Do you know how much buying and selling your investments at the wrong time can cost you? According to Morningstar, stock funds returned 1.6% annually from 1999-2009. However, the typical fund investor only earned 0.22% annually. If you had an account balance of $100,000, that would equate to costing you $15,000. So what should investors do to protect their portfolios? Below are a few tips of mine for investors looking for guidance:
Make sure you have a time-tested, research-based investment strategy, and stick to it.
You may or may not be surprised that the majority of people I talk to are unable to explain their investment strategy. However, having a disciplined strategy is only half the battle; the other half is actually maintaining it when your investments are performing poorly. Emotions can play a key role in investing, and if you aren’t able to remove them from your decisions and base your actions on sound financial reasoning, you’re bound to have sub-par performance.
If you don’t have the time it requires to fully understand and manage your investment strategy, hire a fee-only advisor.
Paying an advisor 1% or less could very easily save you from a 1.5% mistake that you make on your own just because you weren’t paying attention. That ½ percent difference can really add up over 20 years of saving for retirement. Not only that, but fee-only advisors are obligated to act in the best interest of the client, and are not swayed into earning commissions by selling investment products that may not truly benefit you.
Just because someone is a financial advisor doesn’t mean they know what they are doing.
Don’t get me wrong – I’m not saying that I’m perfect. However, what I do pride myself on is that I utilize a strategy that has proven over time to hold up during good and bad times. I started my firm, Chladek Wealth Management, based on the fact that after years of research, it’s the one strategy I feel offers the best indicators of when to buy/sell. If a client is ever curious about why I made a certain investment decision, I’m able to direct them to the strategy that we agreed upon for their portfolio to illustrate my reasoning. Unfortunately, not all advisors are able to offer an explanation. Thus, carefully evaluating your advisor related to why they utilize a certain strategy is an important piece to finding the right person to hire. How did they arrive at that strategy? What evidence do they have that it has been successful in the past, or has the ability to prevent steep losses in a downturn? While many advisors squirm at these questions, I welcome them. In my 10-plus years in the financial industry, it’s become clear to me that ‘buy and hold’ is no longer a viable investment strategy. Check out the previous link to learn more about my strategy and to better understand your options before hiring an advisor.
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If you aren’t sure whether your portfolio is positioned properly for the current market environment based on the amount of risk that you’re comfortable with, we always provide a FREE 2nd Opinion Portfolio Review and would be more than happy to discuss your financial planning goals with you – please click here to schedule your meeting, or give us a call at 913.402.6099.
John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit https://www.chladekwealth.com.