Your 5th Way to Invest

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A fifth way to manage your investments is simply to let someone else do it. Unlike the four ways I previously wrote about, this method involves hiring someone and giving up control.

Essentially you hire, retain is the nicer wording, a financial planner or Registered Investment Advisor (RIA). There are advantages to doing this, just as there are disadvantages and pitfalls.

By hiring a professional you are asking someone whose job it is to trade in the markets to manage your money while giving up almost all control over your investments. If you have zero time to manage your investments, your 401k, your IRA retirement account this is a good way to go.

But notice I used the word “hiring.” This is important because you are not just “asking” someone to look over your money but to work for you. This means you are the employer, the boss. Just like at any other workplace if you are the boss hiring someone you should look over resumes, results of their past performance and interview candidates to see if they fit with your goals and objectives.

Interviewing financial planners or investment advisors is critical. They are not all the same. Just like some men have brown hair and others gray, advisors can be divided into various camps: conservative, aggressive, moderate plus they may have their own “investment programs” that they will fit you into, or maybe they only invest in mutual funds or long term investment strategies. In other words, how an investment advisor or planner works, his or her philosophy is important to you because it will have a direct bearing on your investment or retirement account.

If you decide to go this way and hire a professional to manage your money then you must let them do it. While I no longer take new clients, I recall one former client from a number of year’s back that called me almost every day. He wanted to know why I didn’t buy xyz or why I did buy cba; what was my reaction to yesterday’s market activities. He had a question for everything I did or didn’t do and probably spent more time watching the markets than I did.

I spent more time answering his questions and explaining my decisions then I did actually managing his account. Note that I said he was a former client; you have to let the advisor do the job once you hire them. Yes, you want reports and some communication but an employee can’t do their job if you stand over their shoulder all the time.

Presuming it is your choice to hire an investment advisor or financial planner, there are certain questions you need to ask when doing your interview:

1. How do they earn their money? Are they fee based, taking a percentage of the value of the portfolio (the best way)? Or do they take a commission on each trade? And how much?
2. Where will they invest your money – stocks, ETFs or mutual funds?
3. Can he work with your goals and objectives?
4. Is she registered or certified?
5. What is their track record?
6. How did most of their clients actually fare during this recent recession?

Professional investment advisors and financial planners use investment software, which you could use yourself, to guide them in making their investment decisions. I mention this only to reinforce my earlier comment that if you have zero time, not even 30 minutes a week, you should hire a professional to manage your investments rather than just occasionally looking at them or neglecting them altogether. In this situation of you having no time or no desire it is best to pay someone 1% or so to help grow your money. Just do it right: interview and let them earn their pay.

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