Either way, flying solo or using the services of some type of investment professional, (or both) you should be able to answer the following questions in a clear and unambiguous manner:

• What is your strategy in specific terms? 
• How, specifically, is it being implemented?  How do the items in the portfolio contribute to the strategy, specifically?
• How are performance outcomes being monitored, reported, and acted on? 
• How are you paying for the services?  Are costs and compensation clear, obvious, transparent, and specifically reported/disclosed?

Starting with the last item; all investments have a cost, and all potfolios cost money in some shape or manner.  For instance you can get a “no-load” mutual fund and you may have avoided the initial commission a broker would charge, but you still incur all the annual operating costs associated with the fund, which can be considerable.  For an overseas small company fund (typically more expensive) it could push 3% per year, which is a lot.  Does this mean you shouldn’t own it?  Of course not, but “no-load” can still equal high-cost.

In the same vein, you may have owned mutual funds through a brokerage for years, and since you haven’t bought anything new for a while it appears there are no costs.  Not true.  Mutual funds always have ongoing costs and usually pay an ongoing commission to the broker over time, known as “trailing fees” or “trails”.  The amount varies, but is often .25% per year, or $250 on each $100,000 invested.  The funds other operating costs are then on top of this, so it’s far from free.  This is all disclosed in the Prospectus of course, which I’m sure you read cover-to-cover last time it came in the mail. 

Next item; performance.  Just because a portfolio under-performed “the market” does not necessarily mean something is wrong.  If it’s a 50-50 split between stocks & bonds and you compare only to the S & P 500 it’s really not an accurate comparison.  You need to compare to a 50-50 composite.  Even then you could be “apples to oranges”.  However, you do need to get some sort of measure, whether you are a do-it-yourself investor or working with an advisor.  I think you need to know at a minimum:

• Point-to-point (quarterly, year to date, etc) returns
• Cash inflows/outflows per quarter
• Index comparisons; your account vs stock & bond indecies

As for the fist two item, Strategy & Implementation, they will vary enourmously from one person, business, or entity, to another.  They key is clarity and specificity, not ”I want the account to get bigger”.  Well duh, who doesn’t.  Something such as “The goal is to provide financial security and an income stream for my special needs child” is much better.  This will begin to immediately define what should, and probably should not, be in the portfolio.  

If you cannot with relative ease answer questions along these lines you should begin looking for answers.   Give me a call/email and I’ll help you get started.

      First, why would I say we all a have relationship with debt?  Well, the neighborhood school was financed with bonds, a form of debt, which determines in part how much taxes you pay.  In the past decade there have been two major economic upheavals due in large part to debt; the 2000 tech bust which had been fueled by reckless financing of internet and technology start-ups, and now the housing & real estate bust following a unsustainable bubble also fueled by debt.  These debt-fueled booms and busts in turn influence inflation, interest rates, unemployment, investment performance of your retirement accounts, property values, taxes, and more.  Clearly even if you are debt free and use only cash for purchases, the use of debt by others pervades your life. 

      With so much apparently beyond our control, what should we do?  First it’s useful to visualize your family finances as a business entity regardless of what you actually do for a living.  The goal of Your Family Inc is to increase it’s value (net worth) and profitability (income).  What will or won’t contribute to those goals?  I’m going to focus here on cars and houses because these are high-value items that can have a big influence on our finances.

     First, your automobiles:  Unless you use your vehicles in a genuine money-making endeavor they are a negative force on your balance sheet.  They lose value steadily and they cost you to insure and maintain.  Having a loan on the car compounds this because you are paying interest on an object that is losing value, which increases the total cost of ownership significantly.  Answer; pay cash for your ride.  What?!! You say.  “I couldn’t possible drive the car I want if I had to pay cash”.  Exactly.  Drive what you can pay cash for, not what you “want”.   There are multitudes of sources on how buy a good used car so don’t let that be a deterrent to action. 

     Now take what you were paying as a car payment and save up to buy a rental property, or put in your IRA, or increase your 401(k) contribution.  Make a choice that has the potential for appreciation in value rather than guaranteed depreciation in value and your net worth will benefit.

     Owning your home:  A house is a place to live, not an investment per se. Shocking I know.  Houses can be good investments, but that should not be the expectation.  If you take the cost of taxes, repairs/maintenance, upgrades, interest costs on your loan, insurance and all other incidental costs of ownership the “investment value” of your home declines dramatically. 

     One of the big advantages of home ownership is the effect of “fixing” the costs.  Rents rise with inflation whereas the cost of your loan is fixed on a 30 or 15 year fixed loan, and as your income rises (hopefully)  and inflation takes it course your cost of ownership falls in relation to other rising expenses.  So don’t go and ruin it with an adjustable rate loan, or refinancing in a way that increases the balance significantly.

     The debt lesson for today; ditch the car loan to help increase Your Family Inc’s future net worth and “fix” the  house loan to improve its “profitability”.