I once asked this simple question to visitors to my Facebook page: “How did you select your investment options for your workplace retirement plan?”
The results were quite telling:
- 45% said they did research;
- 30% said they talked with their financial advisor;
- 13% “simply bought the funds that had the best track record;”
- 8% guessed;
- 3% didn’t participate in their plan at work; and
- 1% “asked my co-workers how they invested.”
What’s your answer? I hope you’re among those who said you either do your own research (presuming you know how) or you talked to an objective, fee-based financial advisor.
Of the remaining answers, I’m not sure which is the scariest — buying the fund that made the most money last year, doing whatever co-workers do (as if they know what they’re doing!) or guessing!
Here are the problems with all three of those responses:
You already know the cardinal disclaimer that comes with every investment prospectus: Past performance does not guarantee future results. Just because a particular mutual fund or other investment product posts a good return one year doesn’t mean that it will do so next year. History is rife with examples; remember the tech-stock bubble that burst in 2000? Remember Enron?
Chances are your neighbor or co-worker is no better informed than you are about how to construct a strong portfolio. But even if he or she is receiving guidance, what is right for him or her may not be right for you because the two of you likely have different goals and objectives.
And, finally, why should anyone rely on guesswork when experienced advice is readily available from an objective, fee-based financial advisor?