Wednesday, July 01, 2009

How the Rich Stay Rich

As every investor knows, the first rule for making money is not to lose money. Last year that was a tough rule to follow, especially for investors in mutual fund packages known as target date funds. Funds targeting a 2010 retirement date declined an average of 25%. Some lost 40%.

Investors with seven-figure portfolios were far more successful in limiting their losses, according to a survey done by Richard Day Research for Fidelity Investments:

High-net-worth individuals who manage their own investments limited their 2008 losses to an average of 18%, compared with a 38.5% drop in the S&P 500.

HNWI's who relied on financial advisers did even better, darn near breaking even. Their losses were limited to a mere 4%.

Wealth managers, you couldn't ask for a better illustration of the value of professional investment guidance!

Unless, perhaps, it's too good. An 18% loss sounds plausible for a reasonably conservative mix of stocks, bonds and cash last year. An average loss of only 4% is something else again.

When something sounds too good to be true . . .

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