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March 7 - March 9, 2019
good advisor will be a partner and ally for many years, guiding you on a long-distance financial journey.
money also a deeply personal subject for you, just as it is for me? It’s tied up with our hopes and dreams, our desire to take care of the next generation, to have a charitable impact, to live an extraordinary life on our own terms. It helps if you can have t...
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there’s a huge prize when you reach the finish line of this crazy obstacle course and find a truly great advisor.
nothing has a more positive impact on their financial future than partnering with an intelligent guide who knows the territory and can show them proven ways to win in any environment.
world-class advisor will help you immeasurably from start to finish: defining your goals, keeping you on a steady path toward them—in particular, by helping you to weather market volatility—and massively increasing...
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Creative Planning, the registered investment advisory firm run by my coauthor, Peter Mallouk, provides conflict-free investment advice that is also remarkably comprehensive. He’s structured the company so that clients are advised by their own team, which includes experts on investing, mortgages, insurance, taxes, and even estate ...
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clients who are early in their financial journey and have a minimum of $100,000 in assets.
If you want a shortcut, you can start by asking Creative Planning for a free second opinion by visiting www.getasecondopinion.com. One of the firm’s wealth managers can assess your situation and uncover whether or not your current advisor is operating in your best interests.
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one example of why this holistic approach is so powerful.
Many people own real estate investments outside of their more traditional investment portfolio but rarely are they accounted for when they’re using a typical advisor. Imagine you own a number of properties. An advisor with the proper expertise will look at how to maximize your cash flow and might be able to help restructure the mortgages on those properties. The result? The ability to potentially invest in an additional property or two with no additional cash. In fact, your overall mortgage payments may be even lower than they were before! That’s the benefit of truly sophisticated advice.
SEVEN KEY QUESTIONS TO ASK ...
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If you have an advisor already, it’s equally important for you to get the answers to these questions.
1. Are You a Registered Investment Advisor? If the answer is no, this advisor is a broker. Smile sweetly and say good-bye.
2. Are You (or Your Firm) Affiliated with a Broker-Dealer? If the answer is yes, you’re dealing with someone who can act as a broker and usually has an incentive to steer you to specific investments. One easy way to figure this out is to glance at the bottom of the advisor’s website or business card and see if there’s a sentence like this: “Securities offered through [advisor’s company name], member FINRA and SIPC.” This refers to the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation, respectively. If you see these words, it means he or she can act as a
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3. Does Your Firm Offer Proprietary Mutual Funds or Separately Managed Accounts? You want the answer to be an emphatic no. If the answer is yes, then watch your wallet like a hawk! It probably means they’re looking to generate additional revenues by steering you into these products that are highly profitable for them
4. Do You or Your Firm Receive Any Third-Party Compensation for Recommending ...
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5. What’s Your Philosophy When It Comes to Investing? This will help you to understand whether or not the advisor believes that he or she can beat the market by picking individual stocks or actively managed funds.
6. What Financial Planning Services Do You Offer Beyond Investment Strategy and Portfolio Management? Investment help may be all you need, depending on your stage of life. But as you grow older and/or you become more wealthy with various holdings to manage, things often become more complex financially:
Ideally you want an advisor who can bring tools for tax efficiency in all aspects of your planning—from your investment planning to your business planning to your estate planning.
7. Where Will My Money Be Held? A fiduciary advisor should always use a third-party custodian to hold your funds. For example, Fidelity, Schwab, and TD Ameritrade all have custodial arms that will keep your money in a secure environment. You then sign a limited power of attorney that gives the advisor the right to manage the money but never to make withdrawals. The good news about this arrangement is that if you ever want to fire your advisor, you don’t have to move your accounts. You can simply hire a new advisor who can take over managing your accounts without missing a beat. This custodial
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The Key Principles That Can Help Guide Every Investment Decision You Make
most successful people in any field aren’t just lucky. They have a different set of beliefs. They have a different strategy. They do things differently than everyone else.
The key is to recognize these consistently successful patterns and to model them, using them to guide the decisions you make in your own life. These patterns provide the playbook for your success.
it’s not enough to know a principle. You have to practice it. Execution is everything.
Whenever I’m speaking with my financial advisors about a potential investment, I want to know whether or not it meets the majority of these four criteria. If not, then I’m simply not interested.
CORE PRINCIPLE 1: DON’T LOSE
The first question that every great investor asks constantly is this: “How can I avoid losing money?”
the best investors are obsessed with avoiding losses. Why? Because they understand a simple but profound fact: the more money you lose, the harder it is to get back to where you started.
Warren Buffett’s famous line about his first two rules of investing: “Rule number one: never lose money. Rule number two: never forget rule number one.”
Paul Tudor Jones told me, “The most important thing for me is that defense is 10 times more important than offense. . . . You have to be very focused on protecting the downside at all times.”
Take Ray Dalio.
his entire investment approach is built on his awareness that the market will sometimes outsmart him, veering in a totally unexpected direction.
we have to design an asset allocation that ensures we’ll “still be okay,” even when we’re wrong.
Asset allocation is simply a matter of establishing the right mix of different types of investments, diversifying among them in such a way that you reduce your risks and maximize your rewards.
we should always expect the unexpected.
I’m so obsessed with this idea of not losing that I now tell all my advisors, “Don’t even bring me an investment idea unless you first tell me how we can protect against or minimize the downside.”
CORE PRINCIPLE 2: ASYMMETRIC RISK/REWARD
the best investors don’t fall for this high-risk, high-return myth. Instead, they hunt for investment opportunities that offer what they call asymmetric risk/reward: a fancy way of saying that the rewards should vastly outweigh the risks.
these winning investors always seek to risk as little as possible to make as much as possible.
Paul Tudor Jones, who uses a “five-to-one rule”
“I’m risking one dollar in the expectation that I’ll make five,”
“What five-to-one does is allow you to have a hit rate of 20%. I can actually be a complete imbecile. I can be wrong 80% of the ti...
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five-to-one is Paul’s ideal investment. He obviously can’t find that ratio every time. In some cases, the ratio of three-to-one is his target. The larger point is, he’s always looking for limited downside and huge upside.
“Superficially, I think it looks like entrepreneurs have a high tolerance for risk,” he says. “But one of the most important phrases in my life is ‘Protect the downside.’
Richard Branson
One way to achieve asymmetric risk/reward is to invest in undervalued assets during times of mass pessimism and gloom.
The turmoil enables them to invest in beaten-up stocks at such low prices that the downside is limited and the upside is spectacular.
CORE PRINCIPLE 3: TAX EFFICIENCY
taxes can easily wipe out 30% or more of your investment returns if you’re not careful.
mutual fund companies love to tout their pretax returns, obscuring the reality that there’s only one number that truly matters: the net...
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If you sell an investment that you’ve owned for less than a year, your gains will be taxed at the same sky-high rate you pay on your ordinary income. Brutal, right?
