Notes

The Marvont Group: Decisions Regarding the Investments

Creating a decision on investments and the allocations is certainly the most challenging part. During this time, you should be with your financial planner to determine a realistic rate of return on your investments and how much risk you’re willing to take to get there.

All of us have different financial situations, so there is no specific list of investments that can be recommended. However, most portfolios include a blend of large, medium and small cap stocks, international stocks, a blend of bonds and perhaps some real estate. These asset classes are typically in the form of mutual funds.

As we said earlier, a good financial planner should have sophisticated software, so that he can analyze mutual funds in each asset class and to recommend leading performers in each group. He must show you the historical data on each fund, such as the long-term rate of return, worst losing periods, standard deviation, and so forth. He should also inform you if there have been any changes in managers of the funds recommended.

Numerous financial planners suggest “alternative investments”. Some examples of these include hedge funds, professionally managed future funds, and so forth, particularly for larger portfolios that may further expand. These kinds of investments are not fitting for all investors and must be chosen thoroughly.

Some investments you possess are probably worth keeping. A good financial planner will not conclude that everything in your portfolio is bad. He has to analyze each of your present investments to identify if they are similar to any of those they recommend. If they are, you must keep them to avoid some transaction costs.

Your next step is to fund the accounts and make the purchases once the investments have been selected. An effective financial planner will also keep tabs on your portfolio on a regular basis. You should get a clear quarterly statement with a comprehensive analysis on how all of your investments are doing, together with your overall portfolio return.

A good financial planner will stay in touch with you with periodic phone calls or emails to learn if there are any changes to your financial state. He should also inform you if there are any changes that needed to be made in the portfolio. For instance, maybe a fund changes managers and together you decide to move to another fund. He should contact you at least once a year or as often as needed to discuss rebalancing the above portfolio.

A good financial planner should always seek better alternative investments, better funds and better managers.

Below are some types of financial planners in terms of fees.

Fee-only planners They charge a fixed fee for delivering the service.
Commission-based Planners They are paid by the commissions on the products they sell which could cause conflicts of interest.
Asset-based Planners They are paid a pre-determined management fee based on the size of the assets under management. There are pros and cons to each fee arrangement, but the asset-based fee is the one usually favored.

Conclusion

The press should stop telling individual investors that they can do these complicated things on their own. Some investors didn’t have a clue on how to perform sector rotation, market timing, and so on. Nobody knows which stocks will be the best over any given period of time. The press should be advising them to search for professional help in the selection of investment as well as the management of portfolios.