For most people, managing their finances or talking about
investing is like pulling teeth. There are a couple of reasons for this.
First, most people are not taught to develop these skills from either
their schools or their parents. Talking about money is very taboo and a
subject in the same arena as religion and politics. It's not surprising
then that most of the wealthy were educated in money by their parents
and do discuss their investments amongst themselves. In any event, when
it comes to money advice, most everyone else looks for professional help
in preparing for retirement while just skirting by with their day to
day bills on their own.
The problem is that these professional and funds charge fees. For most services, it's common practice to pay a set charge per use of the good or service. So you would expect to pay an annual or hourly rate for your financial advisor like you would for your attorneys and accountants. Unfortunately, this is very often not the case. In fact fees are varied and can range from.5% to 2.5%. Even worse, you get double charged; once by the fund you're invested in and then by your advisor based on your account value. And that's not all, there are load fees, transaction fees and more. As long as you're their client, there is a lot of money to be made. Let's look at an example. To keep things simple, let's say you own one fund that charges 1% per year. In addition to that, the advisor that recommended the fund and manages your account also gets 1% based on your total account value. It doesn't matter if you made or lost money, he still gets his 1% either way. That means it's costing you 2% per year in total fees. That also means that you have to beat the overall market by about 3% for it to be worth it.
Let's say your account is valued at $100,000 and all of it is invested in this fund. If you had a 7% gain, your account would now be worth $107,000. But wait, there's fees! $2,140 to be exact. That leaves you with $104,860. Adding insult to injury, there have been many studies that have shown that more than 80% of funds, analysts or financial advisors don't perform as well as the overall market. In the case illustrated above, it's not unreasonable to assume that the overall market increased by 8%. So the question becomes one of the need for help in this area. In fact, there are many ETF's that you can buy that just track the S&P 500. We know from studies that if you invest in a fund like this you'll outperform 8 out of 10 money managers anyway. In addition, there are many online brokers who offer these funds to you free of an annual management fee. You only have to pay the commission when you buy and sell shares. This strategy will allow you to outperform most professionals and pay no fees. In our above example you would have $108,000 by doing it yourself. That's a difference of $3,140 in just one year. Over the long term, it's even better.
The returns over a lifetime from employing this strategy will crush other investors who are investing like the many people who don't know any better. So I leave it to you to ask yourself what you're willing to pay for money advice. Think it over, do your own research and calculations on this and make a decision. As for me, however, I'm very confident that you can do better on your own.
The problem is that these professional and funds charge fees. For most services, it's common practice to pay a set charge per use of the good or service. So you would expect to pay an annual or hourly rate for your financial advisor like you would for your attorneys and accountants. Unfortunately, this is very often not the case. In fact fees are varied and can range from.5% to 2.5%. Even worse, you get double charged; once by the fund you're invested in and then by your advisor based on your account value. And that's not all, there are load fees, transaction fees and more. As long as you're their client, there is a lot of money to be made. Let's look at an example. To keep things simple, let's say you own one fund that charges 1% per year. In addition to that, the advisor that recommended the fund and manages your account also gets 1% based on your total account value. It doesn't matter if you made or lost money, he still gets his 1% either way. That means it's costing you 2% per year in total fees. That also means that you have to beat the overall market by about 3% for it to be worth it.
Let's say your account is valued at $100,000 and all of it is invested in this fund. If you had a 7% gain, your account would now be worth $107,000. But wait, there's fees! $2,140 to be exact. That leaves you with $104,860. Adding insult to injury, there have been many studies that have shown that more than 80% of funds, analysts or financial advisors don't perform as well as the overall market. In the case illustrated above, it's not unreasonable to assume that the overall market increased by 8%. So the question becomes one of the need for help in this area. In fact, there are many ETF's that you can buy that just track the S&P 500. We know from studies that if you invest in a fund like this you'll outperform 8 out of 10 money managers anyway. In addition, there are many online brokers who offer these funds to you free of an annual management fee. You only have to pay the commission when you buy and sell shares. This strategy will allow you to outperform most professionals and pay no fees. In our above example you would have $108,000 by doing it yourself. That's a difference of $3,140 in just one year. Over the long term, it's even better.
The returns over a lifetime from employing this strategy will crush other investors who are investing like the many people who don't know any better. So I leave it to you to ask yourself what you're willing to pay for money advice. Think it over, do your own research and calculations on this and make a decision. As for me, however, I'm very confident that you can do better on your own.
