Your Investments: Do you know what you own?

One of the most shocking facts revealed by the survey was that investors had absolutely no idea what they were investing in.

By AARON KATSMAN
In a recent financial poll taken by a local Israeli newspaper, various individuals were asked about their investing habits. One of the most shocking facts revealed by the survey was that investors had absolutely no idea what they were investing in, with which firm, and how much they were paying in fees. In addition, investors typically had no idea how aggressively or conservatively their money was being invested.
Accurate?
Unfortunately, the results of this poll are not very surprising. As a financial adviser, I often meet clients who think they understand what they own and that their investments are conservative. But on reviewing their statements, we often find a vast difference between what the client thinks he has and the facts on the ground.
For example, a client may say he is “a risk-free investor with a conservative portfolio.”
Then we find his portfolio is solely invested in stocks, and during the course of the year the portfolio has moved up and down more than 20 percent.
Another common occurrence is with retirees who manage their own money. They tend to invest solely in dividend-producing stocks. Then they are surprised to see that when the market drops, so does the value of their portfolio. Remember: All stocks can substantially drop in value. There is no such thing as a “safe” stock.
Who is at fault?
I think both financial advisers and clients share the blame. Financial advisers have an obligation to explain investments to their clients, and they should give them enough time so that they understand what they are investing in.
On the other hand, ultimate responsibility lies with the client. It is always worthwhile taking the time to understand where your money is being invested, and you should always ask questions until you are totally clear about what you are investing in.
Plan ahead
Before you meet with a financial adviser, broker or any other investment professional, it’s a good idea to map out your monetary goals. For example, it is worthwhile working out how much income you need to supplement current National Insurance Institute payments, social security or any other pension fund, to meet your fixed expenses.
Although an expert will help you decide how to invest your savings, you should first have a firm handle on your short- and long-term goals and needs. Do you have children or grandchildren to marry off? Are your elderly parents in need of care? First you must determine your own budget needs and your ability to tolerate risk, and then ask your adviser what kinds of investments would best fulfill these goals. Use your adviser as a sounding board. He can tell you if your goals are realistic; if not, you can work together to come up with achieveable goals.
Understand your investment
When it comes to making decisions, focus on the whole range of the investment’s characteristics rather than simply on hopes of a high return. You have to understand the cost, degree and nature of the risks, investment goals, performance history and any special fees associated with an investment before you decide to purchase it.
One should also never assume that an investment is federally insured, low risk or guaranteed to deliver a certain return. Find out all the necessary information – and then make sure that you understand it properly. Then you can check it against your own goals and risk profile to see if the recommended type of investment is a good fit.
Continued cooperation with your financial adviser will only help you in your efforts to make sure your investments remain consistent with your goals. Periodically reviewing your portfolio with him is a good way to assess whether it is still consistent with your needs.
On the same note, make sure that your investment strategy remains current. If there is a change in your financial situation, consider whether your strategy needs to be reevaluated.
Remember: Ignorance isn’t bliss. Know what investments you have and why you have them.
aaron@lighthousecapital.co.il
Aaron Katsman, a licensed financial adviser in Israel and the United States, helps people with US investment accounts.