Model portfolios - not perfect but better than alternatives

While the use of model portfolios by financial advisers may not be the best solution for all investors they often are a better choice than alternative solutions that are tailored to fit the particular needs of an investor. Asking about the past performance of the model portfolio allows to compare the achievements of each investment firm. After an investment has been made the investor can easily compare the performance of the portfolio and benchmark it against alternatives. If investors demand that their financial advisor contructs a portfolio that is subject to many constraints (risk tolerance for example) they will not be able to hold their advisor to account and properly measure his investment performance.

How safe is your money?

Bankruptcies of major financial firms Lehman and MF Global have left a sour taste in the mouth as supposedly segregated customer/client money was exposed to grave risks or even lost. Banks may have difficulty keeping track of a myriad of transactions that routinely cross their busy desks but investors should be aware that securities they think they own are nothing else but electronic digits in some distant computer.

What returns can you expect from stock investments?

The experts argue about the return that investors can expect to earn from investments in common stock. Research studies cover a period of nearly 200 years but even in the markets that have been subjected to the most careful analysis - the USA and the UK - the results are hotly disputed. But whatever the numbers may be - anything between 5 and 10 percent before inflation may be plausible - investing in shares is fraught with high risks for the ordinary mortals. The stock market is to a large extent a machine to enrich the selling insiders - current IPO plans are a good example. The German Banker Fuerstenberg said nearly 100 years ago - shareholders are stupid and insolent, stupid because they buy the shares in the first place and insolent because they even expect a dividend. That said, there are always great opportunities to profit from mistakes that 'Mr Market' makes, but to profit from them you have to be 100pct dedicated to the stock market game in order not to be fleeced.

Who protects the investors?

When reading that the justice authorities in the Swiss canton of Ticino have completed their investigation into the bankruptcy of Sogevalor, a financial advisory firm that went out of business in 2004 (!) one has to ask who - if anyone - is really protecting investors from fraud and malpractice. Those responsible for Sogevalor's demise - and the alleged fraud that cost investors up to Sfr 130 million - have not even been charged and may well escape any formal prosecution. Even under most optimistic assumptions a court case could be a protracted procedure - especially when a lengthy appeal process is adopted. By that time quite a few of the investors - and maybe even those eventually found responsible - may no longer be in this world. The lesson from this and similar cases should be: BUYER BEWARE! Investors should only part with their money after careful investigation. A clear separation of the safekeepking (custodial) function and the investment advisory role would be the optimal solution we recommend.

Target-date funds no panacea for retirement saving

Are they just a marketing gimmick? (Reuters)

Do not put too much faith into investment gurus!

The only information you should rely on is your common sense, your own investment research or investment advisers with a strong track record that pass a thorough due diligence process. Beware of investment gurus in the media or the finance profession.

Do you really need a 'lifestyle' offering from your banker?

Reading about Barclays' lifestyle offering for 'high net worth clients' one has to wonder if that is what will restore confidence among investors that suffered from a difficult and unrewarding investment climate during the past 10+ years. Would it not be better to concentrate on producing the best possible performance for the client's portfolios and save the money (and possibly reducing fees accordingly?)

Beware of selective performance statistics

The first quarter of 2012 is nearly over and it has been a good one for markets. Inevitably some fund managers (or better some of the funds in their product line up) have done well and are not slow in trumpeting their achievements. But investors should be careful when listening to the siren songs of marketers or investment advisers. A fund that did well over the past three months may not look so good when scrutinised over a one or three year period. Even when a fund passes muster over the longer periods there might be other - and larger - funds managed by the same firm or individual that can show at best a mediocre performance. That leaves the poor investor still with the difficult (impossible?) choice of picking the right fund.

Use fee-based adviser and liquid products

Recommends William Baldwin (Forbes).

Don't be a Muppet when dealing with financial advice

The revelation claiming that some employees of Goldman Sachs occasionally referred to customers as 'muppets' should be a reminder that the old adage 'Buyer Beware' should always be foremost in investor's minds when confronted with financial advice. In nearly all situations the vendors have a financial interest at stake and the inherent conflicts of interest can only be neutralised by a careful analysis of the service on offer. Most investors are at a disadvantage as they do not have the same level of information about the intricacies of the financial markets that is available to finance professionals. Taking unbiased advice is recommended in order not to become just another muppet. For more on the subject read here. The distinction between a client and a counterparty should be of particular interest to private investors.