What are you thinking when it comes to your no load mutual fund
selections? Are you saving pennies and sacrificing dollars?
Are you spending your time looking at expense ratios, analyzing
Morningstar ratings and searching for funds with low fees and
no 12b1 charges? If you are like most people, you know these
things in and out. You've spent hours evaluating them, and your
chosen mutual funds cost little to purchase and maintain. But
they still don't perform to your hopes and expectations.
So, why is this happening? Because this kind of investing
focuses on cost as opposed to value.
Investors with this philosophy have usually interviewed numerous
advisors. But instead of trying to find someone suitable with a
sensible approach, they only want to know who has the lowest
fees. That's like going to the cheapest auto repair shop and
getting the best price, but your car still doesn't run well.
Then there are the investors who call or email me wanting a
recommendation on a no load mutual fund. They want one with no
12b1 charge, but they completely ignore the issue of how the
fund might perform.
Both these kinds of investors spend their time trying to save
pennies and in the process they are losing dollars. Instead of
falling into the penny wise, dollar foolish trap, here are some
ideas that will assist you in evaluating the end profit rather
than just the short term saving.
1. Shift your focus from penny pinching to looking at the big
picture: What can a mutual fund or an advisor do for you,
not how much does it cost? Why? If you buy a given no load
mutual fund at the right time and it gains a tidy 15% for
you over a 6 week period, would you really care about the
costs? If a mutual fund—or an advisor for that matter—can
give you superior performance and an increase of several
percentage points over your bargain price pick wouldn't
you pay an extra 0.25%?
2. Consider finding a fee-based investment advisor who uses a
facts-based methodology and has a track record indicating
those kinds of returns. For example, in my own practice I
used a trend tracking approach to get my clients into the
market on April 29, 2003. Plus, our research and homework
led us to recommending funds that gained anywhere from 11.50%
to 22.00% over the following 6 week period. How did you do
during that time? Do you think any of my clients care whether
one of these funds has a small 12b 1 charge? Or whether they
have the lowest expense ratios in the industry? I know they
don't.
The bottom line is to look at costs as balanced by performance
and that's where you find value. Then seek true value not simple
savings, enjoy healthy dollar-level returns and don't sweat the
pennies.
Copyright 2004, Ulli G. Niemann
Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped countless people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit:
http://www.successful-investment.com
