Like most people, you probably are plenty busy with your work and family. So you may not have the time and expertise needed to thoroughly understand the investment world. That’s why you may want to work with a professional investment representative. But how do you find the right one? You can start by asking the right questions. Here are a few to consider:
Have you worked with people in my situation? As an investor, you have your own special set of characteristics: level of assets, stage of life, long-term goals, etc. Before you sign up to work with a financial advisor, you need to make sure that he or she is comfortable working with someone like you.
What are you credentials? Inquire about a prospective advisor’s qualifications. Make sure anyone you might work with has all the necessary securities licenses.
What is your investment philosophy? Just like investors, investment professionals have different investment personalities. Some might be naturally more aggressive, while others are conservative. But the ideal advisor is someone who will provide you with guidance that’s based on your risk tolerance and investment preferences.
How will you communicate with me? You’ll want to make sure that your broker will communicate regularly with you. Find out when you’ll receive statements and how often you’ll meet in person to review your portfolio. Will your advisor call with suggestions and recommendations? Are you free to contact your broker at any time? If the broker is not available, is there someone else that he or she works with who will be familiar with your situation? It’s important to find these things out as soon as possible. Remember, you’re entrusting this person with your financial future – so you have a right to expect open, honest and frequent communications.
What sort of resources do you have to draw on? Find out if a prospective investment professional has access to research and technical expertise in key areas like investments, insurance and estate planning. In some cases, an advisor may be able to bring in added expertise through a relationship with another professional, such as an attorney or accountant.
How do you get paid? Investment professionals get paid in a variety of ways: fees, commissions, percentage of assets under management, or even a combination of these. You do need to know how your advisor will be compensated.
Can you provide me with references? A lot of people are too shy to ask for references. However, a reputable broker will be happy to give you some names of people you can call. Of course, you shouldn’t expect a broker to provide you with the specifics of other clients’ financial transactions, but you should be free to ask about an advisor’s style, responsiveness, etc.
Now that you've asked the right questions and picked an advisor you are comfortable with, get going and take advantage of the current bear market. Two terms often used for stock market traders are bull and bear. A bull is someone who buys securities or commodities in the expectation of a price rise, or someone whose actions make such a price rise happen. A bear is the opposite – someone who sells securities or commodities in expectation of a price decline.
You might think there’s nothing positive in a stock market that has slumped for a long time. After all, the value of your holdings is down, and you’re having a hard time seeing where to invest. And yet, even a long bear market can teach investors some valuable lessons – if you know where to find them. Here are a few to consider:
Stay in the market. When prices keep falling, many people try to “trade their way to success” – or they get out of the market altogether. But constant stock trading is expensive and usually ineffective. Furthermore, it’s hard to develop a solid, disciplined investment strategy if you’re always making trades based on short-term considerations. And if you jump out of the market, you could miss the early stages of recovery. It’s generally a good idea to stay invested rather than try to time the short-term ups and downs of the market.
Know your own risk tolerance. We all have different investment personalities. Some of us are willing to take more risk in exchange for potentially higher returns. Others accept lower returns in exchange for greater stability of principal. Most investors are somewhere in-between. A bear market provides a good opportunity to gauge whether your risk tolerance is really what you thought it was.
Diversify. You can’t totally elude a bear market, but you can blunt its impact by diversifying across a range of investments like stocks, bonds, securities, money market accounts, etc. If all your investments are alike, they may all move in the same direction at the same time (not good in a down market).
Be price-conscious. Even during a long market downturn, some stocks can still be expensive. Before you buy any stock, make sure its price is supported by solid fundamentals – such as a strong track record of earnings. You need look back no further than the bursting of the technology “bubble” to find a example of stock prices that could not be sustained due to low – or non-existent – profits.
The upside of a bear market is that some high-quality stocks are attractively priced, because a bear market tends to drag everything down. Eventually, good stocks are likely to bounce back – but the best time to buy them is now. Ultimately, a bear market can be quite educational. You’ll become acquainted – or reacquainted – with the importance of finding attractively priced companies that offer solid business plans, competitive products and far-sighted management.
~ If you have any comments or questions, or would
like to learn more about getting your portfolio started or in order, call Barry
M. Moore at (909) 272-6820 or toll free at (888) 272-8166. Mr. Moore is an Investment
Representative for Edward Jones, a leading financial institution that has been
serving individual investors since 1871. Don't wait, call now.
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