How To Invest Like A Professional

Do you really treat others as you wish to be treated?  

For instance, does your 401(K) or 403(b plan serve YOU? Or does it cost more than it should?

Remember, procrastinating on cutting your plan’s cost won’t help anyone at your company,

You can do the right thing by taking five easy steps, today:

1. Switch out of a core mix of investments that does not at least match the market’s performance.
2. Hire a recordkeeper and administrator who will charge you not more than the benchmark for the cost of recordkeeping and administration.  Remember, no hidden or camouflaged costs are allowed.
3. Manage your plan so that it is truly low cost.
4. Educate the employees so that they, too, can become part of an effective system of checks and balances.  That way they will protect themselves and your company from a renegade fiduciary who does not get it on what a truly low cost plan looks like.
5. Monitor your plan so that it remains truly low cost month-after-month, quarter-after-quarter, and year-after-year.

Best wishes,

Your teacher, Frank Cirullo

For a moment, pretend that you and an old friend and associate are discussing retirement and retirement plans. 

You say: “I think the real question is not where we will find time to improve our plan, rather, it’s how much is it going to cost us and the participants (employees) if we don’t cut our plan’s cost, today, right now.” 

Your associate says: ”I know. I read that it’s more likely than not that our retirement plan is probably more expensive than it should be.  And whose money is being wasted?  Mostly, it’s the participants’ (employees’) money, but our money is being wasted, too. I, too, agree that we should improve our plan, so let’s cut its unnecessary costs, today.”

Okay, you can stop laughing.  Let’s get back to the real world. 

I would like to communicate something important to you. Do I have your permission?

If not, please stop reading now.

Well, the truth is this. The conversation you just read probably never takes place at any for profit business or not-for-profit organization. Why? It is because most employers don’t think it is urgent to cut their retirement plan’s cost.  Instead, most employers give themselves reasons to delay improving their plan. 

By the way, if you are an employee, your employer has time to do whatever he or she wants to do, so even though it is true that he or she is busy, don’t worry about him or her not having time to improve your 401(k) or 403(b) plan.  In fact, it is his or her fiduciary duty to cut your plan’s cost now, not next week, next month, or next year when he she may have more time. 

A fiduciary (employer) must always act in the particpants’ best interests.  And procrastinating on cutting unnecessary costs, for even one week, is guaranteed to cost participants more money than you and your employer can imagine–long term!

What employers don’t have time for is the consequences of not doing anything to cut unnecessary costs.  An employer is expected to know better than to have a plan that is loaded with fat (high costs) and ignorance is probably not a defense that he or she can win with in a court of law.

You can do yourself and your employer a favor by asking your employer to visit http://fcmstudents.com/wordpress/ (that’s the Web site you are on now) so that he or she can learn how to improve your 401(k) or 403(b) plan, free. 

I always welcome your comments, because I hope they will help others do the right thing with their 401(k) or 403(b) plan.

Best wishes,

Your teacher, Frank Cirullo

So far you have learned how to compare expense ratios, choose a large-cap fund, mid-cap fund, small-cap fund, foreign fund, money market mutual fund, short-term bond fund, and an intermediate-term bond fund.

Today, your assignment is choose a long-term index fund.  Please use the same process that I taught you and choose a long-term index fund.  Easy!

Isn’t life great when people treat you right?  Really, don’t you love going back for more information that you can profit from

If you have been doing the required work, then after today you will have your own diversified, core, mix of no load, low cost index funds, which is guaranteed to match the market’s performance less the cost of your funds.  And it only required a few minutes of your time, each day.

By matching the market’s performance, your mutual fund picks will beat the pants off the mutual fund picks of most experts–long term. 

Best wishes,

You teacher, Frank Cirullo

The bottom line is this: How much money do you have in your 401(k) plan, 403(b) plan, or IRA account after you pay for everything, which includes any hidden and camouflaged costs that you are paying but don’t see, yet? 

This is important: Always compare your results to an appropriate benchmark. That way you will know, for certain, if you are doing more harm than good to yourself and your loved ones.  

For instance, let’s say that your net return was 4.00% per year because you paid 3.10% in expenses. 

In other words, we are using an illustration whereby your mix of investments earned 7.10%, per year, but after expenses your net was 4.00%. 

Got it?

Okay.  Now, let’s say you are using an appropriate benchmark, and after expenses it had a net return of 7.00%, per year, because it did the right thing and paid only 0.10% in total expenses.

Now let’s compare the two returns after compounding each ROI.

Both portfolios invested in the same mix of investments, so both earned 7.10%, per year.

1. At 4.00%, per year (after expenses), your money will double every 18 years.
2. At 7.00%, per year (after expenses, your money will double every 10.29 years.

Which 401(k) plan, 403(b) plan, or IRA account would you rather have?  The plan that had lower costs and doubled your money every 10.29 years, or the plan that had higher costs and doubled your money every 18 years–don’t forget that both plans had same mix of mutual funds that earned 7.10%, per year.

Now, do you see why it is important cut your plan’s expenses today and not procrastinate?  If you cut your plan’s expenses today, you are guaranteed to have more money tomorrow. That is a fact!

Cutting a plan’s expenses gives the plan’s participants more money every time it is tried.

Best wishes,

Your teacher, Frank Cirullo

In my previous blog posts you learned how to compare expense ratios, how to choose a large-cap fund, mid-cap fund, and a small-cap fund.

Use the same process to choose a foreign index fund. Easy!

Isn’t life great when people treat you right?  Don’t you love going back for more information that you can profit from?

Remember, if you do the work, you will have your own diversified portfolio in eight days.  And it only requires a few minutes of your time, each day. 

Just think about it: If you have been using my proven process to pick out a mix of index funds, you have picked out four funds.  In four days you will have your own portfolio that is guaranteed to match the market’s performance less the cost of your funds.  By matching the market’s performance, your mutual fund picks will beat the pants off the mutual fund picks of most experts–long term.  See?

Best wishes,

You teacher, Frank Cirullo

In my previous blog posts you learned how to compare expense ratios, how to choose a large-cap fund, and how to choose a mid-cap fund.

Use the same process to choose a small-cap blend index fund. Easy!

Isn’t life great when people treat you right?  Don’t you love going back for more information that you can profit from?

Remember, if you do the work and choose one mutual fund, per day, you will have your own diversified portfolio in eight days.  It only requires a few minutes of your time.  And eight days will pass whether you do the work or not.

Best wishes,

You teacher, Frank Cirullo

In a moment, I will tell you a true story.  It’s about a group of lovely grandmas who are infamous for making a classic investment mistake and lying to the public about their investment track record.

An expert’s image is created by packaging, and it counts for everything at seminars and workshops and on radio and television.  Yes, show business trumps the facts, and the track record that many experts present to the public is not always what it seems.

You have heard it a thousand times: Things are not always what they seem.  You will have a better chance of not shooting yourself in the foot if you stop wanting something badly enough (fear and greed) to rush into giving yourself reasons to make a bad decision.  At the moment you make a decision, you will not know that you may have made a bad decision–that is why it is called a mistake.

The Beardstown Ladies investment club was packaged and they were naturals on stage.  These Grandmas were so charming that no one questioned the lies they told us about how they crushed the experts on Wall Street with their stock picking skills.

Now, lying on TV and radio is not anything new.  Many experts leave out material facts about their track record for the purpose of making themselves look like something they are not.  But the bottom line is this.  If you leave out material facts about your track record, you are deceiving the public.

Prior to this, did you know that leaving out material facts is a form of lying?  It is lying, and that is why you need to ask the right questions before you invest your hard-earned money.  The first question you should always ask an expert is this.  Do you have at least a ten-year track record of beating the market?  If so, show it to me, but do not try to fool me by cherry picking investments that you did not own back then. And don’t try to fool me by cherry picking time frames, either.

My point is this.  The media and the public fell in love with the Beardstown Ladies, but it was the kind of hoax that not even these grandmas knew was a lie.  They were happy with the growth of their investments, because they did not realize that most of the growth in their portfolio came from their own money that they invested each month, not from capital gains.  And even their investment adviser, who became famous along with them, did not know how awful their real Return on Investment (ROI) was.  The bottom line is this.  The adviser did not know that he and the lovely grandmas were lying to the public about their track record.

Do not make the same mistake that these grandmas and their investment adviser made regarding their ROI, because if you make it with your own investments it may cost you a fortune–long term. How? You will be satisfied with your awful investments that underperform the market, and it will never occur to you to switch to investments that are designed to match the market.

Here is what I am talking about.

The Beardstown Ladies had to apologize for lying to the public after a reporter named Shane Tritschm looked at the facts. The facts showed that the growth in their portfolio came from their own money, which was the deposits that they made into their investment account, each month, and not from the huge capital gains they claimed they earned on their stocks.

The ladies and their investment adviser claimed that their highest annual return was 23.4 percent, which was amazing for that time-frame, but facts are stubborn things.  A Price Waterhouse audit uncovered a yearly return of 9.1 percent.  In other words, their stock picks underperformed the market for that same time-frame. 

These lovely grandmas could have invested in no load, low cost, index funds and not paid their trusted investment adviser a bunch of money in commissions.  Had they done that they would have matched the market less the cost of their funds, and they would have enjoyed the following benefits:

1.     They would have had more money, because they would have at least matched the market’s performance–long term. Instead, they underperformed the market.

2.     They would have had more time, because it requires less time to research index funds than it takes to research stocks and managed mutual funds.

3.     They would have had less stress, because it is comforting to know that your investments will match the market’s performance less your cost and that your ROI will be good enough to beat the pants off most experts.

If you want more money; more time; and less stress, you can do it the easy way: invest in a mix of investments that will match the market’s performance.  And, too, the easy way is to read my blog—every day.  How you invest your time, every day, really does matter most.  That way it does not require more than a few minutes of your time to invest, because you can pick up the telephone and tell the brokerage firm’s representative what you want him or her to do for you. Easy!  Never ask an investment adviser what you should do about your investments because he or she has inherent conflicts of interest.  Instead, give him or her instructions on what you want to invest in.  See? 

Summary: Your IRA account, 401(k) plan, or 403(b) plan may be growing because of your own money that you contribute each month, and not because of capital gains from your investments. A time-weighted return will show you the truth about your investment picks because it accounts for deposits, withdrawals, and gains or losses during a certain time frame. Or you can you can just match the market’s performance.  That way you will not have to worry about if you are doing the right thing for yourself and your loved ones.

The bottom line is this.  The worst thing you can do is to be happy and/or satisfied with your investments that underperform index funds; especially, if you do not see what is happening with your hard-earned money until you retire.

Best wishes,

Your teacher, Frank Cirullo

Did your employer deal you a bad hand?  Is that how you feel about your 401(k) or 403(b) plan’s menu of investments? 

Well, the good news is you can deal yourself a winning hand–today.

How?

It’s your money, so ask your employer to get you a diversified mix of investments that will match the market’s performance.  Easy!  No load, low cost, index funds are designed to match the market’s performance less their cost. And the following asset-classes will give you proper diversification.  For instance, you can invest in seven to eight mutual funds as follows: Large-cap blend, mid-cap blend, small-cap blend, foreign large-cap, money market mutual fund, short-term bond fund, intermediate bond fund, and a long-term bond fund.

How much longer will you hold that losing hand of managed funds that has underperformed index funds?  Are you ready to deal yourself a winning hand that will beat the picks of most experts–long term? 

Know when to fold them…fold your losing hand, today, and deal yourself a winning hand of seven to eight index funds as described above?  Easy!

Best wishes,

Your teacher, Frank Cirullo

Yes, even if you are a novice at investing in a retirement plan, you really can make a difference. 

How?

Just say No to expensive 401(k) and 403(b) plans so that the cost of retirement plans can finally come down. 

Switch out of your high cost plan that has investments that underperform index funds.  That way you will force the service providers (vendors such as recordkeepers and administrators, consultants, and investment advisers) to compete on cost, not on how many “free” bells and whistles they can provide to your plan. 

Just think about it. You can’t spend bells and whistles when you retire, can you?  My point is this.  The less your plan costs the more money you will have for retirement, that is,  providing you at least match the market’s performance by investing in no load, low cost, index funds. 

Employers set up expensive plans with investments that underperform index funds because they don’t know what they don’t know about hidden and camouflaged costs. Untrained and inexperienced employers don’t see certain costs; therefore, they believe that their plan is low cost.

It would be a mistake not to consider the possibility that your plan is not low cost, at all.

Best wishes,

Your teacher, Frank Cirullo

Many experts still don’t get it–they are still trying to beat the market (index funds) by creating a myriad of packaged products and/or software that they can sell to you.  The only problem is this. Not one expert has ever picked a mix of funds that beat a diversified, core, mix of no load, low cost index funds in performance.

My point is this.  If you already own a mix of no load, low cost index funds, it would be a mistake to let someone talk you into selling  them and buying a mix of funds that the expert hopes will beat the market (index funds).  Never allow anyone to experiment with your hard-earned money.  See?

Best wishes,

Your teacher, Frank Cirullo