Naked Truth Investing: Looking for investment advice in all the wrong places


This is the part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

Every survey I have seen indicates that saving for retirement is the number one goal of Americans.

Given the extreme importance of this subject, it is puzzling why investors continue to look for investment advice in all the wrong places.

Case in point: Many investors rely on Jim Cramer's stocks picks. Yet academic analysis clearly demonstrates that the stocks he recommends have an initial bump in price, but reverse their gains less than two weeks after his recommendation. These studies show that Cramer can move markets, but only for a very short period of time.


Other studies show that Cramer is right about 50% of the time. The same as you would expect from a random coin toss.

Investment Advisor Magazine recently polled some top notch "investment experts" and asked for their recommended asset allocations. The results ranged from a low of 10% stocks to a high of 85% stocks.

Within that range, someone will no doubt be proven correct, and that person will be anointed (or will anoint herself) as the new "investment guru."

John Kenneth Galbraith, the famed economist, said it best: "We have two classes of forecasters: Those who don't know--and those who don't know they don't know."

It is important for investors to know that these pundits "don't know."

This means those brokers and financial advisors who freely give advice about the direction of the markets ("this is a buying opportunity") or which stock is under priced ("we have a target price of $X on this stock") or which mutual fund to purchase ("this fund has a five star Morningstar rating") should be ignored.

Where should investors turn for reliable investment advice?

To the hundreds of academic studies and books that demonstrate that asset allocation determines virtually 100% of the returns of your portfolio, and that you should use only low cost index funds, Exchange Traded Funds or passively managed funds to put together a globally diversified portfolio of stocks and bonds.

If you want to reach your retirement goals, stop playing by the rules that benefit the securities industry -- at your expense.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.

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