Thursday, July 8, 1999

Financial (Mis)Advice

by TheHornedFool

Well, today was a historic day for the company I work for. The 401(k) was introduced. How exciting -- finally the company was going to get into the help you help yourself mode. The majority of the employees are new to investing. They don't understand the stock market and are too scared to try. I have been Foolish for about two years. I think I understand a little.

The financial adviser who came in was giving all the talk: tax free investing, diversification, asset allocation, and mutual fund information. At one point she asked what was more risky, a bond fund or a stock fund. Everyone agreed that the stock fund was a high risk and the bond was a sure thing. Except me... When I said I thought bonds were risky she looked at me and smiled like I was a lamb ripe for slaughter. Everyone else (some who looked to me for advice and info) thought I was crazy. When she asked why, I told her it was simple: It was too big a risk with a bond just to keep pace with inflation.

That was when her smile turned into mistrust. Later while we were doing our one-on-one interview, she asked why I thought that way. I couldn't help myself. I told her that I was a Foolish investor. The historical growth rate for stocks is about 10%, and with retirement about 40 years away I had better be 100% invested in stocks.

Then I asked why there wasn't an index fund since I would be forced to use a mutual fund. When 85% of active fund managers can't beat the index they are measured against, why would I want to gamble with poor past performance and high management fees? She started getting defensive. And of course she tried to blow off The Motley Fool... Now it was my turn to smile. She stated how only recently index funds have become popular. I countered with: "Exactly. The general public has noticed how poorly their actively traded mutual funds have performed and have demanded better."

The rest of our meeting continued with her sinking back defensively into her chair and me smiling and leaning forward aggressively. I never realized how financial advisers really thought they were better than us (Fools). But just a little information on my side kept her in line and my co-workers better informed.

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