Have you heard about the massive amount of money investors lost due to the Madoff Ponzi scheme? There sadly are so many more scandals and schemes alive and doing well in the financial area.
Historically, however, investors who follow these ten simple rules have not experienced scandals or Ponzi schemes:
- Be involved! Receive, read, and understand your portfolio statement in order to monitor your account. Ask questions of your advisor if there is any activity you do not understand.
- Never allow any of your portfolio statements to be sent to anyone else, especially only to your advisor.
- Request distributions from your investment accounts be sent directly to your bank account, never to your advisor.
- Your custodian, who holds and trades your accounts, must be a third-party independent custodian. A third party is a firm outside of your financial advisors’ company, and also completely independent from your money manager and investment company. This third-party custodian has no vested interest in profiting from your account’s investment decisions. If you are using a company that does not have a third-party custodian, it most likely is a seamless revenue-making money machine and could have less accountability, as it has more opportunity to hide inappropriate behaviors. Free market investors have four independent entities working for them, each completely separate and independent from the other and each has its own fees. Receive your annual reports and updated prospectuses directly from your custodian—either hard copy through the mail or electronically by e-mail. By having them sent to your advisor or someone else, you might not receive them—and then you would not be able to stay involved and read the details as to how your investment company is investing your money. If you receive no annual reports or updated prospectuses, call your broker/advisor and start asking questions.
- Coach: Advises you directly on achieving your dreams, without commissions or backdoor gifts and trips, just with a fee based on the amount of assets managed.
- Money Manager: Instructs your custodian how to diversify your funds and correlates the institutional asset class mutual funds according to your desired risk level. The instructions to the custodian are the result of the established goals and virtues you have established with your coach. She has no freedom to change your instructions. The money manager is paid an internal fee based on the amount of assets managed.
- Investment Company: Develops and maintains the twenty-plus institutional stock and bond asset class mutual funds the money manager uses to correlate your portfolio. There is no need to buy and sell within an asset class mutual fund, as each owns the majority of one category of risk. Together, these various funds—called asset classes—are a representation of the global market within forty-plus free countries. The investment company is paid an internal fee based on the amount of assets managed.
- Custodian: Holds your investment accounts, reports to you every time any money moves, and keeps the IRS happy by doing all the necessary IRS compliance and reporting. Think of your custodian as your accountant. The custodian is paid a fee based on the amount of assets managed. If you are thinking this seems to add up to a lot of fees, it’s probably because your costs have been hidden. Commission based advisors don’t disclose investment costs, in order for you to see who is getting paid.
- Be able to access your independent custodian’s website to learn about them and make sure they are legitimate.
- Have a sense of healthy skepticism, as promised annual rates of return like a consistent ten to twelve percent are too good to be true given market conditions. The market is always fluctuating and so are your portfolio returns.
- Scam artists make their money upfront, so avoid paying any commissions or agreeing to any surrender fees or penalties.
- Don’t follow the crowd, doing something just because someone says you “should.” You can be a lifetime successful investor by keeping your life simple, avoiding complexity, and staying disciplined.
- If you don’t comprehend it, don’t invest in it. Remember the “KISS; keep it simple sister” rule! Follow it religiously. Your advisor must be able to simply explain your investment strategy in plain English.
How many of these items affect you? Stop being vulnerable to scandals. Work with a coach who has your same philosophy.
Written by: Maria J. Wordhouse Kuitula and Phyllis J. Veltman Wordhouse, free market wealth and stewardship coaches, co-authored the book Stress-Free Investing, available at Amazon.com. Maria is the president of Wordhouse Wealth Coaching and may be reached at 616-460-6518 or [email protected]. For QUESTION LISTS and INVESTOR EDUCATION VIDEOS, go to www.WordhouseWealthCoaching.com. © Wordhouse Kuitula 2013.