Finding a Financial Consultant - Three More Tips For Choosing the best One
If you're frustrated from having one financial consultant after another financial consultant provide you with inadequate returns on your stock portfolio, i quickly hope you read my first article "Three Tips for Finding a Superior Financial Consultant." On this page, I'll drill down even more to really hammer home those points.
Getting a superior financial consultant, isn't always about the financial consultant. It is sometimes also about you. Are you willing to also make the commitments to find a superior financial consultant? In this article, I'll discuss yet another crucial behavior about financial consultants and two regarding the behavior of you, the investor.
Three more tips:
(1) Don't hold mutual funds;
(2) Don't be stingy if you find a superior advisor; and
(3) Be patient and ask lots of questions in your visit 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 just what your costs are. Besides upfront costs that may be upward of 5% for some funds, you can find 12b-1 advertising , marketing and distribution fees that range between 0.25% to 1 1.0%, administrative fees that range between 0.20% to 0.40% not to mention 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, chances are your 12b-1 fees are greater than average.
Increase this, intangible costs like 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 include insult to injury, sometimes fund managers sell out of these biggest winners to meet up liquidity needs, generating a capital gains income tax for you personally, the investor, even though the mutual fund lost money that year.
But this is not even where the negative traits of mutual funds end. If you have one of the numerous financial consultants that merely try to jump on the hot emerging market bandwagon by buying mutual funds in China, India, or any other country, I help you to exercise extreme care. When pullbacks happen in these country's economies as will inevitably happen, you are at high risk of losing money 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 an incredible number of investors to redeem their shares over a brief period of time. Should this happen, fund prices will plummet before you even knew what hit you.
But if you choose to own just the best stocks in the best industries in these countries, probably your stock prices will be much more insulated and less volatile in such a scenario. While these stocks may still decline, they'll most likely decline a lot less than the fund will. Strong companies' stock prices have a tendency to weather country-wide economic downturns much better than fund prices, and if they are in the proper niche, they may even continue steadily 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. Website link remember speaking with a potential client one time that had a million dollars in the currency markets and was adament about not paying fees. He just wished to pay commissions on stock trades. When he showed me his statements (incidentally 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 variety of mutual funds and individual stocks, and several times those stocks were traded when there was a nominal 5% gain in virtually any of them. Furthermore, the statements by his financial consultants were misleading. The consultant handwrote on his statements 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 explained that annualized, that the 6% translated into 24% returns.
But when I explained that his net returns will be 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. I guess his financial consultant didn't bother explaining this small detail to him. Still, he insisted on paying no fees whatever. I could tell he was the type of person that was blindly loyal to his financial consultant, therefore i moved on without wanting to schedule another meeting.
Superior advice costs money. And when your financial consultant is superior, he / she will be transparent about his fees and your costs, in order that you won't be confused in what your true gains are really. Avoid being stingy. After everything you just learned all about mutual funds, why can you not be ready to pay even up to 2% annually for superior individual advice and management if you are almost certain to be paying a lot 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 in part one of this article, you may get frustrated after talking to ten financial consultants, none of whom can answer those questions. My advice would be to just be patient. Don't quit and don't settle for a salesperson that is trained to answer those questions to lead 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 begin drilling down about specific stock picks, a standard sales technique to avoid your query is an answer similar to the following: "I'm not a stock picker. But don't worry. https://kim-keene.hubstack.net/does-independent-financial-advice-find-the-best-deal-for-you-1715678978 know how to find the very best money managers in the united kingdom to manage your money for you, so you're in great hands." Avoid being misled by smokescreens like this. Remember that if your financial consultant truly understands how to find you the best money managers, then he or she must necessarily have discussions about geographical preferences, industry preferences, and specific stocks with those money managers. How do a financial consultant claim to choose the very best money managers for you but have no knowledge of what stocks you own and what makes those stocks special?
To summarize, buy individual stocks over mutual funds, be willing to pay fees for an exceptional advisory for anyone who is so lucky as to find one, and remember, the luckiness of finding an exceptional advisor is not really luckiness at all. It comes from your hard work, tough questions, as well as your unwillingness to be led astray by the professional smoke screens of financial consultants.
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