Getting Advice for Investments: Eight Things to Consider for Finding Someone You Can Trust

Whether you're a beginning or seasoned investor, you can find resources on your own to help you make financial decisions, such as online leads to the best money market or CD rates and practically limitless how-to articles on managing your investments.

But you'll probably need the advice of a financial professional at some point, such as when you near retirement or confront an unexpected life change, like divorce or the death of a spouse.

So where do you turn for help?

That's a tough question, particularly in the wake of a turbulent economy when so many people have suffered from what turned out to be poor advice.

You can save yourself from a lot of trouble if you do your homework to find an ethical professional with the right skills and background to meet your needs. Here are eight things to consider:

1. Qualifications

There are a variety of different types of financial advisers, from stockbrokers to Certified Financial Planners (CFPs) to Chartered Financial Consultants (ChFCs), and their designations are something of an alphabet soup. Ask advisers about their education, certifications, licenses, and professional designations--and find out what those designations mean. Go to their professional organizations' Web sites to see what criteria they had to fulfill to achieve the designations, and in what investment areas they're qualified. Do those qualifications match your needs?

2. Services

What services do advisers offer, and how long have they been advising investors in those areas? What are their typical client profiles? Look for advisers who serve clients with needs similar to yours.

3. Background

Get references and talk to current and former clients. Check advisers' backgrounds and see if there are records of any disciplinary actions. Go to the Financial Industry Regulatory Agency's site to find information about stockbrokers, investment advisers, and insurance agents. You can also check out advisers of firms regulated by the U.S. Securities and Exchange Commission on the SEC's Web site, and you can find information on sites of professional organizations, such as the Financial Planning Association. Ask advisers what organizations they're regulated by, and go to those Web sites for information.

4. Fees for Managing You Investments

Find out how advisers charge for their services. It might be a flat fee, a percentage of assets managed, by the hour, or on a commission basis. Get an estimate of how much services will cost based on your needs.

5. Conflicts of Interest

The Certified Financial Planner Board of Standards Inc. recommends that you learn what business relationships and partnerships the adviser has with companies providing financial products and services. How would advisers benefit from recommendations they make to you? Get potential conflicts of interest in writing.

6. Performance History

Get a feel for advisers' investment managing approach. Ask how that approach will help meet your goals and ask about the adviser's track record. Remember Bernie Madoff: A history that sounds too good to be true should raise a red flag.

7. Working Relationship

Find out who will work with you. Will you consult with the adviser or other staff members of the firm? The CFA Institute suggests asking how often the adviser will communicate with you and what regular reports you will receive.

8. Written Agreement

Get a written agreement detailing the services the adviser will offer and the fee structure.

Finally, remember that no financial adviser comes with an absolute guarantee, and ultimately you're the one in charge of your investments. Make sure you understand the advice you're taking, and don't hesitate to get a second opinion for major decisions.

Indexed CD Investments: Are they RIght for You?

If you're looking for a way to boost returns from cash investments, indexed CDs might have some appeal.

These CDs have been around since the late 1980s, the Wall Street Journal reports, but they've been attracting growing attention in the last couple of years as investors look for ways to benefit from stock market gains without losing everything.

Indexed CDs track a market index, such as the S&P 500, the Dow Jones Industrial Average, or treasury bills and pay a percentage of the return. If the index does well, you could earn well above what a typical CD pays, and if the index tanks during the CD term, you keep all of your original deposit.

With even the best one-year fixed CD rates under two percent, it's no small wonder that some investors are turning to indexed CDs.

But indexed CDs are complicated. They work differently than traditional CDs, and they're not without risk. Some experts advise against indexed CDs unless you're an experienced investor. Here's what you need to know:

• Longer Term

Indexed CDs typically have relatively long terms, typically five years or more, while traditional CDs are available in terms as short as one month.

• Early Withdrawal Risks

Indexed CDs are less liquid than traditional CDs. With a traditional fixed-rate CD, you forfeit a few months interest earnings if you withdraw your money before the maturity date. But with an indexed CD, you could lose some of your principal for early withdrawal.

• Sold Differently

While traditional CDs are easy to buy, and you can search for the best CD rates online, indexed CDs are usually sold through financial planners and stockbrokers.

• Harder to Compare

Traditional CDs are easy to compare because they have fixed rates. Just search for CDs with the same term, and you can compare many choices side by side and select the one you want. With indexed CDs, however, it's hard to predict how much you could make or lose, so it's tougher to decide which product on the market is right for you.

• More Investment Risk

With a fixed-rate CD, you're guaranteed a certain rate of return. With an indexed CD, you won't lose any of your principal of the index drops, but you could end up with zero earnings by the end of the term. At that point, traditional CD rates might not look so shabby.

Moreover, some indexed CDs base their returns on more than one index, making it even more complicated for investors, especially newbies, to assess the risk.

• FDIC Insured

Most indexed CDs are FDIC insured, but double check to make sure. Anytime you buy a CD through a broker, find out which financial institution is issuing the CD and make sure it is FDIC insured and your deposits there are within insurable limits. Also, thoroughly check out the broker and the firm selling the CD.

• Important Details in the Fine Print

Because these investment vehicles are complicated, it's important to read the fine print and make sure you understand how the CD works. Some of these CDs have "barriers," for instance, cap how much you can make and lose, and the products vary in what figures are used to measure an index's rise or fall. Some CDs use a point-to-point method, measuring returns from the start of the term to the end, while others use average quarterly or annual returns through the term.

Although indexed CDs do offer some promise in a market where interest rates are at historic lows, they're not for everyone.

Savings Bond Investments: Know Your Limits

An old standby for investors, savings bonds continue to provide good value today. But as with many good things, there are limits. The U.S. government caps annual savings bond purchases to $5,000.

If you're thinking the cap used to be higher, you're right. The U.S. Treasury lowered the cap to $5,000 from $30,000 at the end of 2007. The reduction was made "to refocus the savings bond program to its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest," the U.S. Treasury explained.

But because of the way the cap is applied, it's possible to invest as much as $20,000 a year in savings bonds.

How Limit on Savings Bond Investments Works

The cap is applied separately to the two types of savings bonds and to bonds issued in electronic and paper form. The Inflation Indexed bond, or I-bond, carries a fixed base rate plus a variable rate based on inflation, which is calculated twice a year, and the Series EE bonds earn a fixed rate set in May and November every year for new bonds issued. Interest accrues monthly and is compounded semi-annually for both types of bonds for 30 years.

Both bonds are sold in electronic and paper form, so if you buy I-bonds and EE bonds electronically and in paper, you can invest as much as $20,000 a year.

The limit is per person, so if your spouse does the same, then you could invest as much as $40,000 as a couple in savings bonds each year.

Disadvantages of Making Investments in Your Kids' Names

You can also invest in savings bonds under your children's Social Security numbers, but bonds in childrens' names aren't eligible for the tax-exempt savings program for education. To qualify for that program, you must meet certain income requirements, and the bond proceeds must be used for college tuition or fees for you, your spouse, or your kids. Your child can be listed as a beneficiary, but not as a co-owner of a bond for you to get the tax exemption.

Another downside is that savings in your children's names can make it more challenging for them to qualify for college financial aid, notes Forbes.com columnist Mel Lindauer, coauthor of "The Bogleheads' Guide to Investing."

Tax deferral is the obvious advantage of savings bonds over other safe, liquid investment vehicles, such as CDs, high-yield savings accounts and money market accounts, and they're a good, safe option if you're already investing the maximum amount in your retirement accounts.

Savings Rates on Savings Bonds

I bonds issued between now and May 1, 2010, have a 3.36 percent earnings rate, including a .30 percent fixed rate and a 3.06 percent inflation rate as measured by the Consumer Price Index. For Series EE bonds sold during the same period, you get a fixed rate of 1.2 percent. New rates are set every May and November.

You can buy savings bonds at most banks or online through the U.S. Treasury's Web site, and you can also purchase them with your tax refund by using the direct deposit feature and filling out IRS Form 8888.

If you're looking for short-term savings of less than five years, savings bonds aren't your best bet. Consider instead putting your money in a certificate of deposit, savings account or money market account. You have to hold savings bonds for at least a year, and you forfeit three months of interest if you cash them in before five years.

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Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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