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Head Smart Investing Five Steps to Selling a Fund Funds at the top seldom stay there long. But you buy in anyway even knowing that all of the info you garnered to make that decision is already old news. In a recent column for the BlueMoney Report, I explained that mutual funds were once known as Investment Trusts. But do we really trust them? And what happens when along comes Eliot Spitzer pointing fingers at the very fund families whose trust we blindly assumed was ours. Should we sell because we hurt by our mistreatment? Should we sell if the returns we thought would happen for us, those past returns that they make no promises about fail to materialize? How do you know when to sell your stake in a mutual fund and if you have a good reason to sell? Trading this Market:
The old man looks at the car with envy. "Sure is a nice car", he tells the young man. The driver beams with pride, his purchase clearly getting the results he sought. "Can I take a look inside?", he asks.
Prone to Accidental Investing?
Quick Note: Market Timing Judging from the letters I have received, you were surprised that one of the topics of the complaint that was filed by the New York State Attorney General involved the legal practice of market timing in mutual funds, a method sometimes referred to as fund arbitrage. Often used in conjunction with international funds utilizing the distance of time zones, it is commonly used by 401(k) investors who like to protect themselves by trading within the available funds often more frequently that some charters permit. Can it help you make more money? Some of the folks who wrote believed that they survived the bear market better than their peers because of this practice. The argument against long term holding of a fund can be quite compelling when made by these "traders". They believe that market volatility can be reason alone to constantly repositioning oneself for the best advantage. Mutual fund companies, despite what they may say, tend to look the other way. They realize that the money is staying put, a general stipulation that the mutual funds involved in the complaint required of the hedge funds that did similar maneuvers. Should you do it? Probably not. Timing mutual funds, while not as complicated as timing the markets is difficult. Remaining diversified may not get you the highest return possible, but it does tend to trim the losses that are more likely. You could have told us that if we were comfortable with our mutual fund investment so far, that it will likely improve now that you have started to weed out the criminals. Its okay to be skeptical. I am. The fact that I even optimistically titled this piece as I did, will do nothing to cajole the economy into a real stampede of a recovery. I do believe however, that there are places of sanctuary in the coming months, especially if the past few days of trading are any indication of the coming months. There will be pitfalls galore for the investor. Currently, the pieces are falling into place that will challenge anyone who ventures down this so-called road. This still young earning season has brought many companies to the front of the news not because they remain profitable or have beat estimates but because of what they said. Far too many of these company's outlooks are suggesting that future earning may not reflect past results. That's unfortunate. Those past results were that great and now they aren't even good enough for comparison. It will become increasingly difficult in the months ahead to separate enthusiasm from worry. Investors continue to believe everything they hear from the talking heads on television to the reports that are starting to circulate with greater frequency by those folks who do the analysis. Too many of these experts have turned bullish on the markets in a time when a short term reversal may be in order. Mutual fund managers are not, as they usually do, trying to cover their performances with year-end buying. The S&P 500 index, one of the truer indicators of the market has been predicted to continue upward with targets of 1050 and 1075 as the popular settling range for the year. Earnings will be pouring in over the coming weeks and many have already absorbed the belief that these numbers are softer and easier to meet or beat than previously. All of this points towards a fuller and deeper exposure to equities in the coming months and well into next year.
October has historically been a bad month for investors and this time is no different. Although you might be studiously watching the progression of the indexes upward, it is far more of an illusion than anything based in solid beliefs. It is the financial version of the "no huddle offense". For those of you that may not understand this football terminology, the expression basically means conducting one play after another without wasting the time to discuss the next play. The team uses this strategy when the clock is ticking down and each second counts. October is a tax month for mutual fund managers. Losses must be sold to offset gains and the flurry of selling is both unpredictable, at least by the average investor, as it is illogical. Add to that the possibility that your fund may be not have the best numbers to post. Mutual fund managers understand the risk of falling behind the index that investors use for comparison. This is particularly evident in the large-cap group who have been falling behind the S&P 500 index. This little problem has managers chasing news, good or bad. The result of this will be good for the numbers, in the short term and possibly bad for investors in the long term. Another thing to think about is the overvaluation of that famous index, the S&P 500. There is a lot of talk about these markets being overvalued, which means that the earnings, what the companies on the index report as profits, are not as healthy as the cost of the stock that backs it. This number, in case you stumble across someone talking about it, is based on a long term earnings. If forecasters suggest that earnings will not be as good as the market prices the companies, the index is considered worth less than the price. If you are looking to buy into a fund now, waiting until November will not cost you any future gains. If you are dollar cost averaging, this is an acceptable blip on the investment radar. So You have been Conservative Deceiving Appearances There is an overwhelming temptation to paint these markets as rosy with bright skies contrasted with colors such as bleak with dark clouds. But the markets all seem to be thumbing their collective noses at any real description concerning behavior. Suffice to say, investing these days is not as bad, nor is it as good as it appears. There was a recent report published by the RiskMetrics group that suggested that risk has greatly diminished in these markets. Preferring descriptives such as tranquil, large moves away from highs or lows are not seen in the near future. This lack of volatility might just be picked up too late for those trying to time the market. With gains of only 7%, supported by losses of no more than the same number, a fourteen percentage point swing can seem euphoric enough to make people want to chase the high water mark. Evening out any real strategy and resorting to dollar cost averaging will be good enough for most investors to take their gains with their losses. In other news
One more tidbit
Dr. Tom is in the House Tom Madell, Ph.d has written another good article for your reading pleasure. Many people may subconsciously think of successful investing as quite a bit like buying a new car. Certainly, there are some similarities. Purchasing a new vehicle involves a big layout of money and so you want to be as sure as you can that you will make the right choice. And since you probably plan to rely on that vehicle for many years, you are motivated to carefully compare the various models and features available in arriving at your decision. But once your choice is made, you usually anticipate sitting back in the years that follow and enjoying what your effort has brought you, confident that your one-time choice was the right one.
Are you Saving Enough?
Do I have an exact amount? No. Do I think you should be putting away the maximum allowable by law? Of course. Do I wish that I could sock away $12,000 a year? You bet.
Index Fees: Underhanded Fees Two Fold Problem Logically, the first question might be where to get the money. The second though is more troubling. Continued >>>> The Nasty Truth About Mutual Funds Investing
Appearances Can Deceive
Bull or Bear
Is there any truth that rich guys invest better?
Can Frequent Monitoring of Your Portfolio Can Be Injurious to Your Financial Health? Mr. Swedroe was kind enough to contribute this excellent article for the readers of this site. The article is somewhat technical and can be complicated, but should serve as an interesting sideline to the behavior of all investors. First time investors are especially vulnerable to the constant checking of their mutual funds and can become quite dismayed by recent market trends. We update our fund portfolios here at the BlueCollarDollar on a monthly basis only because we want to remain timely. But as Larry points out, watching the ticker cross the bottom of the CNBC screen or monitoring your funds Net Asset Value is not only counterproductive, but may also cause more harm than good.
Are you asking yourself some pointed questions about your investment style?
And the latest
addition to our Spending Money to Make Money series is the hidden costs
behind those 401(k) Plans
Once again, as the markets continue their rickety performance, many new investors are having difficulty finding a jumping off point. I recently did a column for MakingBread Magazine whose target audience tends to be women, who also tend to be newer investors. You might find something there that might be helpful, at least in the way you think about the whole idea of investing.
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