How To Invest Like A Professional

On August 25, 2008, Josh wrote this: “My question centers around investing in whole life insurance as a retirement investment…”

My advice to Josh is to keep it simple and profitable. For instance: 

Regarding investments: For investment advice, do not trust people. Instead, trust results–only. A diversified, core, mix of no load, low cost, index funds is the way to go. Why? Long term, not one expert has ever picked a mix of managed funds and/or asset-allocation, target-date, lifecycle, lifestyle, or balanced funds that beat a diversified, core, mix of index funds in performance. Therefore, it makes no sense to  pay an expert for his or her advice on investing in managed funds. Never, ever, allow anyone to experiment with your hard-earned money. To learn about asset-allocation and re-balancing, please read one of my previous posts on that topic.

Regarding life insurance: You said this: “…Most of the financial advisors tell me to buy term life and invest the difference….” Apparently, they know your financial situation. Therefore, it makes sense to take their advice: Buy term life insurance and invest the difference in the lowest cost index funds you can get.

Best wishes,

Your teacher, Frank Cirullo

A diversified, core, mix of mutual funds has eight mutual funds in eight different asset-classes.  And each day I will show you a different fund that is in the mix.  Soon, you can have your own portfolio of index funds by investing a few minutes of your time, each day,  Easy!

In my previous blog post, I showed you how to select a large-cap blend index fund.  Use the same process to select a mid-cap blend index fund. You may want to begin your search at Vanguard and Fidelity. 

Remember, the idea is to pay as little as possible for an index fund; therefore, please read my previous blog post if you don’t remember the process.

Best wishes,

Your teacher, Frank Cirullo

Whenever you compare index funds, a fund’s expense ratio is what matters most.  The less you pay for an index fund the more you earn because you will be paying less in expenses. 

Important: Always think in terms of dollars, not percentages.  For example, let’s compare two index funds:

Large-cap blend, index fund “A”   Expense ratio 1.00%, per year.  In dollars, this fund will cost you $10.00, per $1,000.00, per year.  So, if you have $1,000,000.00 in this fund, it will cost you $10,000.00, per year. 

Large-cap blend, index fund “B.”  Expense ratio 0.07%, per year.   In dollars, this fund will cost you $0.70 per thousand, per year.   So, if you have $1,000,000.00 in this fund, it will cost you $700.00, per year.   

For your index fund, would you rather pay $700.00 or $10,000.00, per year? 

Always do the math: 

How much money would fund “A” cost you over ten years? (Don’t forget to compound it.)

How much money would fund “B” cost you over ten years?  (Don’t forget to compound it.)

It really is your money that you are paying for a fund’s expenses. 

Did you know that some companies are charging their clients 3.00%, per year ($30.00, per $1,000.00, per year) for index funds?  Yikes!  I hope you won’t touch them.

Did you do the math?  Now do you see why expense ratios matter most when you invest in index funds?  Monitoring your mix of index funds is easy, because you are always looking for an opportunity to buy the same index funds for less.  See?

Best wishes,

Your teacher, Frank Cirullo

Three things that every investor wants:

1. More money: You have a clear choice.  Will you choose to match the market’s performance with index funds or try to beat it?  Anyone who can read and do simple math can invest in a diversified, core, mix of no load, low cost, index funds and match the market’s performance–less the cost of your funds.  If you try to pick funds that will beat the market, you are experimenting with your hard earned money, because you have never picked funds that beat index funds (the market)–long term.  Nor has your investment adviser ever picked funds that beat index funds, long term.  If you don’t have a long term track record of 10 years or more, what are the odds of you beating index funds–long term? Be honest.  Always tell the truth to yourself.  That way you will make fewer mistakes.
2. More Time: Picking a mix of index funds is fast. Picking a mix of managed funds requires more research than picking index funds.  Monitoring index funds is fast because you are only concerned about cutting your cost, and you should do that whenever you have an opportunity to invest in the same index funds for less.  Monitoring managed funds and/or asset-allocation, target-date, lifecycle, lifestyle, and balanced funds requires more time than monitoring index funds because each fund has many moving parts.
3. Less Stress: If you invest in index funds, you know what your results will be: you will match the market’s performance, less the cost of your funds, whether the market goes up, down, or sideways. And you will beat the pants off most experts–that kind of knowledge is comforting.  If you invest in managed funds, and/or asset-allocation, target-date, lifecycle, lifestyle, and balanced funds it will be an emotional roller-coaster ride like you have never been on before.  You can count on the market will go up, down, or sideways, and you will be excited if your investments happen to beat index funds (the market).  However, you will feel stress in the years that your picks  underperform index funds, and you may even wish you had followed this rule: Keep it simple stupid.

Best wishes,

Your teacher, Frank Cirullo

Have you ever given someone advice and/or feedback?  Did you see the expression on his or her face?  He or she looked uncomfortable, right?  Well, it happens that way whether you see it or not. I know you want to help people; especially, your employees and loved ones.  The good news is this. There is a way to give people information without them being uncomfortable.

In a moment, I will show you how to give people information so that they are grateful, not resentful.

Have you noticed how the information I give you, here, is simple to understand, and how easy it is to implement? In fact, anyone who can read and do simple math can implement my process and be a successful investor. And it’s free information.

I help people who are on the wrong road and don’t know it, yet.  And, you, too, can help people who are on the wrong road and don’t know it, yet. The wrong road has high costs and investments that underperform the market. But you can point them to the right road. The right road has low costs and investments that match the market’s performance.

How can you show people the right road without them being uncomfortable with the information?  Say this to them. I want to communicate something to you.  Do I have your permission?  If they say yes, you can show them my blog and/or send them an e-mail with this address: http://fcmstudents.com/wordpress/ That’s it, and it only requires a few seconds to help someone. The less we say to people about investments and investing the more they appreciate our information.  See?

It will make you feel good to know you helped someone by simply pointing out the road that they need to be on.  That way, like you, they will finally be on the right road that can give them what they want most, which is more money, more time, and less stress.

Best wishes,

Your teacher, Frank Cirullo

Experts want your business, and they have a myriad of ways to try to capture it.

If you know what a trap looks like, you can avoid it–right? 

Well, the kind of trap I’m talking about is one that causes you to make investments that underperform index funds. 

If your investments underperform index funds, you will have a large opportunity cost–long term. 

An opportunity cost means that you will have less money than you could have had by doing something else that produced a better result for every one who invested their money in that way.  For instance, let’s say that you have an IRA account, and you are trying to beat the market by picking a mix of managed funds.  Years later, after you retire, you learn that a mix of index funds–that you could have invested in–outperformed your managed investments.  If that is the case, then you would have an opportunity cost–you would not have as much money as you could have had.  See?

Experts know that you want to beat the market, so they create a myriad of financial plans that take advantage of people’s fear and greed.  The only problem with every financial plan they create for you is not one expert has ever picked investments that beat a diversified mix, of no load, low cost, index funds in performance–long term.

Successful investors don’t get caught in silly traps, because they don’t waste their time trying to beat the market.  Instead, successful investors have a goal to match the market’s performance by investing in a diversified mix of no load, low cost, index funds.  Successful investors know that NOT matching the market’s performance, long term, will cost them money, because they will have a large opportunity cost. 

So the best way to avoid the myriad of traps that can cause you to lose your money is to ask for the expert’s long term track record, which should be more than ten years. 

For instance, if an expert wants to sell you managed funds or packaged products such as asset-allocation, target date, lifecycle, lifestyle, or balanced funds, you need to ask for his or her track record.  I bet that he or she has never picked a mix of funds that beat a diversified mix of no load, low cost, index funds–long term.  You can prove it by asking for the expert’s long term track record.  Easy!

If someone has never beat index funds in performance, would you trust him or her with your hard-earned money?  No!  Why would you pay him or her a fee or a commission to experiment with your money?

Please, avoid the myriad of traps.  Always ask for a long term track record.  Easy!

Best wishes,

Your teacher, Frank Cirullo

Yesterday I promised I would explain how you can help yourself even more by pointing friends and associates in the right direction.  However, pointing them in a direction is not the same thing as giving them advice, which would be a mistake.  Give this link to everyone you know: http://fcmstudents.com/wordpress/ 

That way they will have the same information that you have, and they will be able to make up their own mind about its value.  Even if you think this information has no value, give them the link to my blog anyway.

The truth is money is a tool that you can use to get even more money.  You work for money, but you may be making a common mistake of spending it as fast as you get it, rather than invest it. 

The truth is you can lose out, big time, if your investments underperform the market.  The good news is index funds are designed to match the market’s performance, which means you can win, big time, if you invest in a diversified, core, mix of low cost index funds.  Easy!

Advancing technology and competition for your business drives down the cost of index funds. These days, people can buy index funds for 0.07%, per year, which is less than people paid in the past.  Knowledgeable people have switched from managed funds, and expensive packaged products such as asset-allocation, target-date, lifecycle, lifestyle, and balanced funds to no load, low cost, index funds.   

The whole truth and nothing but the truth: Vendors who don’t have a track record of picking funds that beat index funds use a myriad of tricks to sell expensive financial planning services, managed funds, and packaged products such as asset-allocation, target-date, lifecycle, lifestyle, and balanced funds.  The only way they will go out of business is if they run out of suckers who buy expensive services and managed investments. Suckers are the people who don’t ask their adviser for his or her long term track record. 

Remember, it’s not “free” advice if it causes you to earn less money than your would have earned by investing in low cost index funds.

If you invest in no load, low cost, index funds, do you see how competition for your business and advancing technology drive down costs?  And do you see how paying less for your index funds means you’ll have more money?

Best wishes,

Your teacher, Frank Cirullo