The Final Evaluation of the Financial Consultant

The Final Evaluation of the Financial Consultant

Always try to find someone that uses an approach asset allocation in the recommendation. This is balancing act amongst all asset classes of stocks and bonds. Not all stocks or bonds do well all the time, some company's

stock may be down while others are giving great returns. This may be because of management of the company, or it may be that they are different types of companies. Large company stocks tend to go up at a different time than smaller company stocks, so it is good to have some of both. Why not just get the ones that grew a lot last year? The answer is pretty obvious, what goes up, probably will go down also. If you are balancing your account with several types of asset classes, will never hit the grand slam, but you won't lose large amounts either.

Listen for a ball park return on your account. Everyone wants to hear that they can double their money in two to three years, but that would require that the return be between 24% and 36%. This may be "doable" for a short time, but you are in a marathon not a sprint. Returns between 6% and 12% are far more believable. Do not confuse historical returns with projected returns. If the advisor quotes an excessively high estimate, ask them to clarify whether they are "guaranteeing that amount, expecting that amount, or are showing a ten year historical return?" I use the ten year return so you can see a larger picture that what one or two years will show. If the terms promise or guarantee are anywhere in this conversation, aside from the consultant saying, "I cannot guarantee or promise anything", do not do business with that consultant.

The latest trend in investing has been managed portfolios. These portfolios don't charge a fee for the actual investing but charge an annual fee. You need to do the long term math on these. Most of the time the

portfolios do not perform any better than ones that are not managed. You need to decide if the cost is worth the management. What you get is a group of mutual funds from various companies and what you are charged is usually about 1 % per year for this option with a minimum charge for the smaller accounts. That cost goes up every year as the value of your portfolio of your investments go up. If $100,000 is invested the cost on that amount in A shares would be about $4500, depending on breakpoints (volume discounts.) The cost for a managed account, assuming an 8% growth, over just the first five years, would be about $8800 and you would continue to be charged after that. A good family of funds with a good financial consultant will give you about the same return with only a one time fee. Another alternative for tax deferred growth, would be the use of a variable annuity. There is no up front charge, there are several fund families, and the funds are constantly being rebalanced. These also have some interior fees, but also some guarantees.

Saving money for an unforgettable Christmas party can be like a beginner investing and is a great way to avoid the hustles to pay off debt incurred during the Christmas holidays. Investing 101 is the best way to know more and solve your all money problems.

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