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When Wall Street Cheats, Do We Lose?

May 13, 2011

Individual investors can be hurt by trading fraud and manipulation, says Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards. And she says that is an important reason for vigilant government regulation of financial markets and service providers. "But this does not mean that the small investor should avoid investing in the stock or capital markets, or is destined 'to lose' to the big players," Blayney says.

She offers investors the following broad-stroke recommendations for participating in the markets:

  • Focus on well-run, low-cost mutual funds where your money is part of a large investment pool. "The benchmark for low costs would be Vanguard mutual funds," Blayney says. "So I would advise comparing any mutual fund to the nearest counterpart at Vanguard. It's important to do an apples-to-apples comparison: index funds to index funds ... managed large-cap stock funds to other large-cap stock funds. Generally speaking, international funds and small-cap funds are going to have more expense-management fees than domestic large-cap funds. Index funds are going to be less expensive than managed funds."
  • Focus on index investing, where your returns reflect broad market movements, and not the performance or choices of a single individual or manager.
  • Avoid any investment strategy that is not transparent or that you do not understand. Hedge funds are often "black boxes" to the average investor and therefore not appropriate.

[S]he also suggests working with a [CERTIFIED FINANCIAL PLANNER™] professional… someone who manages assets for clients and is an investment adviser, to develop an investment plan. "They are required to adhere to a fiduciary standard," she says. Read more >

NPR.org
Linton Weeks
May 13, 2011

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