Obama - Who are you?

Tuesday, January 17, 2006

PICKING EXCELLENT INVESTMENTS

INVESTMENT ADVICE

PICKING GOOD FUNDS


I was doing some searching and ran across Mark Cuban's web blog at http://www.blogmaverick.com. In case you don't know Mark is the owner of the Dallas Mavericks.

But here he is writing a blog about investments! Why is it that some who are rich and famous THINK THEY KNOW EVERYTHING ABOUT EVERYTHING? Mark may know about sports but that does not make him an expert on investments!

And he repeats the same kind of uhhhhh ... nonsense that I have heard other places on the web by would-be know-it-alls! See below.

He says put your money in interest-bearing securities like CD'S and treasuries. So what did they pay? More than the rate of inflation? Because if they did not beat the rate of inflation you have created ANOTHER RISK; THE RISK OF GETTING NOTHING!

If you invest in a CD which gives you 4% interest and the rate of inflation is 4% what have you earned? NADA! ZIP! NOTHING! IN FACT LESS THAN NOTHING SINCE YOU NOW PAY TAXES ON THE 4% YOU EARNED (at least in Canada where I am). SO YOU HAVE EARNED LESS THAN NOTHING!!! PUT IT UNDER YOUR MATTRESS = SAME EFFECT.

There is also another risk as shown above not often talked about that must be REDUCED; THAT IS THE RISK OF GETTING NO RETURN OR LESS!

So how do you do that?

Forget stocks. Put it in low cost mutual funds which have at least a 3 - 5 year and current history of getting returns above 10% AND have the same manager as when they got good returns.

1) Buying mutual funds mitigates risk because you may have 50 stocks in a fund which although some may go down, with wise investment most should go up at a good rate if you heed the above advice. (Ever heard, "Don't put all your eggs in one basket? One basket = stock.)

2) Picking a fund with a good track record AND same manager reduces risk because what are the chances of him/her doing well again if he/she has for 5 years?

3) Make sure your funds are generally in the 1st or second quartile in performance. See www.morningstar.com(U.S.) or .ca (Canada).

4)The more diversified your funds are in geographic area and industry the less risk.

There are many other factors but this gives you a good start.

And the other piece of advice is pick a financial advisor not with the most letters after his name but one that teaches you what you should do to increase your financial independence and reduce your debt. If you cannot understand the advisor, ask questions. If that doesn't work pick one with 'letters' that you understand when he speaks!

www.cpedley.com

In reference to some of the comments above about being amazed at the interest you earned, WHAT PER CENT AMAZES YOU? WHAT DID YOU HAVE LEFT AFTER SUBTRACTING THE INFLATION AMOUNT? WHAT DID YOU HAVE LEFT AFTER YOU WERE TAXED ON THAT INTEREST?

Would 18.5% amaze you? That is $18.50 for every $100 invested. Did you MAKE THAT ON INTEREST?

Well I did on my $40, 000 that I invested about this time last year in a BASKET OF MUTUAL FUNDS! Does that AMAZE YOU? I would say almost $8000 makes me feel good but some of the funds in the basket GAINED 19%, 20.9%, 24.1%. DOES THAT AMAZE YOU? Or are you amazed at 1 - 6%?
And just because a guy is cute and has a website and owns a team DOES NOT MEAN HE KNOWS ANYTHING ABOUT INVESTING!
Try http://www.bobbrinker.com for a guy that knows about investing!

Charles Pedley
www.cpedley.com

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