The age of “do-it yourself” finances has come and past. With billions of dollars lost in the stock market, mortgage lending and real estate in general, it’s time for consumers to turn back to more conventional means of achieving their financial goals.
As we head into the last third of 2007, we look back on a year of turmoil, not only in real estate, based on the insider trading and mortgage lending debacle, but also in the stock market. While the overall stock market may be up over 10%, a lot of times, do it yourselfers aren’t able to realize the gains of the broader market. Generally through either lack of experience, poor advice (tips), or an overabundance of greed, the self advised become victim to his/her own misdoings.
The reason that many people feel that they can self invest, is largely a result of the onslaught of the online trading websites that emerged in the mid nineties. The phrase “Bending over a dollar to pick up a nickel” comes to mind. People became so focused on saving commission dollars that they forgot what the commission was actually for……. ADVICE! Decades of research and analysis have been compiled to provide the investor with the insight to make profitable decisions. The word investment by its very nature implies the expectation of a favorable result tomorrow, based on information and action today. You can’t buy that for 9.95 per trade!
The solution to this problem is simple, yet complex. Find a professional who can advise you based on your objectives. Sounds simple right? Well, it could be, once you’ve determined what exactly, your objectives are? If you don’t know where you want to go, no one can assist in your arrival. The following are some questions you can ask yourself that will at least give you a basis for choosing the right kind of professional.
1) What is my time frame? Am I planning for 30 years from now, 30 months or 30 days?
a) Your time frame will determine your risk tolerance. The shorter your time frame, the more risk you will have to take in order to meet your objective.
2) What can I afford to invest?
a) You don’t want to save or invest so much that you have to keep breaking into your piggybank. It disrupts your investments and sets a poor precedent. Invest enough to meet your objective, while maintaining your standard of living.
3) What am I saving for?
a)If you don’t know why you’re saving, you may not have the proper motivation.
4) Do I mind paying taxes on my capital gains or passive income?
a) If you’re saving for retirement, you may want to defer your taxes until you actually use the money for your living expenses. There are several ways to defer taxes including IRA’s, Life Insurance policies, annuities,etc…
b) If you are investing for current income and are tax sensitive, you may want to consider municipal bonds which may provide tax free income (speak with your tax and financial advisors)
5) What is my risk tolerance?
a) can you bare to see wide swings in your account value if you’re not planning to use your money for several years? If you’re time frame is ten to twenty years, today’s fluctuations are not as important as the end result. Focus more on the plan, instead of the market. If your investing monthly, you will buy at lower stock prices while the market is down, which will give you a better end result.
6) Who will inherit my estate if I die?
a) if you have no beneficiaries, your assets could go to the state of your residence. If you do, without planning, your heirs could endure a lengthy and costly probate.
While this is only basic information, it is enough to point you in the right direction and help you to ask the potential advisor the right questions. Asking the proper questions will allow you to easily determine whether the advisor is the right one for you.
Today’s financial climate is far more complex than that of the eighties and nineties. We’re in a new era of fast paced markets and rapidly changing economic platforms. Real Estate has gone from boon to bust in a matter of six months. It is not a time for making decisions on the cheap! When you compare the cost of hiring competent professionals to the potential hard losses or even opportunity costs, the solution is clear……get some help.
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