How Do I Choose A Good Fund To Invest In?

I have two boys, Asa and Asher, and they make everything a competition. Oftentimes I’ll hear, “Hey, I’m the first one to eat all my food” or “I’m the first one in the pool,” “I’m the first one off the diving board!” 

Sometimes they create it so that they give themselves a little advantage. “The first one to the car wins!” Yeah, the one who said it is a foot away from the car and the other one is still in the house. Who do you think’s going to win? 

This scenario made me start thinking about how we sometimes do that with funds. People often ask what the best fund or stock to invest in. That can be a loaded question because there are all different kinds of funds out there. From a five-star fund, which some people say you have to have a 5-star rating to equal a good fund and that it’s the best.

Truthfully, a 5-star rating tells us how it performed in the past and doesn’t have anything to do with how it may perform in the future. Also, there’s lots of five and four-star rated funds, so how do you know what’s really best? 

What is Red Money?

There are other groups who like American funds and say those are the best, while others say Vanguard is the best, while others claim a stock in a company that you’ve always liked is the best. Needless to say, there are all different ideas of what the best funds are.

When we first got into red money years ago, meaning any money that’s invested in the market, I know that it was important to me and to Bev that we set ourselves apart with our investment strategy and approach to red money. (Read more about Red Money here) We didn’t just want to do what everyone else was. I only wanted to do red money if I thought we could do it better.

Want to learn more about “red money” as well as the other colors? Make sure you get a copy of our book from our website so that you can learn more about the colors of money.

Over the years our quest has always been to do better. We have worked with different managers utilizing different investing strategies and some of their ideas were better, while others weren’t so much.

Just like my boys trying to win, we try to figure out what’s better. What can we really do better?

Now, we can’t ever say that there is one strategy that is the best and it will always work. However, I think we finally found a strategy that I believe is truly better. 

Who is United Asset Strategies and What Makes Them Better?

Our solution that sets us apart is our partnership with United Asset Strategies. They bring some differentiators that truly affect red money and makes for a better strategy.

So what makes this strategy better? I can give you three reasons!

1. We can now utilize individual stocks and bonds inside the portfolio, not just a fund. (An ETF, a mutual fund, or account) Why does this matter?
   
   There’s a few reasons. One when you have money in a fund and the market is going crazy, the stocks are dropping, people are selling, then that means that you’re losing money. Even if you kept your fund, there’s other people who are selling, so your fund is going down.

This all means that if you’re the fund manager and people are selling, then you have to sell too. Regardless of which stocks (industries) are doing well at the current moment, inside of a fund that success in particular industries wouldn’t matter because if someone is selling, you have to sell proportionately and aren’t able to keep what’s doing well and dump what’s not performing.

By utilizing individual stocks inside the portfolio you can keep the winners and get rid of the losers. That’s one advantage of using individual funds besides just using them in a mutual fund.

2. The second advantage here is if you have money in non-qualified accounts (not retirement accounts) that you have put aside, like savings, you often get what I call “Phantom Taxes.”
   
   Phantom Taxes show up when the fund starts selling things they might have held a stock in for years and when they sell they get hit with capital gains tax, which the bank has pushed out to everyone who owns the fund.
   
   Sometimes you end up paying tax on this money at the end of the year on the gain and then if the market goes crazy like this year, you lost that gain shortly after, but you still had to pay the tax.
   
   So I call it “Phantom Tax” because you didn’t realize that gain yourself.
   
   By utilizing individual stocks, they can actually trade in a way that sometimes gives you a loss on taxes when your account is up. They’re very strategic in trading your stock away to reduce taxes.
3. The last benefit that United Asset Strategies offers is being able to hold individual bonds. I have never met managers that have the connections to be able to hold the individual bonds. This is not a bond fun, but individual bonds. They’re able to get them at reduced pricing, which ends up helping you. They have more expertise in that area which is important because when everything else is getting hit, bonds got hit too, but being able to get them at rates that others can’t only helps you. 

The “What If” Strategy

I’ll tell you one of the things that United Asset Strategies does that I think is, by far, better than the rest, is they are consistently looking at “What if…” 

They will be the first ones to say they don’t know exactly what’s going to happen in the market and anyone who tells you that they do is lying. No one does. No one predicted what happened in March. 

So, they are consistently running stress tests with the “What if” scenarios. They look at how do we protect your account, how do we protect your portfolio, what losses are we going to see, and how do we make sure that you’re going to be okay in all types of markets. 

I know in the past we’ve had managers who are great in one market but horrible in another. The “What if” strategy is important because we need to know which strategies will work in which markets. 

Below I have included a link to their website which has a 2-minute video on it. I want you to watch it because it goes into detail about what the “What if” strategy is and why it’s important.

Watch The Video

Examining Your Current Portfolio

Another thing that United Asset Strategies can do is run the “What if” strategy on your current portfolio. They will go deeper than a simple risk assessment and will look to see where there’s holes in your portfolio, things that we need to be cautious about, and if everything looks good.

I often have my and my sister’s kids together, so we call them “couslings” because they kind of fight like siblings. I’ll make lunch and put macaroni and cheese in five bowls. Five kids means five bowls. Inevitably somebody will be mad because they didn’t get the color bowl that they wanted. They want a certain bowl even though  it’s the same mac and cheese in every bowl. 

However, one bowl is red and one is green, and they want a certain color. It’s funny how they fight about the colors and think it’s so different. 

When it comes to funds, people think we’re diversifying because we have different funds, AKA different color bowls. But here’s the truth, a lot of times those funds are very highly coordinated. You might own the same stocks in all five funds, which means they’re very much alike. 

Set Up A “What If” Risk Assessment

United Asset Strategies will run reports, take a look at your current portfolio, and then make changes to ensure true diversification. We love that they do this and are glad that we have partnered with them.  

Check it if you’d like to get that “What if” risk assessment on your current portfolio or if you’re just looking to learn a little bit more.

Also, if you have some good stocks in your portfolio, they’re not going to sell them. They’re going to tell you to keep them and show you how to fill in the portfolio around them, which is another very unique feature that we haven’t seen in many other places. Take a look, watch the video, schedule a call. I can’t wait to talk to you.