Saturday, February 27, 2010

What is your financial planning philosophy?

A financial planner should talk about his or her planning process and not about hot stocks or unusual investments. If a prospective financial planner says he or she can beat the market and promises big investment returns, end the meeting. Nobody can predict market movements. A good financial planner will make sure you are well-diversified, so you can limit risk and maximize returns.

As the financial planner explains his or her philosophy, ask yourself: Are you being coached or sold to? And get a feel for how rushed the financial planner is. If he or she does not have time to attract you as a client, the financial planner might not have time for you after you become one. Finally, note the words and tone he or she is using. Is he or she speaking in financial jargon, knowing you don’t understand? It actually takes greater skill and knowledge to explain things simply.

Never agree to an investment you don’t understand. If you cannot explain it to your teenage child or your elderly mother, don’t do it.

This is a great rule because it can keep you out of the harm’s way. That is not to say you shouldn’t endeavor to learn more about finance basics. You shouldn’t shy away from stock mutual funds because you are not quite certain what they are.

There are many good resources for investing basics, including books and web sites.

Remember, starting on the right financial track, even if it is mediocre is better than doing nothing

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