Is your
money invested prudently? Do you fully understand the risks associated with
your investments and what it might take to cause a catastrophic event that
could potentially destroy your hard-earned wealth?
Of
course, we’d like to believe that events such as waking up one day to a message
in your inbox informing you that your investments have basically evaporated
overnight is too extreme or probably impossible because, after all, we have
mutual funds which by their very definition are meant to offer some balance. Or
perhaps we’d like to believe that those Enron and Lehman Brothers days are all
behind us.
Think
again. A few Tuesdays ago, people who had money invested in the mutual fund LJM Preservation and Growth Fund, which
held about $500,000,000 (or one-half a billion dollars), received email messages
notifying them that their fund had lost 82 percent, which effectively led to
the fund disappearing.
Yes.
Just like that. Without any warning signs whatsoever. Or might there have been
a whiff of a warning? I’ll get to that in a moment, but for now let me point
out the irony in this unfortunate debacle.
First,
look at the fund’s name again. It’s supposed to be for “Preservation and
Growth.” So as an unsuspecting every day investor putting your wealth into it,
what would you be thinking? That you’re “preserving” and “growing” your money,
when in fact that’s only wishful thinking.
This is
one of the huge problems I see every day in my practice – what folks think
their investments are comprised of (based on the fund’s name or so-called
investment objectives) ends up being something entirely different.
In my opinion,
very few funds have what, for lack of a better term, I’d call “structural
integrity” and the discipline to stay true to what they purport to be. Buyer
beware, for there’s baiting and switching all around.
Here’s a
second irony. This mutual fund in question had posted positive returns in all
but one year since it was formed in 2006. That’s pretty impressive and what
most people would seek in a fund. But
here’s the thing: the first rule of
prudence in investing your wealth is not to focus so much on past returns.
I’m not saying they are completely irrelevant. However, you shouldn't make
life-altering decisions based solely on past performance. The focus must be on
the underlying investments; how they are diversified and whether that aligns
with your expectations.
Questions
to ask include:
What story does the history of the mutual fund’s
underlying investments tell? Has it stayed true to its stated objectives? Or, has
it been all over the place, trying to invest in whatever is purported to be
“hot” at any given moment?
Again, keep
in mind that prudence goes beyond whether you’ve been making gains lately or
what’s in the name of your fund.
So do
you really – and I mean really – know that your financial
advisor has the integrity, discipline, and know-how to guide you in investing
your wealth the way that you want to invest it?
Obviously,
I hope you never receive any communication resembling what LJM Preservation and
Growth Fund owners received. Hopefully, you’re hearing me loud and clear.
__________________
Visit LaserFG.com or
call 877.656.9111 right now to book your complimentary, confidential
consultation with a financial professional who has your best interest at heart
and who is willing to ask the right questions to help you make a plan that will
get you where you want to go. You’ll be paired with an experienced financial
professional who can help you plan for a secure future, regardless of your
current financial situation.
