Are You Watching Your Money or is Your Money Watching You?

By: A. B. Jacobs

For many years I’ve systematically advocated that people assume active management of their own finances, rather than leave that chore in the hands of others.  And for as many years, a fair number of individuals have done exactly that, leaving me gratified that some of what I say does not fall on deaf ears.  However, the feedback I receive at times leads me to wonder whether I’ve overdone it in some instances.  It appears that a certain number of persons become obsessed with the concept of hands-on management, sometimes to their detriment.  I recall a letter I received from one man who told me that, in following my recommendations to keep abreast of his investments, he checked the share prices of his corporate securities several times daily, admitting that as he watched the values fluctuate by the hour, it caused him to feel uneasy.  I wasted no time in my reply, advising him that there’s no benefit to be gained in scrutinizing the market in that fashion, adding that only day traders—now an impoverished dying breed—function in that fashion.

This seems a good time to reflect on personal investment styles.  While some people become addicted to managing their own finances, often successfully, others continue to avoid any involvement at all.  Balance is the key, with individual temperament often the deciding factor.  Regardless of the type of investments you choose to pursue, whether they be corporate bonds, mutual funds, real estate, or any combination of pursuits, attention to detail is a must.  In analyzing a common stock, for example, a host of ponderables will dictate your decisions.  Such factors as price-earning ratio, dividend yield, capitalization, and retained earnings all go into the mix, and must be sorted out in determining whether to buy, sell, or simply sit tight.  If such considerations fail to interest you or, worse yet, cause anxieties, you may be better off obtaining a competent and compassionate professional to guide your investment program.  This, of course, is easier said than done, for although you can be assured that the face smiling back at you from the looking glass—however inept that personage may be—has your best interests at heart, you can never be certain with someone less closely related.  It is a characteristic of human nature that vested self-interest takes precedence.  Thus, when you place your fortunes in the hands of another, regardless of credentials, you incur a risk.  Let me put it bluntly: Entertain no illusions that a financial advisor will provide sound counsel merely because of the Certified Financial Planner (CFP) or other prestigious designation held.  As to certifications generally, be they for life underwriters, property managers, or whatnot, the definition of certified was never better expressed than by that irrepressible humorist Mel Brooks, when he exclaimed: “You’re a nice guy . . . we like you . . . you’re certified!”

With that said, let me suggest how to insure that your best interests are served when you retain another person to assist you in managing your assets.

·  Never authorize a discretionary account (also called a controlled account or managed account).   This is an account for which an individual gives his/her broker or someone else authority to buy and sell securities in the principal’s name.  Only you should possess this authority.

·  Avoid a relationship where your advisor receives remuneration in the form of commissions on assets you either acquire or dispose of.  Your best arrangement is when your counselor is paid for the time actually devoted to your affairs, usually on an hourly basis.  In this way, you can keep track of exactly what services you receive.  Actual buy and sell orders will be placed with an entity that in no way is connected with your advisor.

·  Whenever you receive advice, request that you be provided with the background information that substantiates that advice.  If you’ve chosen your counselor wisely, what you receive will be understandable and verifiable.  To the extent that you feel inclined, try to authenticate the information you’ve received.  A logical source for corroboration might be the person with whom you normally place buy and sell orders.

·  Discourage recommendations that require your making spur of the moment decisions.  Any investment that must be made instantaneously, with no time for research and reflection, is probably one better not be made.  If your advisor is inclined toward such practices, you are probably not well served.

·  To the extent that your time and temperament permits, try to remain as knowledgeable in your field of investments.  If these are corporate securities, you’ll be wise to subscribe to and read Wall Street Journal and Barron’s.  If it is real estate that you pursue, seek out publications on that subject.  The more information you obtain independently, the better equipped you will be to participate in the decisions that are for your own benefit.  Remember that the greater an awareness you possess on a subject, the less likely you are to accept unwise recommendations concerning that subject.  There is no truer statement than the following: When you know the details, no one can lie to you.

A conclusion is in order.  If you develop the ability to manage your own financial affairs competently, there’s a good likelihood that as your proficiency grows, you’ll come to enjoy the job.  There is a profound satisfaction in mastery of a subject, particularly when it bestows prosperity upon you.  On the other hand, if you cannot handle your investments with confidence, do the next best thing.  Obtain an advisor with whom you feel comfortable to guide you, while taking as active a role as you are able in each consideration.

AL JACOBS has been a professional investor for nearly four decades. His business experience ranges from real estate, mortgage, and securities investment to appraisal, civil engineering, and the operation of a private trust company. In addition to managing his investments on a day-to-day basis, he is a featured financial columnist for both online and print publications. He is the author of Nobody’s Fool: A Skeptic’s Guide to Prosperity. You may subscribe to his financial Newsletter, "On the Money Trail," at no cost or obligation, by visiting

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