Everybody knows the three vital aspects when investing in real estate: location, location, location. But what about your stock and bond investments? Do you know the three most critical indicators when selecting an 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 enquired which was most important, portfolio performance or the client relationship, nearly all advisers, Eighty percent, said the caliber of their bond was the key aspect. When the high-net-worth investors were asked this same question, Seventy nine percent deemed the portfolio performance is the crucial element. According to high-net-worth investors, results really do matter.
It's important to possess a quality connection with an adviser, but isn't that just the bare minimum? After all if you are not happy with an adviser why would you permit them to manage your money? Big Wall Street Firms have it all mistaken. Most investment firms stress the importance of "educating" their customers on the distinct investment options. Just as before, education is important, but what are you really paying for?
What would you rather have a deep knowledge 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 results of the study suggest that advisers appear to be too aimed at the characteristics of the client relationship while the investors are searching for the benefits. It would appear 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 control your losses you might dictate your portfolio's performance. Exactly how do you control losses? You control losses by having an exit strategy. Yes its true...an exit strategy. Highlight it, cut it out and tape it to your mirror. Without an exit strategy how will you know when you should cut the losers in your ought to or lock-in a winner's profit? Nothing climbs up forever. Therefore, it is imperative to know when you should 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, you will need a 33.3% return, to break even. If you lose 50% of your money you'll need a 100% return, just to break even! This is why it is essential not to throw money away. The key reason lots of 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 psychologically attached to any stock. Investments are designed for one thing and one thing only: to make you income.
Run it like a business. It all boils down to this: you have to run your 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. If you don't have the tools, or even the desire, to handle the day-to-day operations of your portfolio, then you've got to work with a skilled 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 enquired which was most important, portfolio performance or the client relationship, nearly all advisers, Eighty percent, said the caliber of their bond was the key aspect. When the high-net-worth investors were asked this same question, Seventy nine percent deemed the portfolio performance is the crucial element. According to high-net-worth investors, results really do matter.
It's important to possess a quality connection with an adviser, but isn't that just the bare minimum? After all if you are not happy with an adviser why would you permit them to manage your money? Big Wall Street Firms have it all mistaken. Most investment firms stress the importance of "educating" their customers on the distinct investment options. Just as before, education is important, but what are you really paying for?
What would you rather have a deep knowledge 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 results of the study suggest that advisers appear to be too aimed at the characteristics of the client relationship while the investors are searching for the benefits. It would appear 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 control your losses you might dictate your portfolio's performance. Exactly how do you control losses? You control losses by having an exit strategy. Yes its true...an exit strategy. Highlight it, cut it out and tape it to your mirror. Without an exit strategy how will you know when you should cut the losers in your ought to or lock-in a winner's profit? Nothing climbs up forever. Therefore, it is imperative to know when you should 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, you will need a 33.3% return, to break even. If you lose 50% of your money you'll need a 100% return, just to break even! This is why it is essential not to throw money away. The key reason lots of 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 psychologically attached to any stock. Investments are designed for one thing and one thing only: to make you income.
Run it like a business. It all boils down to this: you have to run your 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. If you don't have the tools, or even the desire, to handle the day-to-day operations of your portfolio, then you've got to work with a skilled 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.
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