If you're frustrated from having one financial consultant after another financial consultant provide you with inadequate returns on your own stock portfolio, i quickly hope you read my first article "Three Strategies for Finding a Superior Financial Consultant." On this page, I'll drill down even more to essentially hammer home those points.

Finding a superior financial consultant, isn't always concerning the financial consultant. Sometimes it is also about you. Are you willing to also make the commitments to find a superior financial consultant? In this post, I'll discuss yet another crucial behavior about financial consultants and two regarding the behavior of you, the investor.

Three more tips:

(1) Don't hold mutual funds;

(2) You shouldn't be stingy if you discover a superior advisor; and

(3) Be patient and ask plenty of questions in your search for a superior financial consultant.

Don't Hold Mutual Funds

Let me tell you why I'm not a fan of mutual funds. Mutual funds have so many hidden fees that it's often difficult to learn exactly what your costs are. Besides upfront costs that could be upward of 5% for a few funds, you can find 12b-1 advertising , marketing and distribution fees that range between 0.25% to at least one 1.0%, administrative fees that range from 0.20% to 0.40% and of course management fees paid to the mutual fund manager of 0.50% to a lot more than 1.0% annually. This doesn't even include undisclosed "soft" costs of trade commissions that may add another 2.0% to 4.0% in costs. And yes you didn't incorrectly read the first part of that last sentence. Many mutual funds charge you 12b-1 expenses they incur from advertisements and commercials that urge you to buy their funds, and when you're buying no load funds, itâs likely that that your 12b-1 fees are greater than average.

Add to this, intangible costs like the performance that's sacrificed to maintain the required level of liquidity to fulfill share redemption, and your costs become even greater. For a fund that turns over 100% of its assets annually, Roger Edelson of the University of Pennsylvania Wharton School estimated this sacrificed performance to be 1.5% of returns annually. Lastly to include insult to injury, sometimes fund managers sell out of their biggest winners to meet up liquidity needs, generating a capital gains tax for you personally, the investor, even if the mutual fund lost money that year.

But this isn't even where the negative traits of mutual funds end. If you have one of the many financial consultants that merely make an effort to jump on the hot emerging market bandwagon by buying mutual funds in China, India, or any country, I advise you to exercise extreme care. When pullbacks happen in these country's economies as will inevitably happen, you're at high risk of losing profits quickly. Why? In a mutual fund, you are susceptible to a herd mentality that generally, will induce panic upon the release of bad news, and cause an incredible number of investors to redeem their shares over a short period of time. If this happens, fund prices will plummet before you even knew what hit you.

But if you choose to own just the very best stocks in the best industries in these countries, most likely your stock prices will be much more insulated and less volatile in such a scenario. While these stocks may still decline, they will most likely decline a lot less than the fund will. Strong companies' stock prices have a tendency to weather country-wide economic downturns superior to fund prices, and when they are in the right niche, they could even continue to flourish.

Be Ready to Pay Fees for Superior Advice

Superior advice is superior because a lot of hard work and time get into producing that advice. I recall talking to a potential client onetime that had a million dollars in the currency markets and was adament about not paying fees. He just wished to pay commissions on stock trades. When he showed me his statements (by the way he was with a significant Wall Street firm that I won't name), there appeared to be no structure or investment strategy in his portfolio. He owned a mix of mutual funds and individual stocks, and several times those stocks were traded when there is a nominal 5% gain in any of them. Furthermore, the statements by his financial consultants were misleading. The consultant handwrote on his statements he was doing great because he was up 6% that quarter (which I believe nearly matched the S&P 500's performance that quarter). He told me that annualized, that the 6% translated into 24% returns.

But when I explained that his net returns will be much lower because his portfolios quarterly 100% turnover rate produced exorbitant capital gains taxes that could undercut his net returns, he didn't seem to understand. I assume his financial consultant didn't bother explaining this small detail to him. Still, he insisted on paying no fees regardless of what. I could tell he was the sort of person that was blindly loyal to his financial consultant, so I moved on without wanting to schedule a second meeting.

Superior advice costs money. And when your financial consultant is superior, she or he will be transparent about his fees as well as your costs, so you won't be confused in what your true gains really are. Don't be stingy. After what you just learned about mutual funds, why can you not be willing to pay even up to 2% annually for superior individual advice and management when you're almost certain to be paying more than that a year merely to own a mutual fund?


Be Patient and have Lots of Questions

In the event that you persistently ask the three questions I mentioned partly one of this short article, you can find frustrated after speaking with ten financial consultants, none of whom can answer those questions. My advice would be to just be patient. Don't quit and don't accept a salesperson that is trained to answer those questions to lead you to believe that he or she has answered your questions when that's not the case at all. What do I mean?

For example, when you begin drilling down about specific stock picks, a common sales strategy to avoid your query is an answer similar to the following: "I'm not a stock picker. But don't worry. I understand how to find the very best money managers in the united kingdom to manage your cash for you, so you're in great hands." insurance shouldn't be misled by smokescreens like this. Understand that if your financial consultant truly understands how to find you the best money managers, he then or she must necessarily have discussions about geographical preferences, industry preferences, and specific stocks with those money managers. How can a financial consultant claim to select the best money managers for you personally but have no understanding of what stocks you own and what makes those stocks special?

In summary, buy individual stocks over mutual funds, be ready to pay fees for a fantastic advisory for anyone who is so lucky concerning find one, and remember, the luckiness of finding a fantastic advisor is not actually luckiness at all. It comes from your effort, tough questions, and your unwillingness to be led astray by the professional smoke screens of financial consultants.

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