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Rudi Bester is a businessman, serial entrepreneur, equities trader and value investor. His investment preferences include identifying undervalued large cap stocks to hold longer term. Higher risk/growth, small-cap stocks round out his personal investment portfolio. He also assists and counsels... More
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BesterInvestor
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  • You're Not Supposed To Look At That Stuff! 0 comments
    Aug 3, 2013 3:50 AM | about stocks: AAPL

    When I recently told a friend - who works for a major U.S bank - that I check my equity holdings at least daily, he indignantly responded with "you're not supposed to look at that stuff."

    His intentions were good, basically reminding me that one should leave your investments alone, allowing it to grow and compound, as it always does. He wasn't wrong, but merely misinformed.

    Regrettably… growing is not what investments automatically do, nor is it what they always do!

    The worst case scenario is dumping your hard-earned cash into mutual funds, hoping that you will enjoy growth, leading to wealth, resulting in a comfortable retirement!

    And since I mentioned hope: please remember that although hope may work as a political strategy, hope cannot ever be viewed as a sound investment strategy!

    This blog site already offers many references and insight into less desirable investments, like mutual funds, more desirably ones, like ETFs, and several better alternatives for people willing to pay just a little attention.

    Checking up on your stock portfolio once or twice a day is easy… as easy as making Google Finance your home page. Today, most people would probably be able to log in at least once a day, assuming they have Internet connectivity?

    You can also create your investment portfolio for free on many websites. Then, when you have the ability to view it once a day, you'll start paying attention. Or do you really think your Mutual Fund manager is checking in on your returns daily?

    Add CNNMoney site to your bookmarks. Then, if you see that the Dow is up e.g. 18% YTD, compare it with your 401k investments. You may find that your mutual fund holdings are only positive in single digits.

    Ask the 401k Fund Manager why your mutual funds are under-performing the Dow (a relatively low-risk index made up of 30 multi-billion dollar, blue-chip U.S. corporations). After all, you're paying his management fees!

    He or she will respond by saying that mutual funds are safer for you than holding equities (individual company stocks). They're not, because mutual funds also typically invest in equities. Or they'll offer that their diversification mitigates downside risk. This is partially true, because most mutual funds create indices made up of equities. It would be true that you are exposed to much greater investment risk if you only invested in one favorite stock, e.g. Apple... or worse, if you place all your investment cash into your employer's stock (i.e. if you don't diversify)! Remember Enron?

    They may even say that you benefit from expert managers who have the ability to professionally identify excellent investment opportunities for their fund index, with the ability to move between different investments continuously, to avoid taking losses (for a fee, commonly called a MER). Now, this last one is just poppycock. Most funds only change their glossy, published prospectus (shows what they invest in, fees, etc.) once a year! Remember when Apple $AAPL was trading at $700/share? Apple may have represented 10% of your fund's investment allocation.

    Guess what… Apple at $400 may still be 10% of your mutual fund's investment allocation. That's one of the reasons why your mutual fund may be delivering +5% YTD, and Dow 18%. Another reason could be that the MER - at a compounded cost of e.g. 2% annually - is eating away at your capital, regardless of the fund performance. Owning Dow stocks costs you nothing, save for brokerage fees when you buy/sell.

    Ask the fund manager if there are better fund picks than the ones you had selected for investment. Ask, ask, ask… and then ask some more questions! You don't have to be satisfied with answers you don't understand - make sure you understand what he or she may be telling you.

    Maybe you've never spoken to your 401k Fund Manager before? Maybe he or she will never call you? They certainly don't offer much investment advice, and when they do… their advice may often be (at least somewhat) questionable.

    It's your money, and he or she is supposed to be working for you! In the meantime, time flies by, and seemingly, the older you get, the quicker time goes by.

    Don't delay, start taking action today! Start by paying attention to your investments. Yes... go on... look at that stuff!

    In fact, you should pay attention to your investments and savings as if your wealth and future well-being depends on it... because it does!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: Mutual Funds, 401k, retirement Stocks: AAPL
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