Allocating on Your Own
As you begin to set up your asset allocation, you may decide to make allocation decisions yourself instead of hiring a financial planner.
If you decide to make your decisions, you'll be responsible for all aspects of managing your investment account, including:
Doing your own research. You'll want to get familiar with the screening tools for researching stocks and mutual funds. Screening tools are available at the Web sites of most online brokers. You can also find these tools at fund and stock data research companies like Morningstar.
You can find independent sources of investor education at the Web sites of the Securities and Exchange Commission (SEC), Investment Company Institute (ICI), Mutual Fund Education Alliance (MFEA) and American Savings Education Council (ASEC).
You will also want to keep an eye on company news and earnings announcements by companies whose shares you own.
Trading securities for your own account. You can buy and sell securities on your own by opening a brokerage account. You can also buy and redeem mutual funds directly from a mutual fund company without opening an account. The ICI maintains a directory of member mutual funds.
Establishing trading discipline. When trading for your own account, you will sometimes have to know when to take profits or cut your losses. Many financial experts regard this kind of trading discipline as essential to adhere to an asset allocation or other investing strategy.
Buying and selling securities -- especially if you're doing so profitably -- can be a source of adrenaline that may lead to excessive trading. However, excessive trading leads to higher transaction fees that diminish investment returns. It may also result in poor asset allocation decisions as you lose track of your portfolio holdings.
Asset allocation is a strategic decision, not a tactical one. The frequent trading that usually characterizes tactical asset allocation decisions is best left to the professionals who aim to exploit short-term, temporary changes in values and have their firm's capital to back them up.
If you decide to go with a financial planner, expect to pay a fee as compensation for advice. The fee may be a fixed amount, a percentage of assets invested on your behalf or a combination. You may be able to negotiate a discount if you obtain advice from your bank or other financial institution.
A financial planner should have, or be in pursuit of, a major financial planning credential and not merely possess a sales license. Here are three major financial planning credentials that you may want to ask about:
Certified Financial Planner (CFP). The CFP Board, Denver, Colorado, is the professional regulatory organization responsible for licensing of CFPs. CFPs have passed an exam after completing a curriculum spanning over 100 topics of financial management, including professional ethics.
Chartered Financial Consultant (ChFC). The American College, Bryn Mawr, Pennsylvania, is responsible for licensing of Chartered Financial Consultants, who must pass an exam after completing an eight-course curriculum on financial management topics that includes estate, investment, insurance and income tax planning.
Personal Financial Specialist. The AICPA Center for Personal Financial Planning Professionals accredits Personal Financial Specialists (PFS). A PFS is a Certified Public Accountant with significant experience in personal financial planning.
Making your own asset allocation decisions requires time, effort and self-discipline. Although trading for your own account can be a rewarding and educational experience, you may still wish to consult a financial adviser beforehand.
This information should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.