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How to Invest

The first choice to make when deciding how you want to invest is whether you want to do it yourself, or hire a professional. 

DIY

Many new and experienced investors choose to do it all themselves, to varying success.  Before deciding to go it alone, ask yourself why you would rather DIY your investments.  If you can answer "yes" to all of these questions, a DIY approach might be right for you:

Do you really want to do it yourself?

There are many reasons for taking charge of your own investments, but if you do, make sure that you have the desire to research, set up, monitor, and periodically rebalance all of your investments.  This is a multi-year commitment, and success requires diligence on your part.

Do you have the time?

The amount of time that you can expect to put into managing your investments depends on how much knowledge and experience you have, and the complexity of your investment needs.  New investors will likely require additional time to get acquainted with basic investment concepts, like portfolio diversification, risk tolerance, and relative rates of return.  Investors with rapidly evolving needs will likely require additional time to modify their plans accordingly.

Do you have the knowledge?

The more complicated your chosen strategy, the more knowledge you will need in order to apply it diligently and wisely.  A "buy and hold" index-based strategy that aims to provide modest returns is much more straightforward than an aggressive strategy that has you day-trading futures.

Do you have the temperament?

One of the biggest traps that an investor can fall into is allowing themselves to be guided by their emotions.  If the daily ups and downs of your investments make you nervous and likely to react impulsively, you could be more likely to make rash decisions that will harm your long-term financial well-being.

Advisors

When you hire a financial advisor, you are paying for the benefits that come from their expertise and dedicated attention to your financial needs.  The services offered by financial advisors varies greatly, so read the terms of your contract carefully.  Important questions to ask a potential advisor include:

"How are you compensated?"

Not all advisors are compensated in the same way.  Arrangements can include any combination of a yearly flat fee, a portion of assets under management, charges per transaction, commissions from third parties in return for selling certain investment vehicles,

"Are you a Registered Investment Advisor or an Investment Advisor Representative?"

Unfortunately, there is little regulation concerning who can call themselves a financial advisor.  Under SEC regulation, however, only RIAs (firms) and IARs (individuals) are allowed to provide financial advice in return for fees.  If an advisor is not an RIA or IAR, they are in effect a salesperson, selling financial products for commission.

"Are you a fiduciary?"

Fiduciaries are held to the highest ethical standards in the industry, and have a legal obligation to place your interests first.  Most financial advisors are not fiduciaries, and are instead held to a lower standard of "suitability standard of care".  A fiduciary will be able to provide you with form ADV, which clearly outlines investment style, assets under management, and key officers of the firm.

"What strategies do you use?"

Markets have evolved a lot since the 1970s, but many advisors still use the same investment strategies.  Look for an advisor who is well versed in multiple investment strategies, and can choose the right one for your needs.

Broker-Dealers vs Registered Advisors

When you hire an advisor, they could be either a broker-dealer or a registered advisor.  Both offer investment services to clients, but are regulated and compensated very differently.

  • Broker-Dealers are held to a "fair dealing" standard with clients, meaning that investments they recommend must be broadly suitable, and they must disclose any material conflicts of interest.  They may be paid by the transaction, or may receive commission from third parties.
  • Registered Advisors (both RIAs and IARs) are held to a fiduciary standard, and are not allowed to trade directly between their institutional account and the client without the client's express knowledge and permission.  Investment Advisors, on the other hand, charge either a flat fee or one based on assets under management.

When choosing between a broker-dealer and a registered advisor, consider what your needs are, and what incentives you want your professional to have.


Contact us to find out how a professional Registered Advisor with a fiduciary commitment to clients can help you meet your investment goals.