How to Find a Good Financial Advisor

I am not a financial advisor, as I say in my disclaimer – just an experienced investor willing to share from my experience.  I also think that a lot of people can invest without a financial advisor – it just really isn’t that hard if your read a little, particularly if you use mutual funds.  There is other advice, however, such as tax planning, insurance, and estate planning for which a financial advisor would be invaluable.  Also if you are really not comfortable with investing and would like some experienced help, a financial advisor would certainly not be a bad thing.

In finding a financial advisor, particularly to find one to help you invest in stocks, here are the things for which I would look:

1) In general, find one who charges a fee per service, rather than a percentage of assets or some other system.  There would be a fee for each consultation, perhaps a fee when he does things like helps set up or manage the portfolio.

2) Find an advisor who recommends trading infrequently.  Good investing does not involve jumping deftly in and out of the market.  It involves creating a plan of regular investing and sticking to it.

3) Find advisors that advise using normal stocks, ETFs, and no-load funds.  Some advisors make a commission from fund companies to sell products with big sales loads that typically are loaded with fees.  There is little reason to buy funds with sales charges and loads – there are too many good ones that come for free.

4) Find an advisor who is willing to teach you, rather than just do things for you.  A good financial advisor will want to teach you to be a good investor.

5) The investing style should be age-appropriate.  If you are young, he should recommend mostly stocks (although if you are very risk-adverse, he may recommend a higher bond mix).  If you are nearing retirement, he should be recommending more bonds and fixed-income assets like high yielding stocks (for example, utilities).

6) If you are looking to invest in individual stocks, find one who has experience investing in individual stocks.  In picking stocks, he should be looking at things like earnings growth, financial stability of the company, return on equity, and so on.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Before you Start Investing, Get Your Financial House in Order

Before one ever starts investing, one needs to put his financial house in order.  To
start investing while deep in debt will only result in disaster.  One
will never be able to overcome the 18% rates charged by credit cards.

Likewise, not having cash on hand to handle life’s little calamities
will result in needing to sell stocks and pay capital gain and
commissions each time a car breaks down or the furnace goes.
Investing in individual stocks without putting away other funds for
retirement is also not wise.

Here are the things that must be done
before you every buy you first shares of stock:

1. Save up an emergency fund of 3-6 months worth of expenses.  This will allow you to fix
   the car without needing to sell stocks or pull out the credit card.

2. Pay off all credit cards and cut them up.  Really.  Start paying extra on the smallest
   balance and then as each is paid, roll the extra money saved from
   not having payments into the next largest debt.

3. Pay off student loans and pay off or sell cars with large balances and buy less
   expensive ones for cash.

4. Fund your retirement accounts with 15% of your take-home pay in growth stock mutual funds
   in tax protected accounts.  This will ensure you have funds for
   retirements even if you have terrible luck in stock picking.

5. If you have a home loan, refinance into a 15 year fixed rate loan.  This will mean that
   your house will actually be paid off in 15 years.

Once you have accomplished the above, you are ready to start investing and growing
wealth.

Your investing questions are wanted.  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

When Should Someone Sell a Mutual Fund?

Ask SmallInvy

Dear SmallIvy,

I was wondering when someone should sell a mutual fund.  I have a few that have not done as well as the market over the last year.

Thanks,

Rick

Dear Rick,

Here are the only reasons to sell a mutual fund:

1.  You made  a mistake when purchasing and bought one with high fees.  Because mutual funds follow the market, the only difference in performance over long periods of time is due to fees.  Make sure your funds have low fees.  Index funds and ETFs are great for this reason.

2.  You have a fund that has done really well, causing the allocation of your funds in that sector of the market (for example, large caps, small caps, foreign stocks) to be too large a percentage of your portfolio.  In general you should pick an asset mix based on your objectives and rebalance periodically to return to the desired mix.  Note this has the desirable effect of selling those sectors that have done well (selling high) and buying those sectors that have not done as well (buying low).

3.  You will be needing the money in a few years and it is too risky to leave the money invested and taking the chance that a market fall will occur.  Remember that stocks are for long-term investing (greater than five years).  If you’ll be needing the money, you should settle for the pitiful returns of CDs for the security they provide.

Notice that the fact that “the fund performed poorly relative to its peers” is not on the list.  If a fund is doing poorly, take a look at the fees and the investment objectives.  If you decide that the fees are reasonable and the objective is what you think it is, stay with the fund.  If you sell your fund and buy the hot fund of last year, chances are you’ll be selling a basket of discount stocks and buying a basket of overpriced stocks.  Unfortunately, this is what many people do.

To ask a question, email  vtsioriginal@yahoo.com or leave the question in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Why Should An Investor Put Money in your Hands?

Dear SmallIvy,

Why should an investor put money in your hands?

Alime

Hello Alime,

 

I’ve never asked that anyone put money into my hands.  I just provide information for individuals to learn about investing and growing wealth, which I hope they will combine with information from other sources like investing books, other websites, and publications like The Wall Street Journal.  It is them up to them to make their own investing decisions. 

 

If they still don’t feel comfortable investing on their own at that point, they should talk to a financial advisor as well.  Even talking to a financial advisor, however, an individual will be better off if they know some of the basics.

 

Having built up a great deal of experience from years of investing, however, I believe my insights will be useful to those starting out in investing.  I also believe, having spent years seeing my broker make more than me while I “played the market,” that I have learned the strategies of how to really make money – a process I call “serious investing.”  I am less than popular with my brokers now since I rarely call, yet I have done very well since I started acting like a serious investor, even making money during 2008 when most people were down 30-40%.  Through this blog, I’m providing information on that strategy for those interested in following in my footsteps as a “serious investor.”

 

Regards,

SmallIvy

Should I Sell a Lagging Mutual Fund?

Dear SmallIvy,

If a mutual fund lags the market for one year should i sell?Thanks,

Ray

Dear Ray,

Many investors make the mistake of using the past performance of a fund to make investment decisions.  Individuals move money from lagging funds into whatever the hot funds were for the year.  This often results in buying high, because the hot funds from the past year were bought, and selling low, because funds that lagged the market are sold.

When deciding to buy or sell a mutual fund, you should try to understand why the fund is lagging its indices.  In some cases a fund may choose to invest to preserve capital, buying stocks that pay higher dividends or are otherwise stable but sluggish instead of the hot growth stocks in the makrret.  In this case the fund will not perform as well as the indices when the market rises sharply, but may not fall as fast as the rest of the market during down periods.  Such a fund would be inappropriate for someone who is trying to grow wealth quickly and who has a long investment horizon, but would make sense as part of a portfolio for someone who has already amassed wealth and would like to preserve it.

Likewise, the fund may be invested in segments of the market that did not do as well as others.  If the fund is concentrated in healthcare companies and technology does well, the technology companies may lift the index more than the fund.  This may very well mean that the technology segment is overpriced and the healthcare segment is due a rally.  If one then sells the fund and buys one heavy in technology companies, one may be buying right at the top for the new fund and miss out in a good rally in the other fund.

The most important factor for virtually all funds are the expenses.  Over time all funds will track the market returns, minus expenses.  Rather than trying to find the hot mutual funds, buy a set of funds that cover the different segments of the market.  In doing so, one will profit in one segment even if another segment of the market is lagging. When selecting funds, find those that have the least expenses possible (ETFs and index funds are good choices).  Then, don’t worry about lagging the market – all will be made even with time.

Your investing questions are wanted.  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing

Ask SmallInvy