One of America’s more influential financial
planners, Ric Edelman, recently advocated that successful securities investment
should consist of a broad diversification of mutual funds, mimicking, he said,
horserace gambling where you bet on every horse in every race. It’s a fascinating concept; evidently Mr.
Edelman is far too wise to have ever succumbed to racetrack betting.
Though it’s true that betting on every horse
in a race guarantees you’ll pick the winner, it also assures you’ll lose
money. The racetrack industry operates
on the pari-mutuel system, whereby a betting pool of those who select the
horses finishing in the first three places share the total amount bet, minus a predetermined percentage for the
management. So betting on all the
horses will result in a return of the amount bet—less the track’s take.
There’s a moral here: Only the track can be
certain of a profit. There’s an even
more profound moral as it relates to investment in broadly diversified mutual
funds through a financial planner. Both
the mutual funds and financial planners are positioned as is the track, in that
they take their percentage off the top regardless of how the securities finish
the race.
I subscribe to a different style of investment. If corporate securities are your choice,
you’ll do better to avoid the funds and the financial advisers and choose your
own stocks and bonds. Select corporations
with lower price-earnings ratios that show consistent profits and which pass a
portion on in quarterly dividends. You
then review your personally-managed portfolio regularly, disposing of those
which fail to meet these requirements.
Admittedly, this method of investment will require both time and
attention on your part, as well as initial uncertainty . . . and possibly some
mishaps along the way. However, if
you’re unwilling to become personally involved in your own financial achievement,
you’ll likely live to regret that decision.
Understand one basic precept: No one out
there has the same interest in your wellbeing as you do. Placing your financial future in the hands of
another, no matter how favorably recommended they may be, is an invitation to
untold misery.
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If you enjoy this
weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly
Financial Newsletter, as well as my new book, The Road to Prosperity
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