Covering Your Assets: How Much Do You Know About Your Investments?

With the recent stock market turmoil, many people are concerned about the safety of their investments and their fi nancial advisors’ performance. Whether your primary planning goal is to assert more control over your assets, maximize current returns, or build future fi nancial security, it is important to know the key issues on which to focus. Even if you don’t want to actively manage your own finances, you should be able to answer the following questions so you can understand whether your investment advisor is on the right track.

What is your current total savings? Where and how is it invested?

Th ese seem like simple questions, but you’d be surprised how many people can’t answer them because they have savings accounts, IRAs, 401Ks, and other savings plans scattered among diff erent banks or brokerage fi rms. Some of these accounts may be active, but some may have been neglected for years. You should keep an up-to-date list with the type, amount, location, and purpose of each of your accounts.

What is your annual return from your investments?

Th is seems straightforward (for example, a $100,000 investment that doubles in value in eight years equates to roughly a 9% annual return), but contributions, withdrawals, and reallocations you make can complicate the picture. Your investment advisor should calculate this and keep you up to date on an ongoing quarterly or monthly basis.

How do your returns compare with current returns on similar investments?

Th is can be seen most easily in a stock portfolio, which can be compared to the performance of the market as a whole. It’s good to know what your absolute return was, but it’s just as important to understand how your investments are doing relative to other benchmarks and indexes; that way you can gauge if you’re allocating your assets for maximum eff ectiveness.

Are you paying too much in fees and commissions?

No individual investor, regardless of his or her level of expertise, can outperform the market averages in the long term (read Burton Malkiel’s classic A Random Walk Down Wall Street for more on this). Always remember that past performance is no guarantee of future results—a fund that performs well in one year is no more likely than another fund to repeat that performance in any subsequent year. Thus, paying for stock picking advice, sales commissions, and management fees will substantially reduce your annual returns over time.

How much risk should you accept?

Buying a stock or fund that moves step-by-step with the market average will provide the same overall return as the market itself, with annual fees that are substantially smaller than what stock picking funds or advisors often charge. With this approach, your only issue is to determine how much exposure to the stock market you want in your portfolio. As we have seen, the market can be volatile, with dramatic swings up and down. The risk of loss is real and should not be underestimated. Many investment experts advocate reducing the percentage of stocks in your portfolio as you get closer to needing funds for a specifi c purpose, such as college costs or retirement income.

This is only a brief, general overview of these issues; there is certainly much more to consider in your investment planning. But asking yourself or your advisor these questions may help you understand where you are now and how you can accomplish your future fi nancial goals.

Robert J. Mintz, JD, is an attorney and the author of the book Asset Protection for Physicians and High-Risk Business Owners. To receive a complimentary copy of the book, call 800-223-4291 or visit www.rjmintz.com.