Why do I need Investment Advice?

Personal investing has changed dramatically over the past quarter-century, especially in recent years. With today's growth and deregulation of global financial markets, combined with the rapid evolution of computing and communication, we see increasing reliance on personal investment through IRA’s and 401k’s rather than public and employer-financed retirement plans. In this new world, individuals have tremendous financial opportunities, but also face new responsibilities.

Most people don’t start serious investing until they are in their 40’s and continue until they retire. 2/3’s of the baby boomers are just coming into this cycle and the rest are only 10 years into it.

Today, there are more than 7 million U.S. households with a net worth over $1 million (not including the primary residence). What's even more amazing: Most of that wealth was created in the last decade. Why? It's one of the strongest bull markets ever. Director of marketing at New York City investment research firm The Spectrem Group, thinks the millionaire march should continue. "As long as the market remains strong, the number will increase by 15% annually," he says.

One of our Investment Advisors can help you understand both the mechanisms for making the right investments as well as helping you decide what investments are right for you.

The point of investing is to earn a return for putting your money at risk.

Traditional thinking is that the longer the time horizon of your investment the greater the level of risk you should accept. Accepting more risk can increase the volatility of your return- even make your return negative so your nest egg will get smaller. We can explain the risk reward trade off. and help you find your personal level of acceptable risk.

Identifying Risk: emphasizes the importance of understanding and measuring risk before making decisions.

Measuring Risk: introduces the fundamentals of quantifying market risk.

Managing Risk: concludes the course an investor should pursue to maintain their acceptable level of risk.

We give you basic advice and can help you set up an asset-allocation plan, a retirement strategy or college tuition fund.

What is a Managed Account?

Virtually every brokerage now offers managed accounts--Salomon Smith Barney and Merrill Lynch are the two biggest players—Typically the brokerage firm will take a fixed percentage of your assets as their fee- regardless of how well they do in investing your money!  Here are some of the attributes of the managed account:

• Personal attention
This aspect of managed accounts for ordinary investors (if you consider someone with $100,000 to $500,000 to invest ordinary) is overblown. The broker or planner who helped set up the account is supposed to handle any questions you have on the manager's performance, strategy or individual trades, and some programs also allow you to get info online about your account. But there's no way we're going to get face time--or even meaningful phone time--with a high-profile manager. For one thing, the big-name managers who participate in managed-account programs typically oversee many hundreds, if not thousands, of accounts.

• Customization
Here too there's more sizzle than substance. To hear the purveyors of managed accounts tell it, your manager will carefully craft a portfolio to meet your exacting standards. But it's not as if the money manager, considering whether to jump into beaten-down Net stocks, is saying, "Gee, I wonder whether Walter feels more comfortable with B2B or B2C stocks? I better give him a call."

What really happens is that managers take big positions in stocks they like, and then allocate shares among virtually all their accounts. The result is that your "customized" portfolio may be almost identical to the "customized" portfolios of the other thousand accounts handled by the manager.

That said, there are opportunities to tailor your account. You could, for example, set up a filter to prevent the manager from buying gambling or tobacco stocks. Or if you already own scads of tech stocks in another account, you can request to steer clear of them in your managed account. Some managers, however, may not be willing to go along with such restrictions. And even those who do may warn that limiting their stock selection may hurt the performance of your account.

• Cost
Comparing the cost of mutual funds and managed accounts can be a murky affair. With most managed accounts, you pay an all-inclusive annual fee, also called a "wrap," that covers the money manager's services, trading costs, administrative expenses and compensates your broker. For accounts between $100,000 and $250,000, that can be as high as 3% (those fees usually are negotiable, and you should be able to get a managed account for somewhere between 2.25% and 2.1%).

For mutual funds, the expense ratio tells you what percentage of assets are being deducted to cover the cost of running the fund. The average expense ratio for domestic stock funds is 1.42%. That doesn't include brokerage costs, but even after adding a few extra basis points for that, most funds still come in well below 2%, giving them a clear edge over managed accounts.

• Tax efficiency
This is one area where managed accounts can have a distinct advantage. With mutual funds you have virtually no control over how often managers sell stocks at a profit and pass those taxable gains along to you. Many, but not all, managed accounts, however, give you some measure of control. Let's say, for example, you've sold several stocks that you trade on your own and you're facing a potentially large tax bill. You could ask the manager to "harvest losses" in your managed account to offset those gains.

Some proponents of managed accounts also suggest that these accounts are inherently more tax-efficient than funds--that is, they generate fewer taxable gains. But that's not necessarily true. Fact is some managed accounts are run to keep taxable gains at a minimum, while others are managed without regard to taxes, which is also the case with mutual funds. 

Bottom line:

For someone with $100,000 to $500,000 to invest, there are not many compelling arguments for managed accounts--aside from the potential greater control over taxes. Even there, that's probably an issue you could take care of in other ways (like offsetting losses and gains on your own, or better yet, trading less

What is a Full-Service Broker?

Mahogany-paneled conference rooms, wing-tipped shoes, Wall Street addresses. The full-service category includes all the names that come to mind when we think of stockbrokers: Merrill Lynch, Salomon Smith Barney, Prudential. While these firms have higher commissions and fees than the discount brokers (much higher), they do offer a range of services and amenities the others do not

Those begin with research and advice. During a bull market, when stocks are going up consistently, good ideas are a dime a dozen. But when the markets turn choppy, solid advice can save you. During periods of unpredictability, "the do-it-yourself investors are left hanging in the wind with no one to turn to but themselves and the Internet chat columns," notes Michael Flanagan, an analyst with the Philadelphia research firm Financial Service Analytics. "Clients of full-service firms benefit from those firms' strategies."

Some full-service firms offer a range of good  mutual funds, estate-planning services and tax advice. A broker will set up a financial profile for you -- based on your assets, income and goals -- and advise you appropriately. All of this, of course, will cost you.

If all you plan to do is buy some mutual funds and you know which ones you want, then paying a broker to round them up for you doesn't make much sense. Chances are, they don't sell through his firm, anyway

But if you want to buy individual stocks and lack the time or experience needed to do the research yourself, you might as well find a good broker. Ask around among your friends or colleagues -- you want someone you can trust. Also, if you do go the full-service route, there are several things to watch out for. First, make sure you get a commission schedule that spells out the fees you'll have to pay. It's also important to know how your broker is paid. Will he get higher commissions for selling certain financial products -- whether or not they're best for you? Always ask. At the very least, that will clue him in that you're on your toes.

Inquire, too, about accounts that let you pay an annual fee instead of per-trade commissions. For about 3% of your total assets, a broker will set you up with an asset-allocation program and make investment decisions accordingly. This eliminates the potential problem of "churning" -- when a broker unnecessarily trades your account to ratchet up extra commission fees.
 

What are Discount and Online Brokers?

Our view is that many investors could make a lot more decisions on their own. That, of course, is what this site is all about. If you have a firm idea about a stock you want, why not get it as cheaply as you can?

Some discount brokers -- companies like Charles Schwab, Waterhouse Securities and Jack White -- are actually looking less and less like the pure order takers they used to be. They've been adding some advisory and account management services and they've beefed up their "mutual fund supermarket" offerings. The result is that they aren't as cheap as the pure online guys, but they aren't as expensive as the full-service brokers either.

Since most discounters have Web sites now, the lines have also blurred between discount and online-only brokers. True Internet upstarts like Suretrade, though, still offer rock-bottom trading costs and few frills. With a pure online broker you won't have the option of visiting a branch office to make a deposit in person or to speak with someone face to face. Your relationship will be limited to email and phone contacts.

While trading online can be cheap, it can also be a horror show. During times of high volume in the markets, servers can clog up and create extensive trading delays. You can call customer service to complain, but in some cases you'll wait as long as an hour. Checks get lost in the mail, orders go unfilled -- you name it.

Our view is that unless you trade a lot, you should avoid the deep discounters. They just aren't reliable enough yet.


Why should I consider buying Mutual Funds?


You have your choice here. You can either get your broker to pick you some funds -- accepting both high fees and limited choice. Or you can choose your own and buy them either straight from the fund company or through one of the new "mutual fund supermarkets."

If you favor the broker route, you'll likely be offered a set of "load" funds either run by the broker's firm or a mutual fund company they contract with. A load means you pay an upfront fee in addition to any ongoing expenses charged by the fund. Depending on your time horizon -- that is, if you plan to own the fund for 10 years or more -- the fee might be worth it. But there are plenty of no-load funds out there that can get the job done for you.

To buy a no-load you can either call the fund company directly, or you can go to one of the mutual fund "supermarkets" run by firms like Charles Schwab, Fidelity or Jack White. There, you'll pay a commission to make the trade. But you'll have instant access to literally thousands of funds of all types