The Checklist: What You Need to Know Before You Commit to a Financial Product or Plan

People are quick to dispense advice on any subject, regardless of their qualifications. Most people don’t even distinguish between ‘opinion’ and ‘knowledge’. That’s why you must.”
— Dan Kennedy

Your Uncle Vinnie corners you at the Sunday barbeque: “You got to get on board! It’s like buying into Microsoft in the ’80’s.” Your dentist tells you to open wide and “You gotta check out this once in a lifetime opportunity. It’s the mother lode!” Your golf buddy swears she’s found the “ultimate tax shelter.” Your financial representative calls with an exciting new financial product “that will get you 15% plus annual returns with little or no risk!”

Whatcha gonna do?

Hey, I’ve spent 25 years investigating over 450 financial products and vehicles. The research was intense and required sleuthing skills that probably qualify me for CSI. I can tell you that, though these products were sparkly and seductive on paper, 99.9% of them didn’t stand up to scrutiny!

I’m guessing you don’t have the time or inclination to put in that kind of effort. But to protect your family’s financial future, you need to get answers to at least a few basic questions before you (and your money) jump in:

What is this product’s true track record over the long run?

I’m not talking about claims in sales literature or predicted results if all the stars align and the creeks don’t rise. I’m talking nitty gritty facts: What did the average participant in this product end up with? Over what time period?

Key Point: As the experts will tell you, any results produced over less than 20 years can’t eliminate luck as a factor. Can you verify these results through a third party?

Buyer beware! A vehicle like a mutual fund is only legally required to report the results of “buy-and-hold” investors in its prospectus. So the results they claim in any period assume that all investors bought on the first day of that period and held it until the last day of the period, no matter how wild the ride got.

Sorry. That’s just not how typical investors operate in the real world. They respond (and react) to the ups and downs of the market, so mutual funds are typically held for less than five years.
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What guarantees does this product or vehicle offer?

If the answer is “None,” run for the hills – unless you’re a thrill-seeker who’s prepared to lose his or her shirt!

And if someone tells you to “Suck it up because there are no guaranteed returns when it comes to money,” that’s hogwash! After all my investigations, I did find a vehicle that is guaranteed to grow by a larger dollar amount every single year you have it. And it’s NEVER had a losing year in more than 160 years! It’s called “Bank On Yourself,” and if you’re curious, you can learn more about it here.

The real truth is that when it comes to the Wall Street Casino, the only guarantee you get is that they get paid – whether you win or lose.

What are the fees involved?

Even seemingly nominal fees can eat up much of your account value. According to the Department of Labor, fees of only 1% will devour 28% of your nest-egg over 35 years, assuming a 7% annual return.

But most people are paying more than 1% in fees in their 401(k)’s, IRA’s, and so on. The key is not to underestimate the long-term impact of fees, and to make sure you are aware of all fees you’re being charged. (Especially the ones in itty-bitty print!)

Who is recommending this to you?

Your dentist may be a whiz at crowns and root canals, but what kind of in-depth training does he have when it comes to finance? Does your financial representative have some vested interest in getting you involved in certain financial products? (And if so, did she disclose it up front?) Even if you’re dealing with someone who is financially savvy, do they really know your particular needs and situation well enough to be advising you?

In honor of National Financial Literacy Month and to protect yourself and your family, I urge you to do your own due diligence before jumping on the bandwagon of any financial vehicle or product.

The three questions I always ask myself when considering any financial advice are:

  1. Will this advice or vehicle give me peace of mind and let me sleep at night?
  2. Will it help me get where I want to go without taking unnecessary risk?
  3. Will it allow me to be in charge of my money?

For more insight into how you can secure your family’s financial future, start by finding out what your financial IQ is, when you take this fun and quick quiz.

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