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James | Why is my financial adviser suggesting I invest in mutual funds? |
My financial adviser has been very adamant about my pushing forward an aggressive mutual fund strategy. She has recommended a pretty diverse portfolio of funds, but why would I want to throw so much of my savings (not just a few thousand dollars, rather a very large chunk of money) in to the market given the current economic state? I have a long term investment horizon, and I understand market cycles; though I'm still unsure of her suggestion. Any advice out there? |
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Timothy C. Schewe
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Dear James,
You've asked a mouthful, here goes, in reverse order. (sort of)
If you understand market cycles then you understand that cycle beginnings and ends are evident only on the rear view mirror. I don't know about yours but there aren't any visible in mine.
I can't think of any good reason to be buying anything other than perhaps a very few, very select individual stocks at this time. You don't seem to know how to do that yet so you would be wise to sit tight and have your cash in cash.
Your financial adviser is most likely being adamant because she needs the business. She like everyone else has cash flow requirements and you are first and foremost a customer and source of income. This doesn't necessarily make her a bad person but does illustrate that no one will ever be as concerned with your money than you. She's probably counting the commissions now.
Regarding mutual funds; they CAN be a fine place to park wads of cash for the short-term, but as long-term investments they as a class are awful. The industry line is that you need to invest for the long-term and although returns will rise and fall over time in the end it will all work out. Well, understanding market cycles, why would you want to watch your account lose 25% during a bear market? At the end you are going to have to gain 33.3% just to get back to break even. Does that sound smart? Not too when you consider that the average mutual fund under performs the S&P500 which historically only gains about 8.5% per year. So do the math, if the current bear market were to end today you would end up spinning your wheels for about four years, just enough time for the next down cycle to begin. And don't forget you will have been paying on average 2.5% of your nest-egg every year for the privilege. On top of this of course your "adviser" is probably getting a cut as well.
My advice? Learn how to do it yourself. It really isn't difficult if you approach it right. I'll include a link to a good site that can help.
Good Luck,
Timothy C. Schewe |
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src50
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I don't know the specifics of her recommendations, but the longer your time horizon, the more aggressive that you should be. |
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Sophia
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If you have the money to invest right now, it will most likely reap high benefits for you down the road. Eventually our economy will increase back to where it was a few years ago. Every country has its rough times and I think with the new president coming in there will be some huge and hopefully positive changes. In regards to mutual funds, just like any other stock they are risky. But risky in the sense they are one of the lowest risk type of investment. Not only is your money diversified, but it is diversified over different markets. Not ever market is cyclical to our economy so while some devalue, others rise up, and so on. Its a safe place for your money to be. And right now getting into a mutual fund is awesome because you will be investing when the value is lowest- you always make your money when you buy, not when you sell. You buy low- you win.
If you don't feel comfortable giving up a huge chunk of your money (who is? haha)- invest 1/3 of it in the fund and put the other 2/3 into an ING savings and see where you end up in a few years. |
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Beau.Gus
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Think of it this way:
Saving for your retirement is just like buying tins of magic tuna fish* to eat after you retire; if the bottom falls out for a few months, and tuna fish prices fall to five-year lows, what makes more sense? Selling the cans you have (at a huge loss), or buying a whole bunch more while they are effectively "on sale"?
Your advisor is a good one.
Let's say you have $100,000 as an example. If you take the "zero risk" approach, and lock it up in a safe, 25 years from now you are guaranteed to have $100,000. If you invest it in a basket of fairly aggressive mutual funds that lose money some years, gain money other years, but average between 8% and 12% a year over the long-term, 25 years from now you may only have $342,000 if the market underperforms, but are more likely to have $540,000 and if you are lucky you'll have $850,000!
Which sounds more attractive to you? $100,000? Or a "worst case scenario" of over $300,000? |
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anonymous
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coz he wants you to pay tons of fees with mutual funds |
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TLC Properties
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This is my personal experience. The way the economy is at the moment I would not invest in any mutual funds. As odd as this may sound I personally think Real Estate is the best investment. I know you may think I am crazy with the way everything is going at the moment, so let me explain. If a person buys a property and uses it as a rental property then they will in long term get thier investment back. A certain amount of the investment can be counted off when you do taxes. The way the economy is people are getting homes forclosed on right and left. This may not sound good but if one has rentals then the people that loose thier home due to forclosure will still need a place to live, thus comes the rental properties. The added bonus is when the economy does improve, now you have a good equity built up. The market is a buyers market right now and you can get Real Estate for a much lower price now then a few years back. I suggest you do what you want, after all it is your money. Do take all the matters in fact before you deciede what to do, but remember the wrong choice may haunt you if the wrong choice is made, so go with what you feel is best. Do not go off what anyone else tells you. I could be wrong but I believe one of the largest investment companies just recently had a huge downfall. Investment companies for most part give good advice, but remember they are going to make thier money first before you see a dime. Good luck in what ever choice you make. |
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Its m33 for Realz
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i have invested in one mutual fund and it made me 125%. It was oil and it was around this time of the year..2 years ago. this is the best time to do it because the economy is in a downfall and the market is at an all time low meaning that its the cheapest. You invest now and it will pay off in the future. |
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Robby S
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If she is an independent advisor, I would definitely say she is going in the right direction. You need to have diversification across large, mid, and small caps and do not forget international.
Make sure you ask how she is getting paid. If she is charging you a fee, then fine. If she is getting commission or selling you a loaded fund, then by all means... leave.
I know you think now is a horrible time to invest, but you can't "buy low and sell high" if you don't buy low to start.
No one knows when the absolute bottom is, but the idea is to invest in good investments. Over time, they will grow.
Good luck!
Robby |
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alberto J
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First off all you gotta answer one question: Does she works for yourself (do you hire her), or is she works for a financial institution.
If she works for you, the best thing you can do is follow her advice or fire her.
If she work for a financial institution you must pound her intentions, if she is advising you in order for you to make money or is she following the script of many financial institutions and trying to sell you the biggest commission paying mutual funds. |
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Brandon C
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Well first off, I worked as adviser for quite sometime. Bottom line her job is to sell you something, I'm sure she doesn't get paid a salary as most firms don't unless she works in a bank and usually the banks don't pay them that much and may only pay a salary for the first couple of years and then they go straight to commission. Warren Buffet says that advisers hedge against their stupidity by telling you to diversify your money. He also admits and understands that if you don't understand the market then it is a good idea to invest your money in diversified funds. Like I said, it is her job to sell and make money for her family so she doesn't have time to watch your portfolio 24/7. Keep this in mind though, if 9 out of 10 times you are doing what everyone else is doing, as in for right now FREAKING OUT (rightfully so to an extent) you are more than likely going to fail or experience mediocre returns. Buffett also says that when people are greedy be frightful, when people are frightful be greedy. Right now, given that share prices are down in most if not all sectors of the market, it could be a good time to put some money down so as a whole you are able to stretch your dollar and buy more shares...or it could continue to drop! One thing about Buffet is that he has so much money that he is able to buy into blue chip companies that he knows will be fine no matter what the market does to an extent. Normal people do not have this luxury (although he has earned it). If I were you, I would wait to see if this buyout package is implemented by the banking committee, but then again, if at the moment that the information is released that it does go into effect, then you are that much farther behind. Go with your gut, and check out the fees on those mutual funds, it cut deeply into your capital. I know I went off on a tangent there for a second but I hope that it helped a little. You may want to ask about index funds, there fees are lower and have consistently beaten mutual funds over the years. Look at ETFs as well. |
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Shawn
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Because they are more consistent than most markets. |
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Sensitive girl
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Perhaps she get commission from the Mutual Funds she is pressing. I am sorry if this sounds cynical, but it could be an explanation. I would advise you to invest in a mix of government guaranteed bonds (low or zero risk and guaranteed capital and interest return). This is vital in these uncertain times. |
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aaronjrepo
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cool |
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