I have done many portfolio reviews over the years and I’ve seen all kinds of mistakes people make with their investments. Starting today I will do a series of articles on this specific topic. Hopefully, you will learn from these examples and therefore avoid repeating them. 

First let me clarify a couple of terms: 

1. Financial Advisor: the guy who gives you financial advice and tells you where (what funds) to invest your money. Most of them work for big brokerages like Merrill Lynch, Morgan Stanley, and others (therefore the conflict of interest), and most of them can direct your money.
2. Fund Manager: the guy who works at a mutual fund who does not interact directly with you, but nevertheless decides what stocks and bonds or other funds your money should be invested in once your financial advisor has invested your money in his fund.

To review a portfolio, first and foremost, I examine the hidden costs:

• Load: the money the fund manager takes off the top of your initial investment to give to the financial advisor as a commission for directing your money to his fund. In the past, a load could go as high as 7% of your invested money.
• Expense ratio: the money the fund manager charges every year to compensate himself and the financial advisor for keeping your money in his fund.
• Turnover ratio: how frequently the fund manager trades the investments in his fund. I will explain what it is and why it is important in my next article. 

I recently did a portfolio analysis for Tim, who has a major position in WWWFX (Kinetic Internet Fund.) The key analytics of the fund are shown in the table below. As a comparison, in the row below WWWFX, I also show the analytics of a comparable index fund that I would have invested in instead.

WWWFX has a 0% load, which is good. Taking 7% of your invested money for the financial advisor has proved to be too blatant and very few in the industry practice that anymore.

WWWFX, however, has an expense ratio of 1.77%. This is exorbitant! In fact, I would call anything above 1% exorbitant, since the comparable index fund has an expense ratio of only 0.03%. WWWFX is 1.77/0.03 = 59 times more expensive than the comparable index fund. 

The financial advisor might argue: look! The fund returned 33.27% last year! What is there to complain about a fee that is “only” 1.74% higher. Don’t be fooled by this argument. WWWFX has a 20-year return of 156%, but the comparable index fund has a 20-year return of 524%!  Tim paid the price of a Mercedes Maybach and instead got a lemon! For those of you who don’t want to repeat the mistake, you can always contact me for my Second Opinion financial review. 

For those of you who want to have some fun, can you guess what the comparative index fund is? Why did I choose an index fund, specifically?

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