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Dear Mr. Berko:

Dear E.P.:

The universal problem with most 403(b) and 401(k) plans in a volatile market is that they own mutual funds that, like the big-box stores, are mass-produced concepts designed for volume investing rather than an individual’s needs.

Mutual funds are an inflexible investment medium; they’re almost always fully invested, decisions are made by committees, their stock selections are restricted by the prospectus, and if you’re worried about how your fund is doing, you can’t ask the fund manager for buy, sell or hold advice. Basically, you’re on your own.

If you own a technology fund and tech issues are out of favor, what can you do or from whom do you seek advice?

So, depending on your age and stage, you’re stuck below water, and many investors may not have enough air remaining in their tanks. Now, is this a sensible way to invest for your future, which is one of the most important stages of your life?

Mutual funds do well in a rising market, because a rising tide lifts all boats. But in a flat, falling or volatile market, your investments can be exposed to enormous risks. Mutual funds, mindful of Voltaire’s maxim from more than 200 years ago about “the masses,” designed their business models accordingly.

There are always excellent funds, but their 15 minutes of fame don’t last long enough to provide the growth and income you will need in your golden years. Also, most investors don’t recognize how successful a fund is until after that fund has enjoyed a few years of excellent successes. By then, you’re chasing performance like everybody else. So you climb on the bandwagon, and by then, it’s too late; you’ve missed almost all of the ride.

Like it or not, the tried and true investment metrics we successfully used in the past (revenues, earnings, dividends, book values, net profit margins, free cash flow, return on equity) seem to be ignored by the pros. Today’s metrics are the three V’s (volume, VIX and volatility) abetted by quants, momentum trading and derivatives. Asking an amateur to invest in this market is like demanding that a grade-school baseball team play the New York Yankees to earn a series title.

One solution is a money manager (not those who sell mutual funds, annuities or other proprietary junk) who will personally counsel you and recommend individual investments that are consistent with your long- or short-term goals. You must select a money manager whose knowledge, wisdom and experience sets him apart from the thousands who claim they have the magic formula. These professionals are a rare breed and difficult to find, especially among the myriad articulate incompetents, many of whom could persuade the devil to sing in a Baptist choir.

A second solution is to go it alone. And a third alternative is to stay the course and pray to Lakshmi that I am wrong.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, Fla. 33775 or e-mail him at mjberko@yahoo.com. © 2010 Creators.Com