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What Should I Ask My Advisor in Times of Turmoil? Pt. 2

January 11, 2019

With the increase of volatility continuing in the recent months, we thought it was important to have a Part 2 of what you may want to ask your advisor to drive more alpha in your portfolio. Alpha is the return you create that goes beyond the overall market return, adjusted for measured risk in the portfolio.

 

Some ways you can create this is by selling covered calls.

 

Ask your advisor, “Do I currently have a covered call strategy implemented in my portfolio?”

 

Now what this means is; you will need at least 100 shares of a certain XYZ stock or ETF. Once you have 100 shares of a company you can sell 1 call contract per 100 shares that you own. Another element to keep in mind is that you will want to make sure the premium (selling price) is worth collecting. This strategy is great for high flying stocks like Amazon or Boeing. Even though you might only collect a small amount compared to your overall investment, it's a great way to generate alpha and have a slight hedge if the stock sits or even drops.

 

A lot of people may ask how good is my advisor? Is he or she worth the amount they’re charging me? Many people think they know exactly what their advisor charges them but I think many would be surprised. Your advisor should gladly share with you what their fee structure is and break it down monthly, quarterly, and annually. They should also include any hidden fees that you may not understand. Are you getting charged for quarterly reviews? Are you getting charged for certain investment vehicles?

 

I would ask your advisor, “Can you please provide me with a break down of all fees? I would like to know what the monthly and annual fees are as well as any additional, hidden, or other fees that are being charged to me.”

 

Hopefully the fees being charged are reasonable. Not all high fees are bad if they are driving a return that justifies what is being charged, such as going the extra mile executing covered calls. If it's justified, then don’t sweat a high fee structure but remember that if the return starts to fall, you may want to think about seeking a new advisor with lower fees and a consistent return.

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