Investment returns

I don't know if anyone here has listned to dave ramsey, however I kind of agree to an extent to what he says, but I do want to get some other professional opnions.

He suggests investing in mutual funds that have long track records and perfers 10 years or more and try to find some that have a return about 12%. I am invested in a few of them in my compaines 401K and a roth IRA. Obviosuly some years the market will do great and some years it will do horrible but regardless these funds average about 12% a year.

If I stay invested and do the right thing do I have a good chance to retire wealthy? I know previous returns make no guarantee however over 70 years that is what the market has averaged I have been told. In addtion normally after past recessions, it does go up.

Can some please advise me I am just a little scared and want to know the honest truth.

No one can offer any guarantees.

12% is a bit aggressive. Before the collapse, they said 8% returns were pretty favorable.

There is NO substitute for doing your own homework. Invest in mutual funds stocked with companies you believe in. Period. Full stop. If you don't believe in the companies, or you don't believe in the fund manager, or you don't believe in the fund's company, then don't invest. If you believe in them and their investing strategies, do invest.

There's no magic bullet. And "wealthy" is a pretty nebulous goal. What amount of money, in what timeframe, are you after?

although dave ramsey has probably helped a lot of people get out of debt, i think his investment principles are not entirely sound (although i'm sure you could do worse). everything you have heard about no guarantees is correct which is why you should always do your planning/estimating using conservative figures (closer to Puck's suggested 8%, if not lower) just so future recessions don't get you off-track and you are saving enough. to me, it's better to have a little more at the end that you can pass on to loved ones than not have enough (and live off of loved ones). Past performance is no guarantee for future success...case in point: have you noticed the "Top 50" mutual fund picks by all the financial magazines are DIFFERENT every year? if there were some awesome mutual funds that were outperforming every single year, wouldn't the same funds repeat year after year? it doesn't happen. It's a crapshoot. the one thing you CAN control is COST (expense ratio). keeping these costs low in a fund is something you can control. i'm not saying you shouldn't invest in ANY actively managed funds, but consider what you can control (costs) as opposed to what you cannot control (future returns).

If the funds have been in existence for 10 years and the returns are through 2008, 12% is not likely.
Not an easy thing to comment on, but look at your own investing horizon, risk tolerance, fund fees and performance in bull and bear periods. Mutual funds are good for those folks who can't (or won't) spend the time to research stocks themselves. Letting a fund manager do it is one way to avoid that issue, but be wary. Fund managers didn't see the crash of '07 coming either and were blindsided like the rest of us 'common folk'. Funds also change managers, so what once was a sound strategy with experience behind it could change.
Do your homework before investing.....pundits say all kinds of things!

I do know some people who saw the crash comming. Trend Analysts.

My favorite investment vehicle would be a managed account with a firm that included a fundamentals expert and a trend analyst on the team.

Here's a great TA firm:
www.emtrendadvisors.com
They should be able to direct you to a firm that uses their services. Or if you do your own investing, they can offer their services as a single-user license.
The President of EMTrend worked exclusively for Eagle Asset Management years ago, but he became an independant consulting firm about 4 years ago.

Forgive the infomercial feel of this message. EMTrend helped me make 5% in the market last year, so I've become thier biggest fans!

As far as maximizing your mutual fund returns on a buy and hold strategy...you can either pick a fund or fund company that you truly believe in or you can pick a fund manager that you believe in.

If you choose the former, you can pay your sales charges once and you're done with it but the fund managers that have been working magic at that company can leave at any time. Imaging Peter Lynch running your portfolio at Fidelity and jumping ship to go to MFS for a $50M bonus. If that were the case you would have to pay a new sales charge to move your money to MFS.

If you choose the latter, it is probably best to find yourself a fee-based advisor that can chase individual funds or fund managers for you. Even without sales charges, you of course pay more in the long-run to the advisor, but if he knows what he/she is doing they can earn you a heck of a lot more due to their flexibility.

12% is not unreasonable to shoot for, just don't base your retirement projections on that number. Base them on 8% and you are much more likely to hit "your number" at the end of the day.

By the way...never look at "Average Rate of Return." That number is a bunch of horsecrap and anybody that uses it is an idiot. Use "Compound Rate of Return" or "IRR." Those numbers are a much better indication of your portfolio's true return.


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Kenneth Besada
Associate Financial Planner
Mogul Wealth Management, Inc.
Ken.Besada@gmail.com