If you're frustrated from having one financial consultant after another financial consultant offer you inadequate returns on your stock portfolio, i quickly hope you read my first article "Three Tips for Getting a Superior Financial Consultant." In the following paragraphs, I'll drill down some 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 locate a superior financial consultant? In the following paragraphs, I'll discuss one more crucial behavior about financial consultants and two regarding the behavior of you, the investor.
Three more tips:
(1) Don't hold mutual funds;
(2) Avoid being stingy if you find a superior advisor; and
(3) Be patient and have lots of questions in your search for a superior financial consultant.
Don't Hold Mutual Funds
Without a doubt why I'm not just a fan of mutual funds. Mutual funds have so many hidden fees that it is often difficult to learn exactly what your costs are. Besides upfront costs that can be upward of 5% for some funds, you can find 12b-1 advertising , marketing and distribution fees that range from 0.25% to 1 1.0%, administrative fees that range from 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 won'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 browse the first part of that last sentence. Many mutual funds ask you for 12b-1 expenses they incur from advertisements and commercials that urge one to buy their funds, and when you're buying no load funds, itâs likely that your 12b-1 fees are greater than average.
Increase this, intangible costs such as the performance that is sacrificed to maintain the necessary level of liquidity to satisfy share redemption, and your costs become sustained. 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 add salt to the wound, sometimes fund managers sell out of these biggest winners to meet up liquidity needs, generating a capital gains income tax for you, the investor, even if 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 country, I help you to exercise extreme caution. When pullbacks happen in these country's economies as will inevitably happen, you're at risky of losing profits quickly. Why? In a mutual fund, you are at the mercy of a herd mentality that more often than not, 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. If this happens, fund prices will plummet before you even knew what hit you.
But if you choose to own just the very best stocks in the best industries in these countries, probably your stock prices will be much more insulated and less volatile in that scenario. While these stocks may still decline, they will most likely decline not nearly as expensive the fund will. http://www.Supervest.com tend to weather country-wide economic downturns much better than fund prices, and if they are in the right niche, they could even continue steadily to flourish.
Be Ready to Pay Fees for Superior Advice
Superior advice is superior because a lot of hard work and time get into producing that advice. I recall talking to a potential client one time that had a million dollars in the stock market and was adamant about not paying fees. He just wished to pay commissions on stock trades. When he showed me his statements (by the way he was with a significant 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 many times those stocks were traded as soon as there is a nominal 5% gain in virtually any of these. 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.
However when I explained that his net returns will be lower because his portfolios quarterly 100% turnover rate produced excessively high capital gains taxes that could undercut his net returns, he didn't appear to understand. I guess his financial consultant didn't bother explaining this small detail to him. Still, he insisted on paying no fees no matter what. I could tell that he was the sort of person who was blindly loyal to his financial consultant, so I moved on without attempting to schedule a second meeting.
Superior advice costs money. And if your financial consultant is superior, she or he will be transparent about his fees and your costs, so you won't be confused in what your true gains are really. Don't be stingy. After what you just learned about mutual funds, why can you not be ready to pay even upwards of 2% annually for superior individual advice and management when you're almost certain to be paying more than that a year just to own a mutual fund?
Be Patient and Ask Lots of Questions
If you persistently ask the three questions I mentioned in part one of this article, you can find frustrated after talking to ten financial consultants, none of whom can answer those questions. My advice is to you need to be patient. Don't give up and don't settle for a salesperson that is trained to answer those questions to lead you to believe that he or she has answered your questions when that is not the case at all. What do I mean?
For example, when you begin drilling down about specific stock picks, a common sales technique to avoid your query is an answer similar to the following: "I'm not just a stock picker. But don't worry. I know how to find the very best money managers in the united kingdom to manage your money for you personally, so you're in great hands." You shouldn't be misled by smokescreens like this. Understand that if your financial consultant truly understands how to locate you the very best money managers, then he or she must necessarily have discussions about geographical preferences, industry preferences, and specific stocks with those money managers. How can a financial consultant claim to choose the best money managers for you but have no understanding of what stocks you possess and what makes those stocks special?
In summary, buy individual stocks over mutual funds, be willing to pay fees for a fantastic advisory when you are so lucky concerning find one, and remember, the luckiness of finding an exceptional advisor is not actually luckiness at all. It originates from your effort, tough questions, as well as your unwillingness to be led astray by the professional smoke screens of financial consultants.
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