Yesterday’s blog referred to an article about some great investment books for those that want to become more engaged in their investing; more and more people today are doing their own investing, or at the least becoming more informed so that they are partnering with investment professionals in the investment process. Today I want to expand on this subject a bit more.
It seems to me that part of the reason people have faced financial hardship is that they have never taken the time to learn about personal finances, or they trusted others too much. Not to take away from those that have had financial setbacks due to unemployment, healthcare or other circumstances.
People today are making more effort to be personally accountable, such as learning about financial concepts, properly managing cash flow and doing a lot of their own planning. They take classes such as Dave Ramsey’s Financial Peace University, read books and blogs.
In the wake of the Madhoff scandal they are become more scrutinizing who they do business with by researching prospective firms, and asking a lot of questions.
Informed investors know to avoid temptation by the ‘Madhoff’’s of this world who promise or have a reputation of paying people a high rate of return, with perceived low risk and low volatility (low fluctuation in rates of return or income paid), or to invest in things that are so complex that even the people offering them don’t understand them. They also know the right questions to ask and expect to be provided understandable answers and documentation about products and services offered. People taking personal accountability take the time necessary to ask questions and do research.
It is inconceivable that some very large banks, charitable organizations, investment firms and wealthy people didn’t ask for important financial information before they invested with Madhoff. Interestingly, the few wise people who investigated Madhoff before investing were not given the information and were turned away by his organization. The following websites provide some guidance when reviewing potential firms www.finra.org, www.ftc.gov, www.consumeraction.gov.
Wise investors write investment checks or transfer funds to financial institutions, not to individuals; they are cautious, they aren’t in a hurry, and they don’t make emotional decisions. They have gained an understanding and familiarity with the people, firm, broker dealer or registered parent investment firm (always look for this e.g., Schwab), and they are provided with all sorts of documentation about the products and firms with which they are doing business. They receive regular statements directly from the broker dealer home office (not a local branch) to their address. Informed investors get Web access to their account, so that at any time they can log in and see live activity, values, and other information.
Lastly, wise investors during economic difficulty like we have experienced the last few years, don’t give up on proven investment methods and make emotional decisions and make drastic changes like moving everything into gold or real estate.