1. Not All Advisors are Created Equal
One investment advisor is as good as the next, right? After all, they are all equally knowledgeable about market conditions and the best times and places to invest… right? Wrong. While there are many excellent advisors out there, there are many more that put their own interests above those of their clients. So how can you tell if a potential advisor has his own money making agenda in mind? Begin by asking how they will be compensated.
Typically, investment advisors will fall into one of three categories: fee only, fee based, and commission based. Avoid a commission only financial advisor, as many of them are akin to a high pressure salesman. While there are certainly some ethical commission only investment advisors out there, more often that not, heeding their advice can lead to financial suicide.
A fee based advisor receives a percentage of your assets. While these analysts are more impartial than their commission only counterparts, they can end up costing quite a bit if you’re not careful. (A typical fee based advisor charges at least 1% of assets. Over the course of the year, that could end up costing you thousands.)
While they may initially seem more costly, fee only financial advisors could actually end up being your best option. Charging a set rate (usually around $100 an hour for their expertise) they can offer you completely unbiased advice—because they will be getting paid regardless of your outcome. Ironically, this makes for the most efficient of all advice styles. And while it may seem more expensive up front, you will likely be saving in the long run.
2. Regular Investments are a Must
Often, many people believe that there is no point to investing if they’ve only got a small amount of available money. Nothing could be further from the truth! Many a fortune has been made by people who diligently invested small amounts at a time. Consider an online resource for beginning investors. Many of these (like Sharebuilder.com) offer no account minimums, and trades for $4 or $5.
3. Bear Markets can be Great Opportunities
Although the term “bear market” can be scary, especially to newbies in the investment world, it’s important to realize that they can actually be real opportunities to generate wealth. When the market retreats, some investors shy away from making any purchases—a common mistake. After all, if you pass on buying those newly lowered stocks, you miss out on all of the appreciation that happens during recovery.
4. Diversity Reduces Risk
When you allocate your investments among various avenues, you maximize on your return. It’s just that simple. Different areas will react differently to the same event, so keeping your investments varied will ensure that you get to take advantage of the best of all worlds. Consider delving into the buying gold market, along with your mutual funds, stocks and bonds for a diverse and effective portfolio.
5. Investment Costs Count
A common rookie mistake is to go with a managed mutual fund based solely on a sales pitch and glossy brochure. Instead, pay careful attention to the investment costs and fees (often hidden) that can eat away at your profits. While 1% here or there may not seem like very much, when they’re compounded they can account for a major part of your returns.
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