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Evaluating Advisers' Recommended Portfolio

- Alan Lavine and Gail Liberman



It's very common to hire a broker or financial adviser to manage of portfolio of individual stocks, bonds or mutual funds for you.

Typically, you don't pay commissions to invest, but annual fees based on the amount of money you have under management. The cost to hire this type of manager runs about 1 percent to 2 percent--depending on how much you invest.

You should get important information about this arrangement before you invest. The report is complex and shows the type of investments you'll own, and how they have performed in the past.

Before you sign on the dotted line to hire this type of adviser, here are some important things to consider:

  • What is your method of selecting funds? Is it past performance? Current trends? What parameters do you use to pick funds or get rid of funds in the portfolio?
  • Show me the financial research that documents your method of picking and managing a portfolio of stock and bond mutual funds is a successful one.
  • What are the 10-year, 15-year and 20-year performance records of your model portfolio?
  • What are the right moves you've made?
  • What are the bad moves you've made?
  • How often do you change funds?
  • Why don't you use index funds?
  • How have your recommended funds performed against a comparable index over the long term of more than 10 years or 20 years?
  • What do the year-by-year returns on your investments look like? Are they consistent or are there wild performance swings?
  • Does your recommended portfolio fit my age, investment time period and financial goals?
  • What are your fees?
  • What steps will you take to consider my tax situation?

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Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.


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