FAQ's - You Got Questions? We Got Answers.
Who should I speak with about retirement planning? Working with a seasoned investment professional is very important, as they are well versed in this topic as part of their daily work. Although there are standard planning software tools available, the key is selecting someone who takes the time to understand the needs of you and your family. If you are starting out, find someone who has standard planning software tools to set a up long-term plan for you. If you are closer to retirement, it becomes critical to work with someone who is a portfolio manager. Investment advisors fit that role in that their planning process is used to build out the investment portfolios they design to meet your specific goals.
How do I choose the right investment advisor? In choosing an investment advisor, the first step is to ignore their titles on their business card. The investment industry is filled with salespeople with important titles like “managing directors,” that are neither corporate directors or managers. Start with Google searches to find advisors near you, as it is beneficial to forge a personal relationship with those handling your money. As there is a vast difference between large companies and small boutiques, speak with both types of firms. Look for someone who listens and be sure to ask good questions about their investment style and philosophy.
What type of investment philosophy should I look for in an advisor? Investments are made to benefit long term goals. Part of an advisor’s job is to curb impulsive decisions and focus on building wealth. Look for an experienced person who has a calm approach to the markets, can identify sectors of the markets that should grow over time, and takes a tax efficient approach towards your investing needs.
Is active trading a good way to make money? Active trading looks like fun, but individuals are no match for the large trading desks who profit from the impulsive decisions of retail investors mistakes. Should you be lucky to earn say $100,000 in trading, remember that active trading triggers short term gains which incur large state and federal taxes. At tax time, you may share as much as half your profits with the government. Yet they only allow you to deduct a very small amount of your losses. This is a classic” heads they win, tails you lose” type of investing where you take all the risk for small returns.
What is a tax efficient approach towards investing? Tax efficient investing is more than just making a return. Returns come from the combination of income and growth. An individual investor should have an advisor who monitors their income return to generate a reasonable amount of spendable income on an after-tax basis. Similarly, growth should occur over time by compounding without generating capital gains taxes each year. These steps are key toward tax efficient investing.
Should I buy individual stocks and bonds? Owning individual stocks and bonds is the way that almost every high net worth person invests their money. There is no reason to wait until you have more than $10 million to follow their strategy. Of course it is easier for a financial planner to invest you in their picks of mutual funds. Yet these are basket of securities where they serve many different types of investors with differing tax issues and time horizons than you. In contrast, owning individual stocks and bonds move the investment decision back to what is best for you and your family’s needs. Buying individual stocks and bonds is more difficult for most financial planners, because it requires more fundamental and technical research to select stocks within industries that will grow over time. There are investment advisors who focus on buying individual stocks and bonds for individual clients that seek to build net worth.
Tips on finding the right investment advisor. There are 6 main tips used to find the right advisor. First make sure they act as a fiduciary, where your interests come first. Often this is not possible in a brokerage firm that makes money selling securities. Second, read their investment brochure to understand their approach towards investing and compare it to another firm to gain a level of comfort in their philosophy. Third, chemistry is very important. If you do not have an aggressive personality, avoid anyone like that. Women are fortunate to be able to rely on their intuition. Fourth, look at fees for clarity, as this should be straightforward. Fifth, do they handle other similar sized clients. And sixth is the most important. Do they listen to you when you are talking and are their responses properly addressing your questions. All are critical to making the right investment advisor for you.
When looking for a financial planner, are account minimums important? The question of account minimums is a very important step in selecting, or keeping, an investment advisor. This often is the threshold where your accounts receive needed attention. An advisor or planner with a $5 million minimum has a focus on larger accounts, so they would not pay much attention to say a $2 million account. Conversely, someone who has a $500,000 minimum has created a practice with lots of small accounts. Running a business based on volume, their time and focus is on adding more accounts, where everyone fits into a few portfolios, much like putting a round peg into a square hole. By contrast, an advisor handling $2 million accounts has experience in understanding the needs of handling your size account. Note there are some quality advisors who do not use minimums during a discussion. They are worth looking into as they see the value of your relationship building over time to be one of their good clients.
What are the 3 best ways to find a good investment advisor? Unfortunately, there is no “seal of approval” to choose from. And most industry awards, and rankings in lists are paid for advertising. One way is to get a several referrals from a professional like your trust and estate lawyer or accountant. The second way is to ask your friends for suggestions. However, these methods simply provide a starting point of your search. Today, the third and best method is to search the internet for investment advisors in your area. Create a list that includes large, medium, and smaller advisory firms. Size matters often in the opposite way you think, as the smaller boutiques often are focused on providing high services levels to a smaller group of clients like you.
Should my personal investments include Tesla? Tesla is the largest automobile company by market capitalization. They sell electric vehicles, which are dependent on an expanding infrastructure of charging stations, something which may not occur soon. Customers who must have the latest thing already own their electric vehicle. New car buyers will make buying decisions based on economics. With lower government subsidies supporting each car sale, both sales volume and profitability may suffer. Moreover, senior management lacks a depth of experience in making cars. Although Mr. Musk is fascinating to read about, this does not translate into a good investment for your portfolio. We recommend speaking directly with your portfolio manager to discuss whether this is a suitable investment idea for you.
