By Frank Jersey
General Manager for 2050 Systems, LLC.,
2020 Systems, LLC

fjersey[at]someonesgottadoit.com
www.someonesgottadoit.com

© 2005 By Frank Jersey

A number of the large Mutual Fund Institutions are offering various programs targeted at establishing retirement funds for individual investors. These programs are all accompanied by disclaimers that indicate that there are no guarantees with regard to performance and indicate that they cannot assure profit or protect against losses in declining markets.

In fact, these funds do not protect against losses in rising markets either. Just because markets are rising does not ensure that the underlying investments in any given fund are also rising. The wording in the disclaimer lures the investor into a false sense of security thinking that the Institution is actually doing something on behalf of the individual investor to minimize declines. These institutions are working at such a high level, that no one individuals' personal portfolio is really being looked at daily unless you happen to be one of the fortunate people with a significant sum of money invested at the institution to qualify for the "privileged" services.

More than likely, your individual account will rise and fall with the overall market. You will probably not get any notice of declines on any greater frequency than quarterly unless you have Internet access and look for yourself. The Institutions stress long term investment, which while true, lets the institution off the hook for not monitoring the underlying investments and taking action to minimize the downside when the underlying investments decline.

The Institutions propose programs targeted at when the individual investor plans on retiring. Then, the institution has a computer system systematically reduce the risk in the individuals portfolio by shifting the investments into lesser volatile investments. While this brings some peace of mind, it probably means that the individuals' investments start returning a lower return.

It is too bad that the financial institutions have not spent the time and money on computer systems to pay more attention to the individual investors specific situation. Computers could react to market changes immediately and reduce much of the risk that is now based on human intervention in an individual account situation. Additionally, these pre-programmed schemes that the financial institutions offer don't guarantee anything. The individual investor is still taking the entire risk.

So you follow the institutions advice. Pick one of the programs the institution offers. Allow the institution to make money from your investments. And you take all of the risk. It seems that the only guarantee is that the institutions are making money.

As an investor, one should insist on active daily account management. When things start to go into decline, have some predetermined way of assessing a situation and prescribed action. Have investments tracked to highest value achieved, not purchase price or some arbitrarily set value. Have a way to indicate the kinds of investment purchases desired, not just purchases based on a brokers hunch. Insist on a program that pays for service based on profit, not based on assets invested. This last idea is one that the financial institutions are all trying to avoid because they only make money when the investor makes money and the institutions want no part of this kind of arrangement.

In summary, most retirement funding programs are convenience programs whereby Institutions offer an array of diversified choices for the individual to invest funds. These programs are usually phased from larger stock positions in earlier years to larger bond and short-term investments as the individual investor nears retirement. This is a fairly conservative approach for the Institution and comes with no guarantees. The Institutions are betting that their offerings will be able to provide returns sometime down the road for the individual investor when the investor retires, but there are no guarantees.

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Mr. Jersey is the General Manager for 2050 Systems, LLC. 2020 Systems, LLC is a provider of Income Management Applications Software for Consumers. For more information visit www.2050systems.com or visit Mr. Jersey's retirement information site at www.someonesgottadoit.com.

Published - November 2005