Financial Literacy in a Nutshell

In 2017 I authored a book for a Workforce Development / Train-to-Hire Program sponsored by Hard Rock International. The following is an excerpt from the book concerning basic financial literacy provided as a courtesy to my students and nothing that follows should be taken as professional investment or banking advice. Like with anything it's always best to consult the experts and do your own research. But, that being said I hope it's useful to you. Also, please note that some of the data concerning securities originates directly from the SEC.

Please click here for a rudimentary sample budget spreadsheet.

"2017 Workforce Development Manual CHAPTER 2"

Financial management is a skill like any other and in a capitalist society like ours it’s incredibly important to have. So important in fact, that there are many examples of poor money management turning multi-millionaire heirs and lottery winners into paupers and wise money management turning homeless poor people into multimillionaires.

This section of your instructional manual will walk you through some of the basics of financial literacy to help you learn how to make the best choices in managing your wealth. We’re going to cover the basics of budgeting, banking, investments and other issues related to wealth management.


Having a bank account is a necessity as the cost of operating without one is very high and can be eliminated entirely (i.e. check cashing services). But not all banks are the same and they are worth researching and comparing in order to get the best value. Switching banks can be arduous and disrupting so choosing the right bank from the beginning is important.

Begin by assessing what your needs are and compare as many institutions as you are able to. Also, keep in mind that banks make money from having you as a customer so try not to settle for one with high fees.

Rates and Fees

Banks will always try to push overdraft protection on you because it makes them a lot of money in overdraft charges should you overspend an account. They will offer you this protection when you open your account and possibly afterward as well, but it is rarely a good idea and you would do well to decline.

Pay attention to the rates and fees as you shop for a bank: are there maintenance fees, do they pay interest on your money, do they charge for ATM transactions, do they charge for mailing you statements, are there transaction limits or fees? Remember that banks make money from having you as a customer so avoid paying them for keeping and using your money if you can avoid it. The interest rates you will receive from banks will rarely have a large effect on your wealth, but monthly maintenance and transaction fees can eat away at your money very quickly.

Types of Banks

Though everyone is familiar with brick and mortar banks, today there are many different types of banks that you can choose from and nearly all of them offer the same types of financial products as the brick and mortar “Big Banks” that you are familiar with (i.e. Bank of America, Chase, TD, et cetera).

Big Banks

The Big Banks generally offer the most convenience in terms of location and international transactions, however they also generally have higher fees and or lower interest to pay for the added overhead of maintaining so many stores.

Local Banks

Local banks are limited to a limited geographical area and tend to be more community centric. They generally offer the same services as their larger counterparts and but can sometimes offer much better rates on certain financial products. They typically don’t have a large network of ATM’s however and you may find yourself having to pay ATM fees when away from home. They are not always suitable for large businesses and or wealthy people however who may have to use third parties for some of their financial products.

Credit Unions

Credit unions are not-for-profit organizations owned by depositing members in equal share with a strong community focus. Like regular banks, they offer typical banking services, but often can offer much higher interest rates on depositor money. Each member is also an owner of the bank irrespective of the amount they have deposited in their accounts. Accordingly, each member is entitled to vote on their board of directors and on certain policy matters. The profit generated by the bank is recycled back into itself to offer members reduced fees and higher interest rates. Unlike other banks, you must be invited to be a membership is often limited based on:

Your Employer: many employers sponsor their own credit unions.

Family: Most credit unions allow members' families to join.

Geographic Location: Many credit unions serve anyone that lives, works, worships or attends school in a particular geographic area.

Membership in a Group: Membership in a group, such as a place of worship, school, labor union or homeowners' association may qualify you to join.

Like with smaller banks, branches and ATM locations can be limited. However many credit unions participate in shared branching that provides thousands of free locations nationwide.

Online Banks

Online banks are generally the best option for savings accounts though they can be effective used as your only bank. Many have offer no fees and will generally pay up to 1% or more on your account versus the .01% or negative interest that many of the big banks offer. Rates on savings and CDs are often higher than you can find in any other bank as well and many offer reimbursement on ATM fees. The drawback however is of course that the lack of physical locations can be inconvenient for many people. Reputable banks include Aspiration, The First National Bank of Omaha and E*Trade.

Technology and Convenience:

Convenience may be a more important factor to you than interest rates if you do not keep a lot of money in a particular bank and that should factor into your decision of what bank you choose. For example, though Bank of America rarely offers high rates of interest for normal checking accounts, the convenience of their technology such as offering the ability to deposit checks using a smart phone is often not available from smaller banks.

Because of this it may be advantageous for you to maintain accounts at different types of banks. For example if you wanted to have the convenience benefit of a Big Bank but wanted the superior interest rates of an online bank, you could open an account in each, maintaining the minimum balance amount needed at a big bank to avoid fees and keep the majority of your money that you don’t need immediate access to in an online bank.


The Federal Deposit Insurance Corporation (FDIC) provides $250,000 of insurance per depositor, per FDIC-insured bank meaning that in the unlikely event that your bank went out of business, the FDIC would reimburse you for any losses up to that amount. Credit unions are similarly backed by the National Credit Union Share Insurance Fund (NCUSIF).

Opening an Account

Opening an account is a fairly straightforward process and uniform across the country. Some institutions allow you to open an account entirely online, but otherwise you can visit any branch and open an account as long as you have valid ID and an amount of money to deposit. You can use cash, check or even electronic transfer to open an account.


The very beginning of wealth building and money management begins with budgeting. If you’re new to budgeting, it’s essential to understand what a budget is and how it can help you examine your income and expenses so you can make adjustments accordingly. In a business setting this is done by creating Profit/Loss statements (colloquially known as P&L’s) which analyze income and expenses on a weekly or monthly basis and gives companies snapshots of their financial position. A budget is effectively the very same thing except where businesses are concerned with profit, a personal budget concerns guiding the way money is spent and conserved in order to achieve a particular goal. These goals can be short term such as trying to fund a vacation or long term such as building a nest egg for retirement. But in either case they are incredibly useful tools in managing wealth.

The first step in budgeting is coming up with a baseline of where you stand financially by creating a budget worksheet. There are many resources available to you to help with this including free online services such as, but you can just as effectively use pen and paper or spreadsheet software such as Microsoft Excel or Apache OpenOffice.

To begin you will need to make a list of every source of income you expect to earn in a month including salary, bonuses, child support, royalties, hobby income and any other source of funds that you anticipate. With this data you will make a column labeled anticipated or projected income. Then do the same for a separate list labeled expenses and itemize every expense you can expect including everyday purchases such as groceries, dining out, morning coffee, et cetera.

"It isn't what you earn but how spend it that fixes your class"

Sinclair Lewis

Gross vs. Net: In a financial context, Gross refers to the aggregate of funds before deductions and net refers to the balance actually received.

Subtract the total expenses from income and you will end up with projected net gain or loss. Then over the course of a month log each of the actual income and expenses next to their projected counterparts. Likewise subtract the total and you will have an actual net gain or loss figure. The purpose of having projected and actual columns is that it will at the end of every month show you whether you are over-spending in a given area and notify you of adjustments you ought to make for the following month. You may quickly realize that some regular expenses that seem small add up to quite a lot over the course of a month (For example Starbucks coffee every work day can cost $100 a month).

Budgeting has only one rule: Do not go over budget.”

Leslie Taynelt

Much of the above may not apply to you because everyone has different financial and familial differences so your budget may look very different than the one printed here, however it gives you an idea what your budget should look like and how having this information at a glance will better prepare you for saving and optimizing your income.

Though the monthly budget is most common, there is no reason you should not lengthen or shorten the time-frame to what best makes sense for your circumstances. For example, some people who are paid bi-weekly may find it advantageous to create a biweekly budget instead. For expenses that are annual, quarterly or otherwise do not fit your budget time-frame you can divide the amount of the expense to make it fit. So for example, to budget auto insurance which may be billed annually simply take the annual figure and divide it into your budget time-frame. If your budget is monthly, you would divide by 12, if it’s bi-weekly divide by 26, et cetera.

One line item that you should consider adding in your expense list is an emergency fund. Life can change very quickly and we never know when we might be out of work or have a significant emergency that will cost money. In general it is a good idea to have six months of living expenses saved somewhere just in case.

Track your expenses over the course of time-frame you selected for your budget and at the end of it, compare your projected expenses versus what you actually spent and record the sum. Were your estimates accurate? Did you overspend on a particular line-item? Using this budget you will be better able to control how much wealth you can build by seeing where cuts can be made to increase the amount left over every month. For example using the above budget, suppose the person who it refers to wished to save for a vacation that costs a six hundred dollars. They could look to their budget and work out how they can save that amount by cutting unnecessary expenses and or changing service providers such as moving to a less costly auto insurance company or refinancing for a lower mortgage payment. If they were refrain from dining out for just one month, they will have saved what they needed in only one month.

If at the end of the time frame you elected to budget for, you find that you are over-spending, look to where the money is going in your budget make adjustments as needed to make up the difference. If the opposite is true and you have a surplus you can invest it, save it, pay off loans with it, or simply spend it with confidence knowing you can really afford what you’re buying.


A few people may stumble into wealth or be born into it, but for most people the only way to attain financial security is to save and invest over a long period of time. Making your money for you: that’s investing.

Knowing how to secure your financial well-being is one of the most important things you’ll ever need in life and you don’t need to be a genius to do it. You just need to know a few basics, form a plan, and be ready to stick to it. There is no guarantee that you’ll make money from investments you make, but if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money.

The first step is to find your goals.

To end up where you want to be, you need a financial plan. Ask yourself what you want. List your most important goals first. Decide how many years you have to meet each specific goal, because when you save or invest, you’ll need to find an option that fits your time frame. What are the things you want to save and invest for?

  • a home

  • a car

  • an education

  • a comfortable retirement

  • your children

  • medical or other emergencies

  • periods of unemployment

  • caring for parents

The second step is to start saving.

A line item on your budget should be for saving and investing. What are you paying yourself every month? Many people get into the habit of saving and investing by following this advice: always pay yourself or your family first. Many people find it easier to pay themselves first if they allow their bank to automatically remove money from their paycheck and deposit it into a savings or investment account.

Likely even better, for tax purposes, is to participate in an employer-sponsored retirement plan such as a 401(k), 403(b), or 457(b). These plans will typically not only automatically deduct money from your paycheck, but will immediately reduce the taxes you are paying. Additionally, in many plans the employer matches some or all of your contribution. When your employer does that, it’s offering “free money.”

Any time you have automatic deductions made from your paycheck or bank account, you’ll increase the chances of being able to stick to your plan and to realize your goals. As mentioned in the previous section, if you’re spending all of your income, and never have money to save or invest, you’ll need to look for ways to cut back on your expenses. When you watch where you spend your money, you will be surprised how small everyday expenses that you can do without add up over a year. Earlier I used the example of a small cup of coffee. Let’s explore that:

If you buy a cup of coffee every day for $1.00 (an awfully good price for a decent cup of coffee, nowadays), that adds up to $365.00 a year. If you saved that $365.00 for just one year, and put it into a savings account or investment that earns 5% a year, it would grow to $465.84 by the end of 5 years, and by the end of 30 years, to $1,577.50. That’s the power of “compounding.” With compound interest, you earn interest on the money you save and on the interest that money earns. Over time, even a small amount saved can add up to big money.

If you’re willing to watch what you spend and look for little ways to save on a regular schedule, you can make money grow. You just did it with one cup of coffee and if a small cup of coffee can make such a huge difference, imagine how you could make your money grow if you decided to spend less on other things as well to save those extra dollars.

If you buy on impulse, make a rule that you’ll always wait 24 hours to buy anything. You may lose your desire to buy it after a day. And try emptying your pockets and wallet of spare change at the end of each day. You’ll be surprised how quickly those nickels and dimes add up.

Step three: Pay off credit and high interest debt.

Speaking of things adding up, few investment strategies pay off as well as, or with less risk than, merely paying off all high interest debt you may have.

Many people have wallets filled with credit cards, some of which they’ve “maxed out” (meaning they’ve spent up to their credit limit). Credit cards can make it seem easy to buy expensive things when you don’t have the cash in your pocket—or in the bank. But credit cards aren’t free money.

Most credit cards charge high interest rates—as much as 18 percent or more—if you don’t pay off your balance in full each month. If you owe money on your credit cards, the wisest thing you can do is pay off the balance in full as quickly as possible. Virtually no investment will give you the high returns you’ll need to keep pace with an 18 percent interest charge. That’s why you’re better off eliminating all credit card debt before investing savings.

Once you’ve paid off your credit cards, you can budget your money and begin to save and invest. Here are some tips for avoiding credit card debt:

Put Away the Plastic: Don’t use a credit card unless your debt is at a manageable level and you know you’ll have the money to pay the bill when it arrives.

Know What You Owe: It’s easy to forget how much you’ve charged on your credit card. Every time you use a credit card, write down how much you have spent and figure out how much you’ll have to pay that month. If you know you won’t be able to pay your balance in full, try to figure out how much you can pay each month and how long it’ll take to pay the balance in full.

Pay Off the Card with the Highest Rate: If you’ve got unpaid balances on several credit cards, you should first pay down the card that charges the highest rate. Pay as much as you can toward that debt each month until your balance is once again zero, while still paying the minimum on your other cards. The same advice goes for any other high interest debt (about 8% or above) which does not offer the tax advantages of, for example, a mortgage.

Now, once you have paid off those credit cards and begun to set aside some money to save and invest, what are your choices?

There are two ways to make money;

1. You work for money. Someone pa ys you to work for them or you have your own business.

2. Your money works for you. You take your money and you save or invest it.

There are two ways to make your money work for you;

Your money earns money. When your money goes to work, it may earn a steady paycheck. Someone pays you to use your money for a period of time. When you get your money back, you get it back plus “interest.” Or, if you buy stock in a company that pays “dividends” to shareholders, the company may pay you a portion of its earnings on a regular basis. Your money can make an “income,” just like you. You can make more money when you and your money work.

You buy something with your money that could increase in value. You become an owner of something that you hope increases in value over time. When you need your money back, you sell it, hoping someone else will pay you more for it. For instance, you buy a piece of land thinking it will increase in value as more businesses or people move into your town. You expect to sell the land in five, ten, or twenty years when someone will buy it from you for a lot more money than you paid. And sometimes, your money can do both at the same time— earn a steady paycheck and increase in value.

The Differences between saving and investing;


Your “savings” are usually put into the safest places, or products, that allow you access to your money at any time. Savings products include savings accounts, checking accounts, and certificates of deposit. Some deposits in these products may be insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration. But there’s a tradeoff for security and ready availability. Your money is paid a low wage as it works for you.

After paying off credit cards or other high interest debt, most smart investors put enough money in a savings product to cover an emergency, like sudden unemployment. Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it.

But how “safe” is a savings account if you leave all of your money there for a long time, and the interest it earns doesn’t keep up with inflation? What if you save a dollar when it can buy a loaf of bread. But years later when you withdraw that dollar plus the interest you earned on it, it can only buy half a loaf? This is why many people put some of their money in savings, but look to investing so they can earn more over long periods of time, say three years or longer.


When you “invest,” you have a greater chance of losing your money than when you “save.” The money you invest in securities, mutual funds, and other similar investments typically is not federally insured. You could lose your “principal”—the amount you’ve invested. But you also have the opportunity to earn more money.

Common Types of financial products:


  • Savings Accounts

  • Certificates of Deposits (CD’s)

  • Checking Accounts


  • Bonds

  • Stocks

  • Mutual Funds

  • Real Estate

  • Commodities (Gold, Silver, etc.)


All investments involve taking on risk. It’s important that you go into any investment in stocks, bonds or mutual funds with a full understanding that you could lose some or all of your money in any one investment. While over the long term the stock market has historically provided around 10% annual returns (closer to 6% or 7% “real” returns when you subtract for the effects of inflation), the long term does sometimes take a rather long, long time to play out. Those who invested all of their money in the stock market at its peak in 1929 (before the stock market crash) would wait over 20 years to see the stock market return to the same level.

However, those that kept adding money to the market throughout that time would have done very well for themselves, as the lower cost of stocks in the 1930s made for some hefty gains for those who bought and held over the course of the next twenty years or more.

It is often said that the greater the risk, the greater the potential reward in investing, but taking on unnecessary risk is often avoidable. Investors’ best protect themselves against risk by spreading their money among various investments, hoping that if one investment loses money, the other investments will more than make up for those losses. This strategy, called “diversification,” can be neatly summed up as, “Don’t put all your eggs in one basket.” Investors also protect themselves from the risk of investing all their money at the wrong time (think 1929) by following a consistent pattern of adding new money to their investments over long periods of time.

Once you’ve saved money for investing, consider carefully all your options and think about what diversification strategy makes sense for you. A vast array of investment products exists—including stocks and stock mutual funds, corporate and municipal bonds, bond mutual funds, certificates of deposit, money market funds, and U.S. Treasury securities.

Diversification can’t guarantee that your investments won’t suffer if the market drops. But it can improve the chances that you won’t lose money, or that if you do, it won’t be as much as if you weren’t diversified.

So what are the best investments?

The answer depends on when you will need the money, your goals, and if you will be able to sleep at night if you purchase a risky investment where you could lose your principal. For instance, if you are saving for retirement, and you have 35 years before you retire, you may want to consider riskier

investment products, knowing that if you stick to only the “savings” products or to less risky investment products, your money will grow too slowly—or, given inflation and taxes, you may lose the purchasing power of your money. A frequent mistake people make is putting money they will not need for a very long time in investments that pay a low amount of interest.

On the other hand, if you are saving for a short-term goal, five years or less, you don’t want to choose risky investments, because when it’s time to sell, you may have to take a loss. Since investments often move up and down in value rapidly, you want to make sure that you can wait and sell at the best possible time.

When you make an investment, you are giving your money to a company or enterprise, hoping that it will be successful and pay you back with even more money.

Stocks and Bonds

Many companies offer investors the opportunity to buy either stocks or bonds. The example below shows you how stocks and bonds differ.

Let’s say you believe that a company that makes automobiles may be a good investment. Everyone you know is buying one of its cars, and your friends report that the company’s cars rarely break down and run well for years. You either have an investment professional investigate the company and read as much as possible about it, or you do it yourself.

After your research, you’re convinced it’s a solid company that will sell many more cars in the years ahead. The automobile company offers both stocks and bonds. With the bonds, the company agrees to pay you back your initial investment in ten years, plus pay you interest twice a year at the rate of 8% a year.

If you buy the stock, you take on the risk of potentially losing a portion or all of your initial investment if the company does poorly or the stock market drops in value. But you also may see the stock increase in value beyond what you could earn from the bonds. If you buy the stock, you become an “owner” of the company.

You wrestle with the decision. If you buy the bonds, you will get your money back plus the 8% interest a year. And you think the company will be able to honor its promise to you on the bonds because it has been in business for many years and doesn’t look like it could go bankrupt. The company has a long history of making cars and you know that its stock has gone up in price by an average of 9% a year, plus it has typically paid stockholders a dividend of 3% from its profits each year.

The Differences between Stocks and Bonds:


If the company profits or is perceived as having strong potential, its stock may go up in value and pay dividends. You may make more money than from the bonds.

RISK: The company may perform poorly or fail and you’ll lose some or all of your investment.


The company promises to return money plus interest.

RISK: If the company goes bankrupt. Your money may be lost. However if there is money left in the company during the bankruptcy, you will be paid before stockholders.

"In investing, what is comfortable is rarely profitable."

Robert Arnott

Mutual Funds

Because it is sometimes hard for investors to become experts on various businesses—for example, what are the best steel, automobile, or telephone companies—investors often depend on professionals who are trained to investigate companies and recommend companies that are likely to succeed. Since it takes work to pick the stocks or bonds of the companies that have the best chance to do well in the future, many investors choose to invest in mutual funds.

What is a mutual fund?

A mutual fund is a pool of money run by a professional or group of professionals called the “investment adviser.” In a managed mutual fund, after investigating the prospects of many companies, the fund’s investment adviser will pick the stocks or bonds of companies and put them into a fund.

Investors can buy shares of the fund, and their shares rise or fall in value as the values of the stocks and bonds in the fund rise and fall. Investors may typically pay a fee when they buy or sell their shares in the fund, and those fees in part pay the salaries and expenses of the professionals who manage the fund.

Even small fees can and do add up and eat into a significant chunk of the returns a mutual fund is likely to produce, so you need to look carefully at how much a fund costs and think about how much it will cost you over the amount of time you plan to own its shares. If two funds are similar in every way except that one charges a higher fee than the other, you’ll make more money by choosing the fund with the lower annual costs.

Index Funds

One way that investors can obtain for themselves nearly the full returns of the market is to invest in an “index fund.” This is a mutual fund that does not attempt to pick and choose stocks of individual companies based upon the research of the mutual fund managers or to try to time the market’s movements. An index fund seeks to equal the returns of a major stock index, such as the Standard & Poor’s 500, the Wilshire 5000, or the Russell 3000. Through computer programmed buying and selling, an index fund tracks the holdings of a chosen index, and so shows the same returns as an index minus, of course, the annual fees involved in running the fund. The fees for index mutual funds generally are much lower than the fees for managed mutual funds.

Historical data shows that index funds have, primarily because of their lower fees, enjoyed higher returns than the average managed mutual fund. But, like any investment, index funds involve risk.

Opening a Brokerage Account

When you open a brokerage account, whether in person at a financial Institution or online via companies such as E*Trade, you will typically be asked to sign a new account agreement. You should carefully review all the information in this agreement because it determines your legal rights regarding your account.

Do not sign the new account agreement unless you thoroughly understand it and agree with the terms and conditions it imposes on you. Do not rely on statements about your account that are not in this agreement. Ask for a copy of any account documentation prepared for you by your broker.

The broker should ask you about your investment goals and personal financial situation, including your income, net worth, investment experience, and how much risk you are willing to take on. Be honest. The broker relies on this information to determine which investments will best meet your investment goals and tolerance for risk. If a broker tries to sell you an investment before asking you these questions, that’s a very bad sign. It signals that the broker has a greater interest in earning a commission than recommending an investment to you that meets your needs. The new account agreement requires that you make three critical decisions:

  1. Who will make the final decisions about what you buy and sell in your account?

You will have the final say on investment decisions unless you give “discretionary authority” to your broker. Discretionary authority allows your broker to invest your money without consulting you about the price, the type of security, the amount, and when to buy or sell. Do not give discretionary authority to your broker without seriously considering the risks involved in turning control over your money to another person.

2. How will you pay for your investments?

Most investors maintain a “cash” account that requires payment in full for each security purchase. But if you open a “margin” account, you can buy securities by borrowing money from your broker for a portion of the purchase price. Be aware of the risks involved with buying stocks on margin. Beginning investors generally should not get started with a margin account. Make sure you understand how a margin account works, and what happens in the worst case scenario before you agree to buy on margin. Unlike other loans, like for a car or home, that allow you to pay back a fixed amount every month, when you buy stocks on margin you can be faced with paying back the entire margin loan all at once if the price of the stock drops suddenly and dramatically. The firm has the authority to immediately sell any security in your account, without notice to you, to cover any shortfall resulting from a decline in the value of your securities. You may owe a substantial amount of money even after your securities are sold. The margin account agreement generally provides that the securities in your margin account may be lent out by the brokerage firm at any time without notice or compensation to you.

3. How much risk should you assume?

In a new account agreement, you must specify your overall investment objective in terms of risk. Categories of risk may have labels such as “income,” “growth,” or “aggressive growth.” Be certain that you fully understand the distinctions among these terms, and be certain that the risk level you choose accurately reflects your age, experience and investment goals. Be sure that the investment products recommended to you reflect the category of risk you have selected. When opening a new account, the brokerage firm may ask you to sign a legally binding contract to use the arbitration process to settle any future dispute between you and the firm or your sales representative. Signing this agreement means that you give up the right to sue your sales representative and firm in court.

Protect Yourself

Unfortunately many brokers and professionals understand that finance can be very complex and some may try to take advantage of people new or unknowledgeable about investing. So how do you protect yourself? ASK QUESTIONS!

You can never ask a dumb question about your investments and the people who help you choose them, especially when it comes to how much you will be paying for any investment, both in upfront costs and ongoing management fees.

Here are some questions you should ask when choosing an investment professional or someone to help you:

• What training and experience do you have? How long have you been in business?

• What is your investment philosophy? Do you take a lot of risks or are you more concerned about the safety of my money?

• Describe your typical client. Can you provide me with references, the names of people who have invested with you for a long time?

• How do you get paid? By commission? Based on a percentage of assets you manage? Another method? Do you get paid more for selling your own firm’s products?

• How much will it cost me in total to do business with you?

Your investment professional should understand your investment goals, whether you’re saving to buy a home, paying for your children’s education, or enjoying a comfortable retirement.

Your investment professional should also understand your tolerance for risk. That is, how much money can you afford to lose if the value of one of your investments declines? An investment professional has a duty to make sure that he or she only recommends investments that are suitable for you. That is, that the investment makes sense for you based on your other securities holdings, our financial situation, your means, and any other information that your investment professional thinks is important. The best investment professional is one who fully understands your objectives and matches investment recommendations to your goals. You’ll want someone you can understand, because your investment professional should teach you about investing and the investment products

How Should I Monitor My Investments?

Investing makes it possible for your money to work for you. In a sense, your money has become your employee, and that makes you the boss. You’ll want to keep a close watch on how your employee, your money, is doing.

Some people like to look at the stock quotations every day to see how their investments have done. That’s probably too often. You may get too caught up in the ups and downs of the “trading” value of your investment, and sell when its value goes down temporarily—even though the performance of the company is still stellar. Remember, you’re in for the long haul.

Other people prefer to see how they’re doing once a year. That’s probably not often enough. What’s best for you will most likely be somewhere in between, based on your goals and your investments.

Most Major Brokers such as E*Trade and TD Ameritrade have smartphone apps that allow you to check your portfolio’s performance right from your phone.

But it’s not enough to simply check an investment’s performance. You should compare that performance against an index of similar investments over the same period of time to see if you are getting the proper returns for the amount of risk that you are assuming. You should also compare the fees and commissions that you’re paying to what other investment professionals charge. While you should monitor performance regularly, you should pay close attention every time you send your money somewhere else to work.

Every time you buy or sell an investment you will receive a confirmation slip from your broker. Make sure each trade was completed according to your instructions. Make sure the buying or selling price was what your broker quoted. And make sure the commissions or fees are what your broker said they would be.

Watch out for unauthorized trades in your account. If you get a confirmation slip for a transaction that you didn’t approve beforehand, call your broker. It may have been a mistake. If your broker refuses to correct it, put your complaint in writing and send it to the firm’s compliance officer. Serious complaints should always be made in writing. Remember, too, that if you rely on your investment professional for advice, he or she has an obligation to recommend investments that match your investment goals and tolerance for risk.

Your investment professional should not be recommending trades simply to generate commissions. That’s called “churning,” and it’s illegal.

Choosing someone to help you with your investments is one of the most important investment decisions you will ever make. While most investment professionals are honest and hardworking, you must watch out for those few unscrupulous individuals. They can make your life’s savings disappear in an instant.

Securities regulators and law enforcement officials can and do catch these criminals. But putting them in jail doesn’t always get your money back. Too often, the money is gone. The good news is you can avoid potential problems by protecting yourself.

Let’s say you’ve already met with several investment professionals based on recommendations from friends and others you trust, and you’ve found someone who clearly understands your investment objectives. Before you hire this person, you still have more homework.

Make sure the investment professional and her firm are registered with the SEC and licensed to do business in your state. And find out from your state’s securities regulator whether the investment professional or her firm have ever been disciplined, or whether they have any complaints against them. You’ll find contact information for securities regulators in the U.S. by visiting the website of the North American Securities Administrators Association (NASAA) at or by calling (202) 737-0900.

You should also find out as much as you can about any investments that your investment professional recommends. First, make sure the investments are registered. Keep in mind, however, the mere fact that a company has registered and files reports with the SEC doesn’t guarantee that the company will be a good investment. Likewise, the fact that a company hasn’t registered and doesn’t file reports with the SEC doesn’t mean the company is a fraud. Still, you may be asking for serious losses if, for instance, you invest in a small, thinly traded company that isn’t widely known solely on the basis of what you may have read online. One simple phone call to your state regulator could prevent you from squandering your money on a scam.

Be wary of promises of quick profits, offers to share “inside information,” and pressure to invest before you have an opportunity to investigate. These are all warning signs of fraud. Ask your investment professional for written materials and prospectuses, and read them before you invest. If you have questions, now is the time to ask.

Finally, it’s always a good idea to write down everything your investment professional tells you. Accurate notes will come in handy if ever there’s a problem. Some investments make money. Others lose money. That’s natural, and that’s why you need a diversified portfolio to minimize your risk. But if you lose money because you’ve been cheated, that’s not natural, that’s a problem.

Sometimes all it takes is a simple phone call to your investment professional to resolve a problem. Maybe there was an honest mistake that can be corrected. If talking to the investment professional doesn’t resolve the problem, talk to the firm’s manager, and write a letter to confirm your conversation. If that doesn’t lead to a resolution, you may have to initiate private legal action. You may need to take action quickly because legal time limits for doing so vary. Your local bar association can provide referrals for attorneys who specialize in securities law.

At the same time, call or write to the SEC and let them know what the problem was because the SEC takes customer complaints very seriously. You may think you’re the only one experiencing a problem but typically, you’re not alone. Sometimes it takes only one investor’s complaint to trigger an investigation that exposes a bad broker or an illegal scheme.

Complaints can be filed online at

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