Know Your Investments

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Women, if you don’t want to outlive your money, you need to understand your investment portfolio!  

Answer these seven questions about your current investments to find out how well you really know your portfolio:

  1. How much risk are you taking in your portfolio?  
  2. How globally diversified are your current accounts?
  3. What returns can you expect from a best-case market scenario?
  4. What can you expect from a worst-case market scenario?
  5. Where do you fit on Harry Markowitz’s Efficient Frontier, which won the Nobel Prize in 1990?
  6. What are your portfolio’s hidden costs?
  7. Are you buying the same stocks in multiple mutual funds?

If you want to be a successful investor and have a steady income for the rest of your life, you must know these answers. You need to find out the truth about what you are relying on for your future. 

You want what’s best for you, right? Well, then, if investments were food, find out if you are getting a fast-food meal with instant gratification that might not give you proper nutrition, or a meal that has been homegrown specifically to satisfy your hunger and to enhance your performance and longevity. What you don’t know can hurt you!

Ask your investment advisor to complete an investment analysis to evaluate your portfolio for hidden costs (there are always costs), overlap, and asset allocation (diversification). The analysis may expose expensive retail mutual funds and annuities with limited global diversification, redundant asset overlap, and excessive annual turnover rates. It’s simple: Excessive expenses deplete returns!

For example: The analysis will reveal if your investments have excessive turnover ratios, which could cost and reduce your investments returns an average of four percent per year. We advise looking for mutual funds with turnover rates lower than twenty percent, to keep your internal costs down and your returns higher. 

Using the analysis we have also discovered that many portfolios only have four asset classes, with limited international exposure. The optimal diversification is owning approximately sixteen to twenty asset class categories, with 13,000 stock and bonds for various size companies, within forty-plus countries around the world.  This will give you a wonderfully diverse and efficient portfolio that is ready for any market fluctuations. You could maintain the amount of risk in your portfolio by determining how much to own in each asset class. Owning different amounts of each asset class is what puts you on the map for the Markowitz Efficient Frontier, which is uses Modern Portfolio Theory—the only investment strategy that won a Nobel Prize in Economics! 

It is difficult to obtain market returns and have a successful portfolio when the diversification is so poor and the investment costs are so high.  

The truth is, most advisors don’t even know these retail investment costs exist. Once your portfolio is analyzed and you see the reality of your current investments’ costs, your lack of global diversification, and your stock duplication, only then will you realize the benefits of the low-cost free market global diversification.

Once globally invested, you never have to second-guess which way the market is going. Just get truly diversified, and enjoy the ride. But make sure you are riding in the right investment strategy vehicle. Your investment portfolio must be truly broadly diversified, correlated, and rebalanced in fee-only institutional asset class mutual funds and annuities.

Written by: Maria J. Wordhouse Kuitula and Phyllis J. Veltman Wordhouse, free market wealth and stewardship coaches, co-authored the book Stress-Free Investing, available at Amazon.com. Maria is the president of Wordhouse Wealth Coaching and may be reached at 616-460-6518 or at  [email protected]. For QUESTION LISTS and INVESTOR EDUCATION VIDEOS, go to www.WordhouseWealthCoaching.com <http://www.wordhousewealthcoaching.com/> .  © Wordhouse Kuitula 2013. Photo: stock.xchng

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