by Archie M. Richards, Jr., CFP^®
March 13, 2006

Lauren writes, "I'm looking for a financial planner to advise about my investments. But I no longer trust planners affiliated with financial institutions who apply pressure to buy investments that especially benefit them. I'm willing to pay fees. How can I find someone who's knowledgeable and trustworthy?"

From the website of The National Association of Personal Financial Advisors (www.feeonly.org), find an unaffiliated, fee-only planner in your area, Lauren. The phone number is 800-366-2732.

Also visit http://www.archierichards.com/suggested_portfolios.html The two portfolios presented there are essential the same, except that one is for mutual funds and the other for exchange-traded funds (ETFs). If you have Excel, copy the appropriate spreadsheet to your computer. Doing this costs nothing. Share the ideas with your planner.

The portfolios I recommend are available to everyone. But many financial planners would say, "A particular portfolio isn't suitable for everyone. Investments must be tailored to the client's particular circumstances, especially the willingness to accept risk."

Maybe so, but I think the financial industry engages in too much tailoring. The stock market couldn't care less about your particular circumstances. There are a few good ways to invest and a great many poor ways. Here's a good way:

• Isolate in a money market fund the money you know you'll have to spend within five years.

• Avoid individual stocks and diversify doubly. 1) Acquire low-cost mutual funds or exchange-traded funds (ETFs), each of which holds hundreds of individual securities. 2) Buy many such funds, with the bulk of the money in stocks. Each fund represents an asset class (growth, value, big, small, foreign, domestic, REITs, bonds). The price trends of these groups differ from one another, leveling out the overall results. The value of the whole portfolio doesn't fall as much during bad times, making it less likely you'll sell the stocks when everyone around you is pessimistic.

• Rebalance every year and a day. (The extra day avoids short-term gains.) Sell a portion of the groups that have risen substantially and buy more of those that have fallen. You're selling high and buying low automatically. The less often you exercise investment judgment, the fewer mistakes you'll make. My website contains specifics about all this, and the spreadsheet handles rebalancing.

Instead of tailoring a portfolio to the individual client, financial planners should teach clients to accept the modest fluctuations that occur after implementing a strategy like the above.

Designing portfolios is expensive - man, is it ever! America's investment professionals gobble up too large a portion of investment assets. They offer variable annuities, for example, that contain enticing words like "guarantee." The guarantees promise less than they seem to. But variable annuities nevertheless pay salesmen whopping commissions.

Planners say their services are essential, not only to design portfolios, but also to recommend tax savings.

Okay, if you have a special tax problem, like executive stock options, see an advisor. But generally, saving taxes is overrated. It often involves giving up too much control. Some people go nuts about taxes. The amounts they pay the advisor and the opportunities they lose by not investing properly outweigh the taxes saved.

Here are the foremost ways to cut taxes. For these no advisor is needed:

• Avoid high-taxed short-term capital gains. In between the rebalancings, you don't even have to look at the darn investments.

• If your tax bracket is high enough, buy municipal bonds instead of taxable bonds.

Don't let tax considerations trump good investment policies. A good way to cut taxes is to write your congressman and senators.

Finally, if you need help with the annual rebalancing called for in my Suggested Portfolios, pay someone to do it for you. But this service is needed only once a year. What's it worth: a few hundred bucks? Probably less if the person uses my spreadsheet.

The key to successful investing is to keep the majority of your investment assets in a wide selection of foreign and domestic stocks and not sell when they go down. Every other financial planning consideration pales in comparison with this.