Could Your Investments be the Next One to Crash?

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.

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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.