JP Morgan’s startling trading loss of $2-5 billion is a good reminder to investors to watch out for hidden problems in their own portfolios – unknowns that should have been known. After the fact, it is easy to see how JPM went astray, but is it possible to see – or avert – one’s own problems ahead of time? Yes, and here’s what to look for.
First of all, choose your money manager carefully. Unfortunately money attracts crooks, so make sure you Madoff-proof your portfolio with two simple steps:
Choosing your manager is an important decision. But no matter whom you choose I feel there are a few basic checks and balances that will dramatically reduce your chances of a major surprise or problem. It’s not realistic to expect perfection from your advisor, but it is reasonable to expect good faith, sound practices and decisions made with your interests in mind. Use these four simple steps to keep your investments on track with your wishes and goals:
I am happy to say that these safeguards are standard operating procedure at Osbon Capital. In my view, index-based investing using exchange traded funds (ETFs) sets the standard for avoiding unknowns that should have been known.
ETFs are diversified by definition, holding dozens if not hundreds or thousands of securities. The index ETFs we use are completely rules-based and clear as glass; you can always see what you own and understand exactly what is going on in the portfolio. We strongly favor ETFs with low fees and expenses so you keep more of what you earn. And lastly, we document the individual allocation and diversification for each client quarterly, in pictures, in numbers, and in color. It’s that important.
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