To start with I am not formally educated in money management. I am not a financial advisor and have no license to do money management for anyone.
This story is simply my thoughts that may be helpful to anyone with money management questions. I am not qualified to advise anyone about anything concerning money, or stock market investing. Do not do anything I suggest without professional help.
A few of us have some financial education and years of experience managing our savings. The rest don’t and have to rely on someone to help with investing their lump sum dollars after retirement, or their current savings. This however does not relieve you of the responsibility to count and manage your own money. Get involved in whatever you do and exercise your authority.
Hire a financial advisor.
Financial advisors usually work for, or with large investment banks. They work for you for a percentage of your account, or a percentage of what your accounts profit. The most popular ones will charge about the same, so the way they charge is only a small part of considering which one to hire. The better ones charge more, it’s as simple as that. You probably don’t want the low bidder helping you with what you don’t know.
So how to choose one:
- Ask your friends.
- Interview several. Very important that you have a warm feeling about the one you choose. More on this later.
- Ask about some performance information. Demand that it be on a recent calendar basis (last year, Jan 1 to Dec. 31). More on this later.
- Ask about how you will communicate with him/her. Try it the next day. For example, are you a number, on hold, leave a message? Is your call being handled by a non-personal AI machine? Did he/she give you their cell number?
- Go see where your potential choice lives. If he/she is smart enough to handle your money he/she should be living at least as well as you. Pass on the one that’s living in a two-room apartment. That one’s not ready for you.
- Ask what kinds of investments he/she normally recommends. More on this later.
Investment choices –which one(s)
Mutual funds, typically, are groups of stocks, or bonds that are chosen to represent a sector of investments. For example, it may be oil stocks, small company stocks, large company stocks, gold stocks, or any number of groups. Unfortunately, there are more choices for mutual funds than simple company stocks.
So, in my opinion, it is no easier to pick a mutual fund than it is to pick a company stock. At least with a company you can see what they make; a Ford, a 747 airplane, fried chicken, shoes etc.
And finally mutual funds are a diversification of stocks, bonds etc. They are not a diversification of your investments. A single mutual fund is managed the same way a single company is. When management fails you lose. Diversification here means owning several mutual funds.
Stocks are certificates of part ownership of companies. You actually own part of a company that you wish you could own all of. If this isn’t true then you should not buy the stock.
Bonds and CDs are certificates of loan contracts where you are lending your money for a guaranteed rate of interest payments. Generally, these are the safest investments but potentially the lowest return on your money.
Annuities are purchased regular incomes. You pay a large sum for a guaranteed income, usually monthly payments for life. These are good for anyone that needs the security and has no interest in dealing with anyone about money. They also protect one’s savings in that a scammer can only expect to get one paycheck at a time. They usually will not bother to try that.
Downside is that it is fixed income with no way to improve it. I suggest that you not put 100% of your savings into this. Keep some cash out for future big needs; new car, new washing machine, cruise vacation, or whatever.
Life insurance policies are for your surviving spouse. If you are single, it’s usually best to spend those monthly insurance policy payments on yourself. Otherwise, you are living a lesser life so that your heirs can have some money when you die. A burial policy is ok.
Cash is always good. It just does not keep well over time. Inflation will reduce its value. Still, some is good for emergency needs.
Performance – How to Measure
Financial advisors have reasons to recommend investments. To sell you on their choice they will show past performances. If you let them do this without your input, they will choose a period of time that shows the best of the investment. Don’t accept this.
To compare apples to apples, insist on a performance record of the last fiscal year. Now everybody is on the same page and maybe the best man wins, so to speak.
And finally, have him/her define a method and frequency of reporting performance to you that you can easily understand. Do not accept monthly computer reports in his/her language that you do not understand. You simply want to know how much money did I make or lose last month and last year.
Warm feeling About Your Choice?
Pretty simple here, mainly two criteria:
- He/she must not be intimidating; if it doesn’t feel good and comfortable then don’t do it.
- He/she must be able to explain anything he/she plans to do in a way that you can easily understand it. In my engineering business, if an engineer can’t do that then it usually means he/she doesn’t understand it either.
And finally, put enough of your money in a separate place (not controlled by your financial advisor) typically in safe CDs to provide for your comfortable retirement, just in case your financial advisor, or, you lose on your other investments.
