PRN: Angle for Financial Advice

SEPTEMBER 16, 2008
Jeff Brown, MD, CPE

Because there is a vast amount of information on money and personal finance, just like fish in the sea, sometimes all the overwhelmed financial columnist-angler can do is throw out a handful of different tidbits as bait to chum the water and see what will attract attention. So let's put on our waders, open the tackle box, and see what appeals to whom before this metaphor gets washed away.

• Polls show that friends are the number-1 source of investment ideas. What they didn't ask is whether unbidden investment advice is the number-1 source of former friends. As Oscar Wilde put it, "The only good thing to do with advice is to pass it on to someone else."

• If you've been scared out of tech stocks, you might be surprised how much tech remains in your otherwise-named mutual funds that you might still hopefully hold. While you're checking the contents of your funds, you might also be surprised how much duplication there is among the contents of different funds. Your attempt to diversify among different funds may in fact lead to an unsuspected and unwanted skew in your allocation ratios between different sectors.

• Stocks make most of their gains in short, dramatic spurts. Because the timing of these spurts is unpredictable, the risk of being out of the market completely is great. And because you also don't know where these unpredictable spurts will occur, the risk in not being diversified is also great.

• In the last decade, about 6000 mutual funds have closed for various reasons. And now we should keep our eyes on money market funds, previously thought to be rock-solid. Why, you ask? The reason is that for many, returns have dropped so low, that after deducting expenses, there may be nothing left to distribute to shareholders. So everyone will bail and these funds will close.

• How long do we really need to keep saying that an estimated two thirds of physicians don't have a will? Is it the cost, troubled marriages, or the influence of the evil eye that says if you make out a will it increases the chances of your premature death? Ditto for life insurance.

• For investment success, the 3 most important rules are: start saving as young as possible, save as much as possible, and invest on a regular basis. Your rate of return is less important than you think because it isn't controllable. Besides, focusing on rate of return detracts from the above rules.

• An investor in a high tax bracket who trades a lot needs to outperform the market by as much as 3% on a consistent basis to make all the trouble worthwhile compared to an index fund, because of transaction fees. This level of success rarely happens, so active trading should be left to a tax-sheltered account. You should hold the taxable account for a period of up to 15 years to amortize these costs and the taxes, even at the new, lower rates.

Any nibbles?

Jeff Brown, a partner on the Stanford Graduate School of Business Alumni Consulting Team, teaches in the Stanford School of Medicine Family Practice Program. He welcomes questions or comments at

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