Turning your money into life-changing wealth requires planning… for both success and failure. It also requires competent counsel – meaning somebody who will act in your best interests.
But finding the right advisor is tough, especially now with the markets at new all-time highs.
The Internet is filled with stories of predatory sales practices, manipulative management stories, and just plain incompetence. Chances are good you know somebody who’s had a bad experience, just like I do.
It doesn’t have to be that way, though.
There are great advisors out there if you know how to find them and which questions to ask to make sure you’re on the right track for huge profits rather than devastating losses.
Start with the following – even if you’re already working with somebody you trust.
1. Do My Investments Match My Risk Tolerance and Expectations?
No doubt this will cause pushback from more than a few financial professionals.
But I don’t believe any investor needs to suffer the ravages of a bear market. Not now… not ever.
I don’t care if you have $5,000 or $500,000 to invest – the principles remain the same.
No financial advisor worth his or her salt would let a client liquidate into a bear market.
Moreover, the good ones ensure their clients have enough cash and ultra-safe investments on hand so they don’t have to. The best ones will help you exploit market weakness and buy.
If your advisor has you leveraged to the eyeballs, or fully invested in such a way that you can’t endure bumpy market conditions or the possibility of a correction much less a protracted downturn, it’s time to find a new advisor.
I don’t care if it’s an up market or a down market, the best advisors will help you pick investments that match your goals within your financial time frame. They’ll also help find a way to make recommendations for your unique situation because they place your interests first.
The problem faced by many investors today is that they’ve always thought in terms of returns rather than risks. That’s backwards, especially at a time when the riskiest investments – bonds, for example – are the ones that were supposed to be the most secure.
This is compounded by the fact that many investors – having lost big twice in the last 20 years – remain underinvested and are faced with playing catch-up during the longest bull market run in record history (which many have missed). They never should have stepped off the court in the first place.
As you know from prior Total Wealth columns, it pays to stay the course – meaning stick to your plan – no matter what the headlines.
In a study of 7.1 million retirement accounts, for example, Fidelity discovered that those who sold their stock mutual funds between October 2008 and March 2009 (the period of greatest volatility we’ve seen yet), more than 50% had not reinvested as of June 30, 2011.
On the other hand, those who stayed in the markets, and in stocks specifically, saw the value of their accounts rise 50% on average. Those who sat on the sidelines saw an average increase in their accounts of… wait for it… just 2%.
I’m sure those numbers haven’t changed very much, even now. I continue to hear from a good number of folks that are kicking themselves for having sat out the greatest bull market run in record history because they were worried about a crash that never happened.
Now, they’re wondering what to do and how to play catch up – both of which ARE possible but subjects for another day and another column!
2. How Do My Total Returns Stack Up?
Many investors are after the next hot stock or the next sure thing and focus on the percentage returns of specific choices. Understandably, they love the possibility of being up 25%, 50%, 100%, or more. I do, too.
But you know what I love even more?
The certainty of not losing money in the first place.
That’s why I’d rather invest with the idea of managing my total returns than throwing darts at specific stocks that may hit… or miss. Over time, I know that greater returns are possible that way.
Many investors fail to realize that successful investing is a matter of continuous performance. Not instantaneous performance.
It’s one of the reasons I emphasize income and, in particular, the right Global Growth and Income stocks as part of the Total Wealth approach.
For all the lip service people pay to this, very few realize that dividends and reinvestments can account for 60% to 90% of total stock market returns over time. Maybe even more.
In some cases, the dividends are so steady and increase so much that you can actually make more in them over time than you paid to buy the stocks that produce them initially. It’s like having a second salary if you want to think about it that way – especially when it comes to companies like the five I’ve profiled in this special report with the power to pay you year in year out, in good markets and in bad.
Put bluntly, cold, hard cash answers the very real question many investors can’t help but ask, “Why the hell am I investing in this?”
The same is true with fixed income, where it’s the income itself that has made a graphic difference in total returns despite rates dropping to all-time lows and rising ever so slowly today.
Ask anybody who’s invested in the PIMCO Strategic Income Fund Inc. (NYSE: RCS) over the past 20 years. RCS is actually trading at a price that’s a mere $0.36 higher than it was 20 years ago, which represents a 4.05% gain – but investors who have reinvested as I’ve suggested have enjoyed the opportunity to turn $10,000 into more than $75,738. That’s compared to just around $33,703 generated by those investors who didn’t reinvest
No matter which way you cut it, the numbers are impressive and very powerful.
To be fair, people tell me that time is the one thing they don’t have. They “can’t wait 20 years,” goes the litany.
Respectfully, I disagree. It doesn’t matter whether you’re talking about 5 years or 50 years; the principles are the same. Apple Inc. (Nasdaq: AAPL) is up 66% this year alone as I type and up approximately 135% over the past three. More than 100 large-cap stocks have already doubled, and more are on the way in the past 12 months.
The markets are near all-time highs. That’s how they work, considering they have a powerful upward trend over the long term.
As usual, I want to make a point – that even the lows of 2003 and 2008 were “all-time highs” compared to the markets in 1990. So was the gut-wrenching fall off last December.
Young or old, rich or poor, you want to learn to work with time instead of trying to cheat it at every opportunity. Having the right advisor can help you do that effectively and profitably.
For instance, if you’re a few years into retirement, you probably want to consider having some bonds running around so that you can rebalance if and when the markets give you a chance and head south. If you’re concerned about leaving a legacy, perhaps a strategic move to preserve principal is more in order under the same market scenario.
A good advisor will listen carefully and help you plan accordingly for life’s events, not just big returns.
3. Under What Conditions Will I Sell?
You’d think that market professionals would have this wired, but, sadly, most don’t.
Many advisors I’ve met over the years don’t have a sell discipline – meaning they haven’t got a clue about how to protect your profits, let alone your capital. Worse, quite a few don’t want you to sell.
It’s one of Wall Street’s dirty little secrets.
Think about it.
Selling is not in their best interest. Wall Street makes their money from your money. They want you in the game, so they will do everything they can to keep you playing.
This includes creating all kinds of fancy dashboards and gee-whiz programs as a means of drawing you in. You’ve seen the commercials. You know what I’m talking about.
At times, they’ll shift gears and highlight some sort of total care package as in “we care for your money.” But trust me, benevolence is not in their vocabulary.
If your financial advisor can’t lay out very specific reasons for when and what you would sell, move on. Knowing when to cut losses – and explaining clearly when to do so – is the hallmark of a worthwhile financial advisor. This can be an elaborate plan, but also something as simple as a 25% trailing stop.
It really doesn’t matter, as long as they have a plan based on your specific needs and can clearly articulate it to you without any hemming and hawing when you ask.
4. When Will I Buy?
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About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He’s a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don’t yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean, and he’s also the founding editor of Straight Line Profits, a service devoted to revealing the “dark side” of Wall Street… In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.