FINANCIAL HOUSEKEEPING | Learn what to do if your broker changes firms
The ideal relationship with a financial adviser would end in one of two ways: the broker retires or the customer dies. But sometimes, on the way to having an adviser for a lifetime, that broker may change firms.
The typical question for the consumer at a time like this is “Should I stay, or should I go?”
The New York Stock Exchange, as part of its “Informed Investor” series, has tried to help consumers answer that question by running through the concerns a consumer might have when the broker changes firms, and the considerations that are likely to arise.
To plan your course of action, go to www.nyse.com/pdfs/your_broker_changes_firms.pdf.
SHORT COURSE | Leverage
Leverage allows an investor to use a small amount of their own money but get much bigger buying power when making an investment. It’s not always an exotic strategy, as most mortgages are an example of leverage, with the buyer paying for something they can’t buy with cash and keeping any profit made when the property is sold.
Stocks purchased “on margin” are a common leverage play, allowing the investor to borrow some cash from the broker to increase buying power.
Putting up less money means that the return (or loss) can be much larger. In a simplified example, Investor A uses $10,000 of his own money and $10,000 of borrowed money to buy Stock X; when he sells later at $30,000, he has earned a $20,000 profit on the $10,000 he put up, a 200 percent gain. Investor B uses no leverage, laying out $20,000; upon selling for the same $30,000, his profit of $10,000 represents a 50 percent gain.
