I’m really going to stir the pot with this one. There are certainly times where you’ll need the advice of a real investment professional – especially once you’ve accumulated a sizable nest egg. But, if you are just starting out or are in the “growth” stage of life, should you pay for investment advice? My answer: you most likely shouldn’t be.
Here’s my reasoning as to why you should go it alone on the investment road as opposed to paying high dollars to a “professional” to help you get your retirement funds in order. And I’m ready for the comments on this one.
Expense fees are numero uno. Even the guys that rate mutual funds, Morningstar, have admitted that the fees are more important than their star ratings. Back in 2010 they released a study and the author stated that “if there’s anything in the whole world of mutual funds that you can take to the bank, it’s that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” Wow. Low cost mutual funds and ETF’s are certainly the way to go. Those “professionals” will eat up a bunch of your profit with their commissions and fees. That is why I recommend companies like Vanguard, Fidelity, and Schwab. They make low fees their highest priority which means you keep most of the gains – not someone else.
Target retirement funds make it easy. I’ll admit, looking at 300 fund choices is a bit scary. Low cap. Mid cap. Growth funds. International funds. Eesh. Where do you put your money? Well it is much easier to figure that out these days thanks to target retirement funds. They are a boon for novice investors and can really help you avoid the giant fees for advice. You’ll want to figure out a likely retirement date (Mine is 2055 – writing that in 2013 is actually mildly depressing). Anyway, this will help you decide which target retirement year is best for you. Put your long-term money there. The bigwigs at the company you have your money with will re-allocate your dough over time so you’ll be widely diversified and in sound investments for your age. That means that you won’t be 100% in stocks at age 60 because you forgot to switch things around. It’s basically the autopilot solution for your retirement.
Two Simple Vehicles. If your company offers you a 401k then start putting money in. If they match your contributions then make sure you are taking full advantage of that. The 401k with a match (into a target retirement fund obviously) is the single greatest investment you can make. In most cases you are making a quick and easy 3% because of your generous employer! If you don’t have access to a 401k, or even if you do but are already investing up to the match level, your next best option is the Roth IRA. Here’s a poem on the Roth from my friend Stephanie that outlines all it’s glorious benefits. These two easy to access retirement vehicles soak up most people’s retirement funds.
The decision ultimately comes down to your comfort level. If you feel more comfortable talking to someone who’s been trained to make your money grow that is totally understandable. I promise I won’t judge. Just know this. Paying 1% less in fees and commissions could result in a 20% larger retirement fund 35 years down the road. So if you really feel the need to talk to someone. If you don’t feel comfortable going it alone – then speaking with a fee only financial adviser is the way to go. They’ll charge you an hourly rate to assess your situation and give you advice accordingly. The major benefit to this is that they aren’t putting you in high commission funds just to pad their pockets. Check out Napfa.org to find an advisor near you.
One of the perks of being with Vanguard is that if you have over $50k in retirement accounts with them you can get a check up with one of their professionals for a flat fee of $250. That’s pretty awesome.
If you want to get a little more fancy you are more than welcome to try your hand. When it comes to investing I am boring. Very, very boring. Don’t worry, I more than make up for that in other areas of life. Low costs and diversification are the most important things for me.
Know this – if you can do your own pest control you can definitely handle your investments for the future on your own. The suits on Wall Street want you to think that this is rocket science and you can’t possibly go it alone. That just isn’t true. Plus, if you go the DIY route you’ll have more money to show for it come retirement!
Are you taking the do it yourself route to investing? Or do you think I’m way off base? Let me know!