Nov 04

Lessons in Asset Management 3

2. Make sure you are in regular (though not constant) communication with your financial manager.

A common mistake made by most people who hire asset management assistance is that once they get someone, they wash their hands of the entire portfolio.

DON’T. Show the person you hire right from the outset that you want to take an active part in managing your assets. This will prevent any temptation to commit wrong-doing or deception because they know that you are monitoring your money carefully all the time.

Do not give the full control to the manager when it comes to making investment decisions. The final say should ALWAYS be yours.

So before investing in something, the person you hire should first present you with the background of the investment, and if possible, show other alternate investments that are similar to it, so that you will have a chance to compare.

Set a general guideline for all investing. An example of this would be, “I can’t afford to get into anything that has share prices that can vary. Steady income with no risk to my principle is a must.”

There is a big difference, for instance, between investing in Bonds and getting into a Bond Fund. The Bond will have a predictable return with no risk to your principle.

A Bond Fund will have shares with share prices that can go up or down. In an actual case with such a Bond Fund, the interest was $1000 per month, and there was a quarterly capital gain of $1000, but the share prices were dropping, and the actual value of the fund was static. Therefore, no actual gain was being made.

So do stay in contact with your asset manager, but don’t err on the opposite side of washing your hands of it, and trying to micromanage the process and call them 10 times a day. Be involved, but not too interfering. Set your rules, stick to them, and make sure your professional does too.

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