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Invest in What You Know? (Part 2)

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[If you missed part one a couple of days ago, I encourage you to read Invest in What You Know?. As a bonus, I was happy the history of Palm smartphones sparked some conversation. Today I'd like to address the company that surfaced the topic in my mind.]

I get lots of people sending me press releases everyday... so many that sometimes I feel like TechCrunch and their embargo statement. (That post is hilarious... but beware of some adult language).

The other day, I got something Fundken, a new financial website. Fortunately it wasn't from some PR person unlike the typical case. Fundken, roughly, works like this: You enter your occupation and/or hobbies, and it spits out a list of mutual funds that best matches those interests according to their algorithm.

The hope, according to the company's pitch to me, is that it people are more apt to invest in things they know. Their thinking is that this is crucial in a time where people might be intimidated by investing. While I don't dismiss that, I wonder about the value of investing in what you know. As I mentioned in part 1, I'm not sure if you should invest in what you know. Just because you know the technology of Palm smartphones, you may not know all the other major factors that make an investment a success or a failure.

One of the problems that I have with Fundken is that you can't utilize your knowledge of the industry. If you know healthcare, investing in a healthcare is going produce some winners and losers (on average) and someone without knowledge of healthcare is going to do just as well (provided they buy the same mutual fund). Additionally, you aren't diversifying yourself. If there's a downturn in the industry you may be out both your job and your investment.

There are two other problems that I had with Fundken:

  • I did a couple of sample searches and being interested in Computers and working in the Health Care didn't yield any health care funds... all funds were technology sector funds. I also noticed "Leisure Cyclicals" and thought to myself, "Next time I'm at a party and someone asks me my interests, I'm definitely going to say leisure cyclicals and see what response I get."
  • The check boxes asking if I "Do you enjoy smoking, gambling, hunting, or drinking?" or "Were you born between 1946 to 1964?". Clicking the boxes promotes a recommendation for tUSA Mutual's Vice Fund and GenWave Fund, which are, of course, funds from the parent company of Fundken. That's not all-together a bad thing, but it seems odd to ask a question of people and then answer it in the way that they did. I thought the boxes would give me a variety of vice funds, or even some target date based retirement funds.

In the end, rather than encourage people to invest in what they know, I'd prefer to encourage them to learn about investing. There are a lot of places to start, but fortunately my friend Jeremy from released his free eBook Invest Like a Pro, just a little over a week ago. It's a great teaching tool, and at the price of free - a product of infinite value.

Posted on July 30, 2010.

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2 Responses to “Invest in What You Know? (Part 2)”

  1. Francois says:

    If you don’t really know your invest, you will simply just gambling your money for nothing. You don’t need to master the in and out of your investment. Learning the basics would be enough as a start.

  2. David says:

    In any invest, you need to make sure that you need something about your investment. In that way, you can assure yourself about your ROI.

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