Market speculation seldom ends well

Scott Burns, columnist

Q:

I am well diversified with an IRA and investment portfolio worth about $300,000. Home and cars are paid for. No debt. Earlier this year, I found $9,000 cash sitting in my investment account. So in conversation with my financial 'adviser,” I felt it would be a good time to invest in something speculative.

I'm 76 years old. At the time, gasoline was selling at close to $2 a gallon at the pump, down from over $4. I've seen this happen before, and gas always returns higher. So I suggested we invest in something 'gasoline.” He agreed. When I got my next quarterly report, I found he'd invested in the BlackRock Natural Resources Fund, Inv C shares - not anything relating directly to gasoline. Since then, gas has risen. The fund has declined.

Did he 'done me wrong?” He has since 'left” the firm and wants me to stick with him. What do you think? - A.W., Salem, Oregon

A:

If you are going to make investments based on vague hunches, you should be prepared for vague and unhappy results. You can't pin this loss on your adviser. You need some kind of benchmark for measuring results before you start thinking someone has done you wrong. You also need to realize that while gasoline prices rose over the time period mentioned, energy stocks declined in price.

In the second quarter, for instance, the Energy Select SPDR ETF (ticker: XLE) declined by 2.47 percent. The Vanguard Energy ETF (ticker: VDE) declined by 2.13 percent. Your investment lost 1.44 percent. It could be argued that it was a brilliant choice in a tough market.

Longer-term history suggests this is a fluke. Over the last 10 years, VDE returned an annualized 6.86 percent. XLE returned 7.17 percent. The BlackRock fund returned 3.87 percent. That's a lot less, over a more meaningful time period.

Odds are, your adviser is interested in transactions, not money management. But this may be unfair. You wanted to speculate. He found an energy investment that was less volatile than a single energy stock.