David@valuealigned.com
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Berk's Blog

Deciphering Financial Advisor Jargon

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Hiring a financial advisor in the New Year?

Be warned.

Financial advisors love to use jargon.

“Diversify your investments to prevent major losses.”

“Separately managed accounts are mutual fund alternatives.”

“SEC data shows that the average investor could lose millions, yes millions, in retirement savings because of hidden mutual fund fees.”

If you don’t know what I’m talking about, keep reading. Understanding common financial advisor jargon could prevent you from investing in the wrong stock, or worse, choosing the wrong financial advisor.

  1. Distributions

Discussing financial advisor jargon wouldn’t be complete without mentioning distributions.

Mutual fund managers have the ability to “distribute” capital gains to their investors periodically throughout the year.

But beware — those pesky capital gains are at it again. Read this blog post to better understand how these distributions really work.

  1. Alternatives

Think outside of the box. Read between the lines.

Alternatives are investments that don’t fit into the traditional “fixed income” (bonds and cash) and “rising income” (stocks) categories. Sometimes the term is used to refer to the differentiated and illiquid strategies of hedge funds, private equity funds or venture capital funds only available to the very wealthy. Mostly though, alternatives are “no income” investments including gold, silver, art, wine, antiques, coins, or stamps. Watch this video to learn that there are only three types of investments, and alternatives ain’t one of them.

  1. Diversification

Diversification is the process of combining different types of non-correlated investments that don’t all move in the same direction, by the same amount, at the same time in reaction to market changes. An example of a diversified portfolio might include retail, technology, and energy stocks, all with different risk characteristics. Beware of the recommendation to diversify with alternatives, they are different — they produce “no income”, and large fees.

As Dr. Stephen R. Covey once said, “Strength lies in differences, not in similarities.”

The same is true for your investments.

    4.    Hidden Fees

You don’t want to hear the word, “hidden” when it comes to investing your money.

Many mutual funds contain hidden fees, which can result in millions lost during decades of investing. The sad part: many investors don’t know that hidden fees exist.

If you invest in separately managed accounts of stocks of great companies, you don’t have to worry about hidden fees.

    5.    Cap

Large-cap, mid-cap, small-cap. What is a cap?

A cap is a “market capitalization” which is the number of a company’s outstanding shares multiplied by its share price. This number is used to identify the size of a company in the stock market.

If you are planning to hire a financial advisor in 2016, don’t forget the most important thing:

It is okay to ask questions.

At ValueAligned® Partners, we are here to help you decipher financial advisor jargon. We offer a complimentary 15-minute financial check-up that can help you understand where you’re going and how you want to invest your money. You can schedule your financial check-up with me here.