Working With An Investment Advisor

What can an investment advisor do for you?

In today's rapidly changing financial marketplace, you are faced with an incredible array of choices about ways to invest your money.

It's no easy task constructing an investment portfolio that provides the right mix of current income, steady growth potential and long-term security. And consistently monitoring and updating your portfolio as needs change and market conditions dictate can be time consuming.

That's why now, more than ever, investors are relying on the expertise and guidance of professional investment advisors to develop and maintain investment portfolios right for them.

Focused Investing

Sometime during their "middle ages"…

…two couples separately made the same resolution - to seriously save for a comfortable retirement. They were about the same ages, and very much alike.

Both earned approximately the same income. They had similar lifestyles and wanted to maintain them in their retirement years.

Through the years that followed, both couples set aside a lot of money. Yet only one met their goal and were able to begin enjoying a comfortable retirement.

The other couple fell significantly short of their goal and faced a very tough decision - to continue working, scale back their lifestyle, or both.

Different Paths to Different Results

One couple followed a plan. They found out how much they would need to retire comfortably and followed a clear plan to get there.

The other pursued their dream with only a vague notion of their retirement needs and ultimate goal.

One couple had their investment dollars wisely allocated among carefully selected assets.They considered their goals, time horizon, risk tolerance, and family circumstances. They diversified their investments to buffer the movements in the market. As their circumstances changed, they adjusted their asset mix accordingly.

The other chased the highest performance reported in investment magazines, switching investments frequently and haphazardly.

One couple let the market work for them.They invested the same amount each month and ignored short-term market movers.

The other tried to time the market. Following the emotions of the crowd, they bought when the market was high and sold when the market was low.

What Made the Difference?

One couple received the guidance of an investment advisor who helped them develop and succeed with their investment plan. They acknowledged that they did not have the time and expertise to deal with the complexities of investing…especially for a goal that was so crucial to their future.

They decided that the knowledge, access to information, research capabilities and objective advice of an investment advisor were well worth a modest fee.

And they knew that, as a group, investors who use investment advisors achieve higher average returns over the long term than those who do not.

A Common Investment Mistake

As you know, mutual funds are one of America's favorite investments. They offer investors the opportunity to utilize the vast resources and expertise of highly experienced mutual fund managers to select individual securities. But, with more than 10,000 different mutual funds on the market today, it's difficult to know which funds are best suited to your personal needs.

Many people who invest without the guidance of an investment advisor make the common mistake of selecting mutual funds based on past performance figures in the financial press or newsletter "rating" services.

This "performance chasing" investment strategy is not only highly common - but highly unsound.

Mutual funds and individual stocks often move into the spotlight after posting relatively short-term, above-average performance numbers. To buy them based on that recent performance, without thorough additional research, is to flatly ignore the clear and accurate warning that past performance does not in any way assure future success.

So, if this method is so wrong, why do so many people do it? Perhaps because it's so easy to look at past returns of 14%, 10%, and 8% and decide which you would prefer.

But this view omits a very critical factor in real-life investing…the amount of risk taken to achieve those returns.

Risk: The Other Key Measure

In simple terms, risk measurement provides a way to quantify the degree to which the value of a given investment can be expected to fluctuate in value as the market rises or falls.

An investment advisor can access sophisticated software programs and other resources to accurately assess the level of risk involved with individual investments. More importantly, those same resources can provide measures of risk across a portfolio of investments.

This capability, called portfolio risk assessment, is critical to proper long-term investment planning. The reason is that various types of investments often react in very different ways to a given change in market conditions. Helping you manage the interplay of risk between various portfolio holdings and your resulting overall level of investment risk is one of the most important services your investment advisor can provide.

How? By structuring the portfolio to optimize potential return at a given level of risk.

An investment advisor can help construct a portfolio that provides maximum return potential for your personal risk tolerance. This optimum balance of expected risk and reward, known to professional advisors as the "efficient frontier," is achieved by structuring a portfolio with the right combination of investments based on your individual investment temperament and financial situation.

The Professional portfolio, put together by an investment advisor, was closer to the "efficient frontier" - the point at which any additional amount of risk could not be expected to provide a corresponding amount of increase in potential return.

Investors who stay invested in the market for the long-term, even during periods of decline, have on average consistently outperformed investors who jumped in and out of the market.

Balancing Risk and Reward

Many investors make the mistake of investing too conservatively for their retirement. With the average retirement now lasting from 25 to 30 years, this can result in outliving retirement savings. Even today, it is critical not to underestimate the potential long-term effects of inflation on fixed-income investments such as CDs, government bonds and treasury bills.

No one has to tell you that, in general, the greater the opportunity for investment return, the higher the risk. And conservative investing usually lowers your rate of expected return. The key is finding and maintaining the balance between risk and reward right for you throughout the various stages of your life.

An investment advisor can help you determine your personal risk tolerance based on your age, income, family situation, personal concerns, "time horizon" and investment goals. And, your investment advisor offers the benefit of an objective counsel on some of the most emotional decisions you'll ever make - decisions that will largely dictate your financial future.

As Not Seen On TV … or "Road to Riches" Magazine

As discussed, individual investors can be tempted to rely on "brand name" investments, which may, in reality, offer less growth potential and/or higher risk than is appropriate for a given portfolio. An experienced investment advisor has the training and resources necessary to help you find high-performing but low profile niche funds and investments that may offer a better risk/return potential.

Investment advisors also have the resources to monitor many mutual funds and stay current on their strategies to deal with market an interest rate changes, adhere to stated fund objectives and stay on top of "value management" or cost-control measures.

Your advisor may also provide and investing advantage not available to most individual investors - direct access to people who run America's mutual funds and corporations, together with the ability to ask the right questions about future growth and investment objectives.

The Crucial Role of the Investment Advisor

After conducting a detailed personal needs analysis to get a clear understanding of your current financial situation, an investment advisor will help you:

Establish and stay focused on well-defined objectives
Determine the amount of money you need to reach your goals
Create an investment strategy to accomplish them
Develop a properly diversified portfolio based on your risk tolerance and goals
Stay focused on your goals and avoid over-reacting during periods of market decline or growth

A True Investment Edge

Many investors are surprised to find out that the long-term performance of an investment portfolio is determined almost entirely by just one factor - the allocation of assets. A revolutionary study "Determinants of Portfolio Performance," by noted financial scholar and money manager Gary Brinson, revealed that asset allocation typically explains over 90% of the variation in a portfolio's returns.

This study revealed that different asset classes - stocks, bonds, and money market funds - have different reactions to the same economic news. Events that have a positive effect on one market may have an adverse effect on another. Therefore, it is crucial to take the correlation between asset classes into consideration to protect against risk when you invest.

This means that deciding what percentage of your assets to invest in various asset classes has much greater impact on your portfolio's performance than all of the other seemingly important factors(which individual investments to buy, when to buy or sell, etc.) combined.

An investment advisor can help you develop a strategic asset allocation plan for your portfolio to minimize risk and maximize potential return. A properly allocated portfolio is more likely to participate in long-term market gains while reducing exposure to short-term market volatility.

The Right Asset Allocation is the One Right for You:

Studies have shown that asset allocation accounts for more than 90% of the variation in portfolio performance.

The Win/Win of Paying Fees for Investment Advice

Investment advisors generally receive compensation one of two ways - through commissions on the investments you make or a straight fee based on a percentage of assets under management. Paying financial advisors through fees has become increasingly popular because it puts the best interest of investor and advisor into closer alignment.

When you pay a fee, your investment advisor's income is directly tied to the successful growth of your portfolio.

As one investor summarizes paying fees for investment advisor services, "It puts both me and my advisor on the same side of the desk."

And a fee arrangement for services is usually based on a long-term relationship between the investor and the investment advisor, rather than a more transaction-oriented service. Investment advisors who work for a fee typically conduct regular reviews with investors to assess their portfolio's performance and changing needs.

You are not Alone When You Work With an Investment Advisor

89% of consumers surveyed reported the need for a financial advisor for assets of $100,000 or more
73% of those who bought mutual funds in the last 5 years used an advisor
68% of investors feel investing is so complicated they need advice now more than ever
54% of those surveyed felt that they did not spend enough time managing investments
Only 5% of investors feel they know everything they need to know in order to invest

Getting Started

Tens of millions of Americans rely on investment advisors for expert assistance - to help provide for their families, achieve life-long goals and retire comfortably.

There is no better time than right now to work with your investment advisor to structure a financial plan tailored to your unique needs.