Find reliable investment advice

Finding a reliable source for investment advice has always been a challenge, and is especially difficult in today's investment environment. The choice to put all or part of your financial future in someone else's hands should not be made hastily or without gathering crucial information. Even the wealthy and financially sophisticated can be trapped, as we saw recently through the actions of "trusted" advisors such as Bernie Madoff. Most ordinary investors are intelligent. Many are well versed when it comes to the markets, but many also find themselves unsuccessful in investing since it is not their profession. Generally, investors have a tendency to be "off" in their investment timing. The trouble is that most investors are influenced by outside factors such as news reports and fear and greed, and simply are unable to be unbiased when making investment decisions. Once individual investors realize they cannot invest on their own successfully, a whole new set of questions arise when choosing the right advisor to help them reach their goals. Among other questions, the most important assessments an advisor should consider are: An investor's relevant financial history § tax returns, investments, retirement plan, wills and insurance policies; The appropriate level or risk (and manage a well diversified portfolio at that risk level); Ways to minimize tax and transaction costs; Areas in which the investor may need assistance, such as building for retirement or improving investment returns; and Periodic reviews of the investor's situation and financial plan, and suggestions for changes when needed. After considering those basic questions, the fundamental question an investor must ask is, "What does the advisor bring to the table for me?" In answering, any potential advisor must be able to communicate his or her investment philosophy in a clear and understandable manner, and the stated philosophy must be one that fits the investor's needs and goals. An advisor also must be skilled in asset allocation. How does one know whether skill or luck is at work? An advisor should be well versed both in domestic and international markets and across all asset classes. If an advisor demonstrates that he or she has consistently outperformed an appropriate benchmark over long periods of time § perhaps five and 10-year periods § their ability to choose areas of the market that will outperform benchmark comparisons is validated. An advisor also should have a repeatable investment process that drives performance. If a process is not repeatable, an investor will be exposed to more risk than he or she may be aware. Investors often chase performance, only to find they are the last passengers on the boat and they do not experience the good performance of the past. Diversification is another key consideration when choosing an advisor. The more diversification to which a portfolio is exposed decreases event risk. If anyone had portfolios heavily weighed with Enron, Global Crossing or Lehman Brothers shares, they would have experienced losses that were difficult, if not impossible, to overcome. Last but not least, it is important for an advisor to be free of conflicts of interest. By choosing a fee-based advisor, both the investor and the advisor have the same goals. The advisor is compensated by the investor's success. Hire an advisor with a clear investment philosophy, a demonstrated process for investing, who sets an appropriate risk level to achieve your goals, delivers superior investment results over a market cycle and that is free from conflicts of interest. Following these guidelines will help you to the best advice for you and your long-term financial goals. §§§§§ Sharon L. Thornton is senior director of investments for Karpus Investment Management in Pittsford, N.Y. She can be contacted at (585) 586-4680. Published: Thu, Sep 23, 2010

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