- Posted June 22, 2014 by
San Diego, California
Prepare For Retirement – Treat Your Money Like You Treat Your Children
One essential thing everybody must do is take a good thorough look at your portfolio.
Find out everything you can about the investment you own, and evaluate your risk from as many angles as you can. Stay current on the actual stocks, bonds, or funds, not just the total value of your account. Look them up, look at their history, keep track of them, and make sure you know exactly what the fees are inside of each mutual fund if you own stock or bond funds. Make sure you know exactly how much you’re paying to your adviser, to the financial custodian that services your account, and the transaction fees for the trades your adviser makes.
Develop a thirst for financial knowledge and information and read as much as you can; both articles and books. Pay attention to the market, and stay current by using online resources like Yahoo Money and Market Watch, among others. Ask your adviser for clarity and perspective on whatever you learn. If they aren’t willing to actively advise you, they are probably not “actively managing” your money and there’s no sense in paying somebody to be asleep at the wheel.
When you add up all of your fees and look at them as a percentage of your account balance; that is the gain you must make just to break even. You could be in a position where you have to make 2%, 3%, even 4% on your money just to get to zero by the end of the year. That’s a pretty serious risk factor because a market gain can still be a loss, and it’s even more risky if you depend on a market portfolio for income.
To illustrate this point, here is a fee story. The picture is of a retired woman in her 60s that keeps losing money in her portfolio and doesn’t know why. Her account is worth around $400,000, it’s all the money she has in the world, and she needs $2000/month to get by.
She thinks she’s paying a 1% advisory fee, but she doesn’t know about the other fees because she doesn’t read her statement or research her mutual funds. She has no idea that she’s actually paying close to 3% in total fees. 3% of $400,000/year is $12,000, and it would actually be more if the account generated enough growth to provide the income; that is to pay the fees, and still not lose money. So, annual income of $24,000 + fees of $12,000 means the portfolio must generate roughly $36,000/year just to break even.
So the moral of the story is to study up, keep track of your money, ask questions and be an active participant in the management of your portfolio.