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By: Michael Kane
Smart Money
The Vancouver Sun, October 6, 2000
Ask financial adviser Adrian Mastracci
to pick a good investment and he'll tell you he
can't -- yet.
First he has to know your investment goals, how
much time you have to achieve them, in your investment
capacity -- your stash or potential stash, and
your tolerance for breast. Then he can identify
the right investments to fit your long-term financial
plan.
Mastracci, 53, says aging baby boomers who find
themselves getting financial whiplash from an
unpredictable market could learn from their Depression-era
parents.
"Too often investment strategies lack direction,"
says the president of Vancouver's KCM Wealth
Management, an independent, fee-only investment
counsel and financial advisory firm.
"People jump in and out of the market, trying
to catch, or avoid, the latest wave or trend,
when they should be building a portfolio on a
sound financial plan."
He says the familiar "buy and hold" approach
of many people brought up in the 1930s can provide
far better long-term results than trying to micro-manage
each investment decision.
However, Mastracci takes issue with another Depression-era
trait of investing only in those things guaranteed
by government, such as savings bonds or investment
certificates.
"There's no question that you can be overly cautious.
I prefer a balanced approach with the choice of
income and equity investments geared to individual
needs."
Failing to have a personalized financial plan
is one of the primary errors of mutual fund investors,
Mastracci says. That leads to other failings:
- Too many funds. 6 to 10 funds is manageable,
he says. More than that and you will likely
end up with too much paperwork and similar style
funds holding the same securities.
- Misunderstanding costs. Many investors still
don't realize the damage to their returns when
a fund company takes three or four percent off
the top each year to pay its managers and the
person who sold the funds. Also Mastracci says
he still comes across disgruntled investors
who thought they were buying funds without sales
charges only to discover they are on the hook
for redemption fees when they try to get their
money out.
- Chasing old winners. A lot of investors look
at lists and buy from last year's top 10 winners.
The problem is that old winners are often tomorrow's
losers, especially those with more extreme results.
- No asset allocation. Those who have a financial
plan will have their money spread across different
asset classes as well as being diversified by
economic sectors, fund management styles and
geography.
- Too much risk. Mastracci tells clients they
shouldn't be in the equity markets if they cannot
leave their money for a minimum of five years
and preferably longer. On average, the markets
post negative returns once every four years.
"Once you have set your goals, you don't need
to be distracted by the headlines or preoccupied
with other peoples benchmarks and returns."
"Over time, a proper mix of solid investments
more than pays off in good returns and over-all
stability, two essential ingredients in any plan
for financial independence."
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