Investment Advice

Most of us who are looking for investment advice are looking in all the wrong places.  The concept of investing money is a foreign one to many investors out there.  You go to work from 9 – 5, contribute to their retirement savings plans or invest with an investment advisor, and expect that you will have enough money to retire when the time comes. 

The reality is that many of you are not prepared for a rainy day.  What do you do when the market takes a disastrous fall right as you are about to retire, like it did back in 2000 and 2008?  I want to use this article to cover some of the benefits and drawbacks of some of your investment options, but the best investment advice I can give you is to take control of your own future.  You are the only one who will have your best interests at heart.  Even if you do not understand how to invest your money or don’t feel comfortable doing it yourself, we will get you on the right path to getting the right advice and asking the right questions.

Investment Advisors

The biggest irony of all is that many of you who employ an investment advisor are investing money through salesmen who do not know how to invest your money, or even perform the appropriate investment analysis to back up their claims.  Most of these advisors that you find at American Express, Edward Jones, or Ameriprise use a cookie cutter approach to investing your money with a focus on selling you mutual funds or life insurance policies which provide them with the largest long term residual kickback.  They don’t truly have any skill which will keep you safe during a meltdown, and this is MORE important than making money.  I know many of you have been trained to believe in the buy and hold method of investing money, but that idea no longer holds true and many of you baby boomers can attest to this.  I know I sound like a harsh critic, but not all financial advisors will give you second rate investment advice.  Let’s review a few questions that you can ask to find the best advisor for you.

1) What is your investment philosophy?  You can get a lot out of this question.  Does your financial planner have a sound investment plan and does it fit in with your long term objectives?  Is he willing to create a custom plan for your unique situation?  Will he share his investment analysis with you so that you can learn how to invest?

2) Do you receive any incentives for recommending certain investments?  Stay away from this type of arrangement; these kickbacks will get passed on to you, the investor, through higher fund management fees that the mutual funds will inevitably have to pass on to you.

3) How will you manage risk and keep my money safe during a market meltdown like we had in 2000 and 2008?  This is a very important question, if the advisor suggests that you need to take a long term buy and hold approach, I suggest that you run.  He(she) probably does not understand how to invest the right way and figures that the market will go higher over time.  You want to hear answers suggesting that the investment advice you will be receiving is based on a sound understanding of the financial markets; including concepts such as technical analysis and options hedging.

4) What is your definition of diversification?  Another important question.  This question really ties into the question #3.  True diversification is asset class diversification; including stocks, bonds, commodities, and currencies to name a few.  Remember, the cookie cutter model of investing money is not diversification.  Take a look at our investment strategy article to get more details on this.

5) Who will hold your assets?  This is not really a problem when you deal with the larger investment management firms but can be if you deal with smaller entities.  Ideally, the funds are in your name in an investment account that only you can add or withdraw funds from.  Your money manager can then charge you separately for his/her investment advice and trade execution.

6) What is your track record?  First of all, there is something to be said about experience.  I would never trust my money with a 25 year old who still has a lot to learn.  With that being said, I wouldn’t trust a 40 year old either who couldn’t produce a solid track record which can outperform the S&P 500 over a longer period of time.  Why would you take investment advice from someone who couldn’t beat the overall market?  You could invest your money into the S&P 500 ETF and do better on your own.  Make sure that you do not see any huge yearly losses either.  This could indicate a lack of discipline and money management.

7) Ask to be provided with references.  If you’re going to be investing money with a financial advisor, make sure to talk to others and understand if others felt comfortable with the advisors investment analysis & decision making skills.
8) Does the advisor work alone or on a team?  This can be an important question for a lot of you.  Many times, a single person may have difficulty providing you with the customer service and investment advice that you are seeking. 

9) Don’t let licenses and credentials fool you.  Just because your financial advisor has certificates which allow him to provide investment advice to individuals, it doesn’t mean that he actually knows how to invest your money.  No text book truly trains you for the markets, only experience does.  This is why question #6 is so important.

401k Plan Investment Advice

Here are a few pieces of investment advice that we can offer when considering a 401k plan.  First, I strongly recommend that you contribute the full $15,500, or deduct 15% of your gross pay, to your 401k plan if you can swing it.  This is tax free money and even though I am not a fan of many of the investment options that reside in the 401k, it’s a no brainer.  If you cannot make the full contribution, be sure to at least contribute in an amount equal to your companies match.  If your company matches 6% and you only contribute 3%, they will only match 3%.  

Second, if you are coming near the age of retirement and can’t afford to lose any more money in your 401k, I would get out of stocks funds and move your money to money market.  If you are not comfortable investing money into stocks, put it into a money market fund within your 401k.

Third, investing money in your company stock is fine, but never put 100% of your funds into it.  That is a disaster waiting to happen.  Enron, WorldCom, Citigroup, Lehman Brothers, and Bear Stearns employees are wishing they didn’t.  Never bet the farm on a single stock.

Finally, if you are going to manage your 401k assets, make sure you diversify between different asset classes, if possible.  Unfortunately, you are typically limited to stocks and bonds.  If you don’t have options such as commodities available to you, go talk to you plan sponsor and push to get some more selection.  When you leave your company, be sure to transfer your funds to a rollover IRA; you will be able to trade any asset class here.

401k Fees

Do you ever wonder why the market climbs 20% and your 401k does not move up by the same percentage?  Investors are being defrauded by hidden service fees which are essentially paying for investment advice, trade execution, administration, and a slew of other unnecessary items which are completely unknown to the investor.  As a buyer into a mutual fund, you have no control over whether or not the fee being taken is a reasonable one or not.  These fees can range between 3% and 4% and can substantially affect your retirement balance after you take the compounding effect into consideration.  This issue has been brought to light so that you can go back to your companies plan sponsor and ask for information about the hidden fees which are being taken out of your account.  Knowledge is power.  The fact of the matter is that the tax savings of investing money into a 401k will almost force investors to continue doing it.  Much needed reform is necessary to obligate mutual fund companies to fully disclose fees.


There is no one size fits all answer to investing and many of you may not be interested in becoming full time money managers.  Investment advice is easy to come by but good advice is very hard to come by.  The key is to put people around you who have a good track record and know how to invest with capital preservation in mind at all times.  Never get involved with people who promise you the world.  Odds are they will do well for a while but their ego will eventually blow up in their face. 

Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
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