All about investment

By Donald Harder

1. Your stock broker has an inventory that his boss wants him to unload.

Stock broker firms often buy securities in bulk and then turn around and sell the stock out of their own inventory. However, unlike a retail store, your stock broker won’t have a sale to move the product off the shelf. Rather, the stock broker firm will turn up the pressure on its sales force to increase sales of that investment.

Don't be a bag holder: Stockbrokers may also trade securities out of their own accounts, so in addition to the commission incentive, there could be a profit incentive, as your stock broker sells you, taking profit on the stock his firm bought at much lower prices.

Hidden fees and commissions: For more complicated and longer-term investments, like limited partnerships, the stock broker firm may collect management fees. More commonly, bigger stock broker firms may pay stock brokers more for selling the firm's proprietary products. Also, for some investments the stock broker gets a residual payment in addition to the commission, which means he gets a percentage of the assets as long as you continue to own the investment. But you may never know these things.

Click here to see what is possible with just a little bit work and a simple game plan.

2. A stock broker's main qualification is that he can sell.

You may also be unaware of other incentives that increase conflicts. When a stock broker transfers to a new firm, he may be offered, in addition to a signing bonus, an accelerated payout—a higher commission for the first month or year.

You can imagine the incentive that stock broker has to "push product" before his commission drops to a lower percentage. Similarly, at the end of the year, many firms pay their stock brokers based upon the percentage of commissions they generated on a sliding scale.

The more commissions over a year the stockbroker generates, the higher his percentage goes and the more money he is paid at the end of the year. There’s a natural conflict to try to generate more commissions at the end of the year based on this higher payout.

One of the worst atrocities is the sales contest. Brokerage firms will load stock brokers with gifts, trips or just extra money for selling over a certain amount of a particular investment during a given time period. Rarely, if ever, are you the client made aware of this. Even the most naive investor would think twice about buying an investment if she was told that one of the reasons the investment is being suggested to her is because some stock broker can win a trip to Hawaii.

3. Your stock broker puts you at way too much risk.

Stock brokers are famous for telling you to buy and hold. But testing the record of this strategy is as easy as looking at a simple NASDAQ chart for the past 10 years. If you had bought in 1997 you would be sitting on a loss by 2002.

If you were unlucky enough to have bought in 2000, and many were because stock brokers had a big incentive then to unload their inventories, you would still be suffering a loss 7 long years later.

A simple CD would have outperformed this record and would have at least kept up with inflation

4. Anybody can be a stock broker.

Anyone can be a stock broker, including your next-door neighbor or your used car salesman. All it takes is licensing by the state and federal government; which isn’t quite as difficult as it sounds. Many stock brokers enter 5-day study courses, pay their fees, take the tests and it’s off to sales training.

Yes, that's right. Sales training. Stock brokers don't have time to really learn how the market works when sales quotas are their biggest pressures.

No other qualifications are necessary. A college degree is not needed. More often than not, stock brokers are not trained how to read market trends or other techniques and they have no idea where the best place to buy and the best place to sell is. What are important are sales quotas and commission rates.

The fact is, your next store neighbor can manage your money if he only decides to go out and take a couple of tests. But since your neighbor doesn’t care about your finances any more than you care about his, we have one simple question to ask.

Why not you?

No, we are not suggesting you go out and take the Series 7 and become a stockbroker. We are suggesting, however, that you take more of an initiative in managing your own future. You are the only one who cares, really cares how you do.

You are the only one who does not have a conflict of interest and will have only your own best interest at heart. And you can do it. It’s not as difficult as you may think. It is possible to earn tremendous returns on your money while managing risk much better than your stockbroker can or will.

Stop accepting meager returns that are eaten up by your broker's commission and conflicts of interest: Your broker tries to get you to accept returns of 7% - 12%, which is ok, but why should it take you a year to get there?

You work hard, but how much time do you spend managing your money? The simple truth is that you spend 40 hours a week or more going to work. You spend a couple hours a week mowing the lawn and taking care of the yard. You spend an hour or more a day preparing dinner. You spend 2-3 hours a day watching TV. How much time to you spend planning for your future?

Do you know that if you are willing to put aside just a few minutes a day that you can start earning returns on your money that dwarf anything your stockbroker promises you? Do you know that by spending just a few minutes each day that you can manage your risk much better than your stockbroker can? It is no secret. The strategy is simple and if you take the time to learn, it will make sense to you.