It’s your money, and as an intelligent enterprising person you could manage your investments on your own: There is no doubt about this. However, whether you actually do or want to is another matter.
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.