Invoice Time

By now, you have received account statements from your brokers and have hopefully figured out your performance. If your situation is unwieldy and involves a number of accounts at a number of brokers, then this can turn into an arduous task. But it is one that you need to carry out and fully understand.

As shown in a previous post, calculating performance is fairly trivial if you are invested in exchange traded funds and can be done on a timely basis. As reported in the post, the return on the diversified portfolio of exchange traded funds, comprised of 30% bonds and 70% stocks, had a return of -3.1% over the first 6 months of 2010 and was calculated on 7/2.

When you do a financial plan, a particular return is assumed on your investable assets. Typically it is on the order of 6%. In many instances, this return must be achieved over the long term to reach your goals of retiring when you want to, leaving an inheritance etc. It is, therefore, vitally important to keep track of the return on your assets. How have your assets performed year-to-date?

How did you do?
A major purpose of my blog is to convince people that (1) you don't need to give away your nest egg for exceptional investment performance and (2) if you are so inclined you can learn to invest your own money. On an historical basis, the evidence shows that the approach recommended here has outperformed 8 out of 10 professional managers over the long term. It is why Warren Buffett, John Bogle, Charles Ellis, Burton Malkiel and many others recommend low-cost investing using index funds. Furthermore, it doesn't require a lot of time, resources or (contrary to what many want you to believe) an MBA.

The Invoice
If you have an advisor, take a hard look at your invoice. Somewhere on the invoice is a charge for investment services. This typically amounts to 1% to 2% of the market value of assets managed. If it is 1% and you have $1.0 million in market value of assets being managed, then you will see a charge for $2,500 for the quarter. Compound this $2,500 over 20 years, and you get the full impact of the charges.

If the advisor has your assets invested in actively traded mutual funds, then you have more costs that you can't see! Actively traded mutual funds charge on average approximately 1.5%. And this is just considering a fee-only advisor. It gets even worse if you are using a broker who is getting commissions based on the products they are putting you into.

The bottom line is this: You don't have to let your nest egg get eaten up by all these costs. If you want to explore your situation specifically, give me a call (443-896-4123) or drop me an email. Poor performance combined with excessive fees eat away at your nest egg and consequently could upset retirement goals.

photo by: Graeme Weatherston