Should you consider past results? By all means.
Is longevity important? Yes, but not necessarily the fund’s length of service.
Does size matter? How do you determine size would be of greater importance.
Who’s your Daddy? The larger the company the greater the likelihood your fund has orphan funds embedded in your portfolio.
How so do you diversify? A little of this, a little of that
Most of us look at the turn of a calendar year with the hope that the investment mistakes we made in the previous year will not be made in the new one. This is noble and in many cases futile. These attempts are usually too difficult to handle, which is why, in many cases you haven't done anything before this point.
But with little effort, you can change how you invest. For the vast majority of us, investing requires far too much time. It requires continued education (which I fully recommend), frequent monitoring (which can involve little more than opening your statement just to make sure your investments are going where you intended) and a clear-cut understanding of where you are on the timeline (beginning to invest or at it for awhile).
Altering bad investment habits is not that difficult. Five Tips for 2010...
Paul Petillo is the Managing Editor of Target2025.com
Showing posts with label growth funds. Show all posts
Showing posts with label growth funds. Show all posts
Saturday, January 2, 2010
Tuesday, September 22, 2009
The Beginning Investor's Dilemma
Where to begin? This question has stymied beginning investors since the time the market began. These days though, the question is twofold: why should I begin and where will I get the money?
Time remains the single best attribute to investing early and equally important, often. The powers of the equity markets are confusing unless you remember two basic rules:
There is risk;
And if you take no risk, there will be no reward.
That risk demands you put money somewhere. For the beginning investor, the best place is in a mutual fund. Your 401(k) at work is often a healthy list of choices. (Keep in mind, the number of choices available don't always signify the quality of the plan.) Among the most common types of funds in these defined contribution plans (so called because you define how much you will contribute) are index funds, growth funds, bond funds, balanced funds, and some combination of the lot.
Index funds track a broad index of companies in almost every instance, due to size. Growth funds may also be a type of index fund or one aimed at a particular group of companies. Bond funds invest in debt, which makes you a sort of lender (but in a mutual fund, without many of the problems associated with the transaction). Balanced funds look to provide some stocks and some bonds and usually tell you right up front how they allocate their investments.
The combination of the lot is represented by a growing sector called lifestyle funds or target-dated funds. These fund reallocate their holdings over the course of an investors career. The employee picks the date they would like to retire, say 2040 and the fund manager does the rest. As your holdings grow in tandem with your years in the plan, the fund gets more and more conservative.
Beginning investors are attracted to these because they are advertised as buy and forget. But they should be aware of the problems that may be associated with this type of investment. First, they don't have much of a track record. Even in the recent downturn, some very conservative funds (with short retirement dates targeted) did not beat the S&P500. Secondly, I worry that some fund families are using these new funds to prop up laggard funds that have done extremely poorly and lost many of its core investors.
While you are educating yourself on the subject, choose an index fund.
Now, where to get the money? If you set aside 5% of your income in a pre-tax situation (and 401(k) plans are just that), you will not feel a change in your take home pay. Do this even if your company doesn't match your contributions. (Some used to, some companies still do but to a much lesser degree and some never have added a contribution, usually dollar for dollar up to a certain percentage.)
If you have no defined contribution plan, use your tax refund (you know the one you plan on getting in about five months) to open an IRA.
No matter when you begin, waiting is no longer an excuse.
Time remains the single best attribute to investing early and equally important, often. The powers of the equity markets are confusing unless you remember two basic rules:
There is risk;
And if you take no risk, there will be no reward.That risk demands you put money somewhere. For the beginning investor, the best place is in a mutual fund. Your 401(k) at work is often a healthy list of choices. (Keep in mind, the number of choices available don't always signify the quality of the plan.) Among the most common types of funds in these defined contribution plans (so called because you define how much you will contribute) are index funds, growth funds, bond funds, balanced funds, and some combination of the lot.
Index funds track a broad index of companies in almost every instance, due to size. Growth funds may also be a type of index fund or one aimed at a particular group of companies. Bond funds invest in debt, which makes you a sort of lender (but in a mutual fund, without many of the problems associated with the transaction). Balanced funds look to provide some stocks and some bonds and usually tell you right up front how they allocate their investments.
The combination of the lot is represented by a growing sector called lifestyle funds or target-dated funds. These fund reallocate their holdings over the course of an investors career. The employee picks the date they would like to retire, say 2040 and the fund manager does the rest. As your holdings grow in tandem with your years in the plan, the fund gets more and more conservative.
Beginning investors are attracted to these because they are advertised as buy and forget. But they should be aware of the problems that may be associated with this type of investment. First, they don't have much of a track record. Even in the recent downturn, some very conservative funds (with short retirement dates targeted) did not beat the S&P500. Secondly, I worry that some fund families are using these new funds to prop up laggard funds that have done extremely poorly and lost many of its core investors.
While you are educating yourself on the subject, choose an index fund.
Now, where to get the money? If you set aside 5% of your income in a pre-tax situation (and 401(k) plans are just that), you will not feel a change in your take home pay. Do this even if your company doesn't match your contributions. (Some used to, some companies still do but to a much lesser degree and some never have added a contribution, usually dollar for dollar up to a certain percentage.)
If you have no defined contribution plan, use your tax refund (you know the one you plan on getting in about five months) to open an IRA.
No matter when you begin, waiting is no longer an excuse.
Wednesday, June 11, 2008
Retirement Planning and the Financial Professional
What do you do when, according to a recent post by Harriet Brackey of the Sun-Sentinel Tribune, professional advisers gather and one “thinks he can pick outstanding companies and beat the market” while another, “uses many studies to show that no one beats the market for long and so he favors index investments” and another offers an, “in the middle, putting the bulk of his clients’ money into an index-like investment, yet playing around the edges with active stock or bond picking, hoping to goose up the overall return of the portfolio”?
Why does this confusion seem shocking yet at the same time, not so much?
It seems that this group of professionals does not have a unified game plan for their clients for three good reasons.
There is money to made in confusion. If you can keep the theories shifting, the folks who pay for these services believe that they are doing better than their peers - and that brings me to my second point.
We spend far too much time creating benchmarks based on another person's idea of successful investing and retirement planning. Financial planners know this and try to "tailor" your investments accordingly, making them seem so personal.
The guy who suggests his client index should do exactly that. Perhaps a growth index (mid-cap or small-cap) a value index (large-cap) and emerging market and an international index would suit just about every investor's needs. Which makes the financial planner obsolete. Not only will that client save money in fees for the financial planner, they will also be paying less for the funds.
Why does this confusion seem shocking yet at the same time, not so much?
It seems that this group of professionals does not have a unified game plan for their clients for three good reasons.
There is money to made in confusion. If you can keep the theories shifting, the folks who pay for these services believe that they are doing better than their peers - and that brings me to my second point.
We spend far too much time creating benchmarks based on another person's idea of successful investing and retirement planning. Financial planners know this and try to "tailor" your investments accordingly, making them seem so personal.
The guy who suggests his client index should do exactly that. Perhaps a growth index (mid-cap or small-cap) a value index (large-cap) and emerging market and an international index would suit just about every investor's needs. Which makes the financial planner obsolete. Not only will that client save money in fees for the financial planner, they will also be paying less for the funds.
Thursday, June 5, 2008
Retirement Planning and Financial Professionals
What do you do when, according to a recent post by Harriet Brackey of the Sun-Sentinel, professional advisers gather and one “thinks he can pick outstanding companies and beat the market” while another, “uses many studies to show that no one beats the market for long and so he favors index investments” and another offers an, “in the middle, putting the bulk of his clients’ money into an index-like investment, yet playing around the edges with active stock or bond picking, hoping to goose up the overall return of the portfolio.”
Why does it seem shocking yet at the same time, not so much?
It seems that this group of professionals does not have a unified game plan for their clients for three good reasons.
There is money to made in confusion. If you can keep the theories shifting, the folks who pay for these services believe that they are doing better than their peers - and that brings me to my second point.
We spend far too much time creating benchmarks based on another person's idea of successful investing and retirement planning. Financial planners know this and try to "tailor" your investments accordingly, making them seem so personal.
The guy who suggests his client index should do exactly that. Perhaps a growth index (mid-cap or small-cap) a value index (large-cap) and emerging market and an international index would suit just about every investor's needs. Which makes the financial planner obsolete. Not only will that client save money in fees for the financial planner, they will also be paying less for the funds.
Additional reading:
Why does it seem shocking yet at the same time, not so much?
It seems that this group of professionals does not have a unified game plan for their clients for three good reasons.
There is money to made in confusion. If you can keep the theories shifting, the folks who pay for these services believe that they are doing better than their peers - and that brings me to my second point.
We spend far too much time creating benchmarks based on another person's idea of successful investing and retirement planning. Financial planners know this and try to "tailor" your investments accordingly, making them seem so personal.
The guy who suggests his client index should do exactly that. Perhaps a growth index (mid-cap or small-cap) a value index (large-cap) and emerging market and an international index would suit just about every investor's needs. Which makes the financial planner obsolete. Not only will that client save money in fees for the financial planner, they will also be paying less for the funds.
Additional reading:
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