Get Ready To Ask The Tough Questions

It has not been a banner year for investors with balanced and diversified portfolios.

At the moment, the World Equity Index is down about 1% this year, add the dividends that you should receive, an additional 3% or so and the diversified equity portion of your portfolio should have an approximate total return of around 2%. The bond index total return should be at or about 2.5%.

A balanced portfolio with a 60% equity, 40% fixed income mix should be providing a total return in the vicinity of 2.25%.

Question 1

What did your advisor charge you to achieve that return?

and what hidden fees (if they used other managers, like mutual funds or others to help manage your money, those managers will charge an additional fee that you may want to ask about) were there?

If your advisor charges you 1.5% and the outside manager charges an additional 1%, then you are now in negative territory for the year.

It is only 1 year. The last 6 or so years have been above average in total returns and as I have been saying (over and over), we will have to have a year or 2 of below average returns to bring us back to the long term averages.

Question 2

What are you paying for?

Do you have a tailored plan? One that is suited to your goals, risk tolerance and time horizon? Is it flexible enough to accommodate the changes that may come along in your life?

Is your plan (at High Rock we call it a "Wealth Forecast") being monitored regularly to make the appropriate adjustments when it becomes necessary (this should happen at least twice per year).

Question 3

When you add new money to your portfolio, does your advisor just throw it into the mix (the easy thing to do for the advisor)?

or

Do they earn their fees by analyzing the current state of the economy and financial markets in order to make the appropriate decisions as to when it is best to put the new money to work?

In a year like 2015 with all its turmoil, a tactical approach that helped to protect capital was prudent.

Given that we are to expect even more volatility in 2016 (at least in the early going), it may continue to be prudent.

With slow economic growth, low interest rates, declining earnings growth, tighter credit conditions it may be worth asking this one:

Question 4

What is the strategy for the low return environment that we are in?

Let me know if you are not satisfied with any of the answers that you get.

scott@highrockcapital.ca