Is Sensible Investment Strategies affiliated with any
brokerage firm or any mutual fund organization?
No. Impartiality is one of the hallmarks of this site. Sensible Investment Strategies receives
no compensation from
any brokerage firm or mutual fund organization.
Do you ever recommend mutual funds which have
No. Why pay typical front-end loads of 4.50-5.75% when you
can avoid such sales charges and obtain better performance in
100% no-load funds? To review performance illustrations that
compare a 100% no-load fund with load funds, go to "The Advantage of
No-Load Mutual Funds".
full-service financial firms have announced that they can now
offer many no-load funds without charging commissions or annual distribution (12b-1) fees. Good news?...not really. These
firms will compensate their salesmen/advisers/planners by charging clients up
of their assets on an annual basis; these charges are known as "asset-based" fees.
Over a long-term time horizon and assuming an average or below-average total
expense ratio, it would be better to pay a 5.75%
front-end load than to pay annual 1.5% of
assets -- however, the best cost-effective course of
action would be to avoid loads and asset-based
fees altogether. For an in-depth article on this subject, go to "Asset-Based
Fees- Are They Worth It?".
Does Sensible Investment Strategies provide a lot of
variety in strategies and mutual fund recommendations?
Yes. For example, assume two individuals select "total portfolio"
and also have identical selections in portfolio amount,
investment stage, long-term time horizon, and total return objectives -- their
only difference is that one selects
an aggressive risk tolerance, the other a conservative one. Yet, both the fund
category allocation and the 100% no-load
mutual fund recommendations for each individual would be significantly different and distinct
in this scenario, even though risk tolerance was the only
dissimilarity in their respective criteria.
How do you apply risk tolerance in your strategies and
Sensible Investment Strategies treats risk tolerance
primarily as a fund category adjustment,
beginning with a preliminary asset allocation based upon
all other criteria in the questionnaire. Next, different and distinct fund categories and their allocation
percentages are determined that would be appropriate with the desired
risk tolerance and with the other selected objectives
and criteria in the questionnaire -- the end result is a
detailed asset allocation by fund category with
high-ranked, no-load mutual fund recommendations. This
method allows a higher degree of customization
in designing an investment plan compared to conventional asset
allocation plans. For additional information on this subject,
go to "The
Role of Risk in Mutual Fund Strategies", which is
one of several informative articles in our
Is asset allocation really that important in a
Absolutely! Many experts believe that appropriate asset allocation has a greater
significance on portfolio performance than the actual selection of mutual
detailed asset allocation by fund category is vital for most successful mutual fund portfolios
effective diversification and also eliminates the
problems of haphazard fund selection. For additional information on this topic,
go to "Three Common
Mistakes in Mutual Fund Investing".
Can I have an aggressive risk tolerance to match with even an
income-oriented return objective?
Yes. Your choice of risk tolerance will actually further customize your
strategy with appropriate mutual fund categories in your strategy. For
example, an aggressive income-oriented objective would have greater
total return potential (and greater price volatility) than either a moderate
or conservative income-oriented objective; the types of fund categories and
their selected asset allocation with an aggressive risk tolerance would
differ significantly from those with moderate or conservative risk
What are some of the special considerations for individuals in
The biggest fundamental change for investors in retirement is to shift gears from asset
accumulation to asset withdrawal. Investors need to reassess income
needs, funds for emergencies and risk tolerance to determine withdrawal
rates that will last their lifetimes. For further details and guidelines, go
to "Portfolio Changes
Should the dollar amount that I list represent what I can
invest right away or what I can invest over an extended time
You can use either method to determine your investment
amount. If you have a lump sum available, then list that; if
you can estimate what you could invest over 2-3 years (or any
time period you choose), then list the estimated total
amount. Of course, it is possible to combine both methods.
Also note that automatic monthly payments plans are available
for each recommended mutual fund; the details are discussed
in each fund application that you receive.
What is the ideal number of funds to own?
No ideal number exists because individual circumstances
vary. Generally, the amount of money in a portfolio determines the number of funds. As portfolio
more funds can be added to enhance diversification. However,
an effective diversified portfolio should not have funds
which duplicate each other by having identical objectives.
Many Funds Should I Own?" is a featured article
which gives tips on achieving effective diversification.
More important than the quantity of funds is the quality
of the investment plan -- see the next question for details.
What are some important factors for successful mutual
An well-defined investment
strategy is essential because it gives your plan a clearly defined focus.
first-rate plan consists of: (1) an appropriate allocation strategy that reflects your
investment stage, portfolio size, return objectives, time horizon and risk tolerance
and (2) suitable high-ranked mutual funds which
fit your desired strategy.
Other important factors include compounding and
discipline. For example, if you are accumulating assets, you
should compound income and capital gain distributions by
automatically reinvesting them. If you compound over time,
you will build your assets at much faster pace as
compared to not reinvesting these distributions. Finally,
discipline allows you to adhere to your investment plan by letting time and compounding work for
you -- rebalancing your
portfolio periodically is an important part of investment discipline.
Should I adhere to my investment plan even in
unfavorable market conditions?
Yes... provided that your objectives have not changed. However, if any significant changes have occurred in your
investment stage, time horizon, return objectives and risk
tolerance, then your asset allocation strategy should reflect
your new objectives and preferences. For example, if you
decide to change your risk tolerance from aggressive to
moderate, then your asset allocation strategy and possibly many of
your fund categories will be different, even if risk tolerance was the only major change in your objectives.
An effective investment plan should always be your #1
priority. Review your investment plan on a regular basis (at
least annually) to determine (1) if significant changes in the
above objectives have occurred or (2) if significant investment additions
will occur which may necessitate more diversification in your portfolio.
Should I change funds if I am dissatisfied with their performance?
That depends whether major changes have occurred in your objectives,
specific funds fit your desired strategy or whether the time horizon is
sufficient to fairly gauge fund performance. For guidelines, go to "When
To Change Funds".
Should I use a discount broker to buy the no-load funds
that you recommend or should I deal directly with the mutual
That's entirely up to you. Some investors prefer the convenience of one consolidated statement from the discount
brokers for all of their funds. Many discount brokers offer
"one-stop" convenience with no sales or 12b-1 fees
for no-load funds -- note that this is different from full-service
brokerage firms which charge annual "asset-based"
advisory fees for no-load funds.
However, not all mutual fund families are represented by
discount brokers. If you want to buy any
"non-represented" no-load funds, the discount
broker would typically charge a fee (0.4%-0.7%) for each fund
transaction, subject to a minimum charge of $30-$50 per fund
transaction. Note that transaction fees on no-load funds may
be imposed by discount brokers should you sell these funds within six months.
All of the major fund families now have
services and offer no transaction fees for many funds; some offer a low flat
fee $35 per fund transaction. Regardless of the type of discount broker that
you decide to use, insist upon full disclosure on all fees and on any transaction
On the other hand, many investors use Quicken or design
their own spreadsheets for both portfolio statement
consolidation and asset allocation charts. Many Internet
sites now offer free portfolio tracking,
which can be as basic or as advanced as one desires. Morningstar,
and Yahoo! Finance are three popular choices.