Being Smart with $$ -- Top Performing Mutual Funds Should Often Be Avoided

Buying “Top Performing Mutual Funds” is often a way to lose money.  You might be tempted to buy the #1 name in large-cap stock funds for the last year listed in financial journals.  But wait, look closer at that fund listed as the top 1-year performer in Kiplinger’s 03/2019 issue and after some investigation you’ll find it did far worse than its benchmark over the last 10 years.  A $10,000 investment in this fund 10 years ago might have grown to around $30,800 today.  But if you instead just bought a low-cost S&P 500 fund (the benchmark it is tasked with beating), you would have over $45,000 instead.  A lot of funds can beat their benchmark for a year, but doing it over 10 years has proven to be very hard to do for the vast majority of actively-managed funds.  So ignore the exciting headlines and buy low-cost funds that keep you invested for the long term.  If you are going to take on stock-market risk, you shouldn’t have to add the risk that you won’t get stock-market returns.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- "I Don't Know" may be the best answer.

Where does your financial adviser think the market will be at year end? Here’s the answer you should be looking for: “I don’t know.”  Senior market strategists from major Wall Street banks disagree with each other every day on the near-term direction of the stock market.  And market prices reflect an equilibrium created by all those buyers and sellers.  Since the value of the stock market already reflects the views of all the bears and bulls, it really doesn’t matter if your adviser thinks the market is going up or down because he or she doesn’t know any better than all the other chief market strategists out there.  In fact, if your adviser is guessing on the direction of the market, then he or she may not be advising on an appropriate long-term investment plan, instead shooting for gains from market timing (which most research says is a losing strategy.)  So what’s a better answer from your adviser? He or she should advise you to stay invested in a portfolio suitable for your profile, add to it regularly and ignore all the so-called experts who as a group have a questionable ability to predict the short-term direction of the market.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com