Sound Investment Advice From A Financial Planner

Many investors try to play the game of picking individual stocks rather than picking solid mutual funds and then often wonder why they experience both difficulty and stress making money in the stock market.

I sometimes tell investors that they should not be afraid to own individual stocks if they are willing to take the time to learn enough about the individual company or stock to make a rational businessman’s decision. And don’t forget about valuation. Sometimes it is just a lot easier to pick fabulous mutual funds, and let professional money managers make the individual stock selections for you. If you go this route, and for many it is the way to go, than I suggest your big decisions are what sectors you want to invest in, and what are your asset allocations. Sounds like fancy language, but really it is not. It’s just plain common sense investing. What is your aversion to risk? Do you want to embrace investment risk, or do you seek to encounter as little risk as possible.

Funds are expensive but most are not. Depending on the amount of money invested, most people cannot find better value for every dollar invested than they can when they invest in mutual funds. While the fund companies generate an expense for their administrative efforts, they almost always come in cheaper than investing individually through a discount broker. With most fees at 1% or less, an investor with just $10,000 to invest could only make 10 trades in 1 year at $10 each to achieve the same cost savings. This tells us that funds are owned by so many different unit holders that the collective pays a reduced fee, not the individual investor.

Make sure the management team hasn’t changed by the way. You don’t want to pay for fabulous past results only to find out there is a new portfolio manager in town running your mutual fund. Watch out for the fad funds by the way. By the time an entire mutual fund sector is hot, and ripping up the charts with performance, it is too late 90% of the time, for you to be an investor. You don’t want start becoming an investor in gold as it passes $1200 per ounce. That is the time you want to be thinking about exit.

Young investors who are just starting with a savings program will find that their friends, family and advisors will almost all have different views about how one should start to invest their money. For some, recommendations will come along the lines of buying real estate that can be flipped or rented out to generate monthly income and long-term capital appreciation. For others, it will mean putting as much money away as possible into a low-paying CD or maybe even mutual funds.

If you have a small percentage of your portfolio (around 10% is recommended) in commodity mutual funds, then you have some protection from a downward swing in the stock market. Commodities also do well during times as of inflation. And they are a good hedge during times of a weak dollar. To take advantage of the diversification benefits of commodities there are other choices available, such as commodity mutual funds. They are similar to stock mutual funds in that there are many types to choose from, just as there are many brokers to buy them from. Do a little research on the funds and brokers and put some diversification into your portfolio.

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