The Prudent Investor Blog

A Siren's Call is a Powerful Temptation to Derail Prudent Investors (part 2)

Posted by David Plaisance on Wed, Jul 27, 2016 @ 12:33 PM


The Sirens were special Sea Nymphs who were living in an isolated island, the island of the Faiakes. They had the body of a bird, but their head was human-like.

The Sirens had the gift of singing in a very seductive manner. Each sailor who was passing by this island got enchanted by their voice and was condemned to stay in their island forever and die. All over the island of the Faiakes there were bones of sailors who weren't able to resist the Sirens' divine melody.

The Sirens are mostly mentioned by Greek poet Homer in his Epos "Odyssey", where the Sirens encounter Odysseus and his companions on their journey back to the island of Ithaca. The Sirens were expecting Odysseus arrival and immediately started singing, but Odysseus was prepared for the situation, so he told his companions to put wax in their ears and bind him strongly in the boat's mast and to not obey to his beggings to free him. This way, Greek hero Odysseus was able to escape from the temptation and continue his long journey to Ithaca.

We often encounter Sirens in our journey as prudent investors. These Sirens can be disastrous to our long term investment goals. Below are three more potential "Sirens" that you must avoid for long term success. The temptation of these Sirens can be unbelievably strong so understand the truth, so that you are firmly tied to it and resist the dangerous temptation of the siren's call.

  1. Variable and Index Annuities -  These are insurance products, therefore you must have an insurance need.  These contracts have mortality charges, surrender charges, expense charges, and charges for riders.  These expenses hard to find and can be significant.  High expenses are not a friend of the prudent investor.  Also, very few variable annuities offer passive/index investment options.  Most of the sub-account options are actively managed.  A low cost  S&P 500 index fund beats 80% of active mangers over the long term. Annuties are tax-deferred products, and recieve the same treatment as an IRA or 401k account.   Often we see Annuties inside IRAs, so a tax-deferred product in a tax-deferred account.  This is unnecessary and makes the income payments at annuitization 100% taxable.  Where the income payments at annuitizaiton outside an IRA may only have 20-30% taxable. These are sirens sold on greed with high expenses.  You may be better off investing in a low cost diversified portfolio and using using a portion of your income to buy a fixed or single premium annutiy to bolster your retirement income stream.
  2. Facts vs Opinions -  These are often confused and used cloud our judgement or precieved as guarantees.  When we look at the past we can speak in facts.  The moment we begin talking about the future, we are now dealing with opinions.  All investment products contain the footnote " past performance is not a predictor of future performance. The future is unpredicable.  If that is true, then the economy is unpredictable.  Don not let the siren "Opinion" force your plan into the rocky shore.
  3. Investment Pornography - the investment media is full of it.  Modern Portfolio Theory, The Efficent Market Hypothesis, research and academia is boring and does not make good news, magazine articles, radio or television shows.  Therefore, the investment media must stoop to "Investment Pornograhy".  90% plus of the investment success of a portfolio is determined by asset allocation, while the remainder is due to market timing and stock picking.  90% plus of the invesment media is trying to time the market and pick stocks.  The prudent investor plugs their ears with wax to prevent the lure of this siren's call.

Our investment journey is a long one. It can be filled with many different temptations. Advisors/Brokers are trained to prey on your emotions because this is how they can get you to move from sound prudent investment strategies. And every time you move your money someone gets paid handsomely. Note: this can happen with your current advisor/broker making changes to the investments in your portfolio.  And, you are the one stuck with the bill, even if you do not know it.

In conclusion, please hede this warning. You will encounter many different sirens along your journey of investing. The key is to not let them lure you away from a sound, prudent investment strategy designed to achieve your personal investment goals.

This is not an all inclusive list, but it will give you a great start. Our next blog will address the Art of Asset Location.

If you want to know more about prudent investment strategies to see if you currently have one or if one is right for you, please contact us at

 Click to download the REACT questions

Tags: prudent investor, summerville investment advisor, asheville investment advisor, prudent investors