Investment Help

If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.

Saturday, May 7, 2011

Financial Advice for the Younger Daughter - Part 2

One of my best jokes in front of the classroom is to announce that I'm going to "recap" as I make a production of putting  the cap back on the dry erase marker - OK , not that funny,  although it does get a couple of chuckles and plenty of moans. recap...

Yesterday I was into the "Your Guide to Getting Started" booklet put out by Fidelity for 401k participants. I'm advising my daughter on her participation and trying to look at it from the perspective of a young pastry chef. We had reached the point where we noted there is a wide range of choices, all kinds of classes of funds, and a lack of information. We had reached the white water.

My wild guess is that probably no more than 20% of the people handed this booklet get past skimming the fund descriptions. Furthermore, anyone who wonders why 401k participation is low  has their question answered after looking over the booklet. Imagine a pastry chef reading this for the description of the "PIMCO Total Return Fund" :

"The fund normally invests at least 65% of assets in a diversified portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements."

Uhh...OK...I guess.

So what do participants need to know to pick appropriate funds? Let's start with how not to do it by putting the choices in table form.

Under the category "Domestic Equity Funds," the following choices are available in the "Your Guide to Getting Started" Fidelity booklet. The data shown in the table comes from Morningstar (just put the ticker symbol in at their site). The data is expected to be reliable but can't be guaranteed.

Source: Morningstar

It is important to note that sometimes there are too many choices. There can be a "deer in the headlights" situation. People back off and can't make a decision and therefore don't participate. (Not true when I have the choice of a lot of desserts, but that's another story!) Also, too many choices can result in an ongoing negative feeling because there will always be choices that do better than the choice you made.

The available funds under this single category offer widely-ranging investment types. They include small companies, large companies, so-called value stocks, and growth stocks as well as blends. The "Rank" shows how they performed relative to their peers.

At first inclination, there could be a tendency to select based on the performance ranking. Unfortunately, that's typically not a good approach. In fact, go to Morningstar and put in the ticker symbols, and you'll find many of the lower ranked funds in the table have relatively high ranks for the 3-year period. Think about it--this means they would have had a high ranking 12 months ago. Also, they wouldn't even be an available choice if they hadn't had exceptional performance in the past. The bottom line is that exceptional performance doesn't tend to persist. More directly:  selecting funds on the basis of their past performance can be hazardous to your investment health.

Next time, we'll get to the recommended allocation. For homework, see if you can pick the two funds I will recommend.

The information presented here is for educational purposes only. Investors should do their own research or consult with a professional advisor before investing.


  1. I'm gonna say atleast FUSEX! Looking forward to your picks and your explanation as to why!