Wednesday, November 26, 2014

Becoming a Better Investor - Whom to trust?

The financial services industry can be very confusing and intimidating. Many people either stay away or jump in blindly and get fleeced.

So how do you find someone to help and guide you?

Let's start with some titles and designations:
Financial Advisor - a very broad term which translates to someone who can help you with finance and investments.
WMA - Wealth Management Advisor - same as financial advisor but has more snob appeal.
CFP - Certified Financial Planner - a person who has taken many courses and passed a rigorous exam covering all the aspects of personal finance. They have a good grasp of money management and investing.
Stock broker - aka Financial Advisor - this person has passed the Series 7 exam, is register with the SEC (Securities and Exchange Commission) and has a good knowledge of investing.

Let's review how they get paid:
Financial advisor, WMA and stock broker rely essentially on sales. The more they sell you, the more commissions they make. (Both buy and sell orders generate commissions for the broker.) If you are being advised to buy and/or sell often, the only person making money is your broker.

A Fee Only Financial Planner prepares a comprehensive plan for you and your family. It may include buying a home, additional education for you or your spouse, education for your children, taxes and other financial goals leading to retirement. Since this plan takes many hours of gathering information and analysis the planner will charge a substantial fee - somewhere between $1000 to $2500 or more, depending how complicated your situation may be. The planner then sends you to a financial advisor or broker to implement the plan.

Another type of Financial Planner will prepare a less comprehensive plan and implement it for you. The fee for the plan will be covered by the charges for investing. (You don't get the plan for nothing.)

Remember to ask:
"What's this going to cost me? How do you get paid?"

There are ways for you to determine if a broker or investment advisor is a bad apple. Go to BrokerCheck at website or call the BrokerCheck hotline 800-289-9999. Here you will learn a broker's current license status and history, employment history and any reported regulatory proceedings, disputes and settlements.
(FINRA - the Financial Industry Regulatory Authority is the self-regulator for the securities industry.)

When you work with a financial professional it is important to know the extent of his/her expertise in the various areas of finance. Although they may exhibit a certain level of knowledge, there is no test or regulation for integrity and trust. You must seek a professional who is worthy of your trust and the care of your money.

Be $ Smart
- take the time to research and interview financial advisers before you give them your hard earned money.

Tuesday, November 11, 2014

Becoming a Better Investor

Achieving financial freedom or financial independence is a worthwhile goal to pursue at any age. Life can be more enjoyable and less stressful when you have enough money to live the life you want.
I have learned I can only work so many hours each day, each week. Realizing that, I must put my money to work by investing.

Over the next few weeks I will give tips on investing. Actually, last week's $ Tip discussed the services offered by a Full Service Broker vs a Discount Broker, was a good start.

Education is the key. I offer four suggestions. Pick one or two to raise your understanding and commitment to investing:
1. Take a class. Most adult education programs at your local high school or college offer a class on personal investing. Take a friend. Learn together. Go out after the class and discuss what you learned and what you can implement.

2. Read. Join AAII, the American Association of Individual Investors.
The cost is $29 per year. They are dedicated to people like you who are learning about investing. They offer a monthly publication filled with good, basic information. Also, they offer chapter meetings where you can meet others interested in investing. Go to

3. Read more. Buy one, yes one, money/investing magazine. Read it cover to cover, even the ads. Here you are familiarizing yourself with a new vocabulary. The more you see and read the words, the sooner you will understand their meaning. You don't really need a year's subscription until you find one magazine you enjoy and understand. Or, regularly read the Business Section of your newspaper.

4. Find a "money buddy". Doing things with another person is always more fun. Just as Weight Watchers encourages buddies and exercise routines suggest partners, you know you are more likely to stick to your financial goals and learn more if you have a buddy.

Be $ smart - learn investing to build wealth and financial independence.

Saturday, November 1, 2014

Stock Market Turbulence

The market's up, the market's down - what is all the buzz about?

In the past few weeks the stock market has been bouncing like a rubber ball on speed. But in recent days, it appears to have lost the bounce.

The DOW (Dow Jones Industrial Average) is comprised of 30 stocks. Usually very large multinational US companies.

The S & P 500 (Standard & Poors, a rating agency) holds the top 500 US companies.

These two indices are what folks usually refer to when they speak of the "stock market". There actually are over 5000 companies publicly listed - meaning that you and I and millions of other people may buy and own shares. (There are also thousands of companies privately held - e.g. Mars, the maker of Snickers, M&M's, Uncle Ben's, etc. is owned exclusively by the Mars family of McLean,VA. that are not included in either index.)

The value of a company stock will go up and down depending on many factors. If world or local events or an accident (like an oil spill) give cause to think the company is in trouble and cannot perform well and grow, the stock will bear a lower price. And the reverse is true - if everything good is happening - good sales, controlling costs, general public optimism - the stock price will rise.

Right now there are many factors, both home and abroad, affecting why the stock market has fallen (prices/values have dropped.) If you view the stock market as a living breathing organism inhaling and exhaling, you might realize the market has been inhaling for a very long time. The stock market has been rising with no substantial correction (drop) for a few years. The market cannot grow without substance. There has to be employment growth, a sound economy and solid political leadership to build and sustain a rising market. "The market hates uncertainty" is a quote I learned way back in the beginning of my career. It has proven to be true.

So how does this affect you? If I showed you a graph of the stock market from 1900 through 2014 you would easily see an upward trend, with occasional down blips. Seeing that visual might ease your concerns.

Be $ Smart - be aware the market goes up and down daily, and over the long-tern the trend has been up. It's the best way to make your money grow long term and to keep up with inflation.

The next $ Tip will take a look at how you feel/react to the ups and downs of the market - also known as Risk Tolerance.

Risk Tolerance

Risk - the permanent loss of capital (money).

Over the past few weeks we have experienced much volatility in U.S. stock markets.
Volatility is the gyrations of stock prices in reaction to social and economic conditions. With the market moving up and down - making money and losing money - how do you protect your money and your future?

How much money can you bear to lose? NONE - most would say.
If we ask the question slightly differently - how much money must you keep absolutely safe to allow you to sleep at night? Your answer may show how much risk you are willing to take. Some may say 100% - then you would be considered risk adverse.

Others may say 20%; they would be considered to have a low risk tolerance.
But none of us likes to lose money. So how do I know where to put my money?

Money needed soon (1-2 yrs.) for a definite goal - a house down payment, a new car, an upcoming vacation - all must remain safe with little or no risk. The safe places to keep this money are:
savings accounts,
CD's (certificates of deposit at a bank)
most money markets.
You have NO risk tolerance for this money.

Money slated for mid-term goals (3-8 yrs.) - an Alaskan cruise in 5 years, college tuition for your ten-year old, a vacation house in 4 years - may earn slightly more interest if invested in short-term bond funds or certain high quality (blue chip) stocks.
You have small risk tolerance for these goals.

Money designated for retirement - 15, 20, 30 years away need greater exposure to risk to provide the growth necessary to build a sufficient nest egg. Here is where investing in stocks and bonds gives you growth opportunity but also increases loss possibility.
You have moderate risk tolerance for long term goals.

Extra money, over and above all your savings, may be allocated to higher risk.
This is not the rent or mortgage money. This is money you can afford to lose.
Real estate, commodities (e.g.metals, oil, coffee, grains) fluctuate wildly(high volatility)
You have high risk for these investments.

Be $ Smart - know your risk tolerance. Invest wisely so you may sleep well.

Full Service or Discount Broker

I was with some friends this weekend and one asked me "What is a discount broker?"
As I often encourage you to invest your money to help it grow, this might be a good time to explain the difference.

A full service broker is a firm like Merrill Lynch or Morgan Stanley. Here you will find a "broker" or sales person who may be called a Financial Advisor, Wealth Management Advisor or Retirement Specialist.
These large, full service firms will give you financial advice, help determine your financial goals and your risk tolerance. They typically have large research departments or purchase outside research on various companies' stocks and bonds. They use this research to recommend to their clients a mixture of investments (asset allocation) and will direct the buying and selling of these investments - usually for a substantial commission.
The commission charged is based on the price of the stock times the number of shares. The cost to buy or sell could be hundreds of dollars. This is how they get paid.

"What's this going to cost me? How do you get paid?" from a previous $ Tip.)

A discount broker is a firm with many of the same functions as above but without as many services. They will offer "canned" research, something anyone can find online. They will not call you recommending investments nor will they take pains to get to know you.
These firms are more "do it yourself". They assume you know what you are doing. They will take your order to buy or to sell and they will not offer comment.
Actually, the greater discount on buying and selling is when you talk to no one and enter the trade online. (A trade is a buy or a sell.)
There is one discount brokerage that charges $5 per trade for almost any size trade (50, 100, 1000 shares). Others may charge $7.50, $10 or $20 per trade. Scottrade, eTrade, Ameritrade are some discount brokerage firms.

Be $ Smart - know what type of brokerage firm is best for you to build wealth and financial security.