Many investors use financial advisors or investment managers. Here are some basic principles you should follow when evaluating the people you are relying on to help you achieve your goals. This was precipitated by recent comments made by friends or questions clients asked me.
Never make an investment decision or provide your OK unless you fully understand how.
10 Investment Questions:
- What are the ways you could make money from it, and how much and over what period?
- Is there a way you could lose money on that investment, and how much and over what period?
- Does your advisor understand the reasons for the previous questions and can explain the answers to you?
- How much better off will you be if that investment doubles?
- How much worse off will you be if you lose half of that investment?
- Would the investment plan you developed in collaboration with your advisor help you achieve your overall goals or purpose for investing?
- Does that investment align well with your overall long-term investment goals?
- Will your entire portfolio be affected by widespread fluctuations in the investment market?
- How well is the cash flow from your investments protected?
- How much is your advisor being compensated, and by how much compensation?
Final Thoughts
These are 10 of countless things you need to consider when you are making investments. This is a serious undertaking, and you should be able to understand every decision made on your behalf. Delegate the implementation, but you should not delegate the decision-making. Be proactive by understanding the answers to at least these 10 questions.
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