Hopefully you’re not the investor who decided you’ve had enough and sold at or near the market lows this year. Do you have a long term investment horizon of 15 years or more but have cash stashed in “safe” CDs and money markets? Can you afford to invest in a Cd or bond paying 1-3%? Inflation and taxes will eat up a majority of your returns. You need to find a good financial planner to walk you through today’s complicated investment world.
What is the role of the money you’d like to invest?
Before you find a financial planner, know what you want your money to accomplish. Is this short term money that you cannot afford to lose or is it long term money you can use to invest? Knowing what you want your money to accomplish is the first step to successful retirement planning.
Interviewing your financial planner
The best way to find a financial planner is to ask one of your successful friends, colleagues or co-workers for a referral. Once you have gathered a list of a few financial planners, it is time to set up a meeting. Any good financial planner will hold an introductory meeting at no cost. Remember this is your time to interview the candidate who will hold the key to your long term financial success. You should consider this a job interview. You are looking for the candidate who will make your money work the hardest and provide you with the best long term return.
Find Out How They Are Paid
Financial planners can be compensated in a number of ways. You will want to be sure they are advising you with your best interests in mind, not theirs. Financial planners are sales people which are why they have to be licensed and accountable to an oversight organization.
- Straight Commission-This has traditionally been the most common way financial professionals are compensated. When you purchase an investment, a percentage of your total purchase will be deducted from your investible assets and a portion of that will go directly to your advisor.
- Flat Fee-Another common method of compensation is through a flat fee. Some will charge an hourly rate or may charge a flat overall fee for putting together a financial plan for you. Typically, there is little concern for a conflict of interest since they are getting paid whether you purchase any investments or not.
- Fee based on total assets-Some financial planners charge an annual fee that is based on a percentage of the assets you have invested with them.
It is your responsibility to find out how your financial provider is compensated and to determine if their compensation fits what you are trying to accomplish. Personally, I prefer paying my advisor a fee based on total assets. This way your advisor is your investment partner. The more successful you are, the higher your advisor’s compensation will be.
During the interview
You want to spend at least an hour or perhaps two interviewing your advisor. A good advisor will ask you to do some homework before you sit down and speak with them.
Cash-flow breakdown
Where exactly is your money going? You’ll have to have a semblance of running budget in order to develop reasonable savings goals.
Net-worth statement:
This is a list of everything you own; your assets minus your liabilities. This is obviously essential for determining you investment and estate-planning needs. For example, you may not have enough in your emergency fund. In this case, a good provider will instruct you to save more before investing one dollar with them.
Asset-allocation breakdown: A map of where your money is now invested and how it should be invested. The portfolio should include retirement and non-retirement accounts and should be diversified among many asset classes – US,foreign,small, large and medium cap, emerging market stocks, bonds, cash, and real estate.
Retirement Strategy: A plan for reaching your retirement goals, including an estimate of how much money you will need to retire comfortably. You need to know when you’ve reached your goals.
Education Strategy: A plan for helping to pay for your children’s education if applicable. This might include separate accounts for state college-savings plan accounts.
Tax Analysis: Suggestions on reducing your taxes. For instance, converting to a Roth,IRA or taking measures to make sure you are being tax efficient. This could have a huge effect on your retirement.
Insurance recommendation: A recommendation for the amount and type of insurance you need to reasonably cover you and your family in case of emergencies.
Can I invest my money now?
You’ve interviewed and found the right financial planner. You are confident about the plan they’ve developed for you. Time to send them a check and start paperwork? Not quite yet. Before handing over your hard earned money and investments to your financial planner, you need to do some additional homework. Do they have a license to sell financial products? Are they registered with FINRA.org? You also want to a check to see if there have been any complaints or disciplinary actions against him/her by going to the Web site of The Certified Financial Planner Board of Standards. Cfp-board.org. You want to do all you due diligence before trusting anyone with your hard earned money.
Bedside manner?
Lastly, don’t forget about things like personality and reliability. Ask the person who referred you how reliable their financial planner diligently returns calls and hand holding. Just as doctors can have different bedside manners, so can financial planners. Having a great relationship with your financial planner will allow you to sleep better at night and thus lessen the possibility of making a move you really shouldn’t make.
Mar 03 2009
Finding a Financial Advisor
Feb 15 2009
How to Invest in Mutual Funds – A Primer
The methods of how to invest in mutual funds is important to understand because such methods will play a role in whether or not the investment will be successful. Those that are considering investing in the stock market are making a very wise decision. The reason is that you need to make your money work for you in order to amass wealth and net worth. However, it is not always easy to pick a stock. The reason is that “a stock” refers to a singular item. When you invest in a particular stock, your worth will go up and down with the price of the individual stock. That is why more people look towards selecting a mutual fund instead.
With a mutual fund, a series of stocks are purchased and managed within a fund. Within this fund, the ups and downs of the various stocks yields and average. So, the high performing stocks can act as an effective hedge against the declines of the other stocks in the fund. And if all the stocks in the fund do well, then you have a very profitable mutual fund. Of course, this does raise questions regarding how to effectively select an appropriate fund. This is what we will explore.
The first step to take is to examine your risk levels. Some funds come with little risk and others are more volatile and present serious risks. Understanding your acceptable level of risk is necessary because you will need to assess such risks prior to putting your investment capital on the line.
Performing the proper research necessary to make the right fund selection is also required when examining the process of how to invest in mutual funds. What industries perk your interest and which ones do you believe will prove to make for the perfect forum for investing? And are there any types of funds that are involved in this particular medium? These are the types of questions you need to ask when looking to pick the right mutual funds. Remember, you will need to select the right funds for your needs in order to achieve success.
But, what can you do when you are not completely familiar with the process of selecting mutual funds? Here is some good news: you need not feel left out of the process. You can always hire the services of brokers that have the potential to aid in your selection of the right mutual funds. Does this mean you leave the decisions completely up to the broker? No, this is not how the process of how to invest in mutual funds works. You need to do your part as well. That means you have to do the requisite research into the stocks that comprise the collection of the funds. And certainly, you will need to do the effective research to hire the right broker to handle your account.
Yes, the process of how to invest in mutual funds is not tough. You just need to explore the means of doing so.
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