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The following is an excerpt from the book The Money Coach's Guide to Your First Million
by Lynnette Khalfani
Published by McGraw-Hill; July 2006;$24.95US/$32.95CAN; 0-07-147081-6
Copyright © 2006 Lynnette Khalfani

The Money Coach's Advice for Becoming a Successful Investor

Here is my own unique take on how you can become a successful investor -- indeed a millionaire investor. I believe that to invest well, consistently, and over a long period of time, you must master the five-phase process of investing. This five-phase process of investing is defined as follows:

1. Strategizing to meet your own personal goals.
2. Buying the right investments for your individual needs.
3. Holding and monitoring the assets in your portfolio.
4. Selling investments in a judicious manner.
5. Dealing effectively with financial advisers.

Crafting a Strategy for Success

The strategizing phase of the investing process focuses on setting specific, measurable and realistic goals; developing a prudent asset allocation strategy; and taking care of the financial basics before you invest. Financial basics refer to things like getting rid of debt, establishing a three-month cash cushion, obtaining adequate insurance coverage, and having a will created before you invest. Once you do these things, then you're ready to hit Wall Street. (You'll read more on what types of insurance you need -- and don't need -- in Chapter 6. And in Chapter 7, you'll learn about the importance of having a will.)

Buy Like a Pro -- or Hire One

In the buying phase of the investing process, you have to avoid a number of pitfalls such as relying on tips and inside information as the basis for making purchasing decisions; having concentrated wealth and a lack of diversification; and becoming overconfident in your investing skills. I certainly don't want any investor to feel that he or she can't take control of his or her own financial destiny. But it's a mistake to forgo any outside advice if you could really use it. And I don't mean off-the-cuff advice from your sister or your co-worker in the next cubicle at the office. They probably don't know much more about investing than you do. I'm talking about getting paid advice from a trusted, professional adviser.

Says Johnson of the CFA: "When people are sick, they go to a doctor. When people get into legal difficulties, they see an attorney. But for some reason people think it's a sign of weakness to go for financial help to financial professionals. You should definitely have a working knowledge of investing. But there are still going to be times when you're going to need professional help."

Keeping a Close Eye on Your Investments

Those who master the holding phase of the investing process learn how to monitor their portfolio on a regular basis instead of checking things out haphazardly or letting their investments run on autopilot. During this phase, successful investors also spread their assets out over the proper number of accounts, they rebalance their portfolios as necessary, and they update their investments if their personal circumstances or goals change.

The Importance of Having a Sell Discipline

The selling phase of the investing process is perhaps the biggest area that trips up investors. When you conquer the selling phase, you learn to take taxes into consideration -- but not to make investing decisions based solely on taxes. In the selling phase, it's also critical to create and stick with a sell strategy or a discipline that helps you sell investments in the most judicious manner possible, in a tax efficient way, at the right time, and for the right reason. People who are successful investors also avoid two big selling snafus: missing opportunities to take profits and letting your emotions rule your decision-making process.

The final phase of the investing process is dealing effectively with financial advisers, whether they are accountants, brokers, financial planners, or other money managers.

The Rich Pay For Help -- Should You?

Studies show that wealthy people are far more apt to use financial advisers than are people of average means. This makes sense. If you have more money, obviously you want to protect and preserve those assets. But I suspect there's a bit of the chicken and egg syndrome going on here also. It may be correct that the rich have advisers because they can afford to pay those advisers. But it is likely also true that many wealthy people got that way because they hired help. In other words, they weren't always rich. Rather, they got assistance along the way, and thus they became wealthy. I think that's something you should keep in mind when you contemplate whether or not you can afford to hire qualified financial help.

Again, my theory is that you can't afford not to -- especially if you're not willing to do the required leg work to manage your own personal finances and figure out what investments are best suited for your needs and objectives. Greg Sullivan, of Harris Bank, says you should make your hiring decision based on specific criteria. "You hire someone for four reasons: time, temperament, talent, and trust." Like Hevner, of the NAOI, Sullivan says that what he does isn't overly complicated rocket science. "I could teach any of my clients to do what I do, but the problem is that most people don't have time. It takes years to learn to manage money well," Sullivan says. At Harris, "We train people for five or six years before they have client work (and manage customer assets). We think it takes that long to really learn about financial planning and investing."

Aside from time, you have to consider your temperament. Can you be dispassionate about your investments? If the market suddenly dropped by 20 percent -- or even surged by 20 percent -- would you be able to make unemotional, rational, buying and selling decisions? Unfortunately, most people can't. As far as talent is concerned, you should obviously hire someone with experience and a proven track record. If you're a savvy and knowledgeable investor, then by all means run your own show. But if you don't fit that bill, why should you hire yourself, so to speak? And last, the trust factor should loom large in your mind when you're deciding on a financial adviser. Ultimately, you have to feel confident that the individual in question will make decisions in your best interests, and not just to line his or her own pockets.

How to Find and Hire a Good Financial Adviser

If you do decide that you need help, use some of these ideas to pick a competent professional. Call the Financial Planning Association at (800) 282-7526 or go online to The FPA Web site lets you obtain a list of up to 10 certified financial planner professionals in your area. You can also get references for stockbrokers and financial advisers from family and friends you know. Interview at least three prospects before you settle on any adviser. That way you get a sense of different management styles, and you're less likely to have buyer's remorse as a result of not doing your homework.

Ask potential financial planners about their education, professional background, licenses or credentials they hold, whether they operate on a flat-fee or commission basis, how they would describe their typical clients, and how they like to do business -- whether through in-person meetings, phone, e-mail or snail mail. Also inquire about how often you can expect to hear from this person. Will the two of you review your financial progress quarterly, annually, or on some other time table? Try to match yourself up with an adviser who seems ethical, experienced, and educated. He or she should also have extensive knowledge of people in the same personal situation you are in, as evidenced by the adviser's client base. For example, if you're a small business owner with very specific financial needs, you'd want a financial planner who serves a lot of other entrepreneurs.

Checking an Adviser's Background is a Must

Also check out the individual with the SEC, with state regulators at the North American Securities Administrators Association, and with the National Association of Securities Dealers (NASD), which operates a central registration depository that provides detailed information about investment advisers, including whether or not they've ever been disciplined or sanctioned by authorities for wrongdoing with their clients. Finally, trust your gut instincts. Go with the person you best click with, you can feel comfortable trusting, and whom you think is the most qualified. Be sure to get the person's ADV, or adviser form, Parts I and II. It makes certain mandatory disclosures about the person's track record and experience. Jon Stokes, senior policy analyst at the CFA Center for Financial Market Integrity, says the relationship between a client and an investment manager is a very intimate one. "You're turning over all kinds of personal information, so choosing the right one can help you avoid picking someone unscrupulous," he says.

Equally important, any adviser you hire should be willing to provide you with pretty much anything you ask -- whether it's for client referrals, information about his or her background, or a detailed written explanation about his or her fee structure. "It's very much a relationship based on trust," says Stokes. "Since you're giving them all kinds of information, if they're not willing to do the same, then that's a big red flag that maybe they're someone you don't want to deal with." At the end of the day, if you can master the five phases of the investing process -- avoiding the pitfalls inherent in strategizing, buying, holding, and selling investments, as well as dealing with financial advisers -- you're well on your way to becoming a millionaire investor.

Copyright © 2006 Lynnette Khalfani