By Andre Shashaty
When it comes to managing your investments, there are more choices than ever. On-line and discount brokerages offer excellent new tools to manage your money. New investment options offer easy diversification at low cost. To help you make sense of all the new options and do better with your money in 2013, 360 Investment Advisors presents the following resolutions for your consideration
1. Don’t get sucked in by hype
The Dow Jones Industrial Average hit a five-year high In January. It was still below it’s all time high in 2007. But even if it goes past the 1,400 level, it doesn’t mean we are out of the woods economically. Just enacted tax increases and likely-to-be-enacted budget cuts will slow things down. And one must always be careful buying at market highs when the media hypes the market’s performance. It could end in tears.
2. Be realistic about bond fund returns
If you sought returns with less risk by moving from stock to bonds, think again. Many bond funds have had 2 or 3 years of very good results, so their past performance looks great. But when interest rates tick up, or the Fed cuts back on its bond purchases, the trend will reverse and values will decline quickly. If you want to quickly check how risky your holdings are, look at the duration, which measures sensitivity to interest rate increases.
3. Think profitably, invest globally
One of the biggest mistakes investors and wealth managers make is to limit their investments in both equities and fixed income to the United States. If you or your adviser are underweighting international stocks and bonds, you are not properly diversified. Foreign markets do not move in lockstep with US markets, so you risk increased volatility by ignoring them.
4. Forget past performance
There is a standard disclaimer on all mutual fund ads saying past performance is not an indicator of future results. But yet every mutual fund ad makes a big point of exactly that: PAST performance. Do not let past performance be a deciding factor for investing. Consider it in the same way professional investors do: By applying a measure of risk, or probability that the same return can be achieved in future. Even then, it’s risky to assume the funds that are up now will also be up tomorrow.
5. Beware of advice from investment banks
Many of the large brokerage firms also do investment banking for major corporations. It’s easy to forget, but there was quite a scandal a few years back when their research departments were caught making “buy” recommendations on stocks of companies from which they also earned large investment banking fees. If you think there is no bias in their research and buy/sell recommendations, think again.
6. Read between over and behind the lines
There is a distinct art to reporting on investment performance. The goal of most investment advisors is to make things sound better than they are. The most popular trick is to report “gross” returns, that is, returns before the advisor deducts their fees from your account. This is extremely misleading. Always ask for performance figures net of fees. You should also consider how you make out net of taxes and adjusted for inflation.
7. Make sure your Advisor is earning their keep
If you do work with an investment advisor or a bank’s wealth management department, don’t be afraid to ask them to justify the cost of their services. If they are doing very little work, ask them for a fee reduction. If they have substantial amounts of money parked in money market funds, suggest that they waive their fee on those funds. Parking money involves no effort and yields virtually nothing, so why should they get their full fee?
8. Beware of bankers bearing investment advice
If you have a substantial amount of savings, you might get good treatment from your bank on routine business. But be very careful about entrusting your nest egg to a bank wealth management department. Bank investment operations are not regulated by the Securities and Exchange Commission or the state agencies that oversee investment advisors and brokerage firms. They can and do engage in conflicts of interest regularly, putting your money into specific mutual funds that they own, or from which they get a fee.
9. Don’t leave your money on auto-pilot
The worst money mistake you can make is to put off paying attention to your investments. If you keep saying you will get around to it later, but never do, you are almost certainly costing yourself money. You may think it’s too confusing, or you may fear making a mistake. But you can make good investment decisions. It doesn’t have to be too stressful or time-consuming with all the information and tools right at your fingertips today.
Only you can prevent financial rip-offs. Talk to 360 Investment Advisors before you waste another dollar on the overpriced, unresponsive services of a large investment management firm – or if you are intimidated by the task of money management. We can help. The first consultation is free, and our ongoing charges are just $125 per hour, with no automatic deductions and with no requirement to give us a percentage of your assets.
Read more at www.360investmentadvice.com or call 415-453-2100 x302
(Andre Shashaty is president of 360 Investment Advisors, a registered investment advisor, and has been involved in managing money for himself and a variety of trusts, corporations and LLCs for 20 years.)