05/03/2006
The word "lemon" comes with a whole set of negative connotations. And that's exactly why we chose the term to describe the latest feature of our Successful Investing advisory service. That's right: subscribers to our newsletter will have access to our new "Mutual Fund Lemon List."
This new list tells you which mutual funds have underperformed their one-, three-, and five-year benchmarks. Also included are those funds that underperformed their one- and three-year benchmarks because they do not yet have a five-year track record. So, to all of those new funds out, sorry -- you're not immune from being put on the list.
So just how many funds are we talking about here? I mean, surely not that many funds failed to outperform their benchmark? Well, how about trying these numbers on for size:
The total number of funds that made the list last quarter: 1,680!
The total assets in these funds: $1 trillion, 128 billion, 619 million!
No, that's not a misprint. Well over $1 trillion is currently languishing in these underperforming mutual funds. And I'd be willing to bet that many of you reading this right now have at least some assets committed to these funds.
Here are a list of questions I want all of my Making Money Alert readers to ask themselves about their mutual fund holdings.
What mutual funds do I own right now?
Many people don't know exactly which funds they own. This can easily happen if you have a 401k at a former employer, or if you haven't reviewed your IRA or VA holdings in some time. The first key to knowing if you are in a Lemon List fund is to know exactly what funds you own.
What are my fund's ticker symbols?
Once you know the ticker symbol for each of the funds you own, it is extremely easy to find objective information about the fees, performance, objective, management style, etc., of that fund. All you need do is go to finance.yahoo.com and put in the fund's ticker symbol. Information is the key to all good decision making, and information about the funds you own helps you make intelligent and informed decisions about your holdings.
What type of funds are they?
Here I am talking about knowing your mutual fund terminology. In my Successful Investing service we often talk about mutual fund "keywords." These keywords help you identify the investment objective, style, sector and size of the companies you own through the fund.
How are my funds performing vs. industry benchmarks?
If you don't know how your fund is performing vs. its peers, you really don't know if it is worth holding on to. That's where our service comes in.
What do my funds cost me?
Everything comes at a price. Unfortunately, all too often the price that a particular mutual fund company charges to manage your money is quite a bit more than other comparable funds. Plus, mutual funds are almost always more expensive and more restrictive than my beloved exchange traded funds (ETFs). Consider that the average mutual fund charges fees of about 1.5%, and the average ETF charges about 0.35%. As you can see, this big difference in cost can have a big effect on your overall portfolio returns.
Should I stay or should I go?
Would you add more money to this fund again? If not, why are you still there? I know it's a simple enough proposition, but you'd be surprised at how many investors stick with underperforming funds because they simply didn't know the right questions to ask.
Please don't be one of those investors.
To receive my new Mutual Fund Lemon List, and for more on how to pick the right mutual funds and ETFs to help you achieve your financial goals, subscribe to Successful Investing today by clicking on the link below:
http://www.fabianssuccessfulinvesting.com/visitor.php?offer=56
As I see things, there are three forces working against the equity markets right now: higher energy prices, higher interest rates, and a falling U.S. dollar. All of these forces are bearing down on the market, and could conceivably cause the recent upward momentum in stocks to falter.
What should you do in response to these current headwinds? First and foremost, if you are holding small- and mid-cap stocks and/or mutual funds or ETFs, you should raise your stop-loss point to protect your profits. You don't want to allow a correction to wipe out the healthy gains you've likely achieved over the past few weeks.
One of the biggest mistakes an investor can make is not banking profits when the going is good. Letting your gains evaporate in the face of well-known market negatives is unforgivable, so do the smart thing and raise those stop-loss points to protect yourself against a potential market pullback.
"No, the object of government is not to change men from rational beings into beasts or puppets, but to enable them to develop their minds and bodies in security, and to employ their reason unshackled; neither showing hatred, anger, or deceit, nor watched with the eyes of jealousy and injustice. In fact, the true aim of government is liberty."
—Benedict De Spinoza, Tractatus Theologica-Politicus
This early libertarian thinking from one of history's great philosophers is important on two fronts. First, it outlines the proper function of government; but second, it implies the responsibility of thought by the individual.
When it comes to something as important as your finances, you have to embrace that responsibility without equivocation. After all, your life basically comes down to you and the decisions you make. Isn't it time you started making the right decisions about your money?
Wisdom about money, investing and life can be found anywhere. If you have a good quote you'd like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars, or anything else.