Take Charge of Your Finances…Now!
Last week, I presented five steps to guarantee your retirement.
Admittedly, those steps were very brief and some of you may be
wondering how you can make these things happen in your investment
accounts.
So, with that in mind, let's start with step number one. Take
charge of your finances. What does this involve? Well, if you are
currently following the advise of a financial adviser, you need to
have a "come to Jesus" meeting. Here are four questions you should
ask your advisor:
1. What is your current asset allocation? What you are looking for
here is how heavily your adviser is recommending stocks. If his or
her allocation is heavy in stocks with no downside protection, then
he or she does not understand bear markets.
2. How have your accounts done since 2000? You will want a year by
year accounting of returns so you can judge performance. As a guide,
the S&P 500 registered a 7% gain for 2004. If your adviser's
accounts did not perform as well as the S&P, then they are not
earning their keep.
3. What changes has your adviser suggested for 2005. If he or she
are still relying heavily on stocks and bond and not recommending
other asset classes, then they are living in the past. You need
someone who is staying current with the times.
How about ETF's (Exchange Traded Funds)? These are fairly new
investment options that offer the diversification of mutual funds
for a fraction of the management cost. There are also ETF's
representing every asset class in the investing world including gold.
4. Under what circumstances would your adviser sell? After asking
this question, if your adviser indicates any hesitation about
selling, that represents a red flag and you should look for a more
educated financial adviser.
These questions will help you assess your current adviser or any
potential adviser you may be considering.
A final question for you is this: How does your adviser get paid? I
strongly recommend hiring only fee-based advisers. Advisers that
charge commission make money every time they recommend an
investment. Those commissions could be as high as 4%, 5%, or even
6%. Remember, the higher the expenses, the less money you have to
reach your financial goals.
Finally, to give yourself the most investment freedom in your IRA, I
suggest setting up self-directed IRA. This is not a standard IRA
offered by banks, brokerages, and insurance companies. This is a
special IRA that allows you the flexibility to invest in many
different asset classes. How do you tell if you have a truly self-
directed IRA? Easy, call your current trustee and ask if you can
purchase real estate for your IRA. Most will tell you no. That is
because most institutions limit your investments to products that
they sell. Go to this website to read more about Self-directed
IRA's. I am not suggesting you use this company, in fact UNB offers
a similar product so do your own investigating prior to choosing. I
recommend this site only because they have a very informative website
that explains self-directed IRA's in detail.
That's all for today. Next we look at diversification…stay tuned.
