The fIScAl BluePrInT · at heart. It’s the investor’s job to protect themself by becoming educated. e good news for the investor is that you don’t have to know everything as

ThefIScAl BluePrInT

BUILD A STRONG FISCAL HOUSE TO HELP WEATHER A FINANCIAL STORM PG. 16

Spotlight onInvestor Coach

Jeff MonTgoMeryQ&A with FOUNDER & PREsiDENt OF

MONtgOMERy FiNANciAlsERvicEs

Simple ActionSteps to SToPSelf-DestructiveInvestmentBehavior

Once & For All!PG. 13

3

How We WorkIt’s not about themoney, it’s about

your lifePG. 4

from The editor,Jeffrey D. Montgomery 3

How we work 4-7It’s not about the money, it’s about your lifeWe are an all-encompassing financial firmthat strives to be an ally to you on yourjourney through life

FeatureQ&A withJeff Montgomery 8-9Jeff Montgomery talks about money, investing,and his role as a coach for investors

The Myths of Investing 10-12e 4 basic investment myths explainedand dispelled

The Truths of Investing 13-15e 3 simple action steps to stopself-destructive behavior once and for all

The fiscal Blueprint 16-19How to build a strong fiscal houseto weather a financial storm

410.208.1004 • Toll Free 888.343.5485

11022 Nicholas Lane, Suite 6Ocean Pines, Maryland 21811

MFSWealth.com

2 INVESTOR AWARENESS GUIDE | Montgomery Financial Services | Ocean Pines, MD | MFSWealth.com | 410.208.1004

Joani GurskyDirector ofOperations

Jeff MontgomeryOwner

& President

Merrie McElrathMarketing Manager& Event Coordinator

Edward LofticeAssociateAdvisor

Nicholas CravenAssociateAdvisor

Edward ScottRegional Director& Assoc. Advisor

Kristen BurnsMarketingDirector

Dear Investor,

Get ready to embark on a journey! is is a journey into discovering how you really think aboutmoney. I have to warn you: some of this information may be a bit unsettling to you. I am going tochallenge your long-standing beliefs and biases about how the financial markets really work, howmuch you actually pay to invest your money, and whether your broker is really working for you.

My mission in life is to coach investors in understanding what prudent investing truly looks like. Iwant you to realize that most of Wall Street and the financial media don’t really have your best interestat heart. It’s the investor’s job to protect themself by becoming educated.

e good news for the investor is that you don’t have to know everything as long as you know theright things. Reading this Investor Awareness Guide is a great start on your journey toward havingmore peace of mind about your money. Taking this journey and discovering the truth about investingis going to be a truly rewarding and eye-opening experience.

I hope you enjoy and remember to always stay focused!

JeffReY D. MontgoMeRYFOUNDER & PRESIDENT OF MONTGOMERY FINANCIAL SERVICES

The Editorfrom

This Guide represents the views, beliefs, and opinions of the author who is the president of Montgomery Financial Services LLC. Others may have different views and beliefs on the topics addressed in this Investor Awareness Guide. Disclaimer: Investmentadvisory services offered through Montgomery Financial Services LLC a Registered Investment Advisor in the states of MD, DE & FL. Insurance products and services are offered through MFS Wealth LLC independent agent, Montgomery Financial Services LLCand MFS Wealth LLC are affiliated companies. All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Opinions expressed herein are solely those of MontgomeryFinancial Services LLC, and our editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual adviseror qualified professional before making any financial decisions. We are not affiliated with or endorsed by any government agency.

Copyright © by Montgomery Financial Services, a Maryland limited liability company. All rights reserved. This mater ial may not be reproduced in any way without the express written consent of the publisher, except in the form of brief excerpts or quotationsfor the purposes of review. The information contained herein is for the personal use of the reader, and may not be incorporated in any commercial programs or other books, databases, or any kind of software without written consent of the publisher or author.Making copies of this publication, or any portion of it, for any purpose other than your own, is a violation of United States copyright laws. Not responsible for any errors or omissions.

My Best,

3INVESTOR AWARENESS GUIDE | Montgomery Financial Services | Ocean Pines, MD | MFSWealth.com | 410.208.1004

we workWe Are an Ally

on Your JourneyThrough Life

by Jeffrey Montgomery

How

why us?

It’s notabout the

money,it’s aboutyour life!

Choosing a Financial Planner or an Investment Advisor can seem like adaunting task to undertake. Many different variables need to be consideredas to whether you are making the right decision to hire such a key individ-ual who will impact your life in a significant manner. Everyone has theirown set of criteria that will determine if they decide to work with a com-pany or firm. It is imperative that one takes the time to weigh out thedifferences between companies and choose someone who is the best fitfor them. At Montgomery Financial, we strive to deliver reliable investmentadvice and guidance needed to live the life that you want to live by helpingyou to create wealth that will enable you to pursue your dreams. But thereis more to our firm than just investing and dollar amounts; we are an all-encompassing financial firm who strives to be an ally to you on your jour-ney through life. We are an asset and an ongoing resource to you, and wehold ourselves to the highest level of standards in terms of professionalism,reliability, and service. ere are key distinctions and qualities here at Montgomery Financialthat we believe could be to your advantage if and when you decide to workwith us and join our ‘family.’ While there are a number of reasons that webelieve differentiate us from other companies, here are a few that we wantto highlight for you to consider…


Fiduciary StandardAs a Registered Investment Advisory Firm we operate

under what is called the ‘Fiduciary Standard.’ Simply put, toact in the capacity of a Fiduciary it is one’s legal obligationto put the client’s interests above and before their own. AFiduciary is legally obligated to have your best interests atheart when making decisions on your behalf and it is oneof the highest standards that a professional can be heldaccountable to in the financial services industry. is is instark contrast to most brokerage firms that do not operateunder this legal standard.

At Montgomery Financial we take our duties as a Fiduci-ary with the utmost seriousness and prioritize this obliga-tion before anything else. We do this because we truly wantto protect you from unethical investment practices andensure that the advice you receive is what is best for youand your loved ones.

Trust-Based PracticeOur relationship with you is built on trust. Being able

to trust in your advisor is a crucial deciding factor as towhether you can work together or not. You need to have anadvisor that not only possesses integrity and a sound moralcompass, but someone to whom you can rely on and go towhen in need of advice.

ink of your relationship with us as similar to that of adoctor-patient relationship. You need to be able to trust ourrecommendations and advice just as you would your owndoctor. Also note that we are a trust-based firm in terms ofconfidentiality. Similar to that of a doctor, all your privateand sensitive information will always be kept confidential.

Holistic and Comprehensive Montgomery Financial Services is more than just your

investment advisor. While the first step in assisting youdoes pertain to the management of your assets, this is notthe only role we fulfill as your financial coach/advisor.We take a holistic approach when it comes to servicingour clients. Our services include, but are not limited to,assisting clients in the following areas:

• Investment/Asset Management • retirement Planning – IrA/roth IrA• Insurance/risk Management • Income Planning (Social Security/Pension)• Tax efficient Planning Strategies• employer Savings Plans – 401K Advice• Healthcare cost Planning • estate Planning recommendations

It is imprudent to solely be a ‘money manager’ and focuson only managing accounts; at Montgomery Financial we

are comprehensive financial planners who like to assist youwith the whole picture and not just fragmented pieces.

Unbiased AdviceGoing hand in hand with being a Fiduciary is our pledge

to always be unbiased in our recommendations and advice.We will never steer you away or towards a financial productor strategy for our own gain, rather we will guide you basedon what is in your best interests.

Our motives for implementing a specific strategy orproduct is completely in line with your well being. It ismutually advantageous that we are independently ownedand operated, as we are not incentivized to utilize a specificcompany and sell their products. is also means that wedo not employ the typical sales tactics that some firmsengage in. We firmly believe in planning first and productsecond.

How We Work


How We Work

Fee TransparencyMontgomery Financial is completely Fee-Transparent.

Transparency is important in all aspects of financial plan-ning, however, it is especially important when it comes toinvestment management. Our firm operates in a fee-onlymanner and all fees are disclosed up front with no hiddencosts or commissions.

Clear Decisions and GuidanceAs your Advisor, it is our job to provide sound invest-

ment advice and counsel when it comes time to make im-portant financial decisions. Our firm will always strive tosupply you with the right an-swers to questions asked andit is our commitment to con-tinually educate ourselveson relevant topics in order tobest serve you in an industryenvironment that is perpetu-ally changing. Any recom-mendation made to you willbe backed by research andevidence to ensure that theright choice is being madefor you and your specificsituation.

However, as your Advisor,we will never make a recom-mendation without first re-ceiving your input. It wouldbe imprudent to advise youon decisions that you had nopart or say in making andthat is why our planningprocess is collaborative;a system in which we co-design your financial plantogether.

Resources and ToolsWith our services comes a large number of resources

and tools at your disposal. First and foremost, you will haveunlimited access to a wealth of knowledge in the form ofyour Montgomery Financial Services team. You can restassured knowing that you will always have access to ourknowledgeable staff for whatever questions you may havethat come about as a result of the unpredictability of life.Additionally, our firm has access to state-of-the-art tech-nology and financial soware that we utilize to better serveyou and take the guesswork out of financial planning. Asa courtesy, you will also gain access to this interactivesoware as a client.

Our ability to run reports, projections, and analyses on

your behalf will keep you in the best position when itcomes time to making educated decisions, and moreimportantly, will help you to achieve peace of mind whenit comes to your finances.

A 5-Star ExperienceAt Montgomery Financial we strive to provide a client

experience like none other. We want you to feel as if youare our only client, because that is the sort of attentionthat we provide to each and every one of our clients. As asmaller firm, we are provided the luxury of being able tofocus our attentions in this way while still having the ca-pacity to provide the same services that a big named com-pany can provide. However, unlike a big named company,

you will not just be a ‘num-ber’ in our eyes, but rathera part of our family.

As a part of our commit-ment to excellent service ourfirm also prioritizes clearcommunication with ourclients. Accessibility to ourfinancial professionals isnever an issue, as we imple-ment an ‘open door’ policywhen it comes to meetingwith our staff. We also have a‘24 hour rule’ regarding theresponse time to any corre-spondence from you whetherit be via phone call or email.

Education is one of ourcore values here at Mont-gomery Financial. As aclient, we will continue toeducate you and share ourknowledge of investing inorder to help you obtain andachieve complete financial

peace of mind. We complete this goal by educating andcoaching through our podcast, e Fiscal Blueprint,our educational videos, review appointments, and ourquarterly coaching classes held at Montgomery FinancialServices headquarters. Our goal is to educate you to whereyou can enjoy the wealth that you have created and live thelife that you want.

We have a saying in our office that ‘it’s not about themoney, it’s about your life,’ and we sincerely believe thatfinancial stress and worry doesn’t belong in the minds andhearts of our clients. As we continue our journey together,know that there is always a team of people monitoringyour accounts and striving to ensure that you stay ontrack towards completing your goals.


1 Montgomery Financial services is not a certified Public Accountant Firm2 Montgomery Financial services is not an Estate Planning Attorney of law

• Founder & President, Montgomery Financial Services• Investment Advisor Representative

• Holds a Series 65 securities license, as well as,Life/Health & Disability licenses in MD, DE & FL

Jeff, What is it that motivated you to choosethe financial industry as your profession andbecome a financial coach?

It really goes back to my childhood. My family ran into somehard financial times during the recession of the mid-70s. My dadowned a building business that went under and we almost lost ourhome. My mom had to go back to work full-time just to make endsmeet. Looking back, this greatly impacted my life and the decisionsI made. I decided I wanted to learn everything I could about reces-sions and how the economy works. I chose to get my degree in eco-nomics and business and graduated from Towson University in1991. I chose to become a coach because I really do believe financialcoaches can help people achieve their dreams. at, to me, is whatmakes this an exciting and worthwhile profession. I think everyonedeserves the chance to make their own dreams come true andmoney is usually a part of that, so if I can help people make the rightchoices about investing and achieving those goals, that is a careerwell spent.

with Investor Coach

JeffMontgomery

Q&A

Jeff is passionate about coaching and educating retireesto help them achieve a greater understanding of risk &reward and how creating a comprehensive plan for retire-ment could achieve greater peace of mind. Jeff works as aFinancial Coach and Investment Advisor Representativethrough his Registered Investment Advisory firm,Montgomery Financial Services LLC. e dynamicprocess gives Jeffrey’s clients the opportunity to reachhigher levels of peace of mind and wealth, while elimi-nating unnecessary confusion and anxiety. He accom-plishes this by engaging his clients in a process thatcombines a comprehensive financial analysis of theircurrent portfolio, Nobel Prize-winning investmentphilosophy, and educational events to teach thediscipline necessary for a lifetime of investing success.


What was the hardest lesson you had tolearn about the investment industry?

I thought that long-term, prudent investment strategieswould become the mainstream of investing for individualsbecause there is so much academic evidence to prove that itworks. Unfortunately, I was very wrong. Technology hasmade investing into a game for many people and it saddensme to know that by online trading, lack of understanding,and reinforcement from the media that investors aregambling away their futures.

I work with people who are motivated to achieve theirfinancial goals and are willing to let me help them. It doesn’tmatter how much money they have, it’s all about their will-ingness to admit that they may not know what they don’tknow. at sounds crazy, but it’s not easy to admit that youmay not know everything and that ‘you don’t know whatyou don’t know.’ Not everyone is coachable and willing todo the work of understanding their investment strategy inorder to get the results they want.

What is different about the investmentindustry now from when you started?

e biggest mistake I see investors make is makingchanges to their portfolio or their investment strategy basedon the emotions of either fear or greed during short-termmarket conditions. is could look like the investor jumpingout of the market during a bad market cycle or chasing aerperformance of an investment that recently did well. eemotions of fear and greed and the behavior that followstypically leads to performance losses that can be hard torecover from. Sticking with a prudent strategy and hangingon through tough market conditions can produce greatresults for investors.

is is achieved through consistent education and com-munity. One of the most rewarding things about my careeris getting together with all my clients, in a classroom setting,and teaching a class on a regular basis. It connects my clientswith me in a way that I don’t think many other investmentfirms do. It always helps to know that you aren’t in italone. By bringing groups of investors together to learn andunderstand their investment strategy, we are building asupport structure for sticking with the program.

e good news is you don’t have to know everything aslong as you know the right things. We’re bombarded withinvesting information and it’s hard to ignore it all. Most ofit is useless and harmful to the investor’s state of mind. I alsothink people don’t realize that investing is really a lifelongprocess. I don’t know many people that hit some magicalage of, let’s say, 75 or 80 and withdraw all of their money andput it under the mattress. It may sound daunting, but truesuccess comes from a lifetime of investing and sticking to aprudent investment strategy in good times and bad.

Does your approach to investing work foreveryone?

What are the biggest mistakes you seeinvestors make with their investments?

e hardest lesson I learned is that the industry at largereally doesn’t have the best interest of the client at heart. ebig brokerage firms and the financial advisors that work forthem are really in the business of selling products. Chancesare those products are good for the advisors but may not begood for the client. What really helps the client is an invest-ment strategy that does not rely on predictions to besuccessful. Prudent investing and discipline really pays offin the long-run. Chasing what’s hot or the latest and greatestinvesting gimmick leads investors to make very poordecisions that can have devastating results to their long-termsuccess. What’s the most important thing for inves-

tors to know about the investing process?

How do you coach investors to staydisciplined with their investment strategy?

What is the first step to getting started inthis process?

What kind of people or clients do youregularly work with?

Q&A with Jeff Montgomery

e first step is understanding that there may be a betterway to invest your money. Letting go of pre-conceived no-tions and a willingness to explore a different approach is agreat start. e second step is to do a complete inventory ofyour current investment situation – really analyze where youare with your investment strategy, what you have done inthe past, what has worked, what hasn’t, and determine whatresults you need to achieve. Being a successful investor issomething that anyone can do with the right tools, strate-gies, and knowledge. I look forward to helping investorsachieve their financial goals for years to come.

My approach works for people that are willing to take thetime to learn and be coachable. It works for people that wantto learn what I call the ‘what, why, and how’ of investing.at is, ‘what’ kind of investments make up a prudentstrategy, ‘why’ those investments are chosen, and ‘how’those investments are expected to perform over time. Myapproach works for people willing to stick with it and becoachable. It works for people who want to be involved inthe process and understand it.


ave you ever thought aboutthe greatest myths thathave been propagated

throughout society for centuries?Universal myths like, “the world is flat,you’ll sail off the edge!” On the surfacethis seems like a ridiculous belief, butcenturies ago it was widely held, crop-ping up in various cultures separatedby thousands of miles.

Myths of all shapes and forms con-tinue to exist and spread throughoutsociety to this day. Typically, a mythis no longer believed by society whencontrary scientific evidence is pre-sented.

Most myths cause little to no harmto individuals and society as a whole.Unfortunately, this is not the casewhen it comes to the “Myths of Invest-ing.” Belief in these myths can havedevastating effects on an investor’speace of mind and ultimately, nega-tively impact the success of theirindividual investment goals.

I’m not only talking about a goal likeaccumulating more money or growingyour wealth. I’m talking about yourimportant LIFE goals! e goals thatultimately really matter when it’s timeto check out of this world. Goals thathelp you achieve a life of abundanceand gratitude rather than scarcity andregret. Let’s face it, we all entered this

world with no possessions and we’llleave with no possessions. It’s all aboutthe relationships and experiences weshare with our beloved friends andfamily that really matter. Goals likespending time with your grandchil-dren rather than working to makeends meet in retirement, goals liketraveling the world and exploring dif-ferent cultures and what the world hasto offer, goals that fulfill core valueslike freedom, adventure, love, andindependence. is is the stuff thatmatters! And believing the “Myths ofInvesting” can destroy those dreams.

What are these investing myths andhow can you protect yourself fromharm? In short, the 4 basic myths ofinvesting are:

1) Stock Picking2) Track-record Investing3) Market Timing4) The Hidden costs of Investing

Myths 1 and 2:Stock Picking andtrack-Record Investing

e myths of stock picking andtrack-record investing are closecousins. Combined, these first twomyths are also known as the “Myth ofSkill.”

e myth of stock picking is definedas the belief that a person, whetherthat be an individual investor, stockbroker, hedge fund manager, televisionguru or some other so-called expert,can consistently and predictably exer-cise superior skill in stock picking.e idea is that with this superior skillyou can increase the returns of yourportfolio by picking the best stocks inadvance.

Track record investing is simplylooking at the past performance of theso called “market experts” to deter-mine your investment decisions for thefuture. On the surface this seems logi-cal, but we all know that past perform-ance of market experts have zerocorrelation with future performance.

The way to DISPel a Myth is to Present Academic

Scientific evidenceto the contrary.

H


ere was a recent Wall Street Jour-nal article by Daisy Maxey and ChrisDieterich on April 12, 2017 that high-lighted for the first time in history, that15 years of data comparing the S&Pindices versus the active funds score-card has been collected. Specifically,over those 15-years that ended inDecember of 2016, 82% of all activelymanaged U.S. funds trailed their re-spective benchmarks. e results areeven worse for managers that try topick the mid-cap and small-cap stocks.

Why do investors so oen use pastperformance to make their investingdecisions? My argument is that mostinvestors have never been presentedwith an alternative on how to makeinvesting decisions. Let’s face it, youdon’t know what you don’t know!

I believe that if investors were pre-sented with the rigorous peer-reviewedacademic evidence to the contrarythey would rethink their entireinvestment philosophy and strategy.

From a simple statistical standpoint,the chance of these market expertsbeating the respective market indexyear to year is no greater than that ofsimply flipping a coin. Heads you beatthe market, tails you don’t!

Why would you want to own only afew stocks in your portfolio in the firstplace? Every day investors choose totake considerably more risk withoutthe advantage of additional return.

ey do so by inadvertently purchas-ing individual stocks through activelymanaged mutual funds instead of di-versifying their risk by buying a basketof the stocks available in passive struc-tured asset-class funds. ey may evenchoose a mutual fund with the expec-tation that the fund is highly diversi-fied only to learn that the fundmanager, through an active manage-ment strategy, is buying and sellingthus turning over the portfolio at aratio of 90% or more.

Definition of Turnover:e percentage of a

mutual fund or otherinvestment vehicle’s holdingsthat have been ‘turned over’

or replaced with otherholdings in a given year.

When the Wall Street gurus, prog-nosticators, and the talking heads onall the financial TV shows are correctabout their predictions, they attributetheir success to genius and skill. Inreality, it is simply luck.

Convincing the investing public thatthey have the ability to pick the beststocks in advance, consistently andpredictably, is the key to their successand they know it.

ere is a mountain of peer-re-viewed academic evidence as to the

lack of skill actively managed mutualfund and stock picking experts exhibit.If you take the time to explore all theevidence, it is truly eye-opening! My advice is simple, and I have

3 action steps to take now:

1) Become educated on this view- point (read Daniel Solin’s book, e Smartest Portfolio You’ll Ever Own).

2) Work with an Investment Coach that will take the time to educate you.

3) Don’t confuse luck with skill!

Myth 3:Market timing

Have you ever asked your advisorthese questions?

• Is now a good time to get in the market? • Should I wait until aer the election to invest my money? • e market is at an all-time high – should I get out?

Plain and simple, if you have everasked any of these questions then youare participating in the myth of markettiming and probably don’t even realizeit.

e problem with these questions isthat they all require a prediction aboutthe future to be successful. It’s just likeusing a Magic 8 Ball to make invest-ment decisions! ese are the sameinvestment decisions that you are rely-ing on to fulfill your biggest retirementdreams and life goals that we spokeabout earlier in this article. Why wouldyou ever take that kind of chance withyour retirement future?

e problem with trying to time themarket is simple, you must be right TWICE for it to be successful! You notonly have to know when to get out ofthe market at the right time, but youalso have to know the right time tojump back in. is is an almostimpossible task to achieve consistentlyover time!

The Myths of Investing

Lagging Behind: Few actively managed funds have kept pacewith market indexes in recent years, new data shows.

Percentage of U.S. equity funds outperformed by benchmark

Note: Data as of Dec. 31, 2016. source: s&P Dow Jones indices. the wall street Journal.


ere are many so-called “marketexperts” all too willing to give you aplethora of fancy predictions about thefuture of the market. ey write books,publish articles in magazines, andappear on CNBC or Fox Business ona daily basis.

ese market “pundits” actuallyannounce that they know tomorrow’snews today! eir predictions varywidely, but typically involve telling theaudience which way the market isheading over a certain period of time.Don’t fall prey to these modern-daysnake oil salesmen!

Staying Investedin the Market

To show you the power of staying in-vested throughout the ups and downsrather than trying to time the market,take a look at the two charts below. In-vestors may wonder during periods ofmajor declines in the market, whetherit makes sense to do nothing and stayput. It’s extremely important that in-vestors put these ups and downs in alarger context. e first chart showsthe compound returns of the S&P 500index from 1926-2017 AFTER A 10%market decline took place. e follow-ing 1-year return was positive, record-ing an average annualized return of11.2%. e 3 and 5-year returns werenot far behind clocking in at an amaz-ing 10.2% and 9.6% respectively.

What’s even more compelling are theaverage annualized returns aer themarket reaches an all-time high. esecond chart, again, tracks the S&P500 from 1926-2017 and displays com-pound average returns aer the market

reaches a new high. As you can clearlysee, the following 1-year average annu-alized return was a whopping 13.6%.e 3-year and 5-year average annual-ized returns aer the market reaches anew high were 9.8% and 8.7% respec-tively.

is is extremely powerful evidencethat completely destroys the Myth ofMarket Timing. What should investorsdo in light of this powerful evidence?

Follow these 3 action steps:

1) Focus on the long term and not the current market high or low.

2) Ignore the market pundits, they do not have a crystal ball!

3) Resist the urge to act! Diversifi- cation, discipline, and rebal- ancing should be the only “actions” to consider.

Myth 4:Hidden Costs of Investing

Have you ever tried to figure out ex-actly how much you’re paying to investyour money? I’m not talking about thefees that are disclosed on your state-ment or even the fees listed in yourprospectus. I’m talking about the hid-den fees. ese are the hidden costs ofinvesting, and the myth is, what youdon’t see can’t hurt you. But we allknow the truth, don’t we? What youdon’t see CAN hurt you!

I think most investors have no ideawhat active management is really cost-ing them. ere are numerous studiesthat examine the true cost of investingwith the active management strategy.In his book, e Smartest Portfolio

You’ll Ever Own, Daniel Solin cites astudy done by Ross Miller titled “Mea-suring the True Cost of Active Man-agement By Mutual Funds.” e studyfound that the real cost to investors forall the funds tracked by a major data-base was 5.2% per year. is amount isfar higher than the expense ratios re-ported. As a matter of fact, there arenumerous other fees that are not evenlisted in the prospectus of the invest-ments. Fees such as the bid/askspreads, commissions, market impact,and revenue sharing costs.

Another study titled, “e Cost ofActive Investing,” by Kenneth French,compared the cost of active invest-ments versus passive investments. eresults were astonishing! Active in-vestors, which include approximately90% of individual investors, could haveincreased their average annual returnby .67% per year over the 1980–2006time period. Simply by switching froman active portfolio management styleto a passive portfolio managementstyle your compounded returns mayincrease dramatically.

What do these hidden costs totaleach year? It has been estimated thatactive management costs investorsover $80 billion each year. An industrythat has $80 billion a year pouring intoits coffers has little incentive to stopthe very thing that is bringing in themoney.

What does all this add-up to for theinvestor? e bottom line is most in-vestors are paying huge bucks and get-ting lower returns in exchange. Nowthat we’ve gone over the myths of in-vesting, it’s time to explore the truths!

The Myths of Investing


he truth is that market ratesof return are easily obtain-able!

e Dalbar Corporation does mas-sive studies on investor behavior andinvestor results. ey now have datagoing back over 20-years. ey’ve beenconducting this study since 1984 andupdate the data every year. If you lookat the chart on this page you will seethe S&P 500 market rate of return hasaveraged 10.16% per year from 1987 to2016. However, the average investorhas made a dismal 3.98% per year overthat same time period. When you fac-tor in inflation during that time periodof 2.65% the average equity investor isonly earning a 1.33% return beforetaxes.

e reasons for this poor perform-ance are numerous, but many are di-rectly related to stock picking, markettiming, and track-record investingstrategies we discussed earlier.

What if I could show you a way tocapture the power of the capital mar-kets, obtain market rates of return,possibly reduce your investing stress,AND create true peace of mind at thesame time? My guess is that most ofyou would be very happy earning anaverage market rate of return ratherthan speculating and gambling withthe money that is meant to fulfill your

life goals.It’s time for a new story... a second

act, if you will. I have seen up closeand personal the impact of poorinvesting advice. So, a new ending hasto start with a new beginning andthat new beginning is simply beingAWARE and intentional in youractions. Simple awareness of how theactive management industry operates

T

The indices referenced above are described more fully in the endnotes. This chart is for illustrative purposes only. Indices are unmanaged, cannot be invested in directly andtheir returns do not represent the performance of any actual fund or transactions and do not include management fees, transaction costs or expenses. In its 2017 QuantitativeAnalysis of Investor Behavior, Dalbar defines “Average Investor” as “The universe of all mutual fund investors whose actions and financial results are restated to represent asingle investor. This approach allows the entire universe of mutual fund investors to be used as the statistical sample, ensuring ultimate reliability.” “Average equity and averagefixed income investor,” as used in the same study, is that subset investing only in equity or fixed income mutual funds. Past performance is no guarantee of future success.

CAtegoRY

S&P 500 Index

Dalbar Average Investor — Equity Fund

CPI (representing Inflation)

10.16%

3.98%

2.65%

Dalbar Research Study Results: This chart clearly indicates that DalbarAverage Equity Investor returns have been significantly less than the leading equity market index.

1987–2016Annualized Return


Learn the 3 Simple Action Steps to Achieve Investment Success by Jeff Montgomery

TRUTHSThe

of Investing

and is designed to convince you thatyou need them is a great start. But youthen need to take action by followingthese 3 action steps:

AcTIon STeP 1:Develop Your True Purpose for Money Statement

e first step is discovering yourTrue Purpose for Money. is is aspecific process designed to help eachindividual reveal the most importantinternal value that guides the use ofmoney. Your True Purpose for Moneyis at the heart of all financial decisionsand, once identified, serves as a com-pass to consistently help you to focusin the right direction.

Each of us has our own set of valuesand beliefs. One way that we expressvalues is through financial decisions.ink of it this way: When our finan-cial decisions align with our values wemay experience a real sense of satisfac-tion and contentment. However, whenwe struggle, worry, experience buyers’remorse, or suffer because of money,it’s very likely that our financial choicesare inconsistent with our inner valuesystem. Your True Purpose For Moneyis the most important value in your lifethat you express through your use ofmoney. is is much more than writ-ing down your financial goals in life,although goals are extremely impor-tant. If a goal can be described as a“destination” that you want to achievefinancially then a value can be de-scribed as the “motivation” for whyyou want to achieve that goal.

For example, if we were planning atrip, “goals” would represent our desti-nation (for example, Florida). “Goals”tell us where we are going and allow usto track our progress. However, goalsare not the whole story. ey do nottell us why we want to go there; theydo not define our reason or our pur-pose for making the journey. A value isdefined as that which is desirable orworthy of esteem for its own sake;a thing or quality having intrinsicworth.

erefore, if goals represent thedestination, values symbolize the mo-tivation. In our example, the reason wewant to go to Florida could be forpeace of mind, happiness, beauty,adventure, or love. Any value couldapply depending on the individual.Aer you have clearly identified whatmotivates you it is easier to appreciatethose qualities once you have arrived.

Use the graphic above and the list of“Value” words to help inspire you tocra your very own True Purpose ForMoney Statement.

AcTIon STeP 2:Develop your Market Belief

e second action step involves ex-amining beliefs about the market. Ourbeliefs, whether conscious or subcon-scious, are the root of action. Beliefsabout the market and how it worksare largely responsible for dictatingdecisions made regarding investments.

Formed for many reasons and basedupon numerous factors, beliefs may bechanged instantaneously based on newinformation or new understanding.For this reason, it is important toconsciously examine your beliefsabout the market.

— Two Views of Markets —ere are two opposing views

about the nature of markets. Oneview is that markets set prices forgoods and services efficiently and theother is that markets fail to set pricesquickly and accurately. In other words,you can adopt “e Markets Work”belief that the market is efficient andall known information is already fac-tored into the price paid and only newand unknown information will changethe price moving forward. Or, you canadopt “e Markets Fail” belief thatthe market oen gets it wrong andwith the proper information or

Security Freedom Love Respect Comfort Peace of Mind Generosity Fulfillment Joy Beauty Adventure Happiness Abundance Faith Creativity Independence Honor Dignity Recognition Energy

VAlue worDSThis is a sample of values often expressed. It is intended to inspire you, not limit your self-expression.


My TruePurpose

for Money is:

The Truths of Investing

research that no one else has, youcan take advantage of mispricing,unrelated to risk.

The Markets WorkLet’s examine each one of these

beliefs a little further. e EfficientMarket eory or EMT, as it is known,has its roots as far back as 1776 withthe groundbreaking book by AdamSmith titled, e Wealth Of Nations.

Adam Smith was the first to offer acomprehensive statement that marketswork and that a free market is the bestway for a social order to allocateresources. e debate about the effi-ciency of markets has resulted in hun-dreds of empirical studies attemptingto determine whether specific marketsare, in fact, “efficient.”

Many investors are surprised tolearn that a tremendous amount ofevidence supports the efficient markethypothesis. Further, academic researchover the past 50 years in the field ofeconomics strongly supports thetheory that markets work.

In 1965 Dr. Eugene Fama, a 2014Nobel Prize winner in Economics,published his doctoral thesis in theJournal of Business titled “e Be-havior of Stock Market Prices.” isimportant work states that since infor-mation about publicly traded securitiesis available and known to the market

participants (those buying and selling)then this information is already fac-tored into the price. In other words,the only thing that will change theprice of stocks moving forward isNEW information. No one knowstomorrow’s news today!

e market participants (buyers andsellers) set the price and movement ofthe market by their individual collec-tive decisions evaluating all the knowninformation and driving the pricetowards fair market value.

The Markets Faile second view espouses the belief

that the market is not efficient andoen misprices a security. e premiseis that markets fail to price goods andservices accurately. Because there areflaws in the system it is possible forsome individuals to identify in ad-vance which prices are incorrect,meaning that overvalued or under-priced markets can be predicted.

Not so surprisingly, there is little tono evidence supporting this belief sys-tem. Empirical evidence supportinginefficient markets is poor. Indeed, sta-tistical studies show that professionalmoney managers who attempt to takeadvantage of mispricing in the marketare generally only able to providehigher returns than the comparativemarket index at a level with what

would be expected to occur by simpleblind-random luck.

On the other hand, there is a lot ofanecdotal evidence to support this view usually in the form of magazinecovers, cable network stations likeCNBC and Fox Business, financialnewsletters or Internet chat roomstouting the latest individuals who have“beat the market.” ese anecdotes arealluring to basic human instincts butdo not stand up to peer-reviewedempirical evidence in the least.

What do you think?Now that you have examined the two

opposing views of the nature of mar-kets and realize that there is a choice tobe made, I want you to ask yourselfthis one question: Does your advisorhave information about the directionof an investment’s price that no oneelse in the entire global market has ac-cess to? If your answer is, “Well, maybethat’s possible,” then ask yourself oneother question. If your advisor actuallydoes have information not available toanyone else on the planet, why wouldthey share that information with you?Wouldn’t they keep it to themselvesand make sky-rocketing returnsunrelated to risk? Of course theywould!

AcTIon STeP 3:Initiate Your Investment Strategy Based On Your Market Belief & YourTrue Purpose For Money StatementStrategy: e art of devising or

employing a careful plan or methodtoward a goal.

e third principle involves definingthe method you want to use to createan investment portfolio and identify-ing an Investment Strategy consistentwith your True Purpose for MoneyStatement and your Market Belief.

As you can imagine, just as thereare two opposing views on marketbeliefs, there are two clearly definedstrategies for investing. One associ-ated with each particular belief abouthow markets work.



Active ManagementActive Management means actively

buying and selling securities with theassumption that securities bought areintrinsically worth more than the pricepaid, while securities sold are worthless than the selling price. is strategyis in alignment with the idea that themarket fails. Active management ischaracterized by these 3 tenets:

Some food for thought – accordingto Webster’s Dictionary, “speculation”means buying and/or selling in thehope of taking advantage of an ex-pected rise or fall in price. Given thatactive management is based on the be-lief that the manager expects marketprices to rise or fall in line with his orher prediction then it can be viewed asa form of gambling and speculation,not prudent investing.

Asset Class InvestingAsset class investing refers to a buy

and hold approach to asset manage-ment. If you think markets workefficiently, then buying and selling se-curities in an attempt to outperformthe market is effectively viewed as agame of chance rather than skill. isapproach involves applying scientific,academically proven strategies of

Modern Portfolio eory and invest-ing is seen as a lifelong process. Insteadof attempting to get in and out of themarket at the “right time,” staying inthe market all of the time is a funda-mental part of success in Asset ClassInvesting. Here are the appropriateactions to take when initiating anasset class strategy:

◻ Focus on capturing market returns

◻ Eliminate the traditional investment strategies of stock picking, track-record investing, and market timing

◻ Utilize asset-class or structured funds

◻ Diversify prudently◻ Identify your risk tolerance ◻ Work with a financial coach who shares your “Market Belief” and helps you pursue your investment objectives.

I cannot stress enough the impor-tance of clearly developing your ownpersonal investment philosophy basedon the 3 action steps stated.

Smart investing is not complicated.Relying on brokers or advisors whoclaim to be able to predict the future issimply foolish. It’s time for you to fun-damentally change the way you investand be INTENTIONAL in your ac-tions... it’s time for you to put yourselfin charge of your financial life byfollowing these rules:

My final word is to always remem-ber: It’s not about the money, it’sabout your life. e MontgomeryFinancial Services team wants to getto know you on a more personal level,not just professionally. Getting toknow you and your family is a vitalpart of the process so that we can gothe extra mile to help you pursue yourlife goals. By diving deeper into yourvalues, goals and beliefs, we can createa plan together that is designed specifi-cally for your unique situation. To-gether, we can write your second act!


It is time to make a choice. What makes most sense to you?

*Montgomery Financial firmly believes in The Markets Work Philosophy

STOCK PICKING:Pick stocks that will get high returns

in the future and invest in them.

TRACK-RECORD INVESTING:Utilize a manager’s previous

performance to determine whetheror not to invest with them.

MARKET TIMING:Attempt to alter or change a portfolio

based on a prediction about the future.

(Place a check in the box next to your choice)

• If you are using a broker or advisor who is not a Fiduciary, withdraw your money & close your account.

• If you are using a broker or advisor who claims to be able to beat the market, withdraw your money & close your account.

• Ignore stock market gurus who make predictions. They do not have a crystal ball.

• Neither you, your broker, or advisor is smarter than the collective wisdomof millions of people looking at thepublicly available information abouta stock. The price that is set is likelyto be fair.

• Don’t chase after returns or “in vogue” investments of any kind, this includes gold & Bitcoin.

• Determine your own personal risktolerance. If you don’t know get help.

• When it comes to your portfolio;globally diversify, rebalance & above all stay disciplined.

• When faced with two portfolios with the same expected returns, choose the one with the least amount of risk.

• Dismiss active management of all kinds. Investing should be based on data & prudence, not speculation & gambling.

THe TAKeAwAy


FISCAL

by Jeffrey Montgomery

omeowners who live in areas susceptibleto inclement weather face the challengeof building a home that can constantly

weather the elements. e same can be said for aninvestment portfolio. Over time, our financial assetsmust weather a multitude of uncertain conditionsincluding market swings, economic downturns, fluctu-ating interest rates, rising inflation, and changes in ourown lives.

Building a strong, flexible, renewable and sustainableretirement income portfolio is a lot like building aweather-resistant home. e overall strength of a houseis dependent on how well its components—the walls,floors, roof, and foundation—work together as a singu-lar unit. When inclement weather strikes, such as athunderstorm, the walls and the roof bear the brunt ofthese forces

H


BLUEPRINT

THE

A strong, flexible, renewable, and sustainable fiscal housecan help weather a financial storm

BUILDING Y OUR FISCAL HOUSETO WEATHER THE ELEMENTS

™

The Fiscal Blueprint™


it may be tempting when con-structing your fiscal house tosimply steer clear of any risk,but that would open you up toopportunity costs. Also knownas ‘shortfall risk,’ opportunitycost is when a portfolio does notcontain financial vehicles thatprovide the opportunity fora higher total return. in otherwords, stocks may be risky –but it’s also risky not to includethem in a portfolio designed forgrowth in order to meet theinvestor’s long-term objectives.

In your fiscalhouse, the walls androof are the elementsthat could be rebuiltover time, but thefoundation is the ele-ment needed to pro-vide stability for therest of the house.

Your foundationshould be composedof accounts that areprotected from loss. ese can include:

• Checking, savings, CD accounts — protected by the federal Deposit Insurance Corporation• government bonds — protected by the U.S. treasury Department• traditional, fixed annuities — protected by the financial strength and claims paying ability of the issuing insurance company.

Widely regarded as the leading sage on investing,Warren Buffett sets this primary rule of investing: Don’tlose money. e foundation of your fiscal house is what helpsyou adhere to this rule and thereby ensure income. Andensuring income is the anchor of an effective retirementincome strategy.

FISCAL HOUSE CONSTRUCTION:START WITH A STRATEGYTo build a home, you start with a full set of constructiondrawings. is is the blueprint that details not only what yourhouse will look like, but also all of the individual componentsthat will integrate to create the home. Obviously, you don’tjust start with one room and then add on later. You designthe whole house at one time. To do so, you must first considerall of your objectives for the house. For example, includethings you want such as solar panels on the roof to optimizeenergy efficiency. Also consider what you don’t want to be inthe house, such as expensive and high-maintenance flooring.With these objectives in mind you and a professionaldesigner would then work together to draw a plan that in-cludes every room and every component of each room untilyou have a full set of construction plans, plus a list of materialsand resources needed to build the house.

Likewise, a retirement income portfolio is comprised of afoundation, walls, roof, and even fencing.

e first component on which to build your fiscal house isthe foundation, because without a strong foundation, thehouse may crumble.

F OUNDATIONe foundational elements of a retirement income port-

folio are typically the most protected assets—money youcan’t afford to lose. Generally speaking these funds will beused for EMERGENCy PURPOSES—now and in the future.

OPPORTUNITY COST

THE WALLSe walls of a retirement income portfolio provide a ‘safety-net’ for your retirement income. ey are comprised of tradi-tional corporate or government pensions, social securitybenefits, and investments that can provide various benefits.Benefits like income guarantees, cash flow, inflation protection,and possibly some chronic illness benefits. (Guarantees andprotections provided by insurance products are backed by thefinancial strength and claims-paying ability of the issuinginsurance carrier. See disclaimer on page 19.)

Regarding the investment portion of the walls, the mainpurpose is to provide some type of guaranteed income insupport of your Social Security and traditional pension bene-fits, or if you don’t have a traditional pension, you can effec-tively create one.

It’s important that the walls are coordinated with holdingsin both the foundation and the roof, because frequently theyrepresent hard-working elements that may contribute signifi-cantly to your goals with the least amount of risk possible.Typically, the walls are comprised of the following:

• fixed Indexed Annuities• Social Security Benefits• Pensions from employment

ROOFe roof of your fiscal house is represented by the highest levelof risk your portfolio can tolerate. ese securities have theopportunity to grow, but they can also be lost due to externalforces beyond your control—similar to the way a thunderstormor hail could damage the roof of a home. is is why it’s soimportant to start your retirement income portfolio construc-tion with a sound foundation and strong walls. Should the roofever be damaged due to risk-based investments, it should notcrumble your fiscal house. You only need to replace the roof torepair the damage caused by risk assets. Roof assets mayinclude:

• Stocks• Mutual funds• Structured exchange-traded funds/ Structured Mutual funds

It’s important to use diagnostic tools toevaluate your level of risk and the averageexpected return you desire. In retirement,measuring and understanding theamount of risk you can emotionallytolerate is paramount to success.




footnotes, disclosures, and sources:investment advisory services offered through Montgomery Financial services llc aRegistered investment Advisor in the states of MD, DE & Fl. insurance products andservices are offered through MFs wealth llc independent agent, Montgomery Financialservices llc and MFs wealth llc are affiliated companies.

Any chart(s) is for illustrative purposes and not intended to be representative of anyspecific investment vehicle. Past performance is not indicative of future results.

All written content is for information purposes only. it is not intended to provide any taxor legal advice or provide the basis for any financial decisions. Opinions expressed hereinare solely those of Montgomery Financial services llc, and our editorial staff. Materialpresented is believed to be from reliable sources; however, we make no representationsas to its accuracy or completeness. All information and ideas should be discussed in detailwith your individual adviser or qualified professional before making any financialdecisions. we are not affiliated with or endorsed by any government agency.

the sources in this presentation are derived from material believed to be reliable. theopinions expressed are those of the author(s) and may not reflect those of MontgomeryFinancial services llc.

Montgomery Financial services llc does not offer tax planning or legal services, but willprovide references to accounting, tax services or legal providers. they will also work withyour attorney or independent tax or legal advisor.

this material is designed to provide general information on the subjects covered. Pursuantto iRs circular 230, it is not intended to provide specific legal or tax advice and cannotbe used to avoid tax penalties or to promote, market or recommend any tax plan orarrangement. you are encouraged to consult your personal tax advisor or attorney.

the firm providing this content is not affiliated with the U.s. government or any govern-mental agency.

FENCINGFinally, as a means to help protect you and your loved ones’

future against potential portfolio losses that may occur beforeor aer your death, it may be a good idea to build a fencearound your fiscal house, represented as insurance. Lifeinsurance may help replace your income with a lump-sumpayout, and can also be structured to help you cover long-term care costs, if needed. (Guarantees and protectionsprovided by insurance products are backed by the financialstrength and claims-paying ability of the issuing insurancecarrier. See disclaimer below.)

An experienced builder has at his or her disposal theknowledge and necessary tools to build a strong, weather-resistant home. Likewise, a competent financial professionalwill be able to help you deploy both holdings and the properasset allocation strategies to build a market-resistant retire-ment income portfolio.

THE BIG PICTUREOne of the most important aspects of building your fiscalhouse is to include every element of your financial picture. Itis common for consumers to have their portfolio spread outamong many different strategies with no centralized manage-ment.

For example, you may have a financial advisor who man-ages your investment portfolio, an IRA you manage yourself,a 401(k) at work managed by individual fund managers andinsurance policies you’ve purchased over time that have notbeen reviewed in years.

To get your fiscal house in order, all of these componentsneed to be reviewed regularly and managed together as partof a total strategy. Aer all, your personal asset allocationstrategy is not truly comprehensive if it does not incorporatethe assets you hold in your IRA or 401(k) plan. e details ofeach component of your construction strategy are important,but only inasmuch as they work within the big picture.

Much as you would build a house to suit the needs of yourfamily, your fiscal house requires at least that much time andattention — and more.

Aer all, fiscal house cleaning is similar to maintaininga home; it’s not something you build and never thinkabout again. ere are constant tweaks, upgrades and evenoccasional repairs that must be made, and the ever-constantvigilance to protect and enhance its market value.

NEXT STEPWhile every investor’s circumstances are different and thereare no guarantees of success, we aim to help our clients takesome of the uncertainty out of investing while working withthem to develop a financial strategy for their uniqueinvestment circumstances.


Investment advisory services offered through Montgomery Financial Services LLC, a Registered Investment Advisorin the states of MD, DE and FL. Insurance products and services are offered through MFS Wealth LLC independent agent.Montgomery Financial S ervices LLC and MFS Wealth LLC are affiliated companies. Montgomery Financial Services LLC

and MFS Wealth LLC are not affiliated with or endorsed by any government agency.

We are an independent financial services firm helping individuals createretirement strategies using a variety of investment and insurance products

to custom suit their needs and objectives. We look forward to working with you.

Email: [email protected]

Ocean Pines, Maryland11022 Nicholas Lane, Suite 6, Ocean Pines, MD 21811 | Phone: 410.208.1004

Eldersburg, Maryland2028 Liberty Road, Suite 104, Eldersburg, MD 21784

DelawarePhone: 302.450.1967

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The fIScAl BluePrInT · at heart. It’s the investor’s job to protect themself by becoming educated. e good news for the investor is that you don’t have to know everything as