Turnover is Not Good
Turnover ratio of 20% is good.
Turnover ratio of 280% is not good!
Turnover ratio tells us the amount of buying and selling by the money managers inside of your mutual fund. We have some statistics on the turnover inside of the average mutual funds and they are not very good. When all funds are included it is estimated that over 280% turnover in 2008 was not uncommon! There are advisors that try to argue that “turnover is OK when it gets result”. That is a MYTH!
Why is turnover bad?!
It is expensive! There are transaction costs with every trade that robs you of returns in your investments. If your account is taxable, turnover creates higher annual tax liability. High turnover is an obstacle to healthy diversification. And finally, turnover suggests that your money manager does not have a long term strategy for your long term investment. It is possible that your money manager is looking for a new strategy after the dismal results of 2008 and they may be experimenting with your savings. Be informed!
Bad Advice vs. Bad Markets?
How can you tell the difference between bad advice and a general down turn in the market? I see a lot of bad advisors hiding behind the fact the entire market is down. How can a prudent investor separate the two?
Bad Advisors:
To begin with, professional advisors must have measures for accountability. Their recommendations should reflect the short term and long term needs of the individual investor. The advice should be supported by sound academic research. There should be measures to benchmark the outcomes of a particular direction taken. And there should be clear understandings of historic “worst case” and “best case” scenarios for the options selected.
Bad Markets:
The markets, on the other hand, move randomly. No one can consistently predict the market over time. This adds to risk for investors who participate in the market. Along with the risk there has proven to be a reward for prudent, long term investors in the markets. If you knew for certain that the market will completely recover, would you treat your current invested savings differently?
Conclusion:
As investors, it is our responsibility to hold professional advisors accountable for their advice! Bad advice will never become good advice by itself. Bad advice only gets worse with time! Don’t pay someone to speculate with your savings! We can give you simple tools to measure your investment performance. Call us today!
Professional advisors should be communicating clear expectations for the worst possible outcomes and the best possible outcomes for their recommendations. If your advisor admits to being surprised by the recent market down turn you should be seriously questioning his/her advice. This is not the worst the market has ever delivered! 2008 performance was always in the realm of possibility.
A down market is not an excuse for bad advice but an opportunity for prudent investing.
How can a prudent investor separate Myths from Truths in their investments? Attend our next Free Seminar on August 10, 2009 to learn how.
Seminar: Separating Myths from Truths
Date: Monday, August 10, 2009
Time: 4:00 – 6:00 pm
Place: Our Office – 3300 Eagle Run Drive NE, Grand Rapids, MI
Know What I love about Wealthy Farmers?
Do you know what I love about wealthy farmers? THEY EARNED IT!
They become wealthy by years of hard work. There are no short cuts!
Every day they work hard with no guarantee that this year’s effort will be profitable.
After 3 bad years they still plant seed the 4th year and expect it to grow!
Their work is rewarded over time.
It is no different for you and me!!
You can be a “Wealthy Farmer” too.
Now is the time to be planting!
Call me to find out how you can grow your wealth over time.
Steve Vanderwey
Investor Coach (and Farmer)
616-458-6480
Note: This is the arial view of the Vanderwey Farm. We purchased the farm in 2001 and added acreage for a total of 53 acres today. There are many great farming analogies for prudent investors. I look forward to sharing them with you.
Day of Small Things
Your greatest accomplishments will always be the culmination of many very small activities. The small things that you are choosing to complete now will be the seeds of your achievements tomorrow.
Complete the small things well today!
‘Who despises the day of small things?”
Zechariah 4:10
The Credit Crisis Visulized
The credit crisis has been talked about for two years. The terms are familiar but still no one understands how it all works together. This short video was specifically created to explain the whole mess. It is the best visual explanation I have seen for putting all the pieces together. Does not fix the mess but helps to make sense of it.
Hope you enjoy it.
