Last week, I wrote about how expensive percentage under management fee structures can be for the average investor — especially when they’re also paying mutual fund companies a hefty fee as well. I pointed out that if you pay $7,350 in fees over 25-years earning 8.5%, you’d add $578,977 in savings.
- Investing on your own: As the great Jack Bogle, founder of Vanguard, says, “Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes.” The process of managing investments given today’s resources does not have to be incredibly complex. The keys discussed in our Guide to Smart Investing include keeping your money safe (custody), keeping your fees low, managing your investment tax efficiently, allocating your asset properly, and getting multiple opinions from those you trust.
- Paying a planner occasional flat fees: Some independent “fee only” financial planners will provide you a complete financial plan for a little as $1,000. This plan can get you on the right track if you’re planning to invest without ongoing support from an advisor. Furthermore, some planners have an option of an hour meeting for a few hundred dollars which is another great way to gather a second opinion and gain tips from an expert without paying every year for services you don’t need or want.
- Investing using a Robo-advise platform: Robo-advising provides automated investment management with limited or no human intervention. It uses algorithms based upon your age, income, risk appetite, and other variables in order to keep your portfolio properly balanced. While Robo-advising platforms typically do charge a percentage of assets under management annual fee, those charges are much less than the traditional 1–1.5% more like 0.25%, as an example. Betterment and Wealthfront are examples of companies that are solely focused on robo-advising. However, large traditional investment firms such as Charles Schwab and Vanguard offer robo-platforms as well.
- Using Tilly to help guide you: I’m biased, but Tilly is a great way to keep your fees low and predictable, yet also have access to a financial advisor for big decisions. We accomplish this by providing advice to you virtually. We keep your portfolio balanced and properly allocated like Robo-platforms do, but, do not charge the 1–1.5% annual fee like the traditional face-to-face advisory firms. Tilly will help answer the many complex questions you may have related to buying insurance, saving for retirement, purchasing a home, borrowing money, or all things financial. Learn more about our fee structure and services.
By the way, there is a fifth option I didn’t mention because it’s also very expensive — which is paying a “financial advisor” commissions. This option involves your advisor buying you expensive mutual funds, annuities, and other insurance products that charge big bucks you don’t even know you’re paying. I would avoid that model due to how much the commissions really add up to be. Sit tight, next week I’ll dive deeper into the details of these arrangements.
Lastly, ask yourself which of these four alternatives is best for you? The right answer depends upon personal desires and what is most important to you. For example, if you enjoy learning about investing and money matters, then perhaps investing on your own is best. If you enjoy technology and feel that you can get advice from others about big financial decisions, then maybe robo-advice is a better choice. But think twice before you pay 1 to 1.5% of your investments because that is probably by far the most expensive alternative.