How should I pick a mutual fund?
We discuss 5 Rules for selecting a mutual fund in a recent blog entry at www.LeapIntoRetirement.com. Mutual funds are still the best investment vehicle for most investors, but to be successful investors should ignore financial orthodoxy that says it's impossible to distinguish the good money managers from the lucky ones. We delineate a 5-step process and suggest that most investors avoid expensive "alternatives" like wrap accounts, hedge funds, and even most annuities.
What is your opinion of index funds?
Index funds are a legitimate low-cost approach for investors to participate in the market. I wouldn't pay an advisor a fee to use them when you can buy them directly from Fidelity or Vanguard for free, but investors who commit to index funds will not be at risk of getting in or out of those funds at an inopportune time. Studies have shown that most individual investors, without help, dramatically underperform the market. During the bull market, while the index was appreciating 12% per annum, a Dalbar Inc. study showed that most mutual fund investors earned only 2% per annum. Their dramatic underperformance is directly a result of buying into hot funds just before they turn cold (i.e. doing a terrible job of timing the markets).
A knowledgeable advisor should be able to help you do better than merely indexing, however. Scout Partners actively manages portfolios to take advantage of market volatility. We explain our approach at our InvestmentHeresies.com. We proactively manage client portfolios to take advantage of opportunities being offered in the market. Don't assume that all advisors are the same. Though most seem to be in the asset gathering and "asset storage" business, see what a difference it makes, enabling performance above what index strategies return, when your portfolios are expertly and actively managed. Check out our track record and see for yourself.
What makes Scout Partners unique?
Investors often put up with mediocrity assuming that all advisors are the same, so it doesn't really matter who is advising on the portfolio. At Scout Partners, our actively managed strategies set us apart. We genuinely believe in staying on top of the market and managing client portfolios accordingly. To learn more about what makes our investment approach and our service quality unique, check out our Frequently Asked Questions page on the www.GJstocks.com.
What is a Chartered Financial Analyst (CFA)?
Doug May was awarded the Chartered Financial Analyst (CFA) designation in 1986. Then, especially, the designation was not well known outside of financial centers like New York City where few except mutual fund and pension fund managers seemed to seek the designation. In recent years, membership in the CFA program has exploded. The CFA Institute notes that the backbone of the program is a three-level examination that measures a candidate's understanding of accounting, investments, portfolio management, ethics, and economics, as well as the candidate's ability to apply this knowledge to the investment decision-making process. Much more information is available to individual investors at http://www.cfainstitute.org/aboutus/investors/articles/index.html.
What's the difference between a Registered Investment Advisor and a broker?
A Registered Investment Advisor (RIA) is regulated by the Securities and Exchange Commission (S.E.C.) under the Investment Advisor's Act of 1940. RIA's are registered either with the S.E.C. or their local state securities commission office and act as fiduciaries, required to act in the best interest of their clients. Brokers, on the other hand, are regulated by the National Association of Securities Dealers (the N.A.S.D., a self-regulatory organization) and hold brokers to a "suitability" standard that merely requires that investment sold to investors be suitable, but not necessarily the best choice. RIA's must act in the client best interest. Brokers can select their product offerings on many different factors, including the size of the commission paid to the broker for selling a product. In fact, brokers act as a seller's agent, representing product vendors. RIA's act as a buyer's agent, representing the buyer/investor and required to act in their best interest.
Brokers typically charge a commission based on product sales. Until recently, brokers have been levying "asset management fees" similar to what RIA's charge, however the courts have recently reversed direction and realized that these fees make brokers appear to be like an investment advisor, without the fiduciary responsibilities that registered investment advisors bear in making their recommendations, and without the regulatory burden required of RIA's. It is a confusing issue and no doubt the latest ruling will not be the final ruling on the matter.