Know your advisor

Portfolio watch

It is wise to keep a watch on your portfolio whenever someone offers or recommends an investment opportunity to you. Before you act on any it, find out whether it is a suitable investment. You want to make sure that the investment contributes to the investment goals of your portfolio and is within your risk tolerance.

Answering these four questions can help you determine if an investment is suitable for you:

1.

Can I accept the risks?
 

Understand the risks of the investment and the chances of them occurring. Make sure you are comfortable with the risks and that you can afford the losses if the risks do happen.

2. 

Will it help me reach my financial goals?
 

Understand how the investment supports your investment goals. Make sure it is realistic by verifying that the claims made about the investment's benefits are true.

3. 

How much will it cost me? 
  Understand all of the fees such as commissions, service fees, and management fees that are connected with the investment. Calculate how much you would probably make on the investment after paying all of the fees. Decide if this is an acceptable amount of return in light of the total fees you will pay.

4.

Are there better alternatives? 
  Find out if there are other less costly or less risky investments that could equally support your financial goals. If there are, then ask your advisor if they are suitable alternatives for you.

Have your advisor go over each of these questions until you fully understand the answer to each one. Your advisor should explain why a particular investment is suitable or unsuitable in a way that you can easily comprehend. If they cannot, then you should seek a second opinion that you can understand from a qualified professional.

Take detailed notes of all of your discussions with your advisor so you can review them later. The CSA's when your broker calls notepad pdf can help you do this.

In addition to keeping a watch on your portfolio, it is wise to do an annual check-up of your portfolio to ensure your investments remain suitable for your needs.

For more information on working with an advisor, check out our free Guide to Investing: How to work with your investment advisor.

Related links

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Due Diligence new window
Some of the references to organizations in this article are out of date, but the basic information on the importance of due diligence can still be helpful.