Investment Advice: What Kind of Help Do You Really Need? How Much Should it Cost?

Investment advice abounds. Articles, classes, books, independent advisors, brokers and advisors with financial institutions, HR departments, and more are there to provide guidance about how to invest. And, with choice, comes confusion. And, this is confusion for a topic that is complex and stressful to begin with.

According to research from FINRA, a full two thirds of Americans failed an investing quiz and faced confusion on investment fees.

Here we’ll break down 3 basic options you have for investing and some of the pros and cons of each:

Forgo Formal Investment Advice, Go it Alone

To some, this may seem like the most cost efficient way to invest. And, it can be. You aren’t paying for advice. However, without understanding the basics of long-term investing, it can easily go wrong and you’ll end up losing money.

Furthermore, going it alone can feel complex and risky.

And it is true, investing can be complex and risky especially if you want to research companies and trade daily. However, many successful do-it-yourself investors like to keep their strategies and portfolios very simple.

A simple approach to do it yourself investing:

If you want to go it alone, it doesn’t have to be complicated. Consider these tips:

1. Invest in an index fund: Index funds and exchange traded funds are types of investments. Instead of buying an individual stock, you purchase a fund (a portfolio of individual investments) that is constructed to match or track the components of a financial market or index like the S&P 500. As the great investor John Bogle once wrote, “Don’t look for the needle in the haystack [the right individual stocks]. Just buy the haystack[the whole index].”
2. Add money at regular intervals: It is commonly believed that you need to invest at just the right time. However, more important than buying low and selling high is perhaps buying consistently. Sometimes you’ll buy a little high. Sometimes you’ll buy a little low. It works out.
3. Hold the investment for the long term: To be a successful investor, you do not need to actively trade. Most experts recommend a buy and hold strategy to do it yourself investors. This means that you make the investment and hold onto it for the long term. And, because the markets have always trended upward, a buy and hold strategy will enable you to profit from the long term growth, no matter the short term fluctuations

COST: The biggest cost of going it alone may be in peace of mind. Some people simply don’t want to feel the responsibility of managing their money. The actual monetary costs may include trading fees and sometimes fees associated with the funds, but these are considered negligible.

Use a Fee-Only Advisor to Help You Set Your Investment Strategy

Not sure about going it alone? Another cost effective strategy is to hire a fee-only advisor to guide you toward a personalized asset allocation strategy that you implement on your own. In exchange for a fixed fee, the advisor will assess your needs and tell you how much to invest and in what and then you execute the strategy. You buy and manage your own investments.

Ideally you are also getting guidance on your overall financial plan. Many fee-only advisors will put your investments in the context of your: wealth, goals, taxes, insurance, cash flow, Social Security, real estate, and more. And, hopefully the advisor is available to you on an ongoing basis to answer questions and provide support when needed.

COST: The cost of this type of service is usually between $1,000 and $2,500 annually.

Boldin Advisors: Does working with a fee-only advisor appeal to you? Boldin Advisors gives you access to a fee-only CERTIFIED FINANCIAL PLANNER™ professional that can collaborate with you using the Boldin Retirement Planner. Book your free discovery session to discuss your needs.

Use an Investment Manager with an Assets Under Management Fee Structure

Most investment advisors and financial advisors charge clients using an assets under management (AUM) fee structure. This means that you pay the advisor based on a percentage of your assets.

AUM can be expensive, unavailable and the advice may be misaligned with your overall financial goals.

Expensive:

The more money you have, the more expensive paying AUM will be. AUM fees range from around .30% for advice from a Roboadvisor or a low cost advisor inside of an investment firm to 1.5% from individual investment managers, with most advisors charging around 1%.

So if you have $500,000 in assets and your AUM fee is:

• .30% annually, then you are paying $1,500 a year
• .79% annually, then you are paying $3,950 a year
• 1% annually, then you are paying $5,000 a year
• 1.5% annually, then you are paying $7,500 a year

Have a million dollars? Double those figures!

And, remember that these are annual costs which can add up to hundreds of thousands of dollars over your lifetime.

Unavailable:

Many investment managers who are paid with an AUM fee structure have investment minimums. So, if you don’t have sufficient funds, they won’t help you.

Misalignment:

Advisors who are paid with an AUM agreement are incentivized to grow your investments. This is generally good. However, there are times when it might make sense for you to use your money in other ways: to pay down debt or shift your allocation toward lower risk investments. It may be difficult for the advisor to work against their own financial interests.

Wherever You Get Investment Advice, Pair Your Approach with Holistic Financial Planning

Your savings and investments are important, but they are only one part of your overall financial plan.

Taxes, income, benefits, debt, where you live, withdrawals, budgeting, risk planning and more may be even more valuable aspects of your finances.

That is why it is important to build and maintain a comprehensive financial plan. The Boldin Retirement Planner is the ideal tool. We help you with all aspects of your financial life. And, we help you find financial confidence, make better financial decisions, and discover opportunities to do better with your money and time.