Finding a Financial Consultant - Three More STRATEGIES FOR Finding the Right One
If you're frustrated from having one financial consultant after another financial consultant give you inadequate returns on your own stock portfolio, then I hope you read my first article "Three Tips for Getting a Superior Financial Consultant." In this article, I'll drill down even more to essentially hammer home those points.
Getting a superior financial consultant, isn't always concerning the financial consultant. Sometimes it is also about you. Do you want to also make the commitments to locate a superior financial consultant? In this article, I'll discuss yet another crucial behavior about financial consultants and two concerning the behavior of you, the investor.
Three more tips:
(1) Don't hold mutual funds;
(2) Don't be stingy if you discover an excellent advisor; and
(3) Be patient and ask plenty of questions in your search for a superior financial consultant.
Don't Hold Mutual Funds
Without a doubt why I'm not a fan of mutual funds. Mutual funds have so many hidden fees that it is often difficult to know exactly what your costs are. Besides upfront costs which can be upward of 5% for some funds, you can find 12b-1 advertising , marketing and distribution fees that range from 0.25% to 1 1.0%, administrative fees that range between 0.20% to 0.40% and of course management fees paid to the mutual fund manager of 0.50% to more than 1.0% annually. This doesn't even include undisclosed "soft" costs of trade commissions that can add another 2.0% to 4.0% in costs. And yes you didn't incorrectly read the first part of that last sentence. Many mutual funds charge you 12b-1 expenses they incur from advertisements and commercials that urge one to buy their funds, and if you're buying no load funds, itâs likely that that your 12b-1 fees are higher than average.
Add to this, intangible costs such as the performance that is sacrificed to maintain the necessary level of liquidity to fulfill share redemption, and your costs become even greater. For a fund that turns over 100% of its assets annually, Roger Edelson of the University of Pennsylvania Wharton School estimated this sacrificed performance to be 1.5% of returns annually. Lastly to add salt to the wound, sometimes fund managers sell out of these biggest winners to meet liquidity needs, generating a capital gains tax for you personally, the investor, even though the mutual fund lost money that year.
But this isn't even where the negative traits of mutual funds end. Should you have one of the many financial consultants that merely make an effort to jump on the hot emerging market bandwagon by buying mutual funds in China, India, or any country, I help you to exercise extreme care. When pullbacks happen in these country's economies as will inevitably happen, you're at high risk of losing profits quickly. Why? In a mutual fund, you're susceptible to a herd mentality that generally, will induce panic upon the release of bad news, and cause millions of investors to redeem their shares over a brief period of time. If this happens, fund prices will plummet before you even knew what hit you.
But if you choose to own just the very best stocks in the very best industries in these countries, most likely your stock prices will undoubtedly be a lot more insulated and less volatile in that scenario. While these stocks may still decline, they will most likely decline a lot less than the fund will. Strong companies' stock prices tend to weather country-wide economic downturns much better than fund prices, and when they are in the proper niche, they could even continue to flourish.
Be Willing to Pay Fees for Superior Advice
Superior advice is superior because a lot of hard work and time get into producing that advice. I recall talking to a potential client one time that had a million dollars in the currency markets and was adamant about not paying fees. He just wished to pay commissions on stock trades. When he showed me his statements (by the way he was with a major Wall Street firm that I will not name), there appeared to be no structure or investment strategy in his portfolio. He owned a mix of mutual funds and individual stocks, and many times those stocks were traded the moment there was a nominal 5% gain in any of them. Furthermore, the statements by his financial consultants were misleading. The consultant handwrote on his statements that he was doing great because he was up 6% that quarter (that i believe nearly matched the S&P 500's performance that quarter). He told me that annualized, that the 6% translated into 24% returns.
But when I explained that his net returns would be much lower because his portfolios quarterly 100% turnover rate produced exorbitant capital gains taxes that could undercut his net returns, he didn't seem to understand. Subject-To Mortgage assume his financial consultant didn't bother explaining this small detail to him. Still, he insisted on paying no fees no matter what. I could tell he was the sort of person that was blindly loyal to his financial consultant, so I moved on without attempting to schedule a second meeting.
Superior advice costs money. And if your financial consultant is superior, she or he will be transparent about his fees and your costs, so that you won't be confused about what your true gains are really. You shouldn't be stingy. After everything you just learned all about mutual funds, why can you not be ready to pay even upwards of 2% annually for superior individual advice and management if you are almost certain to be paying more than that a year just to own a mutual fund?
Be Patient and have Lots of Questions
In the event that you persistently ask the three questions I mentioned partly one of this article, you can find frustrated after talking to ten financial consultants, none of whom can answer those questions. Lease Option is to you need to be patient. Don't quit and don't settle for a salesperson that is trained to answer those questions to cause you to believe that she or he has answered your questions when that's not the case at all. What do After all?
For example, when you start drilling down about specific stock picks, a standard sales technique to avoid your query is an answer similar to the following: "I'm not just a stock picker. But don't worry. I understand how to find the best money managers in the country to manage your cash for you, so you're in great hands." You shouldn't be misled by smokescreens such as this. Remember that if your financial consultant truly understands how you can find you the best money managers, he then or she must necessarily have discussions about geographical preferences, industry preferences, and specific stocks with those money managers. How can a financial consultant claim to choose the very best money managers for you but have no understanding of what stocks you possess and why is those stocks special?
In summary, buy individual stocks over mutual funds, be ready to pay fees for an exceptional advisory if you are so lucky as to find one, and remember, the luckiness of finding an exceptional advisor is not actually luckiness at all. It originates from your effort, tough questions, as well as your unwillingness to be led astray by the professional smoke screens of financial consultants.
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