During the height of the financial crisis, a study put together by Prince & Associates demonstrate that 81 percent of investors with $1 million or more invested within the stock market planned to take their money away from their financial adviser.
As in, they lost confidence in the financial institution that was in charge of making the customer (and the institution) money, which is not saying a whole lot if you really think about it. It would be unwise for investors to keep their money with an institution, if the institution were losing money. Make sense right?
Also, on the flip side, nobody moves money when they are making a ton of it; nor do they complain about it when making a lot of money. It just doesn’t happen. You only hear about people complaining when they start to lose money, then they start doing something about it like pointing the blaming finger!
The Prince & Associates study illustrates exactly where the blame should go.
The enormous loss of wealth during the “Great Recession” gave investors a peek into the poor quality of advice they had been getting, and thus, sophisticated investors were taking their money elsewhere to put in more capable hands.
Tragically, almost four years later, investors may still be wondering if they are getting good wealth-building advice or simply being sold products.
How to Invest like a $1 Million Dollar Pro
The fact of the matter is, when you give a financial institutional or “salesmen” your money you want them to put it somewhere where it can make more money. “Strike while the Iron is hot!” “Add fuel to the fire!” “Make me more money! ” Come on people this is investment 101!
And this is the point!
You don’t give people money for them to lose it; you want them to make you more money, to give you a return on investment. What they (the financial institutional) are not doing is taking the money and putting it in a stock that is not making money or in an investment vehicle that is not making money. They go where the money is plain and simple. That’s how they make money for them and you. Investors usually don’t wake up in the morning and tell themselves, “How can I lose a lot of money today”… “let’s see how I can do that”. They simply follow the money.
What they can do, you can do, all you need is the right information and it is crucial that you are not simply closing your eyes and giving it to an institution in blind faith.
7 Signs You Are Investing Wrong.
1. Commission Fees!
Are you paying a crap-load of commission fees? In case you didn’t realize Financial Institutions make a lot of money with their commission fees. The more trades you the investor make the money the institutional makes. So, a $10 trading fee whether buying or selling can add up to lot money per month or year depending on how much you trade. Take a look how you invest; make big trades once or twice a month might minimize the cost of the commission fee and your overall value to the trading. But remember, going with a cheaper institution might not be the best answer, there might be some “hidden value” going with an institution with the higher fee.
But I still like the Buy and Hold Method
2. Taxes!
Just like Commission Fees, you pay a tax on everything you buy or sell. The good news is, (after speaking to your financial advisor) you can write off some, if not all of your losses on your taxes. So, when investing you should take into consideration the commission fees and the amount of tax you will pay when buying or selling a certain stock. Some financial institutions provide software that will let you know how much tax you will pay after purchasing or selling a stock or security (the least they could do after paying that big chunk of a commission fee right?).
3. Dollar Cost Average!
Experts in the field like Jim Crammer are often talking about “knowing when to hold them” and “knowing when to fold.” By folding, we mean knowing when to sell stocks before they become less valuable, suggesting that value of a particular stock is becoming less valuable over time. Which is true, to a certain extent?
However, these days the economy has changed in a way that allows the average investor to take advantage of companies with higher than average Rate of Return with regard to Dividends or Yields. There are a lot of companies out there with a Rate of Return (ROI) of 10% and some higher. That’s pretty amazing considering the average bank interest rate in a savings account is barely 1%.
So, by placing a certain amount of money every month into your stock account whether the stocks are high or low, won’t make that much of a difference if you are investing in a stock with a high ROI. Make sense?
4.Tax Returns?
Has a financial advisor asked to see your tax return?
Tax rates are set to skyrocket in a matter of months, so when’s the last time your adviser asked to review your tax return?
If you want to take advantage of the tax laws, then your adviser should be monitoring your tax return every year. Maybe you’re missing out on a valuable Roth conversion, missing deductions, or just simply paying too much in taxes. Your tax return is the heartbeat of your financial life. If it’s not being reviewed regularly, that’s a giant red flag.
5. One-Size-Fits-All
Does your portfolio contain only one type of investment?
There isn’t a one-size-fits-all investment, so your portfolio should never be made up of just one type of investment (mutual funds as an example). Nothing screams “product salesman” as loudly as a single-product portfolio. Also, keep in mind when stocks are down, bonds are up and vice versa, as well as other commodities such as gold and silver, the dollar, etc.
There is a type of “Yin-Yang” effect to markets, when one goes up, another falls. And it’s Global!
6. IRA
No distribution strategy for your IRAs. For years, you’ve had a plan for putting money into IRAs and 401(k)s, but what’s your plan for when all that taxable money comes out?
Anyone can come up with an investment plan for your pre-tax accounts, but it takes a real pro to make sure a distribution strategy is in place to limit the government’s take.
Plan with the End In-Mind!
7. Weak inflation protection.
With interest rates at historically low levels, combined with massive amounts of debt, inflation is on the horizon.
If you’re near or in retirement, you will be negatively impacted the most.
If your adviser hasn’t proactively met with you to discuss how to protect your wealth from inflation, that’s a warning sign!
What else is at historical HIGH levels are Corporate Dividend Rates. Some are as high as 10%
Take advantage of it. It’s better to light a candle than to curse the dark; so the next time you hear the price of fuel went up, think about buying EXXON or BP stock to offset the expense.
Buy low, Sell high
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