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Jack Piazza


Update The
Advantage of
No-Load Funds
*

Update The
Role of Risk
in Mutual Fund
Strategies
*

How Many Funds
Should I Own?
*

Update The Roth IRA
 - A New Way to Save

Three Common Mistakes
in

Mutual Fund Investing
*

Update Asset-Based Fees
- Are They Worth it?

When to Change
Mutual Funds

Portfolio Changes
 in Retirement

Rebalancing
Your Portfolio

Update Target
Retirement Funds

Foreign Equity
Allocation for 
Mutual Fund Portfolios

Update Best Type of
Mutual Funds for
IRA and 401K Portfolios

The Role of
Bond Fund Allocation
in Mutual Fund Portfolios

* Articles are
  featured in book - 

"CNBC
  Creating Wealth:
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"

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   SENSIBLE INVESTMENT STRATEGIES  


Questions & Answers
 

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 sales loads?

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".

Investor Alert! Many major 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 to 2.0% 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 recommendations?

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 Featured Articles section.

Is asset allocation really that important in a portfolio?

Absolutely! Many experts believe that appropriate asset allocation has a greater significance on portfolio performance than the actual selection of mutual funds. Appropriate detailed asset allocation by fund category is vital for most successful mutual fund portfolios -- it establishes 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 tolerances.

What are some of the special considerations for individuals in retirement?

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 in Retirement".

Should the dollar amount that I list represent what I can invest right away or what I can invest over an extended time period?

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 assets increase, 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. "How 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 fund portfolios?

An well-defined investment strategy is essential because it gives your plan a clearly defined focus. A 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, whether the 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 fund organizations?

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 brokerage 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 restrictions.

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, Smart Money and Yahoo! Finance are three popular choices.

Have a question? Need customized portfolio advice?  seninvest@aol.com.