Particularly if you’re over forty, you know how important it is to start planning for your retirement. Unfortunately, you’re not an investment wizard. You know virtually nothing about how to handle the money you put away. Therefore, it’s probably a good idea to pay a financial advisor to help you invest in the right places and get the most out of it, right? Maybe not.
As important as it is to save for your retirement, paying someone else to handle your investments can often cost you quite a bit more than you bargained for. Here are some reasons why—and what you can do instead.
The Problem with Expertise
You may think it’s no big deal, paying an expert to shepherd your investments for you. After all, isn’t his or her expertise worth something?
If they can help you make wise investments that will help you grow your nest egg as much as possible, then the surcharges shouldn’t matter, as you’re making up for them with higher yields.
Unfortunately, that’s not really the case. In a recent study, investment portfolios that used a simple, index-based approach to track the market consistently performed better than investments that were actively managed by a financial advisor. So all of that extra money you’re spending on expert financial advice is actually netting you less profit, rather than more.
Whose Pockets Are Getting Lined?
There’s another problem with financial planners: The assumption is that, as they invest your money, they’re doing so with your financial best interests in mind. However, this isn’t necessarily the case.
If your financial advisor is a fiduciary, then they are required by law to act in your best interests. Otherwise, they’re legally allowed to do what’s financially best for them, rather than you—and they don’t even need to tell you! They may steer you towards an investment that nets them a commission, when a different choice might be slightly more advantageous to you, or even cheaper to buy.
Is Your Financial Advisor Showing You All Your Options?
We certainly don’t mean to imply that all financial advisors are in it for themselves. Many honorably balance their need to make a living with your need for unbiased advice.
But there’s another issue you should be aware of. Are there assets that are being overlooked for your portfolio simply because your advisor isn’t familiar with those markets? Many advisors work at firms and brokerages that only deal in paper and market-based investments. Because their expertise is the premium for which you pay, they don’t want to venture outside their chosen sphere. But that may mean you’re not being shown potentially beneficial investments, particularly tangible assets like real estate and the even-more-liquid precious metals.
These investments can offer a much-needed safe haven in volatile markets. In a market downturn your stocks could be gutted, but real estate and gold and silver can preserve substantial wealth.
It’s always good to get a true expert’s take. Just be sure what the fees you’re paying are buying you – and remember to ask questions about everything.