You may recall our last blog, where we mentioned the 3rd Commandment of Successful Real Estate Investing, which is to “Maintain direct control of your investments,” and promised to revisit the topic in more depth later. Well, later is now. Direct control is a critical aspect to creating wealth. It’s a simple concept. Directly controlling your investments means you don’t rely on someone else to do the deal for you. Having a trusted financial adviser is a good, make that great, idea but he shouldn’t also be a broker getting a transaction fee for the deal.
Direct control means you must have the capability to buy or sell your own investments at a time and in the manner of your choosing. If Wall Street investing has taught us anything, it’s what kind of shenanigans to watch out for from a broker. The following three reasons are illustrative of why it’s so important to maintain direct control of investments and also why you should pass this knowledge on to your clients.
1. Your broker might be a crook: The list of Wall Street entities who have run afoul of laws is a long one, and recently populated with names like Madoff and Enron. The truth is you simply have no idea if the broker or company you’re dealing with is involved with shady business under the table. Yes, there are good ones and bad ones but you can’t tell them apart until it’s too late and your money is gone.
2. Your broker might be incompetent: Incompetence might be slightly more forgivable morally but just as damaging fiscally. Maybe behind that fancy three-piece suit and 100,000 megawatt smile lurks the brain of a dullard who never really understood what they were teaching him in business school. But somehow he got hired by a real brokerage and now talks the talk like the best of them. And he’s your broker. Not if you have direct control! If it’s true that 70% to 80% of actively managed mutual funds fail to even earn the rate of return of their market index, there’s a lot of incompetency out there.
3. Large fees: Here are some numbers to pay attention to. The average actively managed mutual fund extracts 1% to 2% yearly from your assets for the service. A hedge fund manager charges 2% of assets and 20% of your profit. And this does not even consider the various fees that accompany any action taken by you or the manager. If you think this is not a Big Deal and doesn’t add up to a hill of beans – let’s put this simply – you’re wrong.
And that’s why we want AIPIS trained realtors to understand and implement direct control over their investments and teach their customers to do the same.
The AIPIS Team
Flickr / Jimmy_Joe