Here’s the rub when it comes to riches: Not everyone who has money knows how to make money through solid investing.
“The problem with the rich uncle syndrome is that some folks marry money or they are just lucky,” says Keith Baker, program coordinator for mortgage banking and financial services at North Lake College in Irving, Texas. “They’re not a really good source of financial literacy education. A true mentor has to get something out of the relationship for it to work. That ‘something’ usually is a stream of ideas from the person being mentored — some of which are useless or dumb and others that might have merit.”
What does the mentoring dynamic look like, and what should you look for in an investment mentor? Here are seven important factors to consider as you seek the right financial whiz to bolster your investment growth curve.
[See: 20 Awesome Dividend Stocks for Guaranteed Income.]
Wanted: Someone who rides a cycle. A magnificent mentor knows how to keep their cool when typical investors get hot under the collar. “Psychology and emotions commonly get in the way of doing well in investing,” says Scott M. Sadar, executive vice president of Somerset Wealth Strategies in Portland, Oregon. “It’s not just about the math. People often get nervous and sell stocks at the wrong time. Too often, they don’t stay in the market to ride the elevator back up, either.”
It’s all about relationships. What good is a one-time pep talk if it doesn’t plant a seed to grow over time? The proposition goes both ways. “Focus on your potential relationship with this individual,” says Thomas Walsh, certified financial planner and portfolio manager with Palisades Hudson Financial Group’s Atlanta office. “Be thorough and judicious in your selection of a mentor as you are investing a lot of trust in this person. Initial meetings should establish the foundation of a business relationship and create expectations for both parties.”
Some things you can’t learn in a book. A mentor lives not in the world of the theoretical, but the practical. “Real advice comes from real experience,” says David Bach, author of the New York Times bestseller “The Automatic Millionaire” and director of investor education at AE Wealth Management. “The person who’s giving it to you has ‘been there and done that.’ I’m a huge believer in the power of power mentors — people who can coach you and guide you from real life success, failure and recovery. I don’t need a perfect person, I need real experience.”
And other things you can. Bob Johnson, president and CEO of the American College of Financial Services in the Philadelphia area, notes that simply reading the writings of a prominent investor can work wonders. “The annual letters to shareholders of Berkshire Hathaway (ticker: BRK.A, BRK.B), written by the Oracle of Omaha, Warren Buffett, are a terrific place to start. Buffett has a gift to present fairly complicated topics in easily understandable language,” Johnson says. Best of all, “These letters are available at no cost on the internet.”
[See: 7 Notable Quotes From Warren Buffett.]
Go DIY via the CFP. The fascinating part of mentoring is that some guides want to be sought out. Baker suggests searching the certified financial planner board website, at cfp.net. The references may mean mentorship at a fee, but it’s all about the return on investment. Baker adds: “You can do a simple search in LinkedIn ( LNKD) using ‘investment and mentoring’ and you will get about 24 hits — some of which are humorous or even scary, and a couple of real possibilities.”
Do the due diligence. So how do you tell crackpots from the jackpot? “Do your due diligence on any financial advisor before you hire them,” Johnson says. “Check with FINRA, the SEC, and state regulators to see if the advisor you’re considering shows up with any past violations. It always amazes me that people will do a great deal of research before booking a vacation, or buying a car. Yet when it comes to hiring a financial advisor they will fail to do the simplest due diligence.”
[Read: Why Investors Shouldn’t Play Follow the Leader.]
Never ignore the bore. Many a magnetic hotshot can’t match a sage who’s methodical — or even plodding. “Slow and steady wins the race,” says Rich Arzaga, founder and CEO of Cornerstone Wealth Management in San Ramon, California. “The question becomes, what’s the best way to master slow and steady? Look for people long in experience in the area you choose, and who have managed volatility into the middle 70th percentile. Consider a mentor you can count on more for what they’ve accomplished in this regard rather than what they say, or their new ideas.”
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7 Tips to Find Effective Investment Mentoring originally appeared on usnews.com
