good advice, IMO
No wishful thinking allowed
By Chuck Jaffe, CBS MarketWatch.com
Last Update: 12:01 AM ET March 30, 2003
BOSTON (CBS.MW) -- There's a lot of wishful thinking going on in fund investors these days.
They wish they knew then -- back when they started investing -- what they know
today. They wish they could start over. They wish the market would just turn around. They wish they could have better
market timing or more patience or that they had more to save.
That's where the genie of the mutual fund comes in.
Like any good genie, you get three wishes. And like any genie, there are rules:
No wishing to get your money back. Like love -- remember, every genie in every tale can't make someone fall in love
-- recouping your losses is something you have to earn.
No wishing for instant stock market booms or all answers in perpetuity. The market, as all investors should know, is
more powerful than any genie, so turning it around or providing clairvoyant market-reading abilities is more than
can be delivered.
No wishing for more wishes.
I'd love to tell you that you can rub this column and make the genie appear, but it doesn't quite work that way.
Instead, you have to come up with your own list of wishes.
Start by reviewing your portfolio, examining where things work, where they don't and how they might improve.
First, identify the things that are working for you. Begin with the actual funds, reviewing not only their performance, but
also how they compare to their peer groups.
You are looking to see that the fund is delivering to the reasonable expectations any buyer should have when first
investing in a fund: Does it provide superior performance, compared to its competition, for a specific type of assets you
want in your portfolio?
In every asset class, someone has to get below-average performance. But that is not something to wish for, so if you've got
funds that have proven to be less than you expected, you may want to start wishing for new funds.
While you are reviewing your funds and trying to make a wish list, look for funds that you really wish you never owned.
There are plenty of investors out there who say something like "I really wish I had never bought the XYZ Internet Fund,"
but who continue to hold the suspect fund waiting for a return to break-even or simply not wanting to lock in losses.
This is the kind of wish that the fund genie is best capable of granting.
Next, look at broader portfolio issues. This is where you check to see if your funds have tremendous overlap, where you've
bought multiple funds expecting to get diversification but you've wound up with multiple funds buying mostly the same
thing.
It's also where you review which asset classes you currently are invested in, to determine where you have holds in your
current strategy.
And this is where you look for holes in your plan, asset classes that you might want to cover but haven't up to this point.
In this way, you build your wish list with types of funds that you might want to own; in general, you'll be wishing for fund
types that have done well during the bear market -- real estate, bonds, gold or other assets -- that tended to be
under-represented in the average portfolio during the bullish times.
Finally, look at the strategy that drives your investments. While every strategy has its fans, the important thing to
remember is that there is no one right way to reach your financial goals.
The important thing to consider is whether you have the emotional discipline to stick with a strategy and see it through to
success, so that if you want to move from a total buy-and- holder to a tactical market timer, make sure you'll be prepared to
stick with the change you are making.
One of the easiest ways to sabotage an investment portfolio is to jump around from one investment discipline to another,
so wishing you were doing something new and different is not to be taken lightly.
If you are wishing for a strategy that will last a lifetime, it has to be something you can stick with that long; you don't want
to be three years down the road wishing you had, say, stuck with buy-and-hold.
Armed with your three wishes -- which should be enough to let you rebuild your portfolio without going totally overboard
-- making the genie appear is the easy part.
Go look in the mirror.
If you've been wishfully thinking of things you can do to better manage your money in funds, there's no time like the
present to make those wishes come true. With good research and a solid plan, you'll be amazed at the powers you have
when it comes to improving your investment performance. |
