Does Your Portfolio Manager Have Your Best Interest at Heart? Don't Get Fooled Again
"Delegating your financial planning and management to a qualified professional whom you trust," says Massimo, "reassures you that they are focusing on your goals, needs and priorities first - not what kinds of products or services they have to sell."
New York, NY (PRWEB) August 23, 2005 -- Remember the "roaring 2000s," when everyone's portfolio was in the black? But then there was the tech bubble bust, the Enron scandal where the public learned that top executives were "cooking the books," followed by the WorldCom fiasco. This prompted the SEC to more tightly police publicly traded companies, which in turned revealed other corporate corruption. Then, on top of what was already shaky ground in the tech stock market, the Sept. 11, 2001 terrorist attacks added another force to scare away already nervous investors.
Time moved on, and large investment houses began marketing their companies with "warm and fuzzy" appeals and sappy, sweet advertising campaigns, conveying the message that "we're part of your family and have your best interest at heart." Investors, feeling vulnerable, responded to this style of marketing, and found new comfort in the "family-friendly" portfolio management techniques. Some investors left the market all together, or decided to "diversify" their portfolios by seeking the advice of a new financial advisor.
But are the majority of portfolios in safe hands? If the market turned south today, who would survive a market downturn? And is it possible to find a financial advisor, who is free of conflicts of interest -- and is there solely to insure the investor makes money?
State regulators in recent weeks have accused Morgan Stanley of improperly pushing customers to buy its in-house mutual funds, while the National Association of Securities Dealers has proposed rules to force securities firms to reveal how they pay brokers to sell mutual funds. That has added to concerns that advisers, know too little about the market, offer products that garner higher commissions and don't have an investor's best interests at heart.
So how do you know if youre really in good hands?
Charles Massimo, president of CJM Fiscal Management suggests that investors choose a financial advisor like they would other service professionals such as a doctor or accountant. "You wouldn't expect your doctor to sell you prescriptions you don't need, just because he is getting commissions from pharmaceutical companies," says Massimo. "But, when investors hire a fee-only financial advisor, who charges by the hour or receives an annual fee rather than commissions, they are able to better build a trusting relationship. Fee-only financial consultants work for you."
Massimo also recommends that investors interview several potential candidates prior to making a decision, and only hire a financial advisor who has proper certification and offers at least five references.
"Delegating your financial planning and management to a qualified professional whom you trust," says Massimo, "reassures you that they are focusing on your goals, needs and priorities first - not what kinds of products or services they have to sell."
Next, Massimo recommends that you diversify your portfolio in a manner that allows you to sustain a positive return despite market volatility.
"Diversification is a word loosely thrown around in the investment community, but so few financial advisors take the time to define true diversification," said Massimo. "To have your investments last, it's so important to get the right balance between risk and return, yet most investors have no idea how to accomplish that," said Massimo.
In many cases, investors may think they are diversifying. But in actuality, they are not. For example, an investor's portfolio may include a fund like Fidelity Magellan, a technology fund, and additional investments in the S&P 500. This investor may think he was diversifying. But these funds are likely to hold the same companies, such as Microsoft, Cisco and Intel.
"Investing in three large cap funds is not diversification," said Massimo. "If you are investing in a variety of funds, make sure there is minimal or no duplication in the companies held within the funds."
Lowering your portfolios volatility is also important. For example, choose investments with dissimilar price movements. "Invest in a variety of different holdings that move in different directions and magnitudes to reduce portfolio volatility," said Massimo.
One little-known fund family, Dimensional Fund Advisors (DFA) based in Santa Monica, California, helps build a portfolio that strikes the right balance between risk and return. Well known in the academic world, DFA has been praised in many financial publications, and was lauded as "one of the best-kept secrets on Wall Street" in a Jan 11, 2004 New York Times article. DFA manages more than $50 billion for some of the worlds largest pensions, endowments and municipalities.
In the past, DFA could not be purchased by those with less than $2 Million to invest, but recent changes now allow investors to obtain DFA with as little as $250,000 to invest. And, even if you don't have $250,000 in investments, you can still follow the investment strategies of companies like DFA.
Known as the index-fund strategy, investors can use this method for their stock portfolio. "The theory behind logical and low-cost index investing is to get off the stock market roller coaster and ride a steadily increasing portfolio towards your dreams of life-style choice and leaving a legacy," said Massimo.
CJM Financial provides wealth management strategies for and financial education counseling to the 55+ investor. The firm uses innovative research techniques developed by Nobel prize-winning economists, as well as integrity and compassion to provide a dynamic approach to portfolio management. With more than 15 years experience growing the portfolios of the 55+ affluent investor, the company founder Charlie Massimo has a loyal client following nationwide.
CJM Fiscal has offices in both New York City, and Garden City, Long Island. For more information visit www.cjmfiscal.com. Charles Massimo can be reached at 516-240-1741.
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