Witches and Goblins and Hedge Funds, Oh My!

Are hedge funds are too spooky to remain unregulated? That's the growing feeling in Congress and elsewhere, says The Wall Street Journal in today's Review & Outlook column:

“Senate Finance Chairman Charles Grassley is circulating a letter to regulators looking for suggestions on how to regulate hedge funds. He's far from the only one. Connecticut Attorney General Richard Blumenthal is bidding to become the next Eliot Spitzer by doing to hedge funds what New York's AG did to the insurance industry. *** Rumblings can be heard abroad too. The German government wants the G-8 to take up hedge-fund and private-equity regulation. A select committee of the British Parliament is already examining regulations.”

Investment News reports that everybody seems to be getting into the act:

“The Treasury department is leading a task force that is examining the impact of hedge funds on financial markets. The Securities and Exchange Commission, the Federal Reserve and the Commodity Futures Trading Commission are also involved in the inquiry.”

Some Democrats, however, may be soft on hedge-fund regulation. "I don't care if you ride your motorcycle without a helmet," says Rep. Barney Frank. He's expected to head the Financial Services Committee if the Democrats retake the House.

The Wall Street Journal recently asked Michael Steinhardt, the extraordinarily successful hedge-fund pioneer, about regulation. He's agin it:

WSJ.com: So you don't think hedge funds require more government oversight?

Mr. Steinhardt: No, my sense is that regulation will not be constructive in any meaningful way. If you consider the extraordinary expansion of hedge funds to-date, going from a few hundred to estimated 8,000 in a matter of a decade and a half, the number of funds that have created problems, and the number that have been abusive, has been extraordinarily low. If you further say that there is a self-regulatory process here, then hedge funds remain the venue for investors who are, if not sophisticated, at least very wealthy. It seems there are riper areas for regulation than worrying about the free-enterprise choices for wealthy people.

WSJ.com: One concern of regulators is that more and more pension funds are investing in hedge funds, however.

Mr. Steinhardt: There is this broader concern that I acknowledge, but having said that, again, the record to some degree speaks for itself. My sense is that there is clearly no demonstrated need for regulation.

Pension funds and university endowments could be the primary beneficiaries of hedge-fund regulation. High-Net-Worth investors? They'll probably move to greener pastures. On average, hedge fund returns have lagged the S&P of late. And buying a hedge fund doesn't seem so sexy when it's also owned by your brother-in-law's pension fund.

Remember Yogi Berra's oft-quoted remark about a certain restaurant?

"Nobody goes there any more. It's too crowded."

For hedge funds, it may be getting close to Yogi time.

Have a jolly Halloween!

"Guaranteed Lifetime Income," but Where's the A-Word?

Insurance company commercial on Boston radio this a.m. pushed "Guaranteed Income for a Lifetime." What product produces this guaranteed income? The commercial pointedly didn't say.

You can see the problem. In the public mind, the A-word, "annuity," has become firmly attached to investment packages known as deferred annuities.

Maybe we need a new term for immediate annuities?

For certain, immediate annuities are back in style. They fell from favor in the inflationary 1970's, when "fixed income" meant "rapidly shrinking income" in real terms.

Inflation is tamer now, and an endless array of derivitives allow insurance companies to offer a variety of inflation-indexed annuities to those who desire them.

Perhaps the real reason immediate annuities are making a comeback is that traditional pensions have become a vanishing species. By purchasing an immediate annuity, a retiree can gain some of the lifetime security corporate pensions used to provide.

How much should a retiree put into an annuity? As you can read in this Julie Jason column, the answer may be determined by applying a patented formula. Yes, patented.

The U.S. patent was issued to Peng Chen and Moshe Milevsky on their "theory and system for creating optimal asset and product allocations for individual investors looking to finance consumption or generate income during retirement."

Can an intricate formula really apply to situations where much depends on iffy variables such as changing state of health and future estate planning goals? Time will tell.

Corporate Trustees: a View from British Columbia

Stan Rule (what a good name for someone in the legal profession!) from British Columbia posts interesting comments concerning corporate trustees on his Rule of Law blog.

Check out his reasons for naming a corporate trustee:

In some circumstances, you might consider appointing a corporate trustee as the executor of your will, or trustee of a trust you create. For examples,

° You don't have relatives or friends whom you consider suitable for the job.

° Your estate is complex, and you wish to have a trustee with special expertise in financial matters.

° You are concerned about conflicts of interests or disputes between the beneficiaries of your estate.

° You have created trusts that may last for decades, and want to have a trustee that can administer the trusts until they terminate.

° You simply do not want to burden your family with the responsibility.

Note his comments on the loss of localized trust service from large trust companies. Seems Canada is picking up more bad business practices from the U.S.A.

Providing for a Spendthrift: Annuity or Trust?

From the Ask Encore column in today's Wall Street Journal:

I may end up leaving a substantial sum to a couple of nieces if I die prematurely. One of these nieces is very responsible; however, the other has no financial sense and would squander a lump-sum inheritance. Can I stipulate in my revocable trust that, upon my death, the trustee should purchase an immediate annuity for the spendthrift niece so that her inheritance is doled out over her expected lifetime?

-- Bob Lindinger,
Schenectady, N.Y.

Buying an immediate-fixed annuity, a plain-vanilla instrument designed to provide your niece with regular payments, "might be a reasonable alternative" to using a trust for the same purpose "if the amount involved is too small to make a trust viable, or if there are no reliable people to serve as trustees and you don't want to name a bank," says Martin Shenkman, an estate-planning attorney in Teaneck, N.J.

He has suggested similar approaches in a few cases in his own practice, he says, but contends that if a trust is a viable alternative, it would be safer. Both tools come with costs: Annuities may carry steep commissions, and trusts typically cost several thousand dollars to set up. The big drawback to using an annuity in this case is that your niece probably could cash it in early. There may be surrender charges involved, but "a spendthrift heir may opt for that approach" anyway, Mr. Shenkman says. A trust could offer more flexibility if the niece has an emergency or "gives up her spendthrift ways and wants to start a business. The trust could loan her money or guarantee a bank loan to get her going."

Watch it! All that affluence may be going to your head.

From this item in today's WSJ:

By now, many of the 8.9 million Americans who earn more than $100,000 annually have already hit six figures; scores more will do so in the next few weeks. Here's what they may miss if they don't watch their paycheck carefully: A nice-sized raise that appears without warning, then vanishes just as quietly on Jan. 1.

Sound odd? It's a function of tax rules. Most workers have their paychecks docked 6.2% to fund Social Security. But they stop paying that tax on income above a certain level each year. This year, the threshold is $94,200. Next year, it is $97,500.

Once you pass that wage cap you can end up with an extra $500 or more a month in your pocket . . . .

***

Nobody rings a bell or sends you an email when this occurs. In fact, salaried individuals with biweekly paychecks who don't watch them carefully may not even notice the change.

You young whippersnappers are spoiled rotten!

Back in the old century, we working stiffs not only noticed when we finished paying our FICA for the year, we spent the preceding months looking forward to our desperately needed "raise."

Most Charitable Bequests Are Not Estate-Tax Driven

Giving by the wealthy is largely immune to tax changes, according to this Wall Street Jorunel item:

Many wealthy people would still give a lot to charity even if Congress wiped out popular breaks for donating, a study suggests. While these high-net-worth Americans already contribute two-thirds of household charitable giving, donating $126 billion last year alone, they would give more if nonprofits could rein in administrative costs and better demonstrate the impact of donations.

The researchers at the Center on Philanthropy at Indiana University, underwritten by Bank of America Corp., distributed 30,000 surveys between June and September in neighborhoods where the average household had liquid assets of $3 million or more. Responses from 945 were used in the analysis. The survey, designed as a nationally representative random sample, defined high-net-worth households as those with incomes of greater than $200,000 or assets over $1 million.

* * *

52% of responding households said their giving would stay the same if they received no income-tax deductions for it. And 38% said such giving would somewhat decrease, but only 7% said it would dramatically decrease.

In addition, 56% said the amount they would leave to charity in an estate plan would remain the same if the estate tax were repealed.

Do UHNW Investors Love Mission Statements?

If "Yes," then the current U.S. Trust campaign (example below) is going to be a winner.


If "No," then maybe Dilbert's web site has the right attitude. For sure, Dilbert's automatic mission-statement generator can save you a bundle in management-consultant fees.

Get to Know Some Future Investment and Trust Clients (We Hope!)

Unlike WWII and the Vietnam conflict, the GWOT is being fought without draftees. Instead, we rely heavily on members of the Reserve and National Guard — older guys and gals who have left families and established careers to serve. As these servicemen and women come home, some will need to sell businesses or roll over 401(k)s. A few may have come into inheritances.

You can get acquainted with tomorrow's war veterans today, at The Sandbox. At this Doonesbury blog, postings from members of our armed forces in Iraq and Afghanistan deal with the stuff of day-to-day life. Some are quite well written. (Maybe our high schools and colleges aren't slacking off so much, after all.)

You'll learn, for instance, why highly decorated veterans may not want to tell you their war stories. And why returnees may find it hard to respond when you say, "Thanks for serving."

Your Senior Assistant Blogger is probably one of the last on the planet to discover The Sandbox. If by chance you haven't visited, do so.

Last Sunday the Washington Post Magazine carried a major article on Garry Trudeau and Doonesbury. His segments on B.D. as a war vet who loses a leg have drawn favorable notice from neocons and even the Pentagon, which must be disconcerting to a liberal Yalie.

By the way, in the article a well-known member of Trudeau's family suggests that the subtext of the B.D. story is not what you might think.

There's No Such Thing as a Free Dinner

Julie Jason is a lawyer/broker/author. In this newspaper column she asks:

“When you walk into a car dealership, you know you will be dealing with a salesman and will brace yourself for a sales pitch.

“When you walk into a bank, are you just as aware?”

Outsourcing the Human Side of Estate Planning

Though estate planning has long been driven by the desire to duck or downsize estate taxes, there's also the human side.

In days of old, the human side was the province of the family lawyer and the kindly old trust officer.

Today, according to this Wall Street Journal article, the human side has become a specialty, often outsourced to “family wealth consultants.”

Stands to reason: If estate-tax planning shrinks in importance, the human side will grow. Reports the Journal article:

Financial-services firms, including units of Wachovia Corp. and Merrill Lynch & Co., have launched services designed to help their most well-heeled clients talk more openly about their money issues. Next spring, U.S. Trust, a unit of Charles Schwab Corp., is planning to offer a new three-day retreat for families featuring Shaking the Tree. And Mellon Financial Corp.'s Private Wealth Management group recently started a new program called "Five Steps to Healthy Family Governance" which includes a screening of clips from "Born Rich," a documentary film that examines how young heirs deal with wealth. About 25 families have gone through the Mellon program already.

The goal of all this: to teach families to better communicate about their finances to prevent future problems and to mediate family disputes before they become expensive and public court battles.

The article notes that the American Bar Association's committee on "Emotional and Psychological Issues in Estate Planning" now has 59 members, up from five members five years ago.

This side bar to the Journal article gives a plug for the importance of choosing an independent trustee, such as a bank, to avoid sibling rivalry:

Eight ways to close the tax gap

The Joint Committe on Taxation has, according to Tax Notes ($), released new ideas for enhancing tax collections. One of the biggest is requiring brokers to report the adjusted tax basis for assets sold during the prior year, to make a dent in the estimated $11 billion lost to unreported capital gains. Other suggestions include:

* expanding broker information reporting requirements to include proceeds from sales at auctions, including sales of collectibles and motor vehicles;
* imposing a due diligence requirement on income tax return preparers to determine whether a taxpayer should report an interest in offshore bank accounts and trusts;
* clarifying and defining timely filing of tax returns by foreign persons;
* expanding requirements for mortgage interest; and
* modifying amounts subject to self-employment tax for partners and subchapter S corporation shareholders in personal service businesses.

The tax gap is currently estimated to be $345 billion.

Hedge Funds Sizzle, but Where's the Beef?

This from MarketWatch:

Hedge funds pulled in $44.5 billion during the third quarter, the most money that's flowed into the industry during any quarter since at least 2003, Hedge Fund Research, which tracks assets and performance in the industry, said on Thursday. Hedge funds now oversee $1.34 trillion in assets, HFR added. Investors have put more than $110 billion into hedge funds so far this year, more than twice the amount put into the industry during the whole of 2005, the research firm noted. "While quarterly performance was again less than spectacular, the flow of new assets into the industry remained remarkably strong," Josh Rosenberg, president of Hedge Fund Research, said in a statement. "

This from Pensions & Investments:

Major hedge fund indexes landed in positive territory for the nine months ended Sept. 30, although none beat the 8.5% return of the S&P 500 . . . .

Average hedge-fund gain for the third quarter: 1%.

How Andrew Carnegie Discovered Capitalism

From Jonathon Yardley's review of a new Andrew Carnegie bio:

Carnegie's story is right out of Horatio Alger . . . . The poor Scot arrives in Pittsburgh in 1848, age 12, child of an aimless father and industrious mother. Goes to work at an early age and quickly ingratiates himself to all with "his remarkably sunny disposition, his broad smile, and non-stop, good natured chatter" -- not to mention his capacity for hard work and his nimble mind. Soon he is a messenger boy for the telegraph office -- "the perfect position for an ambitious, affable young man" -- and soon after that becomes a telegraph operator, "the most sought-after operator in the company" because he is the smartest and the quickest. On he moves to the Pennsylvania Railroad, not yet 20 years old, and wins the favor of its president-to-be. He's offered the opportunity to buy shares in another company, and eagerly does so, with a loan from the boss, and later gets his first dividend check.

"I shall remember that check as long as I live," he wrote many years later. "It gave me the first penny of revenue from capital -- something I had not worked for with the sweat of my brow. 'Eureka!' I cried. 'Here's the goose that lays the golden eggs.' "

No-Account Son: Time to Talk with a Trust Officer

Parents of drug-addicted son make and remake their wills but, apparantly, never seek professional estate-planning guidance about how to provide for the wayward son.

This NextSteps column in the Pittsburgh Post-Gazette discusses their problem.

Wealth Management as the Way to . . . Wealth!

From Ben Stein's column in today's New York Times:

For students slogging their way through school, here are the merest hints of how you can and cannot reach that top 1 percent, that place where you are paid well even if you make mistakes:

• You do not get to it by studying African feminism in the 19th century, whether or not you are at an Ivy League college. You do not get to it by studying Bulgarian poetry. You do not get to it by any field of endeavor or study that is esoteric and has no connection with helping other people either become healthy or make money.

• You do not get to it by being a civil servant unless you are the kind of civil servant — say, a cabinet member or a United States Senator — who can use his or her connections later to lobby for well-heeled clients. You do not get to it by a lifetime of work in any field in which there are government price caps on earnings.

• You do get to it by working in fields in which you can fix your wages, preferably with the government’s help. These include law, where you need a license to practice, and thereby can lift yourself out of working for free-market wages. (Everyone in this country pays homage to the free market, but no one wants to work for free-market wages.) They also include medicine, where a far more difficult license is required, and where desperate patients will pay almost anything to look and feel good. They also include accounting at the C.P.A. level.

• You are always better off working in a field where torrents of money are sloshing through and you can grab a handful as it goes by. That means Wall Street. Finance is the ultimate great business. (Warren E. Buffett famously said that you are always better off being mediocre in a great business than great in a mediocre business, and he easily could have been talking about Wall Street.) Money pours through Wall Street in vast oceans. Even if you take off a tiny helping, you are going to wind up in that 1 percent. If you can do the daily double and work on Wall Street and be in a position to fix your own wage — say, by being in high management at a major Wall Street firm that has such prestige and connections that it can control its fees and other compensation — you will wind up living a great life, at least money-wise. (It is very difficult in many other ways, and I do not envy the people who do it. The tension is just far too much for little me.)

• You make money by making money for people who already have money. This is another reason finance is such a well-paid field. One good day’s work for a man who has a $100 million account you are trading is worth far more than a lifetime’s work at the checkout counter at Wal-Mart. Yet, amazingly, managing wealthy people’s money is far less difficult and stressful than checking out customers at Wal-Mart. It’s not even close. As my smart sister Rachel says, you make money by making money. It’s tricky, but it’s right.

• You make money by learning skills that lead to any of these: making people feel and look better, learning how to draw their wills, learning how to manage their money so they don’t underperform the bogey terribly, learning how to make complex things like computer parts in ways that lead your employer to make money and reward you with stock options. This is by no means an exclusive list. You also make it by manufacturing cardboard boxes and selling scrap metals. But usually, education in finance, medicine, law, accounting, electrical engineering — something in which you learn to add value instead of having fun in school — is the key.

YOU can try to get into that 1 percent by acting, playing drums or shooting hoops. That rarely works. The sure way is to learn skills that allow you to help make money for other people (or that give them the illusion you’re doing that) or make them feel better (or that give the illusion of doing that on national television).

Brooke Astor gets a friend and corporate trustee as guardians

Brooke Astor's son Anthony Marshall was replaced as guardian of his mother's affairs by her friend Annette de la Renta and JPMorgan Chase & Co., settling a lawsuit that charged Marshall with neglecting his mother, according to this Bloomberg report.

A lawyer for the new, permanent, guardians says the settlement includes a court order that Anthony Marshall, Astor's son, and his wife will make "substantial immediate repayment of cash and other property, including jewelry and art, to Mrs. Astor's estate.''

Generousity redefined

Generousity has long been a defining American characteristic. But how generous are we, really? A study by a new advocate for more charitable giving, New Tithing Group, has taken a somewhat novel approach to this measurement. Their surprising conclusions are reported by the New York Times in Philanthropy From the Heart of America.

New Tithing Group analyzed tax returns reporting high incomes and itemized deductions. They inferred liquid assets from reported dividend and interest income, then added this amount to reported taxable income to create a denominator. Total charitable gifts were the numerator. Although "tithing" means dedicting a tenth of one's income to charity, adding liquid assets to the computation obviously changes the formula. Given this unusual approach, the most generous live in Utah—they give 1.63% of their assets away each year. The rich states of California and New York fall near the median, tied for 21st place with Maryland and Wisconsin, with a giving rate of .74%.

Look for Nebraska, ranked third this year, to zoom to the top of the list next year. Warren Buffett's extraodinary gift to the Bill and Melinda Gates Foundation wasn't included in the calculations.

Brooke Astor's Questionable Codicils

If a settlement can be reached before Oct. 13, when a potentially "sensational trial" is scheduled to start, the legal status of three amendments Brooke Astor made to her will late in life may not be determinated until her death. So reported The New York Times last week:

Mrs. Astor’s court-appointed lawyer, who is questioning whether Mrs. Astor was mentally competent to understand the changes to her will that she signed, is challenging the propriety of the three codicils.

The lawyer, Susan I. Robbins, plans to have a handwriting expert determine if the signature on the documents is really Mrs. Astor’s.

Ms. Robbins is particularly concerned about the signature on the third codicil.

The Times notes that a settlement is far from certain. Anthony Marshall, Astor's 83-year-old son, would be required to step down as his mother's financial steward and designated executor.

The Dumb Money: Analysis and advice

Usually the articles that accompany the data in newspapers' quarterly reports of mutual fund results are just filler. The New York Times obviously tried to do better in yesterday's Mutual Fund Report.

Why Your Fund Beat the Average, but You Didn’t, a report by Robert D. Hershey, Jr., shows mutual fund investors pay a stiff penalty for their bad timing. Buying hot funds when they're about to cool down is extremely costly.

In A Bold Insistence on One Way to Invest, Paul Brown terms Daniel R. Solin's book, “The Smartest Investment Book You’ll Ever Read,” bombastic. Sample: “Virtually all brokerage-based financial consultants and most independent financial advisers manage money using dumb money management techniques.”

Still, says Brown, it offers solid advice. Solin, like David Swensen, advocates dodging the expenses associated with many actively-managed mutual funds by investing in index funds.

Reminds me of what Warren Buffet wrote more than a dozen years ago, in his Berkshire-Hathaway annual report for 1993:

By periodically investing in an index fund, the know-nothing investor can actually out-perform investment professionals. Paradoxically, when `dumb' money acknowledges its limitations, it ceases to be dumb.

Who named the Harris multi-family office?

Just asking.

In recent years indicted and or convicted CFO's have been much in the news. ( I can see two properties that do or did belong to such CFOs from my window right now.)

In the circumstances, is MyCFO really the optimum name for the Harris office?

Yale's investment guru offers investing tip for retirees

NPR offers a nicely assembled page associated with David Swensen's Oct. 5 interview on All Things Considered. You can hear the interview, see Swensen's recommended asset allocation for individuals, and scan a 60-second summary of his book. Swensen's investment tip for retirees: Maintain your growth-oriented asset allocation but skim something off the top to create a cash reserve. Jonathon Clements of The Wall Street Journal used to make a similar suggestion: Stay with equities but set aside enough cash to live on for three years, just in case the market crashes. Football update:.Yale beat Dartmouth, 26-14.

Yale's endowment racks up 22.9% return

Who says hedge funds are ready to be trashed? You can still find funds that produce awesome returns.

Actually, you or I probably can't. David Swensen, who oversees Yale's endowment, can.

For the 12 months ending last June, Yale's endowment enjoyed an investment return of 22.9%, up slightly from 22.3% the preceding 12 months.

With compounding, that's a return of 50% over two years! Surely, Swensen can't keep up that pace. Or can he?

Football note: Tomorrow in Hanover, the Yale Bulldogs play Dartmouth. With a record of 0-3, Dartmouth should be a pushover. But Yale's starting quarterback, though expected to play, was arrested for breach of the peace the other night.

Wonder if David Swensen can throw a down and out?

Amaranth: Looking through the wrong end of a telescope

As we learned in Behavioral Economics 101, investors fear losss more than they crave gains. But does that hold true at the extremes, where immeasurably remote chances of great wealth or great disaster lurk?

The question comes up because of the demise of Amaranth, a hedge fund battered by losses of $6 billion or more. You could almost hear the dazed tone of Amaranth founder Nicholas Maounis as he told investors, “Sometimes, even the highly improbable happens.”

Maybe it happens because it is so improbable.

Hedge fund managers can calculate the risks (volatility) they can expect to face 90% of the time. They can even calculate the likely risks for 99% of the time. But that leaves the extreme, unexpected risk.

One can sense the temptation to view such remote risks through the wrong end of a telescope: "Hey, losing most of our multi-billion-dollar fund in a month is near to impossible. Any risk so very, very remote should be ignored."

When it comes to extremely remote but potentially gigantic rewards, we know people turn the telescope around and look through the right end. Why else would anyone buy a lottery ticket, an investment where risk of total loss greatly exceeds 99.9%?

But who cares about the odds when, looking through the telescope, you can virtually see that immense pile of money coming your way?

Speaking of immense piles of money, suppose you're a money manager, the world's worst money manager.

Every day, including Sundays and holidays, your trades lose $1 million.

Know how long it would take you to lose $6 billion?

Over 16 years!

"Alexandra and James." You already know these wealth-management newcomers

From today's Wall Street Journal:

Alexandra and James Lebenthal, who left Merrill Lynch & Co. last year after the firm dropped their family brand name, plan to resume their Wall Street careers by joining an Israeli bank.

Blocked from using the Lebenthal brand name still held by Merrill, the father-and-daughter team will call the new venture simply Alexandra & James,

Alexandra Lebenthal, age 42, will become the chief executive of the broker-dealer unit of Israel Discount Bank of New York, a subsidiary of Israel Discount Bank, where an investor group led by Matthew Bronfman and Rubin Schron recently acquired a controlling stake.

At Israel Discount, Ms. Lebenthal's unit will focus on both municipal bonds and wealth management for families with net worth of $2 million to $20 million. She plans to offer "family office" or "financial concierge" services.

Marketing the new unit will be the job of Alexandra's father, James Lebenthal, who will assume the title -- unusual for Wall Street -- of creative director.

James Lebenthal is 78. Sounds like our preceding post is right on the money: Most affluent retirees plan to keep working.

Easing into retirement

A few interesting stats from Day of Reckoning in today's Wall Street Journal:

[A]ccording to Gallup's annual survey of workers' retirement plans, the portion of nonretired adults who say they intend to retire after age 65 is now the highest it has ever been -- 31% in the most recent survey, up from 12% in 1995.

[A] Gallup Poll in June . . . found 63% of nonretired people plan to work in retirement, mostly (51%) part time.

A Gallup Poll this year found 60% of Americans are very or moderately worried about funding retirement. "The only issue that comes close to this is being able to pay for medical care in the event of a serious accident or illness," the Gallup analyst wrote. Just 50% of working adults say they expect to have enough money to live comfortably in retirement, down from 59% five years earlier, according to Gallup.

A separate poll, also conducted this spring, found that most (60%) of those expressing little or no concern about their retirement finances say they likely will work in retirement. A commanding 71% of nonretired adults with postgraduate education say they likely will work in retirement, compared with 64% for those with some college education and 60% for those with no college.

How to coax investors to think long-term

A tip of the hat to T. Rowe Price and the editor of its Taking Note newsletter for this attention-grabbing lead-in to an article on long-term investing:

How many ounces do you weigh?
How many hours old are you?
How many yards is your commute?

Obviously, the way these questions are framed makes
no sense because the units of measurement are too
small. However, some investors make similar errors when
weighing their investment options and their volatility.

From the same publication comes this chart of historical investment returns. Notice that the five-year return for 1994-1999 was the highest on record. Neither you nor your clients should expect to live that high on the hog very often.