Monday, December 07, 2015

Irresponsible advice from Charles Schwab

Today, "On Investing", the Charles Schwab regular magazine for clients arrived.  The cover announces the major story, "Investing Without Borders".  While the title is a somewhat repulsive take on a major humanitarian agency's name, the article is even worse.

Schwab's client base is primarily retail investors.  In this article, Jeffrey Kleintrop, Schwab's so-called Chief Global Investment Strategist, suggests that, "In general, allocating between 25% and 50% of your stock holdings(or more, depending on your risk and return objectives) to international equities could give your portfolio a more global perspective.  This may sound high, but..."

"High"?  It's in fact absurd given the exposure that many U.S. multinationals and even mid-caps already have to global business, U.S. firms that are regulated in the U.S. and audited in the U.S. under strict guidelines.  U.S. firms are also in a highly liquid market with currency hedging being of little consideration(currency exposure is not even mentioned in the article which could be viewed as unethical).

Kleintrop supports this statement by mentioning that the worst 10 year period for stocks over the past 45 years was February 1999 to February 2009, and the U.S. index fell almost twice as much  the world index on an annualized basis.  Hmm, in the U.S. the tech bubble was reaching its zenith at the beginning of that time frame and at the end the U.S. equity market had reached its nadir in the extended real estate recession.

Disingenuous is too mild a word to describe what is written in this article, irresponsible is obvious, but borderline fraudulent may be better.  Does Schwab think that they are clever in pushing this approach to retail investors in order to tie investors to their Schwab advisors, who they will likely need to deal with frequently should they follow such advice?  Does it just want the churn, or are annuity like hedging costs the attraction.

Whatever the reason or reasons, this article is terrible advice for most retail investors.  Few professionals would even make such an allocation!

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