If you handle your own investments well, it's only a matter of time before you'll get asked to help others with their investing. But if you think investing with other people's money won't be any different from handling your own portfolio, think again.
Right now, most people are scared stiff about their money. With even stalwarts like General Electric (NYSE: GE ) having seen huge losses, few people feel truly confident about their investing skills. So, if you've kept your wits about you throughout the panic, you're a rare commodity -- and all sorts of people and groups will want your advice. For instance:
- Charities faced with difficulties in raising funds are trying to eke out every penny they can from endowment funds and other assets, all the while trying to avoid the Madoff trap that ensnared many of their peers. They're always looking for qualified professionals with investing expertise to sit on nonprofit boards.
- As your parents get older, they may turn to you for advice -- or they may lose the capacity to handle their own investments, putting you in a position where you have to take over.
Depending on the situation, you might jump at the chance to offer your hard-earned investing expertise to help others. But before you do, make sure you understand just how different a game you're getting into.
It's not about you
The first and most important thing you have to do when you get involved in managing someone else's money is to put aside your own financial situation. That's because it's totally irrelevant to how you'll help others.
That may seem obvious, but it's a lot harder than it looks. You've probably spent years finding your comfort level and areas of expertise in investing, and you won't want to give those up lightly.
For instance, back in 1999, I worked with some folks who had created a new nonprofit. Having funded the charity with shares of Microsoft (Nasdaq: MSFT ) and Amazon.com (Nasdaq: AMZN ) , they proposed having the charity hold onto those shares rather than diversifying. When pressed, they said they might consider selling shares -- as long as they could buy stock in Internet-related startups in their place. But they were totally uncomfortable with shares of non-tech companies, because they didn't have firsthand knowledge of them.
A different answer for them
That sounds reasonable on the surface. But the investing methods that worked for you won't necessarily be right for the people or groups you're helping.
For instance, your parents likely have a completely different risk profile from yours. For example, if you're helping to manage your parents' retirement nest egg after they've finished their careers, then you have to be sensitive to their greater aversion to taking chances. Under those circumstances, blue-chip stocks like AT&T (NYSE: T ) and Procter & Gamble (NYSE: PG ) may be the best for them, even if you've made a fortune for yourself with more aggressive choices.
Similarly, with charities, time horizon is everything. If a charity is struggling to make ends meet, it probably shouldn't have anything in stocks -- it may have to get at its money quickly to cover basic needs. On the other hand, if you have a long time to make up any losses, you can afford to take more risk. Look at Yale University's endowment fund: It has earned huge returns over the years by owning a variety of investments, currently including Acadia Realty Trust (NYSE: AKR ) and the S&P 500 ETF SPDR Trust (NYSE: SPY ) , as well as a host of privately traded investments.
Do it right
None of this is to say that you shouldn't help out when asked. Now more than ever, charities need smart, experienced people to help them invest -- and obviously, you won't want to turn your own family down.
The key to doing a successful job, though, is knowing what it takes to work with other people's money. It may be tough to do well, but if you can truly put yourself in their shoes and apply your street smarts and experience in the way that they would if they knew everything you do, then you'll do fine.
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