MoneyWiseWomen

Getting Started With Evaluating Mutual Fund Performance

When it comes to mutual fund investing, many people ask me how to evaluate the performance and quality of their mutual funds in their brokerage account, 401(k) IRAs, etc. Simply evaluating performance in terms of rates of return can be disappointing in our current environment; additionally, it doesn’t speak to an overall investment philosophy or guideline that you can refer to when times are tough. Therefore, when I help clients with their mutual fund investing, I use these four guidelines to help them decide how to move forward when building their investment portfolio:

Market Outlook: What It Means, What You Can Do

Here's a video explaining the current market and what you can do about it--if you'd rather read it, click here!

 

 

 

Throw Your Spending Plan Out The Window

 

In “Entrepreneurship and Making ‘Adult’ Financial Decisions” I Told the Truth about why I wasn’t at the eWomen Network Conference this year. And I outlined a spending strategy I had developed with a client:

 

“One of my favorite clients loves conferences and trainings; she has about $4,000 annually in her spending plan. She wants to spend more, but her business’ budget doesn’t allow for it. We developed a profit-splitting plan that puts a percentage of her business’ net profits into a savings account titled “Business Investments.” She doesn’t have to spend that money, but when a conference pops up that she wants to attend, she no longer has to discuss it with me or agonize over the pros and cons of the decision. If the money is in the reserve account, she goes.”

 

Best laid plans. While she was away at the eWomen Network Conference I received a text from her:

 

 

There are a lot of gurus out there selling marketing, sales and mindset training/coaching programs. Entrepreneurs invest hundreds, thousands, and tens of thousands in these programs. The potential and possibility of learning from someone like Lisa Sasevich can be irresistible, and in the moment of making the buying decision, it’s challenging at best to separate logic from emotion.

Graduates -- Learn to Live Financially Healthy

College (and high school) graduations are right around the corner, but perhaps the most important learning of all is still come – learning how to live financially healthy.   
 

1. Give Yourself a Spending Reality Check. Notice there’s no mention of “budget”? Budget reminds me of self-denial and regret, much like the word diet. A spending plan allows you to create your own personalized plan. This is perhaps the most important step for students who have relied on their parents and/or student loans to get them through school. We're a nation of spenders and we spend unconsciously. Begin by tracking your spending. Use a small notebook or blank checkbook register and write down everything you buy with cash, check, ATM card, debit card, and credit card for at least 14 days (30 days is better). Most people discover at least one thing they’re spending more on than they realized. Simply writing it down will likely prompt you to spend 10% - 20% less.
   

IRA Basics

 

Individual Retirement Accounts (IRA) are an excellent way to save for your retirement. Let’s look at some of the frequently asked questions about IRAs.

What’s a traditional IRA?
Anyone under age 70½ with earned income may contribute to a Traditional IRA, which may be tax deductible depending on your modified adjusted gross income and whether you or your spouse participate in a qualified retirement plan through your employer.  The earnings in your IRA are always tax deferred, which means you won’t pay taxes on the earnings until you receive a disbursement.  You must start taking distribution of a traditional IRA at age 70½ .

Foreign Exchange Trading

Is the prospect of working from home alluring to you? How about no sexism, ageism, or any other kind of “ism” that will create a glass ceiling when it comes to realizing your full potential and earning the compensation you deserve?

Foreign exchange (forex) is truly a genderless paradise. The world is still possessed by male dominance despite the increasing numbers of women in business, journalism, news and politics. The unfair discrimination against women employees and applicants still exist, and socially you can still hear how sexual differences are used to justify different gender roles for male and female. However, with online Forex trading, you enjoy a “faceless” and “sexless” identity. Your only limits are the ones you create for yourself.

Whom Can You Trust To Tell You The Right Thing To Do?

To date, the S&P 500 index of large-cap stocks has lost more than 40% since November 2007, and about $2 trillion in value has disappeared from investors' 401(k)s and IRAs, (according to the Center for Retirement Research).  There have been four other occasions since 1926 when the market has fallen at least 40% (most recently from 2000 to 2002), however, I understand that in the midst of this economic climate, it’s extremely difficult for the individual investor to take a long-term approach to her investment portfolio, much less care about a historical perspective.

More than ever, qualified, professional objective advice may be the key to consumer sanity.   I’ve found that the most difficult thing for an investor to do in a market like this is to sit tight and weather the storm.  The knee-jerk reaction is to get out of the market, which may be the most damaging thing a person can do.

There are many, many options for an investor that fall somewhere between “all out” or “all in”, and that may take into account any modifications to investment holdings, asset classes, diversification and rebalancing—which I am told sounds like a lot of mumbo-jumbo if you’re not a finance geek.  Therefore, you may need some sort of professional finance geek to assess your situation and help you make the right decision. 

I have issues choosing a person to cut my hair; I can’t imagine choosing a professional for something as convoluted as investing (if I weren’t already a finance geek myself!).  So, as you search for that perfect financial planner to guide your portfolio to short-term prudence and long-term growth, consider the following factors:

Never settle for being treated like anything less than a three-dimensional person.  If you’re going to trust someone with your money, you need to feel confident that person understands everything about you, from your current situation to your long-term goals.  If you don’t think you could relax and have a conversation with this person and actually understand everything s/he has to say, then that advisor probably isn’t the best choice for you.

Incentives matter. Nearly everyone I have met in the financial services industry believes they are a very ethical person.  Now, I’m not saying there AREN’T very good, ethical advisors out there, and I believe that it’s okay for people to make money.  However, the consumer must always be cognizant of the fact that, as long as money changes hands, advisors have incentives to earn money from your wealth.  Stay vigilant, always question those incentives, understand HOW your advisor gets paid, and monitor your investment fees.

Understand your investment strategy.  Regardless of whether a financial planner recommends a strategy or you decide to come up with one on your own, err on the side of simplistic.  There is a strong relationship between a sophisticated investment strategy and low returns. When it comes to investing, the KISS principle (keep it simple stupid) really works.  And, if you can’t understand what your financial advisor is recommending, it’s probably too complicated.

Never completely trust anyone with your money. This is a corollary to understanding the strategy. Keep your advisor on her toes and keep asking questions. Trust any advisor enough to listen, but never to follow blindly.  It's a recipe for disaster.

If an investment looks too good to be true, it probably is. Beware of promises of high returns without risk.  One of my favorite advisor “tricks” is the review of Morningstar reports in conjunction with a portfolio.  Morningstar is great when you understand how it works.  Morningstar rates funds on historical performance . . . so there is always a chance that you have a portfolio of 5-star funds that completely tanks (because historical performance doesn’t guarantee future returns) or, you bought at a high point and the fund may have a positive return, for the year, but you personal holding period return is negative.  So, Morningstar might give you great information that is completely unrepresentative of your investment.

Financial advisors are not all above average, so beware of the advisor who starts quoting their personal asset management rates of returns—meaning, what they say they have done for their clients’ portfolios in prior years.  In a market that is almost completely "professionally invested," I have yet to meet anyone who considered themselves a “below average” money manager.  It's easy for them to claim they are beating the market if they don't have to show their actual results (see Morningstar example above).

Ignore the experts. How many of those TV gurus actually predicted the 2008 market plunge? They were all wrong, wrong, wrong, yet still we watch them.  Investing success is all about seeing the big picture despite the market's noise. Daily financial media, on the other hand, are all about creating noise. It's their job to treat every blip in the Dow as if it had deep meaning, despite reams of research showing daily stock moves are random or, at best, ambiguous.

Above all, find someone you can trust to be your sounding board.  This person should be a level-headed, non-judgmental person who you can count on to give you a reality check when you feel yourself succumbing to investment panic.  This person doesn’t need to be a financial planner; s/he might be your mentor, your mom, your coworker . . . whoever you know you can rely on to help you keep a level head when you feel like yours is about to explode.

A Financial Minute with Jenifer: In the Interest of Success

When you choose to make an investment, in a mutual fund or stock for instance, you make a series of decisions.

First, you decide to invest. Then you choose the vehicle in which to place your trust. That decision is driven by many factors: rate of return, area of investment, maybe social consciousness.

What is an Individual(K)?

Do you have plans for retirement? Do they include a retirement plan? If you are a small business owner, you may feel you need to continue working during your golden years. Many business owners may not realize there are plans available to build a retirement account.

What Kind of An Investor Are You?

If you are investing money or planning on doing so, there is one very important question you should ask yourself--what kind of investor am I? Knowing if you are an aggressive or conservative investor is the first step to knowing how you should invest your money.