You may have purchased investments from your bank branch, someone who works at a big brokerage, or maybe a small investment boutique. In almost every case, there is a troubling gap between what you are promised, what you get, and how much you pay.
Once again, the underlying problem is fees and commissions that make it difficult to find advice that’s in your best interests. Here are three things you really need to know, but that your investment advisor probably won’t tell you:
If you invest in mutual funds, you may not fully understand the impact of investment fees. It’s typical to pay 2.3% of your investments in fees every year. That may not sound like a lot, but over a few decades, these fees could steal 30%, 40% or even 50% of your life savings.
These days, there is no reason to pay these fees. Low-cost investment options such as ETFs could help put hundreds of thousands of dollars back in your pocket.
Investment companies have lots of fancy strategies and highly-paid experts, but facts are facts. Virtually nobody in the history of the world has been able to beat the market. Of course there are a small number of short-term winners, but they never last, and how can you pick them anyway?
Most investments underperform the market by an amount roughly equivalent to their fees. So it’s best to control what you can, and focus on lower fees.
Many financial advisors will offer to build you a financial plan. Any plan is better than no plan, but there are a few things to keep in mind. It’s no good if it doesn’t integrate your insurance and borrowing. It won’t succeed if it isn’t revised at least annually. And very few advisors can do the advanced calculations needed to truly optimize everything.
And don’t forget – you’re going to pay huge built-in fees for what you get.