Frequently Asked Questions

Often times our clients have questions. We are happy to share these Frequently Asked Questions section to assist you. Let us know if you have other questions.

What information should I expect to provide when working with my Financial Advisor?

To assist you in developing a financial strategy that’s right for you, it is important for your financial professional to understand as much about your finances as they can. For your protection, the National Association of Securities Dealers (NASD) requires your financial professional to ask about your financial situation, financial goals, investment time horizon and risk tolerance in order to assure your choice of investments are suitable for your financial situation.

How often should I meet with my Financial Advisor?

You should plan to meet with your financial professional at least once a year to re-evaluate your plan strategy. If you have a major change in your life – an inheritance, a new child, a death, marriage, health concerns – you should meet with your financial professional to make any needed adjustments. Remember this is your financial strategy and you should know how you are progressing towards your goals.

What is the benefit of tax-deferred growth?

With tax-deferred growth, you do not have to pay taxes on your earnings until you withdraw your money. This allows you to keep more of what you earn and increase your savings.

How do I save for my children’s education/futures?

One of parents’ biggest concerns is giving their child the best education possible. A solid education, a good job, a secure future – you want nothing less than a future filled with happiness and security for your child. It’s never too early to start planning and it is never too late to evaluate your resources. There is a lot of information available on the Internet, through bookstores, and from financial agents in regards to saving for your child’s future. Keep in mind that every family’s situation is different, and strategies should be tailored to an individual’s situation.

Focus on the Goal
Your goal is to save for your child’s education. You have an idea of how much post-secondary education is going to cost you. Just as you would save for any other goal, save the same way for college/university. Estimate what you will need, figure in what you already have and how much you will need to save per month to get there. Utilize our calculators to assist you in determining how much you need to save. Also see our asset allocation models to see what strategies will help you reach your goal. If you can’t afford right now to save the entire amount necessary, save the most you can.

Stay Disciplined
Make a plan to save on a routine basis and make saving a priority. Saving routinely will keep you on track to meet your goal.

Will I just let my Financial Advisor decide when/where to invest?

Financial Advisors are simply managers of mutual funds. They decide what’s best to do to meet the objectives of their funds. As your Registered Investment Advisor, we decide which funds your assets should be invested in to meet the specific goals and investment objectives of your portfolio. Your goals and objectives are derived from the Investor Profile that you complete when you first open your account or establish your Investment Portfolio.

What is a comfortable risk tolerance level?

You are the best judge of what is a comfortable risk tolerance level for you. Comfort can come from understanding the factors involved in investment risk and investment reward. Better informed investors make better judgments about how much risk they are willing to tolerate which is why we provide so much educational content on this website. We believe that education builds trust, trust builds confidence, and confidence builds comfort. With the appropriate risk tolerance level, you will not spend time worrying about the short-term performance of the markets or your investment portfolio.

How is a hedge fund different from a mutual fund?

Mutual funds are subject to rigorous oversight and regulation. Mutual funds are limited by regulation in the strategies they can employ (e.g., mutual funds are limited in their ability to engage in short sales and use leverage). Hedge funds, on the other hand, typically qualify for exemptions from registration under the securities laws and therefore generally are not constrained by regulatory limitations on their choice of investment strategies. Whereas mutual funds often seek to realize “relative” returns, that is, they measure their success by comparison to the performance of a benchmark like the S&P 500 stock index; hedge funds typically pursue “absolute returns”, which often are purposefully not correlated to a traditional investment index. In this way, hedge funds can offer investors risk-adjusted returns that are unrelated to the performance of traditional stock and bond investments and therefore diversify and enhance the overall risk-adjusted returns of their investment portfolios. In addition, hedge fund managers typically have a substantial amount of their own capital invested in the funds they manage – often more closely aligning the managers’ interests with those of their investors.

How do hedge funds manage the risks of their investments?

Because hedge fund managers often engage in complex trading strategies that involve risks of varying types and degrees, a sophisticated and rigorous approach to risk management is essential to their success. As a result, many hedge funds have been actively investing in and building risk management systems that rival those of the largest global financial institutions and hiring the best available risk managers. Since 2000, the hedge fund industry has published a series of detailed recommendations on sound risk management practices, most recently by MFA in 2009 (see MFA’s 2009 Sound Practices for Hedge Fund Managers). These recommended practices have been adopted by the larger hedge fund managers in recent years, as their growth has resulted in the implementation of more formalized and sophisticated management policies and structures. These risk management recommendations address the establishment of an independent risk monitoring function, the performance of stress tests and back-testing, the management of liquidity and counterparty credit risk and measuring leverage and its impact on other types of risk, among other risk management practices.

Why do I have to pick a specific risk tolerance level?

When you choose your risk tolerance level you allow your Advisor to make an informed decision about where and how your assets should be invested to fulfill your investment objectives. This information leads to the exact distribution of your assets into various asset classes.

What are “retail” hedge funds?

The term “retail” hedge funds refers to registered investment funds that invest in hedge funds.

Due to increased investor interest in hedge funds, certain fund sponsors have recently registered investment funds that invest in hedge funds, or “funds of hedge funds”, in order to offer these products to the public. Because these funds are registered for public offering, they can be made available to investors that meet lower financial net worth and sophistication standards than those required of direct hedge fund investors.

What is the difference between a Growth, Balanced and Income Portfolio?

In brief;

Income Portfolios contain a small amount of high-quality stocks and a large amount of high-quality bonds – designed to deliver a steady income.

Balanced Portfolios are an equal blend of growth stocks and high-quality bonds – designed to deliver a moderate amount of income.

Growth Portfolios contain mostly high-quality stocks and a small amount of high-quality bonds -designed to maximize gains.

What purposes do hedge funds serve in the financial markets?

Public and private sector experts have recognized that hedge funds provide significant market as well as investor benefits. Hedge funds enhance market liquidity, helping to absorb shocks in volatile markets, reducing the severity of price fluctuations and fostering smaller bid-ask spreads and lower transaction costs. Banking supervisors have acknowledged that hedge funds can provide systemic benefits to financial markets by increasing liquidity and efficiency and fostering financial innovation and the allocation of financial risk; in short, they may add depth and liquidity to financial markets and can be stabilizing influences. Hedge funds also provide a critical source of liquidity to relatively illiquid markets and structured investments, such as the mortgage derivatives, distressed securities, and risk arbitrage markets, which depend upon access to sizeable pools of investment capital.

How do hedge funds employ leverage to achieve returns?

Although many hedge fund strategies rely on leverage to achieve desired returns, many do not.

Hedge funds are in the business of seeking and assuming calculated risks in order to achieve the returns desired by their investors. Some hedge funds invest in generally low-risk strategies, such as securities arbitrage, and leverage their positions in order to offer a reasonable expectation of return. Other hedge funds employ little leverage, particularly where the instruments in which they invest already have a high risk-return trade-off.

What are the benefits to working with a financial professional?

With the variety of investment choices available today, it is difficult to make a solid financial plan without researching your own needs and determining appropriate products to meet those needs. Unfortunately, our daily lives often prevent us from spending the necessary time to reach our financial goals. Working with a financial professional allows you to get assistance from someone who can pinpoint your needs and do the research for you. Taking a professional approach to meeting your investment needs and goals can save you time and allow you to make solid choices in regard to your financial plan.

What can a financial professional provide for me?

Personalized Attention
Financial professionals take time to get to know who you are. The most important information they receive is directly from their clients. Understanding your financial situation, goals, investment time horizon and risk tolerance enables your financial professional to assist you in creating a strategy that fits both your objectives and budget requirements.

A Resource for Information
Your financial professional is your personal financial instructor. From explaining financial terms to providing illustrations about various financial products, a financial professional’s goal is to assist you in making educated decisions in the implementation of your financial strategy.

Recommendations and Assistance
A financial professional has the expertise, resources, and time to keep abreast of market news, legislation, and industry trends. A financial professional can analyze how these trends could affect your investment portfolio. They can provide you with current information and explain how these changes affect your investment strategy and objectives.

Specifically, an advisor can:

  • Explain financial products and how they work.
  • Compare various financial products vehicles and describe the pros and cons of each with regard to your personal financial goals.

Continuing Support
As your life changes, so does your investment strategy. Your financial professional is here to help you continually, not just when you begin to invest your money. As trends and legislation change, your financial professional can update you on how these changes affect you. Your financial professional is available to address concerns and questions regarding swings in the market.

What kind of returns can I expect?

Past performance is no guarantee of future results. There is no way to predict the returns you will receive. However, a prudent investor might look at long-term results achieved by different asset classes such as stocks and bonds in order to build a proper allocation plan. An investment in a mutual fund portfolio is not a bank deposit. It is not insured or guaranteed by the Federal

Deposit Insurance Corporation or any other Government Agency. Investment returns and the principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the performance data quoted.

Why do you want to know about my current employment?

Registered Investment Advisory firms operate in a fiduciary role, which means they must put the best interest of the client ahead of everything else when they make investment-related decisions. To do this properly, an advisor needs to know his client. The answer to each of these personal questions provides the Retirement Corporation of America with a better understanding of your circumstances, investment goals and objectives.

What is a primary beneficiary?

A primary beneficiary is the person you designate to receive the assets in your qualified retirement accounts when you die. Generally, this is your spouse. You can name an entity – like an institution, company, trust, charity, or another organization – or your estate – as your primary beneficiary.

What is the difference in risk level between Growth, Balanced and Income portfolios?

Growth portfolios should experience the greatest degree of volatility (change in investment value, both up and down). Income portfolios should experience the least amount of volatility.

Balanced portfolios should experience a moderate amount of volatility. Investment advisors can measure the amount of risk associated with your portfolio. Each Money Masters Investment Portfolio is designed to stay within a specific risk tolerance level and standard deviation.

How do you determine which stocks/bonds mix is right for me?

When you answer the questions in the Investor Profile questionnaire, you provide us with all the information we need to decide which Money Masters Investment Portfolio best suits your needs.

How will my portfolio compare to other people’s?

Your portfolio is designed specifically to meet the goals you set when you answered the questions in the Investor Profile questionnaire. Other people may have different goals and risk tolerance levels. If they provide different answers, we will choose a different portfolio for them.

You are best advised to pay attention to what’s right for you, dealing with your specific assets and needs, and not be distracted by what others are doing.

What is the difference between Low and Low-to-Medium Risk?

Low-risk investments tend to grow slowly with very little price volatility. Medium-risk investments are positioned to grow faster but experience modest amounts of volatility. Risk can be managed, but not eliminated, by diversification across different asset classes, different investments, different geographical regions, and different mutual fund managers.

What is a “hedge fund”?

A private investment pool, managed by a professional investment firm. A hedge fund can be broadly defined as a privately offered fund that is administered by a professional investment management firm (or “hedge fund manager”). The word “hedge “refers to a hedge fund’s ability to hedge the value of the assets it holds (e.g., through the use of options or the simultaneous use of long positions and short sales). However, some hedge funds engage only in “buy and hold” strategies or other strategies that do not involve hedging in the traditional sense. In fact, the term “hedge fund” is used to refer to funds engaging in over 25 different types of investment strategies, that fall in five major groupings: global macro, directional, event driven, relative value and miscellaneous. (****)

What investment strategies do hedge funds employ?

Many hedge fund strategies provide returns to investors that are not correlated to those of traditional stock or bond markets. As noted above, hedge funds often are not restricted either contractually or by regulation in their choice of investment strategies. As a result, the hedge fund industry represents a widely varied universe of investment styles and strategies. The major strategies include “macro” or global directional investment strategies; “market-neutral” or arbitrage strategies; long only, short only or long/short strategies for trading in equities; event-driven strategies, which seek to profit from anticipated events, such as mergers or restructurings; regional strategies, which concentrate on a particular geographic region (such as emerging markets), sector strategies, which focus on a particular industry; and specific asset class strategies (such as currencies). One of the reasons that regulators have restricted retail investors’ access to hedge funds is the more complex risk/reward ratio that these alternative investment strategies can present. A list of over 25 investment strategies and their definitions can be found at the web site for Hedge Fund Research, Inc.

Who invests in hedge funds?

Institutional investors and a restricted class of high-net-worth individuals. Domestic and foreign insurance companies, university and charitable endowments, pension funds, banks and other investment funds are among the most significant investors in hedge funds. Because they are not registered for public sale, hedge funds are required by law to limit their investors to those that satisfy special qualifications as outlined by the regulators.

Hedge funds generally may offer shares only to “accredited investors”, which include banks, business development companies, trusts and other institutional investors as well as natural persons with financial assets greater than $1 million or individual income in excess of $200,000 or joint income in excess of $300,000 in each of the last two years.

How are hedge fund managers compensated?

Hedge fund fees generally differ from those charged by retail mutual funds in that they generally are a combination of asset-based fees and performance fees or allocations, while mutual fund fees tend to be simply a fixed percentage of assets (though some registered funds do charge so called fulcrum fees, which are a type of performance-based compensation). A typical hedge fund manager may charge a 1% fee based on assets under management and be entitled to 20% of any trading profits as a “performance fee”. This means that the fund manager must make a profit for investors in order to receive a performance fee. [these are expenses separate and apart from the management fee and, other than sales loads, are also generally charged to hedge fund investors.] Performance fees are essential to a hedge fund manager’s ability to attract and retain the most talented and sophisticated investment professionals because they allow the manager to compensate them based on the returns they earn. Many investors believe that a performance-fee arrangement causes the interests of a fund manager to be better aligned with those of the fund’s investors.

What percentage of my total assets will be invested into stocks, bonds, and cash?

Each of the Money Masters Investment Portfolios contains a different blend of stock and bond Money Masters. The precise blend of stocks and bonds is detailed for you in the “Money Masters Investment Portfolio” section of our website

How big is the hedge fund industry?

Although the hedge fund industry has grown in recent years, hedge funds represent only a small fraction of the investment industry as a whole. According to PerTrac’s (www.pertrac.com) February 2009 data there are in excess of 18,000 hedge funds and fund of funds in existence worldwide, with total assets under management of approximately $1.5 trillion. It is estimated that 75% of all hedge fund assets are managed by just over 200 firms, each with over $1 billion in assets under management. While these figures reflect strong growth in recent years, the hedge fund industry remains small relative to the estimated $16.2 trillion mutual fund industry.

Why has investor interest in hedge funds grown in recent years?

An increasing recognition that many hedge funds are a valuable diversification tool that can perform well in falling markets. Many hedge funds provide attractive mechanisms for portfolio diversification because their returns have little or no correlation to those of more traditional stock and bond investments. As a result, many hedge fund categories tend to outperform these investments during periods of poor market returns. Much of the growth in hedge funds since the 1980s can be attributed to the increasing recognition by institutional investors, confirmed by a growing body of academic research, that hedge funds are an attractive alternative asset class that can help diversify returns and, in doing so, reduce the overall risk of an investment portfolio. Other reasons that account for increased interest in hedge funds include the decline in mutual fund returns and the movement of talented investment professionals to trading on behalf of hedge funds.