Going it on Your Own

  1. Some say that by the year 2020, certain things will be obsolete - like keys, cash, travel agents, and stockbrokers. So tackling the management of your own investments now may be good preparation for the future.
  2. This article is the second in a three part series. In the last article we addressed whether or not you should manage your own money or use professional management. This article assumes that you have decided to go it on your own and manage your investments yourself. The third article will explore how to go about choosing professional help.
  3. The starting point, of course, is a good understanding of your own investment objectives and timing of your needs. You also should have a rudimentary understanding of not only investment vehicles, but investment markets. I would venture to say that one of the biggest mistakes that many investors who manage their own money make is that they think they understand certain subjects when, in reality, they know just enough to be dangerous. The examples are endless of investors who thought they understood investments simply because they had been making money for years. Once the market takes a downturn, though, they lose large sums due to their naiveté. A self education process should be ongoing. Having established those guidelines, you are prepared to now go about determining how to implement them.
  4. Your first step is to subscribe to the right periodicals. A subscription to the Wall Street Journal and Forbes are almost critical. However, be aware that the folks writing the articles have not necessarily been any more successful at investing than you may be. Pay closer attention to the "how to" articles and the articles focusing on the risks of investments, than the day-to-day hype. Depending on your level of sophistication at the outset of this venture, you will want to read some core books, like John C. Bogles "Bogle on Mutual Funds-New Perspectives for the Intelligent Investor" and "The Warren Buffett Way: Investment Strategies" by Robert Hagstrom.

Who to Invest Through

  1. Since one of the main reasons to manage your own money is in order to save money, you will want to stay away from full commissions/full service brokerage houses and stick with one or more of the many discount firms. If you plan on doing a lot of trading, make sure you have a relationship with a deep discount firm like Brown & Company or Jack White & Company make your trades through one of the electronic systems where you can trade for commissions ranging from $15 to $30 per trade. Dont feel compelled to do all your business at one firm. Keeping track of your investments will be one of your primary concerns, though, and this is easier done when all of your investments are at one firm.
  2. Even though you are managing your money yourself, you will need to have a backup person who is a reliable source. Inevitably there will be questions that are either too complicated or too time consuming to tackle yourself. This person could be someone who you pay by the hour to review your investments or answer your questions. Such a system works well, because this person has no conflicts of interest in assisting you. Alternatively, you can do a portion of your business through a full service firm in order to gain access to advice.

Words of Advice

  1. Douglas J. Schulz, a registered investment advisor in Colorado Springs, has two pieces of advice for those who are managing their own investments. First, he cautions against commingling your brokerage account with your banking activities, such as your credit cards and checking account. It makes monitoring your account a nightmare. Plus, your "investment" money should never be the same money as that used to buy groceries.
  2. Second, Mr. Schulz recommends that for those who intend to actively trade on a short term basis - consider doing it in your retirement account. Any gains there are not taxable. On the other hand, any losses are not deductible and you may be risking monies meant to be preserved. So, if you adopt this strategy, do so only with a keen awareness of the risks of this type of trading.

The Internet

  1. On the Internet, you can obtain quotes, charts for the market that day, charts for individual stocks which have performed in the markets over a number of years, financial information on individual companies, and research recommendations. You can also execute trades on the Internet, review prospectuses for various companies, and join discussion groups regarding particular investments or investment philosophies. I would caution you regarding the advice that you get. As you surf around the Internet, it is often safer to focus on the facts, as opposed to opinions spouted by these faceless and often nameless people. Also, beware that many fraudulent scams previously executed in back-office boiler rooms have shifted their territory to the Internet. Dont fall for the numerous " Get Rich Fast" or "Risk Free Investment" messages which you will see. Anyone can set up a web site or advertise on-line, often without any check of the legitimacy or truthfulness of the information.

Monitoring Your Investments

  1. One of the single biggest mistakes that investors make is that they spend lots of up-front time embarking on a game plan, they execute it, and then they go back to sleep. This a grave mistake whether or not you are managing your own investments or whether someone else is managing your investments.
  2. Set up a system to monitor the performance of your investments either every 6 months or on an annual basis. You need to be able to measure the following:

How your investments have performed based upon your specific goals for those investments.

How your investments have performed in comparison to your overall goals.

How your investments have performed in comparison to similar markets. You may need to obtain professional help on this subject or you may be able to obtain some advice from the periodicals to which you subscribe.

Again, remember to take action based upon your assessment. That may mean moving your investments into other vehicles, selling certain investments, or doing more homework on your investments.

There are many investment clichés, such as, "Cut your losses", "Let your profits run", and "Dont be afraid to take a profit". Generally, you will be on firm ground if you continually read and educate yourself and stay away from investments you dont fully understand. If you are going to experiment, do it in a small way, and if you make mistakes - learn from them.

Contact Ms. Stoneman - Stoneman Law Offices - Texas & Colorado. (719) 783-0303 Free Consultation - Representing Clients Nationwide