CtWatchdog’s Personal Finance Series: Tip 3 – Three Methods Of Investing – All Take Homework

By George Gombossy | Last updated Nov 17, 2009, 3:54 pm

This blog is Part 3 of our Personal Finance Series that will stretch over several weeks. It was prompted by the Personal Finance Seminar I am moderating for Rockville Bank on Dec. 15 in Glastonbury. The event is free, but seating is limited. For reservations, call 860-291-3654. Before taking any of my advice please check with you financial advisor. I am not certified as any kind of financial planner and my advice is solely based on my personal experiences investing over the past 40 years and from being the Business Editor of The Courant for 12 years. And keep in mind. No matter what anyone says there is risk to any financial decision you make or don’t make.

You can’t make up your losses from the recession nor can you retire with enough money unless you invest in the stock market.

But you have to be careful how you do it and you have to be prepared to do your homework.

If you are totally unfamiliar with investing, you can hire a financial advisor. This is a critical decision. So you have to check this person out thoroughly before using her or him.

Make it crystal clear – in writing – the level of risk you are comfortable with. READ everything you are asked to sign. Require monthly statements. Demand that the statements be understandable to you. And no matter how much you trust your planner – verify.

If the advisor makes any promises that sound too good to be true, run the other way. No one can promise you double digit annual returns. No one knows what the market will do today, much less tomorrow. Ask what advice that person gave 18 months ago, right before the markets tanked, and what advice was given in March when it hit the bottom.

Ask SPECIFICALLY how the person will be compensated. The money will be coming directly or INDIRECTLY fron you. Don’t be shy. There is no free lunch.

Please read the following article in the Wall Street Journal on picking a financial advisor. Its solid advice, as almost everything in the WSJ.

And while we on this topic – you should be buying the Wall Street Journal, in print or on line. You CAN’T afford NOT TO. Despite what the NY Times advertisements say, its the Wall Street Journal that has the best reporters and editors in the world. Virtually every story in the WSJ can be understood by the average person.

The second level of investing is to manage your nest egg yourself by purchasing diversified mutual funds and/or Exchange Traded Funds (ETF) which are like mutual funds, but trade like stocks.

And thirdly, if you are interested and willing to do a lot more homework, you can create your own mutual fund by investing in at least 15 individual stocks and ETFs.

During the next few days we will discuss investments in mutual funds, ETFs, and stocks. Bonds and options will come later.

Sunday’s Tip One – Borrow Now When You Don’t Need The Money

Monday’s Tip Two – How To Determine Your Net Worth And Your Financial Needs