Is Reading a Fund’s Prospectus Really That Important?

Here’s one example where investors really wish they would have read up on exactly what they invested in. And, here’s what you should do today instead of buying into Wall Street’s newest “alternative investment” fad.

I read a post on another blog alluding to an ETN’s prospectus which said the fund’s share price was guaranteed to go to zero. I had to look it up in order to believe it.

 

How many would invest in an ETF / ETN  after reading this:

ETF goes to zero

 

But unfortunately when combining Wall Street fads, short-sighted investors and investment bankers who will do anything for a dollar, you end up with investments like this, funds which are guaranteed to go to zero.

 

For those curious, the prospectus shown above is from the ETN ticker symbol: TVIX, found here:

TVIX is a fund intended on making money when volatility rises. Basically, a bet on the market going down or having very large moves.

 

If you find an investment today that is outside the scope of a “traditional” investments (For example – it is labeled as an “alternative investment”) you need to take the 10 minutes to read to understand how the fund works. If you don’t understand it, don’t buy it. Simple as that.

 

Investors are sold this product as a short term trade on hope that volatility will increase, but how many invested today holding this saying “Volatility has to go up someday”….meanwhile they are losing money every day they wait.

 

What does an investor do today who is worried about potential short term correction in the market?

 

Check your Portfolio Balance

 

When was the last time you ensured your asset allocation was what you intended? We talk about rebalancing a portfolio in more detail here in part 4 of our “Getting Started Series”

Rebalancing allows you to sell high and buy low buy taking profits in securities that have risen, and buying though which have gone down in price.

 

Set up Automatic Contributions

 

In other words, dollar cost average into all your investments. By setting up automatic purchases at a set interval, investors are guaranteed to buy more shares when prices are low, and less when share prices are high.

Read more about the idea of Dollar Cost Averaging here.

 

Keep Cash

Either in:

  • An emergency fund so you can be comfortable riding out a market decline.

 

  • Or, in your investment account so that you can have the cash available to buy the market when it drops.

 

 

Anyone of those 3 options above will make you more money in the long term then playing around with Wall Street’s new offerings of leveraged funds guaranteed to lose you money over the long term.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *