conditions” is a combination of factors to look for when choosing investments. By observing conditions which repeat themselves, your financial advisor may be able to predict results when certain “conditions” are in place. One example; a few years ago a well known mutual fund had an impeccable 10 year performance record. It consistently outperformed the market by over 2%. It was about one billion dollars in size. Within one year it grew to about three billion because everyone started buying it. Past returns attract buyers like dung attracts flies.
Afterwards that fund performed below average for several years. The fund company increased advertising to try to slow the exodus and finally overcame their sudden growth hurdle. It has begun to perform well again after nearly a decade. The success of the fund was its downfall. It attracted deposits way faster than it could find great investment opportunities. It grew way too fast for the managers to be able to continue delivering consistent performance.
This also happened to several other well known funds. This pattern involves some conditions worth watching which go beyond evaluating the stocks that fund holds. There is more to choosing an investment than looking at past performance. When a fund that has been in existence for more than five years triples in size within a year, I would expect it to disappoint investors for about three years.
Oh well, using past history makes for easy sales for advisers who focus on selling and are not so concerned about in depth research. No advice wanted by buyers is sometimes a problem. When you are investing take the time to ask questions, if you don’t your adviser may get the idea you really don’t want to know much about the investment. Deal with an adviser who looks beyond past returns and the content of the fund to estimate the probability of future returns.
The more you read the more you will understand what questions to ask if the material you read is not a regurgitation of what the fund managers and financial gurus are feeding us. Read writers who are original in their thinking and who look at the big picture not just the ones who analyze the individual stocks.
Emotions can get in the way of brains when you try do-it-yourself investment planning. As my mom used to say “a doctor who has himself for a patient has a fool for a doctor”.
Conditions in this decade dictate that equity markets are in for an uncertain ride. Low interest rates tempt investors to consider equity investments. Especially since Last year was such a good year. Personally I am not investing in mutual funds. The investment of my choice is a special type of segregated fund which allows participation in equity markets and also guarantee 5% increase per year for retirement funds.
On the other hand larger amounts of non retirement funds are being placed in bonds or guaranteed short term certificates. I still recommend leaving at least 10% in a daily interest account that pays a high (not real high these days) interest rate. Depending on the style, attitude and risk tolerance level of the investor I might suggest as much as 50% of their portfolio in such open accounts. If they are opportunists there will be many buying opportunities in the next few years.
NOTE: There are no guarantees.
Timeless advice would be; the faster the growth rate in the markets – the quicker we will arrive at the inevitable drop.
The retirement boom was to begin at the end of the last growth spurt. Hopefully the baby boomers had the wisdom to move from equity markets to safer investments with guarantees. Fortunately the new generation of segregated funds with lifetime guarantees allow investors to still participate in the equity investments they are used to, but with guarantees. Many people changed their retirement plans after 2008.
The following is a quote from my article published in the Daily Gleaner newspaper in 1999: “WARNING: UNDERSTAND THE NUMBERS: If $10,000 is invested and grows 30% in one year it becomes $13,000. In year two if it earns 40% it becomes $18,200. In year three the markets soar and it earns 50% to become $27,300. Now comes the drop!
A drop of 60% in the fourth year turns the fund into $10,920. Now $920 is a 2.2% return for a four year period. Low isn’t it? “The market has never stayed down for ten years before in North America” – Of course it didn’t! That is because we never had a retirement boom before in North America! “That was written in 1999. Since then we have seen a ten year negative return period from 1998 to 2008
Still think you do not need segregated fund guarantees? Sag. funds can protect you from such a market drop. Best wishes for good investing this decade. Today, more than ever you need a capable financial advisor.
Hopefully this article will help you to avoid one common mistake in financial planning. There are other articles at http://www.smartchoicelife.com/blog/ While you are on this site go to the home page and check out my e-books some are free all you need do is download them. I have over 30 years experience in banking and financial services industry. Now I like to share his awareness of behind the scenes practices that work to the advantage of banks, investment houses, and big business in general but seldom benefit consumers. In these books and articles I also shares insights into how to improve your financial health and wealth without worry and stress. Give a F R E E ebook to a teenager or young adult. Help them to appreciate the value of money and avoid common financial mistakes. They’ll appreciate it. While you are there check out our unique,awesome financial planning system where you get your own plan done by a professional certified financial planner. Plus you get ongoing personal access to Gordon and coaching for up to one year.
Afterwards that fund performed below average for several years. The fund company increased advertising to try to slow the exodus and finally overcame their sudden growth hurdle. It has begun to perform well again after nearly a decade. The success of the fund was its downfall. It attracted deposits way faster than it could find great investment opportunities. It grew way too fast for the managers to be able to continue delivering consistent performance.
This also happened to several other well known funds. This pattern involves some conditions worth watching which go beyond evaluating the stocks that fund holds. There is more to choosing an investment than looking at past performance. When a fund that has been in existence for more than five years triples in size within a year, I would expect it to disappoint investors for about three years.
Oh well, using past history makes for easy sales for advisers who focus on selling and are not so concerned about in depth research. No advice wanted by buyers is sometimes a problem. When you are investing take the time to ask questions, if you don’t your adviser may get the idea you really don’t want to know much about the investment. Deal with an adviser who looks beyond past returns and the content of the fund to estimate the probability of future returns.
The more you read the more you will understand what questions to ask if the material you read is not a regurgitation of what the fund managers and financial gurus are feeding us. Read writers who are original in their thinking and who look at the big picture not just the ones who analyze the individual stocks.
Emotions can get in the way of brains when you try do-it-yourself investment planning. As my mom used to say “a doctor who has himself for a patient has a fool for a doctor”.
Conditions in this decade dictate that equity markets are in for an uncertain ride. Low interest rates tempt investors to consider equity investments. Especially since Last year was such a good year. Personally I am not investing in mutual funds. The investment of my choice is a special type of segregated fund which allows participation in equity markets and also guarantee 5% increase per year for retirement funds.
On the other hand larger amounts of non retirement funds are being placed in bonds or guaranteed short term certificates. I still recommend leaving at least 10% in a daily interest account that pays a high (not real high these days) interest rate. Depending on the style, attitude and risk tolerance level of the investor I might suggest as much as 50% of their portfolio in such open accounts. If they are opportunists there will be many buying opportunities in the next few years.
NOTE: There are no guarantees.
Timeless advice would be; the faster the growth rate in the markets – the quicker we will arrive at the inevitable drop.
The retirement boom was to begin at the end of the last growth spurt. Hopefully the baby boomers had the wisdom to move from equity markets to safer investments with guarantees. Fortunately the new generation of segregated funds with lifetime guarantees allow investors to still participate in the equity investments they are used to, but with guarantees. Many people changed their retirement plans after 2008.
The following is a quote from my article published in the Daily Gleaner newspaper in 1999: “WARNING: UNDERSTAND THE NUMBERS: If $10,000 is invested and grows 30% in one year it becomes $13,000. In year two if it earns 40% it becomes $18,200. In year three the markets soar and it earns 50% to become $27,300. Now comes the drop!
A drop of 60% in the fourth year turns the fund into $10,920. Now $920 is a 2.2% return for a four year period. Low isn’t it? “The market has never stayed down for ten years before in North America” – Of course it didn’t! That is because we never had a retirement boom before in North America! “That was written in 1999. Since then we have seen a ten year negative return period from 1998 to 2008
Still think you do not need segregated fund guarantees? Sag. funds can protect you from such a market drop. Best wishes for good investing this decade. Today, more than ever you need a capable financial advisor.
Hopefully this article will help you to avoid one common mistake in financial planning. There are other articles at http://www.smartchoicelife.com/blog/ While you are on this site go to the home page and check out my e-books some are free all you need do is download them. I have over 30 years experience in banking and financial services industry. Now I like to share his awareness of behind the scenes practices that work to the advantage of banks, investment houses, and big business in general but seldom benefit consumers. In these books and articles I also shares insights into how to improve your financial health and wealth without worry and stress. Give a F R E E ebook to a teenager or young adult. Help them to appreciate the value of money and avoid common financial mistakes. They’ll appreciate it. While you are there check out our unique,awesome financial planning system where you get your own plan done by a professional certified financial planner. Plus you get ongoing personal access to Gordon and coaching for up to one year.
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