You may like your financial advisor who will typically charge you about 1% a year. When they manage your investments and you make 10% or more, that might not be too bad, right? After all, you don’t know a EBITDA from an ETF do you?
If you are getting a nice return on your investments and satisfied, then stop right here. Go to YouTube.com and watch some cat videos. You are doing ok and deserve to have a few laughs. I am not being sarcastic, I really mean that.
But if you are feeling like your investments are letting you down, then you should roll up your sleeves and start studying the situation. Right off the top, whatever you are making could be making you 1% more by dumping your financial advisor. At the moment you can’t get 1% from a bank savings account, so while it’s not a lot it does add up over time.
Next, you should look at some of the details about the mutual funds your advisor put you into. If the fund has a load charge, I am going to let you learn about that on your own. I found out my advisor put me into a fund with a 5% load and I am still pissed off about that.
Then you need to look at the cost of the funds you are in. Each one has some costs associated with it and covers things like office expenses, transaction costs, and fund manager salaries. I assume that last one is part of the cost but I don’t have a specific breakdown. The costs are not a set amount that you can understand, but shown to us as a “percentage”. Yeah, lots of room to play with there. But we’ll ignore the potential for being screwed at this point.
The cost of a fund means that your investment will make that much less every year. If the markets are bad and the fund only makes 1 percent, you don’t make anything. Normally this is not a problem, but it’s “hidden” to most people so they don’t know about it. Sure, we have to pay the fund managers something, but if a fund is costing more than one percent, you have to ask yourself if it’s worth it or not. Sometimes they really are. But if you have your money in Index funds, the costs are much lower and I have seen them down to 0.10% Index funds follow the markets and they tend to average about 9% – 11% over a period of time. If you are going to have your investments for years, index funds may be a great option.
Anyway, you can see that if your advisor is getting 1% and your funds have fees of about 1% that your money has to generate about 2% just to break even. If you feel so uncertain that you need professional advice or just don’t have the time to learn and manage your investments, then one option is to find an Independent Financial Advisor who you can pay by the hour to look at your investments and work with you to move towards your goals. Get one that will agree to act as a “fiduciary” which means that they have to act in your best interests and not provide advice that is motivated completely or in part by personal gains such as a sales commission.