How (NOT) to Buy Mutual Funds

When it comes to mutual funds, there is a lot more to success than just finding a good one. Sad investment stories like the following are all too common. I hope my sharing it with you will help you avoid making the same devastating financial mistake one of my former clients made.

This story begins during the height of the investment madness in 2000, just prior to the bear market. I had been managing an IRA account for "Bob" for around six years, with a better than average record of success. So I was surprised when Bob sheepishly called in July, 2000 to let me know he was transferring his IRA account, which had done particularly well during our latest Buy cycle going into the year 2000.

However, his tax preparer, a long time personal friend of Bob's wife's, was now also offering investment services, having recently received his Registered Representative's license.

Fast forward to the end of September. It had become increasingly clear to me that the Bull market had run its course. So, in accordance with the Sell signal from our trend tracking methodology, we sold all of our mutual fund positions on October 13, 2000 and went 100% into money market. (See my article "How we eluded the Bear in 2000" at http://www.successful-investment.com/articles12.htm). From our safe haven we watched the market crash and burn, causing most other investors to sustain double digit losses eventually reaching as high as 50 - 60% of their assets.

In 2002 Bob unexpectedly stopped by my office. As it turned out, things had not gone well at all with his IRA investments. As most advisors would have done, his tax preparer/advisor had quickly moved all of Bob's assets into a variety of "load funds."

Of course, being newly licensed he was clueless (as were many licensed advisors) as to market behavior or analysis of any kind. The end result was that Bob's portfolio lost in excess of 50% over the next 2 years. (Not to gloat, but my clients' losses in the same period were non-existent.)

Unfortunately, the degree of loss Bob sustained was experienced by many investors who did not follow a disciplined and methodical approach.

What I find particularly distasteful is that Bob's tax preparer misused his position of trust. He made financial decisions that he was not qualified to make, though his license implied that he did know enough to make them. So now we know what a piece of paper is worth.

This is no different than letting a newly graduated medical student with a fresh MD behind his name perform heart surgery. Or, hiring a new MBA grad to Chief Financial Officer of a Fortune 500 company. Yet the financial services industry allows someone to get a license (after a fairly short course) and to immediately start making incredibly important and far reaching financial decisions for anyone he or she can sell their service to.

This is a worrisome trend in this industry. A CPA friend confirmed that he has been approached many times by firms wanting him to offer investment services.

Why? It's easy money! Accountants and tax professionals have a great business base. They are in a unique position of trust, because of the information their clients disclose to them. Whether they are employed by a company or they maintain an individual practice, there is probably no other person (other than your spouse) who knows as many intimate details of your financial life as your accountant/tax preparer.

To abuse this trust for personal gain-no matter how noble the motive may appear-is a total conflict of interest and a huge betrayal.

The bear market of 2000 has shown that investing must be a disciplined endeavor. Even most professionals have failed to recognize this. What busy accountant, in the middle of tax season, can put the necessary time and attention to a volatile investment market that may require action at a moment's notice?

As for Bob, he's still with his accountant, and in the same investments that brought his portfolio down. He's hoping for a miracle recovery. As of this writing, the stock market is engaged in something of an upswing and Bob, I'm sure, is getting his hopes up that he will recover some of his losses. However, I shudder to think that this rally may come to an end and the bear market resumes. Where will Bob be then?

At 58 years old Bob is still playing Russian roulette with his retirement. He's apparently unable to make a decision to move to someone who has the ability to make sense of market trends and the discipline to follow the signals they communicate. This is a decision that will have a profound affect on his financial future-and will determine whether his story has a happy or sad ending.

About The Author

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 of people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: http://www.successful-investment.com/articles12.htm; http://www.successful-investment.com/articles12.htm

Batchtown Chicago prom limo .. Lockport Chicago limo O’Hare

In The News:

A virtual private network can help ensure your information remains security and your privacy remains intact. Kurt the CyberGuy explains.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Artificial intelligence-based cameras are giving air defense operators unprecedented capabilities in monitoring and protecting airspace.

Apple's iOS 18.1 Inactivity Reboot automatically reboots your iPhone if it hasn't been used or unlocked for more than three days, providing better data protection.

An inventor designed rooftop solar panels for a Tesla that draws solar energy while the car is parked, adding travel mileage without plugging in.

There are currently no laws governing what artificial intelligence can and cannot do with the information it gathers; here are 10 things to avoid telling AI chatbots to keep yourself safe.

A credit union with over 240,000 members recently revealed it was targeted by cybercriminals, resulting in a data breach that was part of a two-month attack by hackers.

Scammers have become skilled at creating convincing fake websites that can easily fool unsuspecting users. The CyberGuy offers tips to protect yourself.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

CAPTCHAs, which are used by websites to confirm whether users are people or bots, are harmless, but hackers are using them to infect PCs with malware.

Hackers recently leaked personal information of about 500,000 Americans and stole patient medical records that included lab results and insurance details.

The holiday season sees a rise in mobile shopping scams. Tech expert Kurt “CyberGuy" Knutsson helps you learn how to stay safe.

Tech expert Kurt “CyberGuy" Knutsson says a VPN enhances online banking security by encrypting data and protecting privacy.

Beware of these six sneaky holiday scams. Tech expert Kurt “CyberGuy" Knutsson gives you tips to avoid falling victim.

Tech expert Kurt “CyberGuy" Knutsson reveals how to securely back up and factory reset your Android to protect your privacy and data.

Artificial intelligence is making life easier for cybercriminals, allowing them to create elaborate scams to trick people. Kurt the Cyberguy explains how to protect yourself.

Cut through all the digital clutter and delete multiple emails from your Android simultaneously. Kurt the CyberGuy explains how it's done.

Tips to prevent your holiday decorations from being stolen

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Kurt "CyberGuy" Knutsson lays out the immediate steps you should take if your phone has been hacked and your personal information becomes vulnerable.

Fraudsters are sending people bogus invoices through PayPal as part of a sneaky scam that is going around; here's how to protect yourself from being fooled.

A former Colgate-Palmolive employee was shocked to discover $750,000 had been drained from her 401(k) account. "CyberGuy" offers tips on how to prevent identity theft.

Electric vehicle maker Harbinger recently showed its electric delivery truck can handle icy roads with agility and stability in winter.

To make the busiest time of year more manageable, here are some tricks for tracking your packages, taking quality family photos and curating the perfect Christmas playlist.

Kurt "CyberGuy" Knutsson explains how to keep your online Amazon gift purchases a secret from loved ones or friends this holiday season.

How (NOT) to Buy Mutual Funds

Stocks & Mutual Fund