Marriage, Money and Real Expectations

I recently read an interview with Scott Stanley, one of five authors of 12Hours To A Great Marriage: A Step-by-Step Guide For Making Love Last (Jossey-Bass, 2003), in my local newspaper. While I've not read the book, or am promoting it, one of the questions in the newspaper's interview got me thinking about how much a lasting marriage and a long-term investor have in common.

That question that caught my eye was: " What are the biggest challenges facing today's marriage?" Scott's answer : Ridiculous expectations and a failure to set commitment priorities.

If there ever were two issues fund investors need to have in check--whether they are new to the fund investing game or an old hat at it--- it's those two.

First, ridiculous expectations. If you've read this column over the years, you've come to realize that there are very few mutual funds that have provided their shareholders with an annual return of 100 percent or more; that there have been years when equity funds haven't performed as well as their benchmarks; and years when the average fund has surpassed them.

You've also learned that it's the benchmarks, such as the S&P 500, the Nasdaq Composite, any of the Russell indices, the Dow Jones Industrial Average and the Lipper Index figures, that equity investors can use to check how well their particular equity fund has performed with regards to its benchmark. For global stock investors, it's the Morgan Stanley Capital International Indices (MSCI) that are the gold standard for return averages. In the fixed-income arena, the 3-month Treasury bill and 10-year Treasury note yields and prices provide bond fund investors with a clue as to whether or not their short-term money market funds or long-term bond funds are doing the job they'd hoped. (All benchmarks noted, except Lipper's, can be found daily in The Wall Street Journal at the bottom of page C1.)

A look at a few of those figures on January 26, 2004 showed that the S&P 500, an index of large-cap stocks, was ahead 2.66 percent so far this year; small-cap stocks, as represented by the Nasdaq index, were up over 6 percent; the MSCI EAFE index was up 4.4 percent; 3-month Treasury bills were yielding less than 1 percent (0.86 percent to be exact); and the 10-year Treasury note's yield, 3.97 percent.

Those kinds of easy-to-access index figures are there to provide all investors with realistic return expectations. For more specific fund-like comparisons, it's Lipper Indices and Lipper's Investment Performance Summary reports that will do the trick. (Lipper Index figures can be found in The Wall Street Journal, Barron's, and Investment Objective Performance figures are posted weekly at www.allaboutfunds.com.)

So, the next time someone calls offering you a mutual fund that's guaranteed to be 100 percent safe and promising a 600 percent return, as was recently the case in South Florida, check some benchmark figures before opening your checkbook. Deals too good to be true usually are.

Scott's second point in how to make a marriage last mirrors mine with respect to how to be a successful long-term investor: Set commitment priorities.

Just as it's pretty easy to get out of a marriage today, it's really easy to get out of that mutual fund investment you've made. Typically, all the latter one takes is a phone call. But short-term investing into a fund designed with a long-term bent can cost you particularly if that fund has a front-end sales charge (depending upon the dollar amount invested they can range up to more than 5 percent). Or, a back-end fee of a few percentage points that kicks in if you sell your fund shares within a few months after purchasing them. Without some pre-planning and commitment intentions, fund investing can be not-so-happy experience.

That means, whether you're getting married or investing, the wisest moves are usually the ones that happen after you've done some thinking.

In the case of mutual fund investing, make sure to take the time to do some thoughtful planning and to think about the fund(s) you'd like to invest in, why you want to purchase shares of them, what kinds of returns you expect and what you're strategy is for taking some money off the table once it's been made.