Take Care of Your Own Money

Every business has three main stakeholders: customers, employees, and investors. The CEO’s job is to make all of them happy. But when it comes to an investment firm/broker, who is actually making the customer happy?

It’s hard to believe that a broker is acting on good faith when you find out that he/she has invested half of the capital of a senior person in a municipal bond that returns a high-yield.

Broker: This is a triple tax-free bond and its yield is more than what you were expecting.
Senior person: Really? That’s sounds great, sign me in!!

Just because a senior person wants a high-yield on his/her money, it doesn’t mean that is the right strategy. A broker that is acting on good faith will explain and recommend a good strategy, which in this case is to leave a good amount of money in cash. When you start reading and learning about the financial markets, then you can see the lack of commitment from the broker and you start wondering about the fiduciary duty, which is a legal duty to act solely in another party’s interests. Maybe the broker was looking out for his/her own well-being.

Every alarm inside your body has to go off when you are presented with a municipal bond that returns a high-yield. Before you put your money inside a bond like that you really need to look under the hood and ask yourself the famous questions: what, where, when, why, who and how?

In this case, what is going to happen if the senior person needs part of the money for healthcare expenses and the bond has lost 62% of its initial investment. Now that person is married to a bond that is going to mature in 22 years. You can always sell and take the loss, but the last time I checked that is not the meaning of acting on good faith, just because the broker wanted his/her fees.

There a few lessons that we can take away from this, but the ones that I want to drive home are:

  • Make sure you learn how to ask good questions.
  • The best person that will manage and care about your money is yourself, not the investment broker, financial planner or the government.