Posted By: CFP&WM On: Mar 20th, 2013 In: Investing Money Matters

Have What It Takes To Invest On Your Own? Here’s A Checklist To Help You Decide

The whole purpose of investing is to fund your future goals. If you invest successfully, you will be in a better position to obtain your financial goals and fulfill your life’s dreams.

On the other hand, if you don’t invest successfully, life might not be quite so pleasant. While it’s a bit tedious, the sooner you complete certain prerequisite tasks which are necessary for successful investing, and the better you understand the investment choices that are available to you, the sooner you can select the option that will put you on the path to investing success.

The first step is to identify the tasks that need to be completed for better investment outcomes. These tasks can be categorized as Design, Implementation and Perpetuation.

Though you may be well suited for some of them you may not have the time, tools, motivation or knowledge to complete the other tasks, in which case you should seek professional help.

Use this checklist to help identify those tasks that you have the ability to do for yourself.

Investing Phases The Necessary Tasks to Successful Investing Check the tasks you can do
Design Know appropriate level of investment risk in your portfolio
Design Use and allocation of different Asset Classes in your portfolio
Design Most tax efficient allocation across all accounts
Design Investment Policy Statement (an investment plan)
Design Determine best Investments in each asset class
Design Open new accounts, close old accounts
Design Transfer assets from one account to another
Implementation Complete the Buys and Sells in 401(k), 403(b), 457, etc.
Implementation Complete the Buys and Sells in other accounts
Implementation Monitor the investments on a periodic basis
Implementation Proactively reaches out to the investor if a problem arises
Implementation Periodic performance reporting/meetings
Perpetuation Allows for access to investments not available to public
Perpetuation Suggests changes when issues becomes apparent
Perpetuation Mutual agreement before suggested changes are made
Perpetuation Unilateral changes if an issue becomes apparent

Your Investing Options

Based on which investing tasks from the checklist above that you feel you can effectively complete, review the 5 Investing Options and determine which methodology is best suited to you.

  1. Doing it all on your own.

    Conducting an analysis of your present portfolio and individual investments, make decisions as to the correct asset classes and the correct allocation of each that will give you the highest return for the appropriate level of risk, specifying which investments to buy and sell, implement the buys and sells, monitoring and rebalancing the portfolio based on a prudent repeatable process that is tax efficient.

  2. Advisor provides advice to you on an hourly basis or as part of a financial plan.

    A Fee-Only Registered Investment Advisor (RIA) understands your investing goals, analyzes your current portfolio, provides advice as to the asset allocation and specific investments to be used; you implement the recommended changes by opening accounts,  closing accounts and buying and selling the individual holdings. It is up to you to return for future advice. The Advisor does not monitor or proactively call you when a change occurs.

  3. Advisor and you “co-manage” your investments on an ongoing basis.

    The advisor understands your investing goals, does the analysis, provides recommendations, and after your concurrence, completes the investment implementation (except in the case of employer retirement accounts whereby you implement those specific changes). The Advisor monitors the investments and your asset allocation, reports to you periodically as to performance of your portfolio, pro-actively contacts you if a problem arises, discusses suggested tax efficient portfolio re-balances as needed, updates your Investment Policy Statement and recommends changes to your asset allocation as your plan changes. You are part of the process and changes are not made without your approval.

  4. You turn your investments over to an Investment Manager.

    The “Money Manager” invests your assets according to a pre-determined plan, monitors and makes changes as needed. There may or may not be the level of planning that is involved in Options 2 or 3 above, so be sure of what you are getting.  In this scenario you are an observer of the results not a part of the process.

  5. You get “advice” from a salesperson that sells you an investment or other product.

    This is the original approach “patented” by the financial services industry. This “non-fiduciary” advice is subject to a conflict of interest between what is best for the financial services company and salesperson versus what is best for you as the investor. This type of approach is still commonplace among big-name investment houses such as Edward Jones, Merrill Lynch, Morgan Stanley, Fidelity and others. Once the commission has been earned by the salesperson, the advice is over until they wish to sell you something else.

So, what works best for you? In my next article I’ll expand the chart above to include the services that are usually provided under the 5 different investing options. The costs for the different options or methodologies will also be reviewed.

To talk to a non-commission-based advisor near you or to discuss the best investing approach for you, contact NAPFA or Garrett Planning Network.

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