How many other activities as important as managing your finances must you do consistently throughout your lifetime?  Raising kids is the only one that comes to my mind.  But even as your kids get older they become self-sufficient.  Your investment plan will never become self sufficient.

Investment management is a process.  It’s a marathon – not a sprint.  It’s like a seedling which must be nurtured while you watch it grow into a tree.  That tree can outlast you if you treat it well and help it grow.

While your investment plan in itself is important, it’s the investment management process which is even more important.  A plan is stagnant.  A process will help you keep your plan from becoming stale, and a stale plan might not be the most efficient means to accomplish your goals and objectives.

We put up a page here for investment plan reviews.  There are some basic steps which will help you stay on course with your investment plan.  We recommend staring with a check up to see if your current plan still meets your current needs.

Don’t hesitate to contact us here if you have any questions or need investment help.

For our private clients at REDROCK WEALTH MANAGEMENT we choose predominantly TD Ameritrade.  Our clients enjoy their low trade fees and we enjoy their great service!

TD Ameritrade has over 7 million clients and was founded in 1971.   Those 7.2 million client accounts translates to over $225 billion in client assets under management.  They facilitate transactions for common and preferred stocks, futures, ETFs, option trades, mutual funds, fixed income, and provide margin lending, and cash management services.  Anything the other major custodians offer or have TD Ameritrade has as well.  Their breadth of product and services is amazing!

Their trade fees are $9.99 for all online equity based trades, and they never charge a maintenance fee regardless of how big your account is.  The tools included with your account consist of their recently launched Trade Architect, along with objective research from such companies as S&P, Morningstar Associates and Research Team.  These platforms along with their low trade commissions are just a few of the reasons why TD earned the highest possible rating in Kiplinger’s ranking of online brokers.

Of course we never recommend trading individual stocks.  It’s just not wise for most investors – leave the speculating to the experts on Wall Street!  However, Trade Architect offers a fully customizable interface allowing investors to organize the tools they utilize as they see fit.  Whether you prefer real time quotes, live streaming feeds from CNBC, or the educational tools to research all the content you can think of, Trade Architect has it.

TD Ameritrade also has over 100 commission free ETF’s, some of which are used in the Portfolio Architect investment management program.

If you’re looking for a high quality investment custodian, TD Ameritrade is a great place to start your search!  We have used them for over 5 years now with great success and we continue to build a relationship with them as they constantly work towards improving their service and product offering.

Insurance agents are salespeople who sell life, health, property and casualty and other types of insurance products. They cover everything from insuring your home to your life to living with medical conditions you can’t financially afford.

Insurance agents can be captive and work only for one company, selling limited numbers of insurance products. Captive agents work for companies like NY Life and Met Life. The two largest captive insurance agencies are Marsh & McClennan and AON Corporation. They sell products that their companies produce.

Insurance agents can also broker their services and sell multiple products from multiple companies. They have a wider variety of products to sell and promote. They also have more flexibility to shop rates and products for you to find you the best deal.

Who Regulates Insurance Agents?

Each state has an insurance commission that licenses the insurance agents and insurance companies.  State insurance commissions also impose sales and marketing rules and require companies to file financial reports to assess their ability to honor claims.  Some insurance agents are dually registered with FINRA and sell annuities and other variable life insurance products as well.  This is where it gets very confusing for most investors.

What’s The Real Deal With Insurance Agents?

In the contact of your financial or investment plan working with an insurance agent can be highly confusing.  The problem comes when the services and products they provide cross the line between what you would expect and what the product really is.

Most investors don’t look for insurance as a solution to their investment planning.  They look to have their problems solved, not sold a product.  Insurance agents sell products which don’t always solve investment problems.

The most common situation I see from clients today is when they have a legitimate retirement planning need and they’re sold a variable annuity.  Variable annuities in general aren’t a solution to a retirement planning problem.  Rather they’re a product which is designed to achieve an investment goal.  The goal and the product don’t always align properly.

Insurance products generally have very high commissions.  Most investors have no clue what the commission rate is in dollars or percentage terms.  This is a large conflict of interest for insurance agents – the higher the commission the more they’re financially driven to sell a certain product.

Variable annuities for example have commissions of 7% or more for the upfront investment.  On a $100,000 variable annuity purchase the insurance agent can make $7,000 or more.  These annuity products also have high ongoing fees many times from 2% to 4% per year.  These heavy fees and commissions make insurance products like variable annuities less efficient than many low cost mutual fund and ETF investment options.

Insurance has a place for every investor, and insurance agents fill the need of finding the right product and price.  But when insurance agents portray themselves as financial planners to sell products it gives investors a false sense of security.

Investors should always be aware of who their advisor works for and what products they predominantly use with their clients financial plans.  Knowing this up front will avoid confusion and poor retirement and investment planning in the long run.

The best asset allocation advice is don’t get too wrapped up in perfecting it!  The fact is every investor is a bit different.  There isn’t a “one size fits all” silver bullet.  What’s right for once person may be horrible for the next and without the due diligence necessary to create a proper risk profile you can’t determine exactly what may work for you.

Asset Allocation Models Aren’t Perfect Anyway

Even if you did have the hypothetical “perfect asset allocation model” for your situation, it wouldn’t be perfect!  It’s not possible.  Here’s why – asset allocation models are “optimized” based on PAST PERFORMANCE.  Since we cannot predict future performance past performance is the best information we have to go on.

Past performance is not useful over short periods of time.  Past performance for the long term – for example equities outperform bonds by a wide margin over 20 year periods – is very useful.  But over the short term it’s just not as relevant as investors assume.  This is why our advice is don’t get too wrapped up in perfecting an asset allocation model.  It will NEVER be perfect!

Optimizing Asset Allocation Models

Since you realize it will never be perfect, your expectations will hopefully be set properly.  That being said we still need a plan to drive our investment portfolio.  Asset allocation models are the foundation of that plan.

To create the model we strive to balance risk and return into a tolerable portfolio for a specific investor.  For purposes of this discussion we are not taking into account the investors financial or investment needs (which are a large driver of the asset allocation model).  We do this by mapping various asset classes on the efficient frontier.  This gives us the optimal portfolio (once again based on past performance).

A Model Asset Allocation For An Aggressive Investor

Here’s a very basic asset allocation model created by ibbotson associates.  We use this with some of our clients through our investment planning service here.

It’s not right for everyone and we highly recommend seeking the advice of a fee only financial advisor, but this good for educational purposes.

You’ll notice NO CASH.  This aggressive asset allocation model also only has about 25% in fixed income – bonds.  For an aggressive investor – generally a younger investor – a 75% allocation to growth assets such as US and foreign stocks and commodities is a reasonable start for an investment plan.

Plan First Invest Later

No matter you risk profile – from conservative to aggressive – you must plan first!  Investing without a plan leads to guaranteed BAD RESULTS!

The best mutual fund investment advice is DON’T chase the best performing mutual funds of 2011.  Chasing performance is a sure-fire recipe for financial disaster!  The overwhelming majority of mutual funds ranked by top performance in various categories fail to repeat the following year.

Also, any list of “the best mutual funds” will only consider performance or total investment return.  It won’t consider other important factors like:

• Risk Adjusted Returns
• Embedded Tax Consequences
• Style Drift
• Management Fiduciary Scoring

Investing with excessive risk may not be your best investment option.  Likewise investing into a mutual fund with a large amount of undistributed capital gains could lead to a tax nightmare!  There’s more to investment management than performance!

These are the best mutual funds for 2011.  No now knows what the best mutual funds for 2012 will be because no one can predict the future!  The requirements for this query are:

• 2011 Calendar Year Total Investment Return
• Minimum Investment $1
• Maximum Investment $10,000
• No Institutional Share Classes
• No Load Waived Share Classes

The Best US Large Cap Growth Mutual Funds in 2011

]]> http://www.investmentadvice.org/the-best-us-equity-mutual-funds-2012/feed/ 0 http://www.investmentadvice.org/choosing-an-investment-advisor-investment-advisors/ http://www.investmentadvice.org/choosing-an-investment-advisor-investment-advisors/#comments Tue, 10 Apr 2012 19:13:32 +0000 Greg Phelps http://helpmeinvest.org/?p=114 There are many types of investment advisors.  Most of them call themselves a “financial advisor” and sell or manage some form of investment assets.  Stockbrokers, insurance salespeople and financial planners all generally call themselves financial advisors, and most all of them manage investments as well as an “investment advisor”.

WHAT ARE INVESTMENT ADVISORS?

An individual or company who provides investment advice to clients for a fee is an investment advisor.  They are not the same as financial advisors however – which has become a great source of confusion in the financial services industry.

The term financial adviser is very generic term which is usually used to refer to a stockbroker (or just about any other type of consultant in the financial industry).  Most consultants in the industry can call themselves a financial advisor.

Investment adviser is a legal term that refers to a person registered with the Securities and Exchange Commission or a state securities regulator.  Investment advisers are also called asset managers, investment managers, portfolio managers, and wealth managers.  Investment adviser representatives are individuals who work for and give advice on behalf of registered investment advisers.

WHO REGULATES INVESTMENT ADVISORS?

Generally the SEC regulates investment advisers who exercise management authority over $100 million or more in client assets.  Investment advisors who manage up to $100 million are regulated by the state securities department in the primary location of business state.  REDROCK WEALTH MANAGEMENT - the founder of Portfolio Architect Investment Services - is a registered investment advisor.  Recently we moved our registration from SEC to the State of Nevada due to the new rules.

Some investment advisors wear multiple hats and also serve in the capacity of investment broker.  It’s important to know the differences between the two to understand the conflicts of interest which exist.

WHAT DO INVESTMENT ADVISORS DO FOR ME?

Most investment advisors will manage assets on behalf of their clients.  They may also provide investment advice for a fee.  Some investment advisors also perform the function of stockbroker and facilitate stock and bond transactions.  But generally, investment advisors focus on managing investment assets – whether stocks, bonds, mutual funds or ETF’s.

CONCLUSIONS ABOUT WORKING WITH AN INVESTMENT ADVISOR

The single most important thing to know when choosing an investment advisor is what capacity they work for you in.  Meaning some investment advisors sell investment and insurance “stuff”.  Some get paid commissions, some get paid fees.  Other investment advisors only manage your investment assets.  Some provide financial planning advice.

We highly recommend having any investment advisor fully disclose their compensation model in writing to you.  You should be aware of all fees and commissions your investment advisor is earning for the services they provide you.  When choosing an investment advisor, make sure you ask them what their credentials are, their experience, their compensation model and get references if possible!

Stockbrokers are probably the most common investment advisors:

WHAT ARE STOCKBROKERS

Stockbrokers generally handle transactions. They facilitate trades such as stock and bond purchases. They are in the business of buying and selling. Securities such as mutual funds, ETF’s, stocks, bonds, unit investment trusts etc can be purchased or sold through brokers. They do this for clients, for their employer, or both. Technically these individuals are called registered representatives.

WHO DO STOCKBROKERS WORK FOR

There are many firms who employ brokers. Merrill Lynch, Morgan Stanley, Edward Jones, Wells Fargo Financial Advisors and Ameriprise are a few. These brokers are employed by and paid by the company they work for – NOT the client!

Other brokers include discounters like TD Ameritrade, Scottrade, eTrade and Charles Schwab.  Their reps do not provide the level of advice the full-service brokerages do and are more designed for self-directed investors.

WHO REGULATES STOCKBROKERS

The majority of brokers are regulated by the SEC – Securities and Exchange Commission and must register with FINRA – the Financial Industry Regulatory Authority.  Broker representatives must register with SEC and FINRA. To do this they need to pass a test and be licensed by their own state securities regulator.

WHAT DO STOCKBROKERS DO FOR ME?

Brokers offer a wide variety of services depending on whether they are a full-service broker or a discount broker. Full-service brokers charge a premium for their research departments and investment planning services. Discount brokers are less expensive and have a limited capacity to offer higher touch services. For the most part, discount brokers operate through internet channels.

CONCLUSIONS ABOUT CHOOSING A STOCKBROKER

Brokers are generally salespeople, not much different than any other salesperson who sells a product for a commission or fee. What’s misleading is they use several titles to describe their services such as “financial advisor” or “financial consultant”. In addition investors who choose to work with a broker should be aware that their level of competency may not be on par with the investors needs. Also various brokers can sell different securities even clouding the water more – for example some are licensed to sell mutual funds and, annuities but possibly not individual stocks and bonds. Others are licensed to sell mutual funds and stocks but not insurance products.