Prospering with Mutual Funds: How Anyone can ?Afford? an Investment Advisor

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

---

Long-Term Investment In Todays Market?

The stock market is very unstable at this time going... Read More

Bad News is Good News

For weeks, no, months we have been bombarded with nothing... Read More

The 401(K): How The Insider Has Stolen Your Retirement!

Mutual funds were moderately successful in creating a presence in... Read More

Duck

Duck! No I don't mean a quack, quack. I meant... Read More

Adding Funds

Someday you may want to retire and continue to live... Read More

Investing in Dividend Paying Stocks

I was recently interviewed for a press release through a... Read More

Precision Money Management

This article describes the model of a natural relationship between... Read More

Enron Cure

Let's hope you did not have any of the Enron... Read More

It Cant Be Done

Wouldn't it be nice if you were only in the... Read More

KISS Formula

There are formulas for just about everything, but it has... Read More

Swing Trading Strategies

Using Swing Trading Strategies and Technical Analysis when Trading Stocks... Read More

The Stock Market - How Just One Question Will Tell You All You Need To Know About Your Stock Broker

Last time we looked at the real performance of the... Read More

401K-itis

Are you one of those many people who dread reading... Read More

Size Counts!

What the heck am I talking about?It is often said... Read More

Its A Bull, Its A Bear, Its Suptertrader!

The higher the market goes the more confusing are the... Read More

Small-Cap Stocks: The Beginning of the Journey

When an individual investor wants to roll up his sleeves... Read More

Basics of Stock Market

Financial markets provide their participants with the most favorable conditions... Read More

Bollinger Bands Strategies

The Bollinger Band theory is designed to depict the volatility... Read More

Ignore Stock Market Talking Heads

You should ignore analysts on TV, the radio, the newspaper... Read More

The Information Age

It is wonderful to be alive in the information age.... Read More

Trading Stocks ?Never Forget About A Past Trade

We all know that emotions control every decision that an... Read More

Understanding a Stocks PEG Ratio

A PEG ratio cannot be used alone but is a... Read More

The Shadow

The Shadow knows. There used to be a radio program... Read More

Mid-Cap Stocks: Asset Class with an Identity Crisis

Much like the middle child, mid-cap stocks have long struggled... Read More

Roller Coaster

I love roller coasters. The steeper the better. High and... Read More

Advantages and Disadvantages of Mutual Funds

Outlined below are some of the advantages and disadvantages of... Read More

Option Trading Basics

Options trading can increase the profits you make when trading... Read More

Overseas Investing: Going Against the Mainstream

TOO OFTEN, INVESTORS SIMPLY CHOOSE TO follow the crowd. This... Read More

Valuation

Every day I hear from the "experts" on CNBC-TV and... Read More

Shorting Stocks ? The Basics, Part I of II

What does it mean to short a stock?This means that... Read More

Diversification

Wall Street's watchword has always been diversification, but what does... Read More

Stock Loans

Hedge current portfolio positions and gain access to capital resources... Read More

Investment Clubs

Because you don't feel too sure about which stock or... Read More