This may sound pretty obvious, but fees can really hurt your retirement savings. That said, what is an appropriate fee to be charged? Where are those fees coming from? Is a financial advisor worth the cost?
In this article, I provide some insight into some of these questions.
What fees am I paying?
There are essentially two fees that you could pay. First is the fee to your advisor. This can come in the form of commissions, percentage of assets under management (AUM), or an hourly fee.
Be advised, advisors paid via commissions could steer you towards investment products that pay them a higher commission, whereas a fee-only advisor would and CAN ONLY do what is in your (the client) best interest.
The second way is fund expenses. If you invest in a mutual fund or an ETF (more info here) it will show an expense ratio. This is what it costs to operate the fund (i.e. salaries, administration, marketing, etc.). This should be far below 1%, and the lower, the better.
How do those fees affect my nest egg?
If you aren’t careful and diligent with your fees, they can, quite possibly, cut your nest egg in half!
Here’s an example from the New York Times to further illustrate my point.
Initial investment is $100,000. After 20 years, assuming a 4 percent annual rate of return and no fee, this grows to $220,000. However, if we assess a 1% annual fee to this portfolio, you lose $28,000 in value.
Is a financial advisor worth the cost?
If you are just looking for someone to manage your assets and you have no intention of touching that money for three to four decades, then no, a financial advisor probably isn’t worth it.
However, investing for retirement is only one small piece of the puzzle. Below are the other important puzzle pieces.
- Are you saving enough for retirement?
- Do you have rainy day fund for emergencies?
- Do you have appropriate insurance coverage?
- Do you have an estate plan?
- How will taxes impact your finances?
- Do you have kids that need college savings plans?
- The market is declining, do you sell or hold on? Who can you ask?
- What if you have other questions? Are you willing to sit on hold for someone in another state/country?
Obviously, I’m a little biased, but investing and fee mitigation is just a small part of your financial life. Using an advisor improves the likelihood that all of your needs are being met.
Additionally, choosing the right advisor is even more important than deciding to hire one in the first place. Use the link above for more on this topic.
Yes, picking quality investments and keeps your fees low is very important, but there’s more to it. We don’t save nearly enough for retirement.
24% of people have less than $1,000 saved for retirement. 55% have $50,000 or less saved. Just 20% have $250,000 or more saved for retirement, and that $250,000 is a far cry from what most people need during their golden years.
For more on how fees can impact your investments and for our disclosure visit www.crgfinancialservices.com.