When you lower your costs of investing, two incredible things happen. At first, all you see are the annual savings that occur by reducing your costs. You experience the second wave of the benefits of cost reduction as your account retains those dollars, which keeps them working for you, creating a compounding effect. Simple cost savings, year after year, can multiply as those savings remain invested as you continue to invest and save to meet your long term objectives, including retirement.
Here are some ways to reduce your costs and increase the portion of your earnings that you get to keep, and keep them working for you!
- Are you paying an ongoing advisory (management) fee to your financial advisor? If you have a complicated situation and your advisor is working with you on an ongoing basis, he/she could very well be justified in charging you an advisory fee, also referred to as a management fee, to manage your investment portfolio. In many cases, the advisory fee provides clients with additional services that would otherwise require a separate payment. An example of this is a comprehensive financial plan, including annual updates. Depending on your assets under management, your advisor may provide your plan as part of the package, compared to a fee of $750.00 to $2,500.00 or more, plus an annual fee for updates. If you are not receiving additional services, the only justification for an ongoing fee is the management of your investments. If this is the case, the fees you are paying are justified only by the expert investment advice you are receiving. Do your returns justify his/her fee? Continue reading to find out how to eliminate advisory fees and still receive the benefits of expert portfolio management, at a much lower cost. Remember, advisory fees are typically calculated as a percent of your portfolio balance. This means your advisory fees increase when your account grows.
- There is a growing number of "Fee-Only" Advisors in our industry. A "Fee-Only" advisor charges a fee for advice, but not necessarily based on a percentage of your assets under management. It could be a one time fee for service similar to an attorney or accountant. It could also be a monthly fee arrangement which provides the client with a specific menu of services covered by the fee. Fee-Only advice may be appropriate for investors who want ongoing financial help, but who do not have enough assets to justify the time of a highly qualified investment advisor. Some Do-It-Yourself investors benefit from the Fee-Only arrangement as they self-manage their assets but have a registered advisor on hand to help with tax mitigation, retirement planning, and estate planning issues versus relying on their great uncle, YouTube, or Google for advice.
- A-Share Mutual Funds could save you a ton of money over time! If a portion of your investment portfolio is long-term money, meaning you do not plan to access your funds within the next ten years, you could save a lot of money by paying a one-time sales fee when you purchase your investment. If you have Excel, download this free calculator to estimate how much you could save over time: FREE CALCULATOR Imagine the impact of a one time fee compared to an ongoing annual expense that increases as your assets grow! The potential savings could be huge! Once a standard in the industry, this strategy was mainstream before advisors figured out how to get paid every year. The key is working with a well established mutual fund company with a long and successful track record. Let us show you how investing a portion of your portfolio in an A-Share Mutual Fund family could dramatically reduce your costs, leaving more money in your account to grow for you!
- Reduce Hidden 401(k) Fees. According to a recent Investopedia article1, one out of every three plan participants do not realize that they are paying hidden fees in their 401(k)! Plan fees can lower your returns by up to 2%. Unless you have a unique retirement strategy that requires your funds are held in your 401(k), rolling a portion into an IRA is an excellent way to reduce fees. You may be able to start sooner than you think! Look at your quarterly statement and find the toll-free number for your plan. Give them a call and ask the question, "How much of my account balance is available for an in-service withdrawal?" This is the amount available for a rollover into an IRA with no tax consequences. Combine this strategy with the long-term savings potential of a rollover into an A-Share Mutual Fund Family! PRO TIP: This strategy also allows you to take us (or your selected advisor) for a test drive with a small portion of your retirement funds. You want to be comfortable with your advisor (outside of your plan) before you retire or change jobs and face the task of finding someone to help you with your retirement nest-egg! It should go without saying if you have an old 401(k) with a former employer, or you are retiring or changing jobs, you have an excellent opportunity to reduce your fees by looking into an IRA Rollover.
- Performance-Based Fee Structure. If you are a high-net-worth investor, you may qualify for a fee structure calculated as a percentage of the gain on your investments. If you experience a loss, you pay no fee. Only when you experience gains will you compensate your investment team! There is nothing worse than paying an advisory fee in a period when you have lost money. (Note: This strategy requires a minimum account balance of $2MM.)
At Walker Wealth Management, LLC, we are proud to offer high-quality products and services tailored to your unique situation. Register below to learn more about reducing the fee drag on your investment returns.
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