Can you tell the difference between advertising and advice?
Losing Money with the Wrong Investment
Many people are becoming more and more aware of the fact that investments can, and sometimes do, lose money. This doesn’t mean that the investment is necessarily bad; it may just mean that the sector of the market in which it’s involved isn’t doing well. If you buy a mutual fund whose stated goal is to own stocks, and the stock market goes down, then it’s to be expected that the value of the portfolio will drop. This drop in value doesn’t necessarily make it a bad fund. On the other hand, if you have put all of your money into the fund but your financial plan doesn’t call for this particular type of asset allocation, then you could consider the fund a bad investment – for you.
Buying the Wrong Fund
If you see an ad for a fund that had a great month or year, then you need to be careful. The fund companies should write on their promotional materials that “past performance is no guarantee of future returns.” And why would they write that? It’s because it’s true. Just because they may have had a good run, that doesn’t mean they’ll repeat it. Those ads are a sign of a marketing person at the fund trying to attract your attention. Instead, speak to your adviser and/or look a lot more closely at the mutual fund. You need to consider the risk/reward ratio and how that fund fits in with your overall plan before buying it.
It’s never easy to choose investments, and just because something comes with a flashy title or attractive picture, that doesn’t mean that it’s right for you. If you are looking for advice rather than for glossy ads, it’s time to find a financial adviser, who can tell you what is good for your personal situation.
To find out more about using financial planning, read Why You Should Waste Your Money on a Financial Planner.
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.