Saving and Investing: Monitoring Your Investments

Ask questions!

You can never ask a dumb question about your investments and the people who help you choose them, especially when it comes to how much you will be paying for any investment, both in upfront costs and ongoing management fees.

To get you started, here are some of the most important questions you should ask when choosing an investment professional or someone to help you:

• What training and experience do you have? How long have you been in business?
• What is your investment philosophy? Do you take a lot of risks or are you more concerned about the safety of an investor's money?
• Describe your typical client. Can you provide references—the names of people who have invested with you for a long time?
• How do you get paid? Do you get paid by commission, based on a percentage of assets you manage, or by another method? Do you get paid more for selling your own firm's products?
• How much will it cost in total to do business with you?

Your investment professional should understand your investment goals, whether you're saving to buy a home, paying for your children's education, or enjoying a comfortable retirement. Your investment professional should also understand your tolerance for risk. That is, how much money can you afford to lose if the value of one of your investments declines?

An investment professional has a duty to make sure that they only recommend investments that are suitable for you. That is, that the investment makes sense for you based on your other securities holdings, your financial situation, your means, and any other information that your investment professional thinks is important.

The best investment professional is one who fully understands your objectives and matches investment recommendations to your goals. You'll want someone you can understand, because your investment professional should teach you about investing and the investment products.

How should I monitor my investments?

Investing makes it possible for your money to work for you. In a sense, your money has become your employee, and that makes you the boss. You'll want to keep a close watch on how your employee (your money) is doing.

Some people like to look at the stock quotations every day to see how their investments have done. That's probably too often. You may get too caught up in the ups and downs of the trading value of your investment and sell when its value goes down temporarily—even though the performance of the company is still stellar. Remember, you're in for the long haul.

Some people prefer to see how they're doing once a year. That's probably not often enough. What's best for you will most likely be somewhere in between, based on your goals and your investments.

It's not enough to simply check an investment's performance. You should compare that performance against an index of similar investments over the same period of time to see if you are getting the proper returns for the amount of risk that you are assuming. You should also compare the fees and commissions that you're paying to what other investment professionals charge.

While you should monitor performance regularly, you should pay close attention every time you send your money somewhere else to work.

Every time you buy or sell an investment you will receive a confirmation slip from your broker. Make sure each trade was completed according to your instructions. Make sure the buying or selling price was what your broker quoted. Also make sure the commissions or fees are what your broker said they would be.

Watch out for unauthorized trades in your account. If you get a confirmation slip for a transaction that you didn't approve beforehand, call your broker. It may have been a mistake. If your broker refuses to correct it, put your complaint in writing and send it to the firm's compliance officer. Serious complaints should always be made in writing.

Remember, too, that if you rely on your investment professional for advice, they have an obligation to recommend investments that match your investment goals and tolerance for risk. Your investment professional should not be recommending trades simply to generate commissions. That's called churning, and it's illegal.