We all know the 3 biggest variables when investing in real estate: location, location, location. But what about your stock and bond investments? What are the three most critical indicators when choosing a good investment planner? Results, Results, Results.
Not too long ago, Fidelity Registered Investment adviser Group conducted an investigation with HNW Inc. on money and investment recommendations. They questioned high-net-worth (above $1 million) and ultrahigh-net-worth (above $5 million) professionals, about experts and their advice. Then HNW sat down with the advisers themselves to finish the case study. The outcomes of the study illuminated a discrepancy between advisers and investors regarding value, advice, and performance.
When asked which was most crucial, portfolio performance or client relationship, the vast majority of advisers, Eighty percent, said the quality of the partnership was the main thing. Once the high-net-worth investors were asked this same question, Seventy nine % deemed the portfolio results is the crucial element. According to high-net-worth investors, results really do matter.
It's important to have a excellent connection with an adviser, but isn't that just the bare minimum? After all if you're not comfortable with an adviser why would you permit them to manage your hard earned money? Big Wall Street Firms have it all wrong. Most investment firms stress the need for "educating" their customers on the unique investment options. Once again, education is very important, but what are you really paying for?
What would you rather have an in-depth understanding of modern portfolio theory or a positive return in a down stock market? (If you select the former you'll be able to dazzle all your friends at your next party!) The final results from the survey suggest that advisers are too centered on the features of the client relationship while the investors are looking for the benefits. It appears that investment results really do matter. After all, isn't that what you are paying for?
Killing poor performance.In order to receive good performance, you have to wipe out poor performance. And the root-cause of poor performance is losses. No kidding you say; and the root-cause of dying is death!
But I'm serious. If you eliminate the losses you may take control of your portfolio's performance. How do we control losses? You control losses having an exit strategy. You heard right...an exit strategy. Highlight it, cut it out and tape it to your mirror. Lacking an exit strategy how would you know when you should cut the losers in your investment portfolio or lock-in a winner's profit? Nothing goes up forever. Therefore, it is vital to know when to take your chips off the table.
Warren Buffett once said that there are only two rules to investing. Rule #1: Don't lose money. Rule #2: Never forget Rule #1.
POP QUIZ: If your portfolio loses 25% of its value this year, what return would you need next year to break even?
Investment Year #1
* Starting Value = $100,000
* Investment Return = -25%
* Ending Year Value = ?
$100,000 x (1-25%) = $75,000
Investment Year #2
* Starting Value = $75,000
* Investment Return = ?
* Ending Year Value = $100,000
($100,000 -$75,000) / $75,000 = +33.33%
Did you get the correct answer? If you lose 25% of your portfolio, it requires a 33.3% return, to break even. In the event you lose 50% of your money you need a 100% return, just to break even! This is why it is vital not to throw money away. The reason why so many individuals lost money in the last down market is that they, or their adviser, did not have an exit strategy. Remember, there is no reason to be emotionally attached to any stock. Investments are designed for one thing and one thing only: to make you money.
Run it like a enterprise. It all amounts to this: you have to run your stock portfolio just like a business. And just like a real business, you need to have a disciplined strategy for success. You have a choice to make, manage your portfolio yourself or hire a competent manager. Unless you have the tools, or the desire, to handle the day-to-day operations of your portfolio, then you better hire a qualified money manager.
The choice is yours. You can choose to ignore performance and accept what the market gives you or you can take control of your investments. The sooner you run your portfolio like a business the sooner you will stop paying for losses. After all the only thing worth paying for are results.
Not too long ago, Fidelity Registered Investment adviser Group conducted an investigation with HNW Inc. on money and investment recommendations. They questioned high-net-worth (above $1 million) and ultrahigh-net-worth (above $5 million) professionals, about experts and their advice. Then HNW sat down with the advisers themselves to finish the case study. The outcomes of the study illuminated a discrepancy between advisers and investors regarding value, advice, and performance.
When asked which was most crucial, portfolio performance or client relationship, the vast majority of advisers, Eighty percent, said the quality of the partnership was the main thing. Once the high-net-worth investors were asked this same question, Seventy nine % deemed the portfolio results is the crucial element. According to high-net-worth investors, results really do matter.
It's important to have a excellent connection with an adviser, but isn't that just the bare minimum? After all if you're not comfortable with an adviser why would you permit them to manage your hard earned money? Big Wall Street Firms have it all wrong. Most investment firms stress the need for "educating" their customers on the unique investment options. Once again, education is very important, but what are you really paying for?
What would you rather have an in-depth understanding of modern portfolio theory or a positive return in a down stock market? (If you select the former you'll be able to dazzle all your friends at your next party!) The final results from the survey suggest that advisers are too centered on the features of the client relationship while the investors are looking for the benefits. It appears that investment results really do matter. After all, isn't that what you are paying for?
Killing poor performance.In order to receive good performance, you have to wipe out poor performance. And the root-cause of poor performance is losses. No kidding you say; and the root-cause of dying is death!
But I'm serious. If you eliminate the losses you may take control of your portfolio's performance. How do we control losses? You control losses having an exit strategy. You heard right...an exit strategy. Highlight it, cut it out and tape it to your mirror. Lacking an exit strategy how would you know when you should cut the losers in your investment portfolio or lock-in a winner's profit? Nothing goes up forever. Therefore, it is vital to know when to take your chips off the table.
Warren Buffett once said that there are only two rules to investing. Rule #1: Don't lose money. Rule #2: Never forget Rule #1.
POP QUIZ: If your portfolio loses 25% of its value this year, what return would you need next year to break even?
Investment Year #1
* Starting Value = $100,000
* Investment Return = -25%
* Ending Year Value = ?
$100,000 x (1-25%) = $75,000
Investment Year #2
* Starting Value = $75,000
* Investment Return = ?
* Ending Year Value = $100,000
($100,000 -$75,000) / $75,000 = +33.33%
Did you get the correct answer? If you lose 25% of your portfolio, it requires a 33.3% return, to break even. In the event you lose 50% of your money you need a 100% return, just to break even! This is why it is vital not to throw money away. The reason why so many individuals lost money in the last down market is that they, or their adviser, did not have an exit strategy. Remember, there is no reason to be emotionally attached to any stock. Investments are designed for one thing and one thing only: to make you money.
Run it like a enterprise. It all amounts to this: you have to run your stock portfolio just like a business. And just like a real business, you need to have a disciplined strategy for success. You have a choice to make, manage your portfolio yourself or hire a competent manager. Unless you have the tools, or the desire, to handle the day-to-day operations of your portfolio, then you better hire a qualified money manager.
The choice is yours. You can choose to ignore performance and accept what the market gives you or you can take control of your investments. The sooner you run your portfolio like a business the sooner you will stop paying for losses. After all the only thing worth paying for are results.
About the Author:
For more information on visit www.blacklabelwealth.com. Black Label Wealth Management, LLC is a Durango Financial Adviser.
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