In the latest edition of the Sound Investing podcast, published by FundAdvice.com, Paul Merriman, Tom Cock and Don McDonald share their insights into focusing on the things of which you can be certain, what investors should expect from a financial advisor, the fallacy of keeping cash aside until markets turn up and why you shouldn't follow your neighbour's advice when it comes to investments.
One warning, the radio show is 51 minutes in length and will use up 23MB of download.
If these constraints are not a problem, I recommend you take a look at the latest podcast - Sound Investing - August 8, 2008
For those who have limited time and/or limited download capability the following is a brief summary of the more relevant material that was covered:
Focusing on things of which you can be certain
The presenters comment that investors should focus on the things they can be ceertain:
- over the long haul the world economy will grow
- therefore make sure your portfolio is well diversified globally
- the lower the fees, the more you are oing to make
What investors should expect from a financial advisor?
1. To be educated:
2. To receive effective communication
3. To receive disciplined decision making
Myths & Realities
It is a fallacy to keep money in cash until the market turns up. If the money os forlong term investment, then it should be invested now. The key is to continue to invest into what you have decided is an appropriate asset allocation and to rebalance your portfolio every year taking from the highest earning classes and redistributing into classes that have not been doing so well - take from the best performing classes and redistribute to the worst performing classes.
Paul's Outrage - Don't follow your neighbour's approach
The podcast concluded with Paul's regular "Outrage". This week he commented on a prospective client's comment that he had decided to go with his neighbour's approach. The questions to ask yourself - do you have the same risk tolerance as your neighbour and is he/she telling you the whole truth or just letting you know the investments which have gone really well.
Paul quoted a 1999 survey of 500 investors of which 131 claimed they had beaten the market over the past 12 months. 30% thought they had received returns of 13-20%, 30% thought they had made 21-28%, 25% had made a little less than 30% and 4% of these had no idea yet till said they had beaten the market. The market return for the year was actually 46% and at least 75% of the 131 had not beaten this result.
Paul concludes that the objective of any investor should be to follow a strategy that has a high probability of success. Trying to follow your neighbour may not be such a high probability approach.