Here are seven questions that can lay the foundation for a fruitful relationship between a financial advisor and their client:
Question #1: What investments make up your investment universe? Does your investment strategy allow you to invest in a broad range of asset classes, including U.S. equities, international equities, currencies, commodities, real estate, and fixed income?
Question #2: What role do current market conditions play in the asset allocation decision-making process? Does your investment strategy have a means of increasing exposure to asset classes in secular bull markets and decreasing exposure to asset classes in secular bear markets?
Question #3: Does your portfolio include investments in complementary strategies? Relative strength and value are both long-term winning investment factors. They also tend to have low, or even negative correlations to each other, thereby providing useful diversification.
Question #4: Is your asset allocation divided into segments? Breaking a portfolio into an income segment, balanced segment, and growth segment can provide tremendous psychological benefits and therefore may increase the odds that you will stick with your investment plan over time.
Question #5: Do you have a plan for systematic contributions? There are many ways to accomplish this goal, including setting up a monthly automatic withdrawals from your bank to your brokerage account or regularly sending 15% of every dollar earned to your brokerage account, but the key is to have some systematic means of continuing to save money for your financial goals.
Question #6: Do you have a plan for how you will approach distributions from your portfolio during retirement?
Question #7: Do you have a financial advisor that will give you the TLC you will need to be educated and guided along all the inevitable bumps in the road?
Some relevant resources:
What’s Your Retirement Number?
The Upside of Mental Accounting
