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Scams and frauds are designed to take your money through false promises and phonyclaims. Money management is supposedly designed to increase your net worth. Sometimes these two worldsmeet and the results are not in your favor, i.e., youhave a considerable decrease in net worth.

The information in this article won’t keep future money managers honest but it will help you find the one who is right for your situation. There are four criteria you must consider before you give your money to anyone to manage.

1) Philosophy– This is the thought theology used by the money manager to make your money grow. In other words, does (s)he focus on stocks, options, mutual funds, annuities, a blend of investment vehicles, etc.? Does this philosophy coincide with your risk tolerance? If stocks are too risky, a manager concentrating in that arena isn’t for you. The philosophy also points you to their performance.

2) Performance– We all know the markets are not stagnant. They go up, they go down. No investment manager can predict the market with absolute certainty. But, they should perform well, or even above average, in their specialty. For example, a stock focused money manager in today’s market environment should have performance numbers that would make even Warren Buffet take notice. You want as long a performance record as possbile. To be fair, one market cycle should give you a decent indication of the manager’s performance in his/her area(s) of expertise.

3) Process– This is the means the manager uses to select securities for the portfolios. For example, does (s)he rely
only on in house research or does (s)he incorporate research
from outside sources? If so, who are they and on what frequency are they used?

4) Personnel– Besides wanting to know the manager’s experience, you’d be wise to learn all you could about the folks working in the office. Who actually manages the portfolio? His/her experience? How long has (s)he been in business? Who will manage your account when (s)he is out of the office, on vacation, on business?

Some people would say cost is one of the criteria.I say it is, but to a lesser degree.In over 30 years in this business, I can guarantee that paying the highest commission did not necessarily result in receiving the best advice. Paying the lowest commission did not necessarily result in receiving the worst advice.

Cost comes in the form of fees and commissions. ALL money managers charge. Cost, initially,should not be in your criteria because it often becomes the ONLY determining factor. That will skewer your thinking and could result in not having a
winning team working for you. Make the above four parametersyour
primary criteria and cost will take care of itself.

How? You will be quoted a charge. If you are not comfortable with that price, negotiate. All fees and commissions are negotiable. If the manager refuses to negotiate, then and only then, make cost a member of the criteria team.

This article won’t solve all of the money management problems or costs associated therewith. However, it’ll at least start you thinking in the right direction and keep
your money in your pocket until you are ready to hand it over.

2004 (c) This article may not be reprinted without permission of the author who can bereached at tom-koziol@excite.com

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Let’s face it. Most of the financial advice out there says something like this, “If you make on average $60,000 per year…” Most of the advice is designed for baby boomers about to retire. The young generation 35 years-old and under are not going to relate when their incomes range from $25,000 to $40,000. True their income may rise someday but there is a good chance it could decrease with the onslaught of lay-offs, downsizing and cost cutting. The wages their parents earned who worked at companies like GM making a combined income of benefits and wages in the $65 per hour range are not likely to be around in the future. Many of these companies have two-tier wage systems that hire new workers somewhere around $24 per hour (benefits and wages combined). Not only are low wages going to be a problem but also lack of employment opportunities, high interest mortgages, expensive college education, lack of social security income and major cut backs in all federal spending. So what strategies should a young person making his/her way in a “tough times” economy to do?

The biggest advantage young people have is their age. Compound interest is a very powerful force that is likely to make or break a retiree. By putting away only $200 per month from the age of 30 and compounding it at 9% interest a young person could have around $500,000 by the time they are 67 years-old. Double that amount and you could be well over a million dollars. With a 401K offered by your employer it becomes very easy to save because it is pretax dollars that you don’t have to think about.

You may also choose to put your money into a Roth IRA. Generally, the money is taxed before it is put away and then you don’t have to pay taxes on it in retirement. Not a bad deal when it has compounded for 30 years. The best retirement utilizes a combination of the two. It is beneficial to put away money automatically in your 401K and set a goal of putting away $100 or $200 per month into a Roth IRA.

One may also consider reducing the cost of big expenditures and saving big money. The housing market is beginning to cool as baby boomers are leaving the market with their large incomes. It won’t be long before appreciation on houses has returned to a mediocre percent such as 3%-5%. As a young person trying to show his or her financial stuff they may want to buy the nicest houses they can get. Unfortunately that nice house also comes with a large mortgage payment. A good rule to follow is that your housing cost should not be over 25% of your household income. For example, If my wife and I make 70,000 (two young professionals at $35,000/year) than we could have a house that costs $1,400 per month. Because we are financial savvy, with a lot of energy, we bought an older house with an $800 per month mortgage payment, put our sweat equity in it, and watched its value increase 20%. Because we were under our $1,400 limit we also bought 10 acres for a nice cottage at $300 per
month. Now we are increasing our long-term assets at a cost of $1,100 per month. What happens to the savings? Well they go into our retirement account.

Of course one of the best ways of saving money is diverting your expenses into investments. Basically, “You don’t buy what you don’t need!” Go to discount grocery stores, take cheap vacations within driving distance, buy good quality clothes at discount prices, and stick to a solid budget. It is much easier to save money than it is to make more. Keep in mind that even though you don’t look as wealthy as your friends you are probably much wealthier financially. Trust me; no one gets out of college making a hundred thousand dollars a year. Therefore, don’t try and make your self look like it.

Murad Ali is a two-time published author of “A call to greatness” and “An American Mecca that deals with the economic and political reform. He is the author of The Muslim Times, runs a consulting business, is a doctoral student and a farm owner. For more articles written by Murad visit www.muradenterprises.org

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