes — prepare for the future by creating custom-tailored financial plans that employ a holistic approach including growing/protecting wealth, managing taxes, identifying insurance solutions, preparing for retirement and managing estate plans.

Like many well-paid health professionals, dentists are no strangers to assessing risk and liability in their practices. But what about liabilities pertaining to their homes and possessions? In addition to making sensible decisions, dentists need to know how to protect their assets from potential litigation.

Don't Overlook Risks of Personal Liability

The S&P 500 might not be the best gauge by which to measure your portfolio's success.

Dentists routinely practice risk control in their practices. Investing is no different.

Ultimately, results are determined not just by what you get — investment returns — but also by how much risk you took to get them. This concept is referred to as risk-adjusted returns. Over the long run, taking too much risk means lower average returns because the birds of risk inevitably come home to roost.

The risks that many investors take are often affected by the gauges they use for determining the success or failure of their investment portfolios. Chief among these gauges are the major indexes. All too often, investors use the Standard & Poor’s 500, an index of large-company stocks, as a standard of comparison against their portfolios’ returns. The problem with this thinking lies in the way the S&P 500 is set up. 

Let’s say that for the large-cap portion of his domestic stock portfolio, an investor owns equal dollar amounts of 40 large-company stocks, well-diversified across the 10 main market sectors. As many investors do, this investor keeps a close eye on the S&P 500’s performance to see how his stocks are doing by comparison.  

He’ll be disappointed that often, when the S&P 500 rockets upward, he doesn’t enjoy these same gains. As a result, he concludes that he’d be better off selling his 40 stocks and instead investing in an S&P index fund.

But he’s not aware of the main reason for the S&P gains that he’s not enjoying. The S&P 500 is market-cap weighted, which means that the effect of the gains (or losses) of a member of that group on the index’s performance is based on the number of shares outstanding of that stock (its market capitalization). Stocks in this index with the largest market caps — such as Microsoft, Apple, Exxon and GE Z— thus have a disproportionate influence. So, it makes no sense to compare the results of this market-cap-weighted index to those of an equally weighted portfolio.

For purposes of risk management, this investor is better off with his equally weighted portfolio than with the S&P 500 because, when the of one of the largest members of the S&P 500 dive-bombs, it takes the rest of the index with it. Yet our hypothetical investor’s portfolio doesn’t decline as much, even if he owns shares of this same stock. The reason: Equal weighting means he doesn’t own a greater dollar volume of that stock than of others in his portfolio. Thus, his portfolio is subject to less volatility — the up-and-down movements in value that can play havoc with investment returns over time and threaten investors’ long-term prosperity and wherewithal for retirement.

Yet, as he is unaware of this principle, he might be inclined to sell his more risk-protective portfolio and instead invest in an S&P 500 index fund or ETF (exchange-traded fund). Then, his actual investment — not just his perception of how it’s faring — would be perennially subject to the fortunes of the few behemoth companies that determine the fate of that index. Investors make this same mistake regarding the Dow Jones Industrial Index, which is weighted by share price.

In chasing returns of weighted indexes over the long term, investors are like dentists who use an unproven product or recommend an elective, high-risk procedure. Just as these patients may suffer, so do investors’ long-term investment returns, impaired by overexposure to the volatility of the few stocks that are heavily weighted.

Investors go to a lot of trouble to assemble an equally weighted portfolio to protect against risk, or hire an advisor to do so. But then some, fixated on the S&P 500, are tempted by higher performance that they’re not getting — precisely because of their built-in risk protection.

Investors with well-diversified, equally weighted portfolios get risk-adjusted returns. Those who get distracted by the headlines of big gains in indexes may make the mistake of abandoning their risk protection to chase occasionally higher returns that cannot exist without higher risk that may soon punish returns.

So, investors shouldn’t lust after S&P returns in a quarter when the index gets a boost if they can’t handle the downside when a large company in the index tanks. It’s going to happen, and you can’t have it both ways. Instead of gauging how their portfolio is doing by fixating on the S&P 500 today, they should look at how it’s doing in the long run, keeping in mind that they might have received better returns but that this would have involved more risk — at levels that may have been unacceptable, depending on their tolerance.

Of course, stock portfolios should also include well-diversified groups of equally weighted small and midsize companies, as well as foreign stocks. And to assure diversification, investors should include in their total portfolios asset classes that don’t tend to move in the same direction as stocks, including bonds, real estate, commodities and alternative investments. Investors who do so will be diversified not just across the stock market but also across other asset classes and global markets.

, an SEC-registered advisory firm in Phoenix, Arizona that provides fiduciary services to help pre- and post-retirement clients achieve their financial goals. He specializes in helping wealthy individuals — such as health care professionals, executives and professional athletes — prepare for the future by creating custom-tailored financial plans that employ a holistic approach including growing/protecting wealth, managing taxes, identifying insurance solutions, preparing for retirement and managing estate plans.

Many investors measure the success or failure of their portfolios based on the performance of a major index, such as the S&P 500. But this might not be the most accurate indicator. Many times, S&P gains arent reflected in individual portfolios. This is because the S&P 500 is market-cap weighted.