No, I am not kidding, even a little. As I noted in my last post, there is a large population of people that know they should be investing, but thus far have not done so. The reasons for this vary, of course, but what it comes down to is that they are reticent to dive in due to the fear of losing money or just the lack of confidence in their knowledge base. The typical advice found all over the internet as well as on channels such as CNBC is to open up a low cost online account and buy some stocks and/or mutual funds(no load, naturally!). This is fine as far as it goes, but it is just not what many people want to do. There are do-it-yourselfers in all sorts of areas including investments, but some people just don’t want to. While it may be “easy” to replace your kitchen sink or bathroom fixtures, there are more than a few people who don’t have an interest in finding out if that is true. And just like calling a plumber, some would-be investors should call a broker.
Now, let’s be upfront about this topic. Getting help from a Merrill Lynch or Morgan Stanley or even your giant bank is going to cost you more than if you did it on your own. Just like the plumber example, hiring an investment advisor means that that guy has to get paid. There are many ways this happens (investment fees, commissions) but it will happen. Having someone sit down with you, set up a plan of action keep you updated and take all of your calls costs money. And make no mistake, it is you the customer who is paying that broker, even if it is a bit indirectly (any fees go to the firm of course, who then pays the broker based on some formula of assets managed or commissions generated).
For many beginners though, any fees (within reason of course–which the big firm’s generally are) are worth it and then some. The benefits of using a broker to begin your investment journey are many. First of all you get an education. The initial plan for a beginner may be very simple, such as a stock fund or two, but the explanation for how the advisor came to choose that particular fund can be illuminating. And just like anything else, once you have money in the game the interest level increases tremendously. As time goes on, it is likely that there will be more questions that pop into your head. This may lead you to the internet, but you also have a broker at your fingertips to explain anything you may read or hear about.
Another benefit for beginners is that these firms are huge and have reputations that they protect enthusiastically. There are many policies in place to prevent a Bernie Madofff-like character from being able to steal your money and run off to Mexico. But importantly, even if some mad genius could figure a way around it, these companies would have to reimburse you. Not, I want to emphasize, for investment losses, but for outright fraud such as Bernie Madoff pulled off. Large corporations have many downsides, but for a beginner (and non-beginner for that matter), it is nice to know that your money is secure.
I will get into this idea a little further in future posts, but those are the main points. For beginners, it is best to get the ball rolling and worry about your knowledge of the subject later. The easiest and safest way to do that is to hire a personal broker from a large, well-established company. That is not to say there are not things to look out for when choosing a broker, there are, but it is also important to get started. Next up, I’ll get a little more into the details of choosing your broker.