Rick Ferri Richard A. Ferri, CFA is the President of Portfolio Solutions, LLC in Troy, MI. His firm specializes in low cost, tax efficient investment strategies for high net worth individuals, family estates, trusts, and business concerns.  Mr. Ferri’s new book Serious Money, Straight Talk about Investing for Retirement is available at Amazon.com

Rob Creegan Rob Creegan, CFP, is a principal of Creegan & Nassoura Financial Group, LLC, a comprehensive financial planning firm with offices in Westford, Mass., and Stratham, N.H. Since the early 1980s, he has managed investments and avidly followed the financial markets, and has served as chief financial officer and treasurer of several national corporations. He holds the Certified Financial Planner license, as well as a bachelor's degree in business administration, with a major in accounting, from the University of Lowell. He can be reached at rcreeganjr@aol.com.

Questions and Responses

Is my broker offering a good capital gains strategy?

Should I stick with my Berger fund?

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Is my broker offering a good capital gains strategy?

from Dolores

Q: My mutual fund is an IRA. Within the fund family I have five funds. One of these is going to pay a capital gain of 8.32. My broker wants me to exchange the four funds in the family that will pay a zero or low capital gain into the fund that will pay 8.32 with the idea that he will exchange out of that fund once the capital gain is realized. 

I am aware of the fact that the share price is diminished by the amount of the capital gains. However, the broker says that it will go back to its original amount in a very short period of time. And since this is an IRA, I don't have to consider the capital gains tax. 

What do you think of this strategy?

A: (Rick)  A capital gain in a mutual fund is much like a two for one stock split. The price of the stock drops in half, but you get twice as many shares, so in the end it all evens out. In the case of a mutual fund., if you are reinvest capital gains, the fund will drop by the value of the capital gain distribution, but you will buy more shares with the distribution, so it all evens out.

As far as the NAV going back to the original value before the distribution, that is pure speculation and is certainly not guaranteed. I honestly do not know why your broker would say such a thing. There is no logic to doing what he or she is proposing.

Is now the time to correct flaws in my portfolio?

from Debbie

Q: I know it's panic time for a lot of people in the market and experts are advising to sit tight.

However, I began investing in no-load mutual funds via IRAs about 5 years ago. I have only seen a good market and I got greedy. I didn't balance my portfolio - even though I knew I should. Five of the 8 mutual funds I've invested in are Large Growth and the top holdings of these funds greatly overlap.

 I have seen the error of my ways and have spent hundreds of hours  researching funds and fund advice. I know which funds I want to invest in - large growth, large value, mid cap, small cap and world stock, and what percentage of each to invest in.

My question is: Do I rollover my current non-performing mutual funds into the new funds I've researched and selected for my portfolio now - at a loss - or later, when the market turns back up? Five of the eight funds I hold are down below the dollars I invested.

My husband says we haven't lost anything if we don't sell - we're in it for the long term. However, these aren't the funds I want to be in for the long term - I know that now and I'd be glad to e-mail funds now versus funds desired. So, if I move the money now into a fund I want to invest in long term, is the loss worth the possible long term gain of the new funds? I can sit and wait for my funds to improve or I can move and wait to recoup the loss...... HELP!

Also, I am considering going to a fee/commission planner. I feel I've done my homework and don't really need to invest in load funds, but I'm not totally sure of myself. Does it make sense to go to a planner who invests in load funds? I'm 40 and plan to retire at 60. My husband & I have a HHI of $120k+. Our IRA's and 401(k)'s equal about $150k.

A: (Rick)  Relax! You've got plenty of time. You are not going to retire for another 20 years. The stock market went on vacation for a while, but it ALWAYS comes back.

This bear market is actually a GOOD thing for people like us (I am only 43). in fact, I LOVE this market! I can buy stocks today at low prices and sell them at much higher prices when I retire.

Your are right about your lack of diversification, though. Many people make the mistake of buying 4 or 5 top performing mutual funds and thinking they are diversified. Unfortunately, most of yesterday's top performing fund managers owned the same 50 stocks, have the same information about those stocks, relayed on the same Wall Street analysts, and all got lucky at the same time.

To avoid a lack of diversification in the future, I suggest owning one mutual fund that does it all, the Vanguard Total Stock Market Fund. It is low cost, tax efficient, and you do not have to guess which segment of the market will be up or down next year because the Total Market Fund owns the entire market. It is okay to liquidate you current holdings and invest in a TSM fund now, because you are only swapping one stock funds for another as opposed to market timing.

Finally, if you are looking for professional help, do not, I repeat, DO NOT go to someone that sells loaded mutual funds or variable annuities. These people are not financial "planners", they are "salespeople". Most commission salespeople (stockbrokers included), are under-trained, under-educated, and offer biased advice. I can say that because I used to be one. If the financial professional is properly trained and is well educated, they would not be selling investment products on commission. Go to a fee-only investment advisor or a fee only financial planner.

Should I stick with my Berger fund?

from Ray

Q: My wife bought into Berger New Generation Fund last year before growth stocks tanked. This fund, however, has really bottomed out and she is considering taking her lumps and selling. Would this be a classic case of "buy high and sell low," or has the manager of this fund turned it into a dog that just won't hunt?

A: (Rob)  Assuming that your total portfolio is properly diversified, I would not recommend that you sell this aggressive fund now at this low level. The most important lesson of the last year is that your total portfolio be properly diversified. A mix of value funds and growth funds is desirable. Also make sure that the funds you own diversify properly in varied sectors including healthcare, financials, industrials and technology.

Important Disclaimer

Investing in equities involves a serious principal risk, and no assurance can be given that the techniques described here will be successful. Returns vary and you may have a gain or loss when you sell your shares. Past performance is no guarantee of future results. Index returns shown are historical and include the change in share price, reinvestment of dividends, and capital gains. Indexes are unmanaged and do not reflect the impact of transaction costs. Transaction costs would have reduced the total returns.

International investments, especially those in emerging markets, entail greater risks (as well as greater potential rewards) than U.S. investing. These risks include political and economic uncertainties of foreign countries, as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less-established markets and economies.

Lastly, the questions and responses set forth here are for general informational purposes only and are not intended to substitute for performing your own independent research or contacting your financial or legal professional before making any investment decisions. We make no guarantees as to the performance of any investment strategy you choose and are not responsible for any losses you might incur.