Everybody has to start investing somewhere. All of the people below have one thing in common:

22 year old starting his first job after college
Family having their first child
A business owner setting up a company retirement plan
Heirs receiving a check from an estate settlement
Homeowners selling their house to move to another state
Retirees getting their distribution from their 401(k)

What they have in common is that they may, for the first time in their lives, have financial assets that need to be invested. This can be a daunting and scary undertaking. But it doesn’t have to be as confusing and difficult as some make it. Working with someone you trust can make the task much more easily understood and even enjoyable.

It’s a process not a product
The first thing to understand is that investing is a process; it is not a product or a one-time activity. There are no perfect investments, and anybody that tells you there is should be avoided. You can’t just plunk your money down and hope for the best. Since the markets and economy are cyclical, your investments need to adjust in anticipation of those changes. A well-managed portfolio will look different in 5 years and 10 years than it does today.

Look in the mirror
The next thing to determine is what kind of investor you are. There are two types of investors; those that want to do it themselves and those that want to hire a professional. If your over-riding priority is for low expenses and you are not interested in the additional benefits of professional management, then you are a likely candidate for doing it yourself. There are all sorts of discount brokers and plenty of information available online. Some people turn investing into their hobby.

On the other hand, if you understand that investing is a full time job and you know that you don’t have the time or the inclination to spend hours each week researching and analyzing the markets and economy, then you are more likely a candidate for professional management. Good management doesn’t just understand the markets but also can offer many extra benefits including various planning services and financial services.

But who do you go to? Who can you trust?

Get a referral
That is a tough question since Wall Street seems to have gone out of its way to break the public’s trust. The best answer is to check with your friends, check with other people like you and see who they use. Talk with people you respect and get a referral from them. There are many highly qualified and reputable investment managers.

Do some legwork, interview a couple of managers
So you get a referral, now what? You need to interview the manager/broker. There are a number of things you should find out, including investment style, services offered, communication with clients and performance.

Fees are important, just not the most important factor
Contrary to what the investment magazines and TV tout, fees are NOT the most important issue with regard to investing. They are important, but they are not the most important issue. The best performing funds each year are not the ones with the lowest internal fees. Study after study has shown that there is no correlation between fees and investment performance.

That said, you don’t want to be foolish. There are some money managers with exorbitant fees. Some money managers charge fees on mutual funds that pay the money manager a fee already. You do want to compare fee structures and get the most for your money. The lowest isn’t always the best, nor is the highest. But when comparing two managers and there is a difference of ¼% to ½% - if you like the higher priced manager or their performance is better, go with them. For the ½% extra fees you pay, you will probably reap much more in benefits.

“X” Factor is Key
The “X” factor is the most important variable. Do you like the manager? Do you get along with him? Does he seem to care about you or are you just another account? You may not like a money manager that you interview. Don’t do business with somebody you don’t like.

Plan before investing
The first thing any good money manager will do is put on a financial planner’s hat before doing anything with your money. It is important that he understands your financial situation and manages accordingly. It is not necessary to get a full-blown financial plan from him. If they have been around long enough, within a matter of minutes they will have a good picture of your finances and your objectives. Not that you aren’t special, but a manager with enough experience has just about seen it all, so your situation isn’t unique to him.

If you do get a full-blown financial plan in writing, remember much of the report is strictly boilerplate. It is the same for everybody. They just change the numbers around and estimates to fit you. That doesn’t mean it is bad, just don’t be overly impressed by the size of it. The content is what is important.

We at Cornerstone have tested many of the major financial planning programs and have discovered that many financial plans based their expectations on the past 20 years of market performance. Since the bull market lasted from 1982 through 2000, those numbers could be overly optimistic. If you were to apply the performance of the market from 1966 through 1982, you would be looking at flat to negative returns.

Blinded by pie-in-the-sky returns
It has been our experience that many financial plans and investment firms point to the past 20 or so years as the investment norm. Some even emphasize the past 10 years that included the bubble years at the end of the 90’s. These are performance numbers that we may not see again for years, maybe decades. But people like to see a financial plan with expected returns of 15% plus. They get excited by the potential riches and ignore the risks.

Control your emotions
And that is just what attracts many clients to certain types of money managers – the promise of irrationally high returns that, if you really think about it, can’t be attained. But investors can be emotional. They tend to forget the rules of investing and let greed take control. Once greed is in charge, rationality goes out the window.

Likewise, fear is just as bad. Fear can freeze investors into inaction. They can end up holding onto bad investments because they are afraid that whatever is next could be even worse; or they keep everything in cash for fear of making a bad decision. There are some brokers that prey on investor’s fears. They talk about doom and disaster. They push investors into investments with guarantees that may or may not be appropriate. (Variable annuities come to mind.)

Trust your manager
If you have done your homework, you should be with someone that 1) you are comfortable with; 2) has a good track record 3) has a clear plan for the future and 4) the research to back up his position. So when the market goes against you for a while, (It could be months) don’t worry. If he’s not getting upset, then you shouldn’t. (Yes, I know everybody always want to make money, but the smart money knows that you don’t always go straight up.) (If however, the manager starts to panic over losses and strays from the stated plans, then you should look for somebody else.)

Also, if you are with a money manager that offers planning services, don’t be afraid to avail yourself of them. Estate planning is especially something that a good firm can be helpful with. Most people don’t know which way to turn. Too many people end up going to the family lawyer and get a will and trust that was taken off of a template on his computer. It is our opinion that if you have assets over $1,000,000 or a complicated estate, you should be going to a lawyer that specializes in estate planning. A specialist will know strategies that the average lawyer usually doesn’t.

Keep in touch
You should be getting regular communications from your manager via email or phone or newsletter, but it doesn’t hurt to call now and then to say hi and check up on things. Don’t be afraid to ask questions. You may find yourself relying on your manager for other things than just money management. For instance, they are a good source for referrals to reliable professionals in any number of industries.