Don't Lose Your Pension! 8 Questions you absolutely must ask your financial advisors

The language and logic of financial planning demistified
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Read this too! 
Here are links to articles in the media that shed more light on issues I touched on in the book. There is no substitute for educating yourself.
 
An absolutely must read on the advantages of a passive all share index fund! Don't even begin to plan your investment portfolio before you haven't read this gem from the father of index funds: The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits) by John C. Bogle.

 

A helpful tick box
There are few words that make all the difference when you want to assess your investments. They are:
  1. Nominal returns (These are returns BEFORE INFLATION! Read Chapter 6 again!)
  2. Real returns (these are returns AFTER INFLATION! Read Chapter 6 again!)
  3. Total or cumulative returns (these are returns where the DIVIDENDS ARE ADDED to the increase on your capital - sum you initially invested)
  4. Absolute returns (vs relative returns. Your investment product does not only beat the market benchmark, but will bring you real, positive profit. You may be promised that the product will beat the market by say 5%, but that does not help you very much if the market falls by 12% - you will still lose 7% of your capital!)
  5. After tax? And what will the tax man take away?

 

My advice to you is to keep this tick box close by on a piece of paper whenever you speak to a financial advisor and dutifully ask every time, "Do you mean real returns?"  "Do you mean cumulative returns?" (When investing in equities or stocks this is very important!); Are we talking absolute or relative returns? Is this after tax? If you lose the plot here, disillusionment is your future!

"You must have compelling reasons to invest in a mutual fund that comprises a selection of stocks (equities), rather than an index fund." 
 
In Chapter 5 of "Don't lose your Pension" I emphasise how difficult it is to pick a winning fund manager and how few fund managers beat the stock market as a whole. Now read the FT article on how more and more people recently turned to so-called exchange traded funds. "The rise of ETFs partly reflects widespread disillusion in the last two years both with active managers in traditional mutual funds and hedge fund managers whose performance failed to cushion investors against the downside or capture the upside in volatile markets." Click here for the full article. Now compare with the following on the South African market:click here.
 

Please send me links to articles that you have read and that may be helpful. Click here.

 

And here is more valuable information on what to demand from your advisor to keep you up to date and the relationship healthy: http://www.forbes.com/2010/05/14/portfolio-performance-benchmark-intelligent-investing-financial-advisor.html?partner=alerts

 
 It's very difficult to judge track record
 
In Chapter 4 I stress how difficult it is to gauge the track record of fund managers. Read this contribution from the New York Times "What the past can't tell investors."
 
Forbes magazine 2010 Investment Guide (p. 58), quotes Mitchell Tuchman, investment analysist: "Pay ten stock pickers 1.3% of your assests a year, the average of mutual funds, and over the long haul you are likely to lag the market by a similar amount. That 1.3% sounds small ,but compounded over 30 years it'll eat up 32% of your wealth."
 
And: "Build a portfolio that's low cost,  easy to maintain and tax efficient. That means putting a good chunk of it, maybe all - in a passive index fund (p. 59).
 
According to another article in the same issue of Forbes (p.65) passive index funds charge as little as 0.1% of your assests per year, as compared to 1.3% for mutual funds.
 
 

Remember the worst may happen more often than we would care to remember

 

This is what happened to your pension in 2008!

"The average household has seen the value of its retirement savings reduced by more than £10,000 as a result of the recession, official figures released have disclosed."  The Telegraph 01/28/2010.  Click here for the full article.
 
See how much the stock markets dipped over the past decade .Click here.

 

Compare these two articles and see how important it is NOT to put all your money in equity (stocks)! 
 
First of all, this article in the New York Times ("For Savers, It Was Hardly a Lost Decade")  shows how well you could have done over the decade 1999 to 2009 if you had diversified. Compare this with the following article in the FT: "Wall street ends decade in red."  How did your own investments fare over the past decade? Where did you go wrong?