The Truth Sets Free
Well I have not used this blog for a long time.
TRUTH ABOUT MUTUAL FUNDS
PICKING GOOD FUNDS
I was reading Mark Cuban's blog at http://www.blogmaverick.com.
He is the owner of the Dallas Mavericks. Here is another example of an amateur investor thinking he knows more than everyone else, even those trained to pick out excellent mutual funds!
Why is it that some who are rich or well-known think that qualifies them to be an expert about EVERYTHING? TRUTH IS IT DOES NOT! He's my comment on his investment advice.
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 or more 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? That's how they pick players for the DALLAS MAVERICKS and every OTHER SPORTS TEAM I KNOW!
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!
-Charles Pedley BA MScEd
PFSL INVESTMENTS CANADA LTD