Should you really hand over your money to an “expert” before asking a few questions?

Now don’t get me wrong, I am not slamming all accountants, financial planners and stock brokers. Hell, if I did that, I’d be putting myself out of business.

What I am saying is that you should do your due diligence, not only in choosing the people that will be managing your money but in choosing what you ultimately invest in. The right financial professionals can make you a fortune, the wrong money people could lose you money, or even get you in trouble with the law.
The New York Times cites a University of Pennsylvania study that shows in 1990 14.4% of fund managers actually beat the stock market. In 2006 this number had shrunk to 0.6%! There are three reasons for this fall;

• management fees eroding performance
• good fund managers being poached by sophisticated investment funds (that only the rich can invest in)
• the market has become more efficient thanks to the internet

With this in mind, a fund manager is going to manage money better than a total amature. So you have to make a decision; you either need to learn as much as you can about finance or engage the services of a professional. It’s important to note here that you should be looking for a fee for service professional not one that is paid in commissions. An advisor paid in commissions will steer you in the direction of the investment that pays the highest commission, not the one that’s best for you.

It also will pay to get a second opinion from a trusted advisor, that has no interest in the future transaction. For example, if you had just met with your financial advisor to talk about a new investment, pick up the phone soon after the meeting and talk to your accountant about what was said, they’ll be able to provide you with unbiased honest opinion. These same advisors are good for referrals, all you have to do is ask.

Now the second thing note is whether you hire a professional or decide to do it yourself; if you cannot explain what you’re investing in to your spouse, parents or your cat, then you should not be investing in it.  Even if they have been recommended to you by an advisor, you owe it to yourself to do the research.

I have had many people come up to me in the past asking about sophisticated derivatives such as options, warrants, futures and contracts for difference. Before I even bother getting into a conversation with them, I politely ask them to explain how that investment product works. I’d say about 90% cannot give me a proper answer. Remember if you can’t explain how it works, you can’t invest in it!

Chris Hooper
(Shutup and Save)