It matters to us that you make solid decisions about your financial life and the people to whom you will entrust your money, so we wrote this Informed Investor Guide. It’s a basic 101 on investment options. Have a question we haven’t answered? Want to talk more about how we can help? Contact us.

Managing your money : why you can’t ignore it

You have a pretty good idea that this is an area of some significance to your life. Like everyone else, you’d like to retire some day. Or if you’re already retired, you’d like to think that your money will outlast you.

It starts with saving, of course. You have to do it. But unless you are saving a small fortune each year, you have to grow the money you’ve saved. That’s how wealth is accumulated in sufficient amounts to make retirement possible.

Investing can seem a mysterious and intimidating discipline

The moment you step into the world of investment, you are taking on twin burdens: decision-making and risk. What should you do and who can you trust to help you do it? And how much risk are you willing to take with the money you’ve saved?

Strategy, confidence, consistency : critical to success

These three elements, taken together, have significant impact on long-term performance of an investment portfolio. You begin with a well-conceived strategy in which you have sufficient confidence that you are willing to apply it with consistency.

No strategy, no matter how brilliant, is going to outperform the market every day, or even every year, but if you abandon it at the first sign of trouble, you are guaranteeing that it will fail for you.

All three elements work together. In order to stick to a strategy, you need confidence. To have confidence, you need to believe that the strategy you’ve chosen is both well thought out—and well executed.

The options: from do-it-yourself to financial planners

What’s the best way for you to achieve strategy, confidence and consistency? The answer will be different for everyone—it will depend on your risk tolerance, your interest in investing, your relationship with your financial professional.

It will also help to understand the options available in today’s money management industry. Below, we’ve described the most widely available options, and described for each the personal considerations you should take into account.

Always check professional credentials. A common question you’ll want to ask about all of these choices is how each professional gets paid, and how that payment structure might impact that person’s advice. Regardless of which option you choose, you will always pay trading commissions either directly or indirectly to the firm that executes the purchase and sale of investments for the manager of your portfolio or mutual fund. You may or may not see them on a statement but these commissions will range from less than 0.5% of your investments to 3% or more on an annual basis.

We are happy to discuss these choices with you at any time. Contact us.



Managing your own investments takes time, interest and expertise. If you have all three to spare, it’s often the best choice.


Assuming you have the time, interest and expertise to craft and execute a well-conceived strategy, choosing individual stocks yourself virtually guarantees the level of confidence you’ll need to stay the course. Who would you trust more than yourself?

But a word of caution: it really does take all three—time, interest, expertise.

Fees you can expect to pay include trading fees to the broker who executes your trading and custodial fees to the financial institution where your funds are held.

Investment Management Firms (Portfolio Management)

Investment Management Firms (Portfolio Management)

Assuming you choose not to manage your own funds, the most direct path to the strategy, confidence and consistency required to achieve favorable long-term returns is working with a Registered Investment Advisor. That advisor’s registration will be with the Securities & Exchange Commission (SEC) or at the state level.

Investment management firms offer individual portfolio management or mutual funds that they themselves have created and are managing. The investment professionals who work for these firms have often earned the Chartered Financial Analyst® (CFA®) designation from the CFA Institute and may have significant experience performing rigorous investment analysis.

This option puts you directly in contact with the investment expertise you’re hiring—the expertise that will be used to choose the specific investments in your portfolio or fund.

An important advantage of working with an investment management firm is that you will have an opportunity to get to know the investment strategy or strategies used to manage your portfolio as well as create personal relationships with the people who are managing your savings. You’ll be working directly with the people making investment decisions for your portfolio—not resellers or repackagers of someone else’s work.

It’s important to understand enough about the strategy your manager uses that you have a high level of confidence in its ability to generate favorable long-term results. There are a variety of valid long-term strategies, each with its own strengths and weaknesses. When hiring an investment manager find one that utilizes a strategy that you are comfortable with—that you can live with when it’s working and when its weaknesses are more apparent.

Is the strategy growth, momentum, blue-chip, value, trading? Each manager should be happy to share with you the details of how their strategy works and provide audited, historical performance records—although past performance is not an indication of future results. Confidence in a long-term investment strategy will allow you to stick with it during those short-term periods when results appear weak. In this way you’ll have the opportunity to achieve long-term results consistent with your long-term financial plan.

Another advantage of working directly with an investment manager is that many will provide you with an investment review that illustrates how the investment decisions made for your portfolio/fund were consistent with the strategy you hired them to provide. This should also increase your confidence that the strategy you were comfortable with when you hired the manager is being consistently executed in your portfolio or fund.

Aside from managing your own funds, this may be your best opportunity to gain the highest level of confidence in both the strategy and the people involved—confidence that will allow you to stay the course and improve the possibility that you’ll achieve superior long-term performance.

Portfolio managers are generally paid an annual fee based on a percentage of your assets under management. Investment management firms do not have actual physical possession of your funds, only the power which you assign them to manage the investments in your account(s.) Your investments are kept in a custodial account with a separate firm—such as Fidelity or Merrill Lynch—which may charge an annual fee for custodial services. This fee is usually $50 to $200.

Trading costs are passed through and charged to your portfolio/fund. The manager pays these commissions to a trading broker and should not benefit from them. In fact, since these costs reduce investment performance, the manager is incented to minimize trading costs to only those necessary to effectively execute the strategy.

Minimum account sizes can range from $100,000 to $1,000,000, depending on the manager.



The level of education, training and experience attained by stockbrokers varies widely, so proceed with care.  Stockbrokers come in two varieties: full-service brokers (such as Merrill Lynch and Morgan Stanley) and discount brokers (such as Charles Schwab and Brown Co.).

Both act as custodians of your funds. Both are paid primarily by commissions on your trades, so there is a built-in incentive to encourage trading. A small ($50 to $200) custodial fee may also be charged.

Full-service stockbrokers have evolved over the years. Once they were primarily focused on recommending the purchase of individual stocks and fixed-income securities. In recent years they  have shifted to financial planning services and the reselling of mutual funds.

If you are a do-it-yourself investor looking to augment your own research, using a full-service broker to purchase individual equity and fixed-income securities can be a good idea. You’ll get access to the broker’s analyst reports and the broker’s knowledge. The broker will also execute your trades for a fee.

You need to know your broker—references, education, experience, certifications. You want your broker to be both trustworthy and good at the business of investing—one out of two isn’t good enough.

To the extent that you’re dealing with a broker for financial planning, you should also read the section below on financial planning. Those considerations also apply here.

If you are planning to purchase mutual funds through a stockbroker, you should read the section below on financial services companies. The same issues apply here.

Full-service brokers are paid by a combination of commissions on your trades and often an annual fee charged to your account. The commissions will be higher than you will pay with a discount broker, because full-service brokers provide additional services that often include access to analyst research and investment-specific information.

Discount brokers allow you to execute individual stock and bond trades at lower commissions, and often without an annual fee. For this low rate, you get little additional service beyond a web site with information that’s widely available for free. Individual advice on specific investments is generally not offered.

Discount brokerage services are sometimes offered through financial services institutions. Some of them are available only online.

For the do-it-yourself investor who wants to minimize fees and doesn’t mind the lack of supplementary research, discount brokers can be a good choice.

Financial Planners

Financial Planners

Even more so than stockbrokers, the level of education, post-degree training and experience among financial planners can vary widely, so it is important to review a candidate’s professional credentials. If you don’t already have a financial roadmap, a financial planner is a good place to start. A good planner can provide you with solid, broad-brush advice on various investment vehicles and how they might be appropriate for you.

Financial planners are paid in a variety of ways. Fee-only means they are paid, only by you, for their advice. Fee-only is more expensive, but you don’t have to worry that they’re trying to sell you a specific product.

Fee-based means their fees are a blend of fees paid by you and commissions or incentives paid by companies whose products they sell.

Commission-based planners may offer a plan free of charge, but they have the greatest motivation to sell you specific product because selling that product is how they make all of their income.

If you believe you need a financial planner, we recommend that you find a good fee-only financial planner and pay them to work with you to create a long-term financial plan tailored to your situation and goals. Once you have a plan, then you need to decide how you’re going to execute it.

If you implement your plan yourself—directly buying your own insurance, mutual funds or portfolio management services—then you’ll pay management fees charged by each individual provider.

If you decide to use your financial planner to purchase those products on your behalf, be aware that he or she will add an additional layer of fees to your costs. Ask how much those fees will be. They could more than double your total costs. The additional expense may be worth it to you for the ease and convenience of one-stop shopping—or it may not.

Financial Service Companies

Financial Service Companies

These include mutual fund companies, insurance companies, and banks. Two examples are Fidelity and Vanguard. These companies offer a wide array of stock and bond mutual fund choices. Most will also offer discount brokerage services for do-it-yourselfer who want to choose their own stocks. In addition, if you have a certain minimum amount to invest, they will sometimes offer you “free” financial planning services because they’ll recover the costs in the commissions they charge.

Some of these companies offer products that they create themselves. Others are strictly resellers of other companies’ products. Most fall in the middle, offering their own products as well as others.

In some instances, financial service companies will also act as custodians of your funds—actually keeping the money on deposit and moving funds as necessary to execute trades.

Given that there are more than 6,000 mutual funds to choose from, it’s a challenge for anybody to choose wisely. A prospectus will tell you the investment strategy, the type of stocks the fund will or will not own, past performance, the top 10 holdings in the last quarter, and the fee structure.

Management fees for mutual funds can vary widely from 0.25% for some index funds to 2.0% or more for some actively managed funds, with most falling between 0.75% and 1.5%.

An excellent group of products offered by most financial service companies are index funds. Index funds are designed to mimic the structure and investment returns of popular stock market indices, such as the S&P 500 for large companies and the Russell 2000 Index for smaller companies. An advantage of index funds is that, since there is little to no “management” involved, the fees charged are generally 60% to 80% below actively managed fund fees.

This savings acts as a performance boost to your investments every year and will add up over the long run. In many years, more than half of mutual funds underperform the relevant market index, so choosing an index fund with its lower fees virtually guarantees that your investments will in many years outperform most professionally managed funds with the same investment goals.

If your financial plan calls for stock market returns for some or all of your investment portfolio, index funds are a simple and compelling value for many investors.