Excerpted with permission of the publisher John Wiley & Sons, Inc. from The Seven S.E.C.R.E.T.S. of the Money Masters by Robert Shemin and Peter Hirsch. Copyright (c) 2010 by Robert Shemin and Peter Hirsch.
Just as leopards and other animals display patterns as part of their physical appearance, people develop patterns of behavior that we should be aware of in order to keep our businesses, investments, and relationships safe. Just as a leopard doesn't change his spots, someone with a history of nefarious business dealings or questionable financial practices is unlikely to change, so make sure you know who you're getting into bed with when your money is at stake. Not so many years ago, it was relatively easy for people to hide a great deal about themselves, but that isn't the case today. Thanks to modern technology, it's no longer necessary to hire a private investigator to get basic information on someone. There are simple Internet tools that, for a very small fee, will allow you to verify almost any piece of information, from someone's driving record to credit history and criminal record. Before you hire a new employee, rent property to a new tenant, or go into an investment with a partner, it just makes sense to find out who you're dealing with. The information is out there, but you have to take personal responsibility for finding it.
Make a note of that guy's name and keep watching. The chances are excellent that a year from now, he'll have faded away and been replaced by someone else. Some people do manage to beat the market, but hardly anyone is able to do it consistently. It's simply not possible to predict with regularity which stocks will go up and down, and when they will do it. It's much like betting on the Kentucky Derby. You can study all the available information about how each horse has done in previous outings on a similar track in comparable weather conditions, but past performance is just that-- past. It can provide clues, but it is not an indicator of how a particular horse will run today. There are no more reliable systems for predicting the stock market than there are for predicting the outcome of a horse race.
If a trusted friend or family member recommends a broker or investment advisor, there ' s nothing at all wrong with considering the advice, but ask questions before you part with a single dime. Find out how much your friend really knows about this person's qualifications and track record. Is the broker just a golfing buddy or a fellow PTA member, or does your friend have concrete knowledge about his or her professional credentials? Is it possible that the person making the recommendation is inflating the success rate of his own investments in an effort to appear more prosperous? Whether you're acting on a recommendation or your own research, when you sit down to meet with a potential advisor, treat that first meeting like a job interview, but be certain you're the interviewer, not the applicant. Don't be afraid to ask questions. You're considering entrusting this person with managing your money. You have every right to know what training the adviser has received, what type of financial licenses he or she holds, how long the person has been a stockbroker or an independent adviser, whether any written complaints have been filed against him or his firm, and whether you'll be dealing directly with him or be passed off to a subordinate. Many people are not aware that in today's world, virtually anyone can rent an office, get some business cards printed, and call themselves a financial advisor. Make sure you're dealing with someone with the proper training, licensing, and experience, and there are only two ways to do that-- ask questions, and then verify everything you're told. Someone who bristles at your questions, appears uncomfortable or as if his feelings are hurt, or simply tries to placate you with vague reassurances is not the right financial advisor for you, no matter how well your brother-in-law claims he's doing for him. Another red flag to watch for during your interview is an advisor who tries to snow you with jargon. Financial dealings are intimidating to many people. The industry has a language all its own, and it's easy for someone with a bit of training to toss out terms like hedge ratio and earned surplus in an effort to appear knowledgeable, assuming that you won ' t ask questions. Just as unscrupulous automobile mechanics test your knowledge of cars before giving you an estimate for repairs, some investment counselors subtly size up your knowledge of finance and investments, and they begin to salivate if they smell blood in the water. Certainly your advisor should know more than you do. Otherwise, why would you need him? But look for someone who takes time to explain the details, and be certain you're comfortable rather than accepting a "just trust me" attitude from the advisor.
Keep in mind that, first and foremost, most brokers and financial advisors are salespeople. Often they are hired by a large firm primarily because of their charm, confidence, and people skills. The job of such advisors -- the way they make money for themselves and their firms -- is by selling you investments on which they earn a commission or fee. Are they all unscrupulous snake oil salesmen? Of course not, but they are in the business of sales, and part of their job is to sell you on the idea that you need their help in order to make the most of your money. It's important to become an educated consumer with the ability to decide for yourself who to trust and how much you need to be involved in your own financial decisions. Remember that at the end of the day, after you've done your research and questioned a potential financial advisor about his or her credentials and experience, it's always best to trust your instincts. Most of us have a little voice that tells us if we're uncomfortable with someone, even if we can't quite put our finger on why. There is no shortage of people who want to help you manage your money. If everything looks good on paper, but something simply doesn't feel right, find someone else. You will sleep better at night knowing you are working with someone in whom you have confidence. We talk more about this later when we give you seven questions (and a bonus) you need to ask your financial advisor.
To be sure, loyalty to an employer is a thing to be valued, but it's a very poor investment strategy. It's an equally bad idea to plow everything into any one type of investment, whether it's the stock market, real estate, or stuffing it into your mattress. There is no such thing as a sure thing, and there is no company or industry that is immune to financial ups and downs. Diversifying your investments is absolutely key to protecting your assets. There are other strategies for scattering your eggs among several baskets. You might consider holding some assets in your own name, some in the names of businesses and corporations you've established, and some in trusts that you've created. In case of a major lawsuit or even a messy divorce, having more than one asset base can protect you from being completely wiped out.
We discuss the impact of the 401(k) -- and why it might not be the retirement panacea you've been led to believe -- when we talk about the sixth secret, tax efficiency, in Chapter 7. If you have any lingering doubts about the importance of safety, consider not just yourself, but the other people to whom you're responsible. Almost all of us have others who depend on us -- spouses, children, aging parents, employees, investors, other stakeholders. The only thing worse than losing your own money is losing someone else's, so it's imperative to remember our responsibilities to others and take the necessary steps to keep our assets safe. This book is available at all bookstores, online booksellers and from the Wiley web site at
www.wiley.com , or call 1-800-225-5945.