Thoughts and observations for those investing on their own or contemplating doing it themselves.
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Wednesday, April 23, 2014
Understand Your Investments
Recently I consulted with 2 school teachers. They don't make high salaries, and their respective "nest eggs" are a bit meager. One has approximately $30,000 in IRAs rolled over from previous teaching positions, invested in Franklin Templeton shares like FKINX, an income fund with a 4.25% load, and an expense ratio of 0.62%. FKINX is a class A fund. If you don't know the various classes of mutual funds, read
The ABCs of Mutual Fund Classes.
The particular advisor at Franklin Templeton Investments had this teacher, who is in her mid-30s, 70% invested in bonds. According to the client, the advisor chose the funds and told her he had her invested in the same way he invests his wife's investments!
I don't know the advisor, but I would be willing to bet that he is making a good six-figure income off of the commissions he is getting from putting school teachers and other lower income people in these expensive funds. I just wonder how he looks in the mirror each day.
To make the story short, I recommended she roll over the funds to Vanguard and invest in their 2045 Life Strategy Fund. Bottom line: low expenses, appropriate asset allocation, minimal effort. The good news is she saw she was headed in a bad direction early on and now has 30 years on a better path!
TO UNDERSTAND YOUR FUNDS, FIND OUT THE TICKER SYMBOLS AND THEN LOOK THEM UP AT WWW.MORNINGSTAR.COM. If you don't know how to do this, email me and I'll talk you through it!
The second teacher works for a school system that has several insurance companies as providers to their 403(b). This teacher is 10 years from retirement and has several Equity-Indexed Annuities. The annuities had returns of between 3% and 6% last year. Over the same period, a conservative portfolio of 60% stocks/40% bonds achieved a return of approximately 15%. Just as a reminder, if she wanted to change her mind, liquidate her funds, and try a different approach, she would pay a hefty charge.
Her best alternative, at this point, is to hold the annuities until the charge runs down and then to make a switch. Her school district also offers TIAA/CREF and Fidelity as providers - both of which offer lower cost, well-diversified funds. She will use these providers going forward over the next 10 years.
What are you and your family members invested in? Are you building your nest egg or some broker's/insurance sales guy's nest egg?
Posted by Robert Wasilewski at 12:20 PM
Labels: equity indexed annuities, Load Funds
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Only a few people look at the risk or benefit. Few don't know anything about the fundamentals of the company they invest in. Many don't look for dangerous upcoming issues or problem too. So hope it will help them to understand.
Sadly enough that unless the client will change her lifestyle it seems to be unlikely that her savings will take her anywhere.ReplyDelete
She might as well enjoy herself now. Honestly. As far as the investments goes - the subject is a taboo. People do not like to share the details, hence financial adviser continue to draw 6 figure salaries from 5 figure investments of their clients.