Every Wall Street analyst, financial planner and broker will tell you that the right way to pick a mutual fund is find a good money manager of a fund that has a long time record.

Yes, I believe that too, but it is amazing that when you go back in time to see what this genius did with the mutual fund, you will find years he has had some terrible losses. Would you want to own that fund then? In the year 2000 about 60% of all mutual funds declined. Many had losses of 30%, 40% and many over 50%. That is when they tell you things like: "you have to be in for the long haul", "this is only a market correction" and "the market always comes back". Among others.

One of the best-known mutual funds, Fidelity Magellan, dropped from a high last year of 146 to 100. That is a 32% loss. Yet this fund manager received a salary of over a million dollars. Did you know the average fund manager made $290,000 last year? How can that kind of money be paid to a person who loses your hard-earned cash? The great majority of fund managers today have not experienced a long-term bear market. They are too young. A few of them did go through the 1987 crunch in which the bottom was reached in 3 weeks. They did not have a chance to sell off their weakest stocks. Of course, they had plenty of time before that fateful 508-point one-day loss to unload some of their dogs. Unfortunately, fund managers are not taught to sell and they definitely do not understand that sometimes cash is the best position.

A major fallacy of mutual fund charters is that they must always be fully invested. There are many funds that have specialties such a Pacific Rim, Russia, real estate, indexes of various kinds, socially responsible, big cap, small cap and on and on. There are times when almost everything in that sector is going down and there is nothing to buy, but the fund charter maintains they must be fully invested. In defense of the fund manager he must buy even if it is garbage. He is not allowed to preserve the investors capital by staying in treasury bills.

If you think a fund manager who loses 30%, 40% or more of your money at any time is a good fund manager then you have been snookered by Wall Street. There is only one way to protect yourself from that type of money mismanagement and it is very simple. If the fund you own drops more than 15% from its highest price any time after you own it then you must sell it immediately even if there is a sales charge or redemption fee. The first rule of investing is "protect your capital". You even have to protect yourself from "a good fund manager".

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

Recently I was invited to appear on a live CNNfn television show to discuss my article “How to evaluate Load vs. No Load Mutual Funds.” (You can read that article on my website http://www.successful-investment.com/articles21.htm)

As the producer and I were working out the logistics of my appearance, she mentioned in passing that “most people can’t afford an investment advisor.”

While that wasn’t the time or place for me to discuss this, I realized that many people might have a similar misconception. Had conditions allowed, I would have pointed out the following to her.

There are only two ways an individual can invest in mutual funds: Selecting and investing themselves or using outside help. If they use outside help they’ll have a couple of choices again: A commissioned salesperson (broker, financial planner or Registered Representative) or a fee-based investment advisor.

Most people don’t know the difference and often start with a broker who charges about 6% commission off the top to purchase a mutual fund. The fund is usually from a limited selection of fund families the broker has a relationship with. He, of course, would never recommend a no load fund or an exchange traded fund (ETF), since it is not in his best interest — although it might be in yours.

Having a fee-based investment professional handling your portfolio will get you as close as possible to receiving advice that is based on nothing but the advisor’s best knowledge and evaluation of the market. They advise only what they consider top performing funds since sales commission is not a consideration and does not create any conflict of interest for them. But, how can you "afford" an advisor?

First off, the advisor’s fee is usually in the range of 1% to 3% per year depending on portfolio size. This amount is billed in advance on a pro-rated quarterly basis and charged directly to your investment account. This creates an initial savings right off the bat.

Most fee-based advisors offer complete service as far as your portfolio is concerned. That means that they don’t simply “sell” you a mutual fund and disappear until you call again. Since investors evaluate advisors based on the performance of their portfolio, advisors are keenly interested in maximizing your bottom line. In the long run, your gain should outweigh their fee.

Many advisors utilize an investment discipline or methodology that keeps you not only invested during upswings in the market, but also in the appropriate funds for the current economic environment. For example, at one time, tech funds were hot. Now, generally, they’re not. An advisor watching market trends could have been able to assist you in avoiding the bursting bubble. (In fact, my clients were advised to pull out of the market and into the safety of money markets in October, 2000, just before the market plummeted. What they didn’t lose because of this will more than cover my fees for the rest of their lives!)

Most advisors don’t have lengthy agreements and you usually can cancel by giving 2 weeks notice. The advisor never has access to your money because he is affiliated with a custodian who handles the money, the monthly statements and fulfills the proper legal reporting requirements.

With this arrangement an advisor can actually save you money. How?

1. The advisor will use only no load funds. Because of his affiliation with a custodian (often a major brokerage firm), he’ll have access to some 10,000 mutual funds, not just to one or two fund families as most commissioned brokers do. This allows him to pick the best available, which potentially means a higher return for his clients.

2. At times there are superior load funds available, especially in the international arena. I have used a couple of those in my own practice because they were available to me as “load waived funds” and my clients got the advantage without paying a sales commission.

3. Custodians many times also offer “Advisor only” funds. These are usually high performing mutual funds where the fund family wishes, for whatever reason, to deal only with investment professionals, so they set high minimum dollar requirements.

Such was the case in my practice during our most recent buy signal (4/29/03). I purchased the NAMCX fund, which was only available to advisors through my custodian. This fund rewarded us with a cool 47% over the following five months. Most independent investors would not have had access to such a fund on their own.

Keep in mind that markets fluctuate and starting with an advisor in the middle of a downturn will not likely yield high profits at first. However, over time, an advisor will most likely produce results better than what you would reasonably expect yourself to do, even with the advisor’s modest fee.

Choosing the right advisor and watching how your portfolio performs with their advice will almost always prove that it doesn’t cost you to have an investment advisor, it pays.

About The Author

Ulli Niemann is an investment advisor and has written about methodical approaches to investing for over 10 years. He avoided the bear market of 2000 and has helped countless people make better investment decisions. Subscribe to his free newsletter: www.successful-investment.com

ulli@successful-investment.com

Someday you may want to retire and continue to live in the life style to which you have become accustomed. According to conventional wisdom you will need less money because you will have fewer expenses than when you had to go to the office every day. Maybe. Let’s hope so.

Unfortunately, it doesn’t always work out that way so you had better have saved enough cash to supplement the social security and pension plan income (if you have one).

My philosophy is to save with mutual funds as they are the safest way to invest in the stock market. There is one and only one basic criteria as to which mutual funds you should own. That fund or all those funds if you own more than one must be outperforming the S&P500 index (which is just an average) during the last 12 months.

Don’t listen to the Wall Street gurus who tell you to buy a "good" fund and stick with it. The only good fund is one that is doing better than an average because you don’t want your money doing a below average job. The hogwash you get from the great stock market "experts" is you need to look at how a fund has performed over the last 3, 5 or 10 years. Double hogwash. Ever hear the story about "what have you done for me lately"? It holds true for mutual funds.

Look up the big fund manager names on Wall Street. You will find that in the last 10 years all of them have had periods when they did not do an average job. You don’t want to own any of their fund while this guy is going through a ‘cold’ period.

Every week the Investor’s Business Daily paper publishes a list of various funds citing their performance over the past 36 months, 24 months, 12 months, 9 months, 6 months and 30 days. If you have the time and the right brokerage company you can pick the "hot" short term winners and switch from one to another at no commission charge. It does take time and effort.You will trade less frequently and you can get an excellent return on your money if you decide to go with the best performance over the last 12 months and you limit yourself to switching only if your fund falls out of the list..

When you are adding a small amount monthly to your IRA or 401k you will want to specify where those additional funds are to be invested. Always put them in the best performer at the time.

If you own more than one fund, say six, you should sell the weakest one and transfer your money from number six to number one. Sell the dog and invest in the top performer. Prune your portfolio monthly. Every fund manager will tell you this is too simplistic. It works. He is lying. Why? Because he is being paid on the amount of money in his fund and not upon the performance of the fund. It is called ‘you buy, he holds’. It is a loser; he is a professional loser. Why should you be a loser too?

Review your funds’ performance monthly and stay with the best ones. Retire early.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

With the stock market stubbornly refusing to settle down and smooth out, Wall Street has been scrambling to come up with "product" they can sell to gun shy investors.

One such new concept is the Lifestyle fund; an extremely diversified package designed to be the single fund in an investor’s portfolio.

There are two general types of these funds, in which assets are spread out across a wide range of stocks and bonds. In one, securities are held directly, in the other, assets are held through other funds.

Fidelity’s Freedom 2030 is an example of the first type. It targets a specific retirement date, and the cash and bond stakes rise as that date approaches.

This type of fund has created a perception among investors that its value will not drop and that it is safe. But, in fact, these are no safer than a standard mutual fund.

Since we sold all of our investment positions on October 13, 2000 and preserved our capital, Fidelity Freedom 2030 has lost 39% (through 2/21/03). Do you think that’s an isolated incident?

I’m not picking on Fidelity, but here are some of their other Lifestyle funds with returns over the same period:

Fidelity Freedom 2020: -34% Fidelity Freedom 2010: -22%

So much for perceived safety.

The other Wall Street bright idea is the fund of funds (FOF). It sounds good, but it actually creates a double layer of costs; the cost of purchasing the fund itself, and then the expenses of the mutual funds the FOF purchases. Take for example, the Enterprise Group of Funds. It shows an expense ratio of almost 2% plus a sales charge of 4.75% according to Morningstar. Tack on the underlying expenses and you’re paying out more than 3% a year in investment expenses.

If you’re a new investor (with less than $10k), and have your account at a discount broker, you can add a minimum of 1% per year in fees just for the privilege of having an account. That brings the total up to 4% in annual expenses. Talk about adding insult to injury.

FOFs are sometimes being touted as the only fund you need no matter what the investment climate. So, let’s compare to see how the Enterprise fund of funds performed during the same period as mentioned above for the Freedom funds:

Enterprise Group of Funds: -35%.

The bottom line is that no matter what type of mutual fund you choose, or what anybody claims it will do for you, you must be vigilant and see if it does what you were told it would. In investing, there is simply no such thing as a sure thing. Sure you need to know how to recognize a good investment.

But just as important—maybe even more important—you must know when to recognize that a good investment idea didn’t work out, cut your loss, and sell.

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

Several times each month I am solicited by various market touts who have a newsletter service, faxes or emails they are willing to send me to make me rich. That sure is nice of them.

The first thing that pops into my head is if this system is so good why are they willing to share it for the lowly sum of $19.95 per month. Of course, some of them will move the decimal point to the right and increase that front number, but not to worry - it is sold with a money back guarantee!

If you should desire to put your toe in the water here are some questions you might want to ask first:

1. Are the figures shown actual trades or is this hypothetical? If it is hypothetical you can stop right there. Total BS.

2. What is the minimum size account I need to take all your signals?

3. Do you use stops?

4. Is slippage and commission figured in?

5. If all trades were made for the past year what was the starting amount and the amount in the account at the end of the year?

6. What was the largest single loss?

7. What was the largest continuous drawdown (loss)?

8. How many winning trades? And average profit?

9. How many losing trades? And average loss?

10. Are you willing to tell me a few clients who are using your method with their permission, of course? (Get references.)

It has been my experience that you will not receive an answer or you might get a form letter saying their method is proprietary information and cannot be given out. Hogwash. We know where you can put that letter.

You might ask to see their model account. Surprisingly the Securities and Exchange Commission does not require these hucksters to maintain such an account. I’d like to see such a regulation passed; there would be a lot less of these methods and systems sold as most of them would go broke. Before you send any money please make them prove with additional documentation exactly what they are selling.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t BuyIt!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

When you become interested in a stock or mutual fund you can call your broker and he will send you reports on how the company is doing, what their management is like and what might be the projected earnings for the company and how the industry is doing. Great information.

You will apply yourself to this mound of papers to determine if you want to buy the equity. You might also send for more reports from independent analysts such as Morningstar. You will become buried in papers. That is what the brokerage company wants. The reason is very simple. If you buy the stock after doing all that research and it goes down instead of up they are not responsible for your stupidity. Of course, if it goes up they can take credit for providing all that great information.

Now let’s think for a minute. You received all that information that was already printed so it could be sent to you. It makes me ask when was that printed? How old is the information? If I can get all this stuff about the company it means that anyone can. What it boils down to is the information is just that - information and none of it will tell you that the stock will go up further because the whole world knows.

These brochures are made to help you BUY not SELL. In my years of experience I call them a work of fiction. No brokerage company is going to issue a bad report about a company at least until it is ready for bankruptcy and by then your investment dollars have disappeared.

I know your next question. If I can’t rely on those reports how am I going to buy anything? There is a better way. You will want to see the price action of the stock or mutual fund. All stocks undulate as they go up or down and you want to know the major trend.

On the Internet you can go to a web site www.bigcharts.com and type in the symbol of the stock or fund and request a weekly chart going back for about to 5 years. What you are interested in is what is it doing during the past 6 months to one year. If the trend is up it is a buy and if the trend is down or sideways don’t buy it or if you own it sell. See how easy that is. Brokers and financial planners won’t like it because it takes all the mystery out of buying stock and they don’t want you to know this simple procedure.

Analyst reports give you lots of useless information, but will not tell if the stock will go up after you buy it. If it isn’t going up don’t buy it.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

It depends on your level of understanding of the market and the amount of money you have.

If you a sophisticated investor with a substantial amount invested you are probably already receiving more than one. If you have very little market savvy it will be difficult to choose one that fits the size of your portfolio. If you are just getting started my advice is don’t buy one - yet.

Most of the advice is Wall Street goobledegook and most of the remainder is stuff you can’t use anyway. Even the simplest letters have too much information and require more time than most working people have to act upon their recommendations.

There are literally hundreds of stock and mutual fund letters from which to choose. The first thing you want to know is what has been the track record - how much annual return has the advisor received for his readers over the past few years. Some will quote you wonderful figures, but these may be predicated on following all of his advice all the time. If that is the case you had better first ask how much money is required to buy at least 100 shares of everything he recommends when he recommends it. Don’t let him weasel out of it - make him give you an answer or don’t buy it. That amount may be more than you have so you must then pick and choose between his recommendations and you might not pick all the good ones, just all the bad ones.

There is one type of letter I consider essential to everyone. It times the market. By that I mean they tell you when the general market is going up and when to sell out because it is going down. Almost every broker will tell you it can’t be done. He tells you that because he doesn’t know how to do it and won’t take the time to find out. He is a professional loser and doesn’t deserve to be your broker.

The market timing service I have been using since 1986 is Fabian’s Investment Resource out of California. They have a 20-year real time track record.

In the last 100 years we have had 30 bear markets which are defined as the overall market going down more than 20 percent and some more than 40 percent. Even the best stocks and mutual funds will go down in a bear market because they act like ships - when the tide goes out all ships go down with it. You don’t want to have any market positions at that time.

The first basic advisory service should be for market timing. Check their claims and actual track record. Then as you learn more you may expand your horizon to picking individual issues or mutual funds.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

"If you don’t know where you are going, any road will get you there."

This very much applies to the your retirement plans especially if you are investing in the stock market. The proverb clearly states you need to know where you are going and how to get there. Right now, do you know how much money you are going to need to retire in the style you wish and, right now, do you have a plan to get that money put away?

Unfortunately, most people don’t. Many are saving, but with no plan. Are you one of those who let his broker or financial planner do the investing for you? I sure hope not. When I owned my brokerage company I can tell you about 1% of these "experts" know how to make money. My definition of a broker is one who makes you broker.

Brokers will talk circles around you with all the usual Wall Street smoke and mirrors. Their two great myths are "Buy and Hold" and "Dollar Cost Averaging", both of which don’t work very well. And then they will mesmerize you with "Research" which is the greatest waste of time I can think of. Brokers are not taught how to make money and they don’t even realize it. Their training is designed to keep the brokerage house from being sued. Brokers have been good students, but badly taught.

Let me prove that to you. If research was so good then why isn’t every broker rich? He has access to more information than you will ever be able to get. The big wire houses subscribe to tons of information. Brokers seem to confuse information with money-making. Information is of no value at all if you can’t turn it into the purchase of a stock or mutual fund that is going up.

I maintain you don’t need to know anything about a stock or mutual fund. All you need to do is look at a chart of a particular equity and if it is going up at a 30-degree angle over the long term (last 3 months), then buy it. When it quits going up, sell it and find another one. Brokers will tell you this is too simplistic and won’t work. As I said they have been badly taught.

If you are not happy with the returns on your investment portfolio you will want to reanalyze your goal. Set an amount. Change direction. Get on a better road to achieve that goal.

You cannot rely on someone else to do it for you. It is not their money, it is yours. No one will take the interest in that you do. Just do it!

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

What! Me worry?

Many of you remember the cover of MAD magazine. It was one of my favorites. Alfred’s only worry was about his front tooth. You and I have other problems.

The one big problem we all have is enough income to support our life style. Those who are approaching retirement or are retired will have to have enough cash or income from investments or pension plans to make it. We all know you can’t live on Social Security alone.

Your broker, financial planner, banker, whoever you rely upon for financial advice will advise you to start saving and to make some sound and safe investments. Most of them will recommend stocks, mutual funds and bonds as well as having your home free and clear by the time you are ready to quit. All of that makes good sense. The only thing is what stocks, which bonds and whose mutual funds should you buy? That answer is very simple. Ones that go up, pay good dividends and don’t go down. The latter is not so easy so you might have something to worry about.

Unlike Alfred, you can’t sit back and not worry. So which ones? This is one you won’t hear on Wall Street: It doesn’t make any difference what you buy. Buying does not take too much brain power. The hard part is selling. The financial mavens don’t tell you that the key to success in the stock market is selling. If you own a stock or fund that is not going up or is trending down it MUST be sold or you will lose your cash.

Recently dear old Mother Hubbard AT&T, the widows and orphans choice, has been put on the sell list by some of the big Wall Street brokerage companies. Momma Tel was trading at $100 and now is about $20, an 80% loss. Investors say, "I can’t sell Telephone because my Mother, Grand Dad, someone left it to them they said it was a ‘good’ stock and they should keep it forever". Care to look at some of the "good" stocks you have in your portfolio that have lost a huge percentage of their value? People become emotionally attached to stocks that are failing miserably. The only thing worse that than a bad stock investment is a bad marriage. With a poor stock you can sell it and be rid of that sick feeling and all those worries.

Having been an exchange member and floor trader for 17 years I know that every professional trader will tell you that you must cut your losses short and let your profits run. Very few brokers will ever tell you to sell because they have not been taught how to protect investment money.

You don’t have to be smarter than Alfred E. to get out of a loser. The simplest protection for your funds is a stop-loss order of about 10%. When your stock or mutual fund drops 10% or more from its highest price you should sell it and find a better more profitable place for your money.

What! Me worry? Yes, I think now is a good time to start.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

If you don’t know where you are going any road will get there. After you get there you might not like where you ended up. You must plan ahead for your trip.

Do you know where you are going with your retirement portfolio? Do you have a plan mapped out? Do you know what to do if your plan starts hemorrhaging money like a stuck pig? Remember 2000? Of course that will never happen again, will it? I’m glad you are so confident. I’m not.

Every professional trader has a plan. Wait a minute. You say you are not a professional trader and you wouldn’t trade like they do anyway. Well let me let you in on a little secret. If you don’t learn to invest like a pro you are going to give him all (or most) of your money whether you like it or not.

What is it like to trade like a pro?

You won’t like it and your broker and financial planner will like it even less. It is simple. The road to success is the road that has an exit ramp, in fact, several. It is like doing the Baja Road Race and carrying many spare tires. Without several tires you are not going to make it. Where are those exits? Why so many spare tires? Because without them you will be off the road in a ditch and unable to carry on.

The exits and the tires are your protection against becoming lost or broken down on your way to a comfortable retirement goal. To get where you are going in any vehicle you must not be stopped so you have to find an exit ramp when everyone else stays on the stagnating highway. That spare tire is one of your stocks or mutual funds that has gone flat and must be replaced. You are going to make it. The poor (sic) people who have no plan will remain mired on the highway to nowhere.

There is a secret to being a successful investor and it is one word - SELLING. Yes, any fool can buy, but it is the wise man who knows how to sell. That is called an exit strategy. If you do not have one you are doomed to lose money. During the long term bull market from 1982 to 2000 everyone became a financial genius. Now that we are in a long term bear market (that history shows us lasts an equal length of time) many of those financial geniuses are back in kindergarten and may not have time to graduate.

As the current stock market becomes more dangerous it is time to get out your road map to see where the exits are. It is time to realize that some of your tires could be wearing thin and may need to be replaced. No one is going to do this for you. Not your broker or your financial planner. You are the driver and a successful conclusion to this journey is completely up to you.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005