By Ken Faulkenberry
The economy is going through profound changes trying to absorb the shock of two bubbles in one decade. We are currently facing high unemployment, large and growing deficits, and a ballooning national debt. Instead of implementing sound fiscal and monetary policies, government policies of the past decade have and are compounding our long term problems. The economy lurches between deflation and inflation as the policies of the government vacillate depending on what the current objective of politicians and the Federal Reserve are at the moment.
In addition, an aging population of 80 million retiring baby-boomers will put a severe strain on entitlement programs for decades to come. Unlike any time period we have ever faced, we will have a shrinking number of young productive taxpaying workers as compared to older people who will need the entitlement programs far beyond their projected resources.
The bottom line is we are going to face much slower growth in the United States than we have faced in previous decades. This decade was a prelude to the kind of investment environment we may face going forward. The result is a buy and hold strategy will produce subpar results due to its lack of ability to adapt to a tough and unsteady environment. More than anytime in the past, diligent research, and adaptation to a constantly changing environment are required to build wealth. Diversification, asset allocation, and regular re-balancing are necessary for a successful investment plan.
Unfortunately, very few mutual funds have adapted to the new reality and have produced very poor investment returns. Much of this poor performance is due to over diversification. The current environment produces more struggling companies and fewer winners; bringing down the average performance. The very broad diversification typical of most mutual funds means less money is allocated to the best investments. While under diversification is a deadly mistake, over diversification leads to mediocre returns- or worse?
Because of today’s environment investors should consider managing their own investments. With low discounted commissions, investors with a minimal size portfolio can efficiently put an asset allocated portfolio together and stay in control of their own destiny. Investors who need help with the research, or putting together a properly diversified portfolio can hire a service such as the Arbor Investment Planner. The AIP provides a properly diversified asset allocated model portfolio and specific buy and sell recommendations to its online subscribers. Check out the excellent 10 year record of the Arbor Asset Allocation Model Portfolio (AAAMP) here: www.blog.ArborInvestmentPlanner.com/aaamp-update
Current Methods Of Fund Selection Deny 60 Million Mutual Fund Investors Access To Wealth Creation.
Why is there such a disparity between the net real returns of 8-9% produced by the Mutual Fund Winners Spreadsheet (MFWS) http://www.mutualfundwinnerpicks.com since 1994 compared to the average investor’s net real returns of 1-2% – confirmed by Dalbar’s and the FRB’s recent independent study updates – after fees, expenses, taxes and inflation?
Rather than bemoan this sad state of affairs and since it is unrealistic to expect expenses, taxes and inflation to be drastically reduced any time soon, the approach was to find out what controllable factor(s) are responsible for this corrosive drag on performance.
Since fees are controllable, the MFWS is confined only to no-load/no-fee funds. These funds incur no outside additional acquisition costs giving the fund investor an initial, but limited, boost in returns. While this was a valuable contribution, the investigation was not satisfied and probed further and deeper into the problem.
Why should the average investor be subjected to a 95% chance of zero wealth creation over a lifetime of employment?
After 15 years of research using over 200 million data cells and some luck, the culprit was found.
It was “adverse selection”, which is the systematic selection of more losers than winners usually on a 75:25 ratio basis, caused by an overwhelming number of losers. By reversing these odds, mathematically, many times more winners than losers are now easily and consistently picked.
A winner is defined as a fund whose performance consistently outperforms the Standard & Poor’s 500 Stock Index over time.
A loser is defined as a fund whose performance consistently under performs the Standard & Poor’s 500 Stock Index over time.
The MFWS was designed in 1994 to enable investors with no previous fund investment experience (or with loads of it) to pick winners, to overcome adverse selection, to become wealth creators and take control of their financial lives.
Isn’t it time the mutual fund industry stopped relying on gossip, tips, slogans, anecdotes… and begin using basic, proven scientific principles to help at least 60 million fund investors create wealth?
Arthur Regen, Managing Director
Regen Associates
http://www.mutualfundwinnerpicks.com
RegenAssociates@comcast.net
888.666.8921