How much does your financial adviser cost?
1% of your portfolio a year? Of your $50,000 portfolio, your financial adviser is taking $500/year.
$50/trade and you’re on a plan of inputting money into your portfolio once a month? That’s $600/year.
They charge you a flat rate of $500/year?
They push services on you because they get a commission?
A Financial Adviser vs. You
There are many ways a financial adviser could get paid, but why pay them. Here’s what a financial adviser does: First, they sit down with you, try to get to know you, and discuss your financial goals to line up your investment objectives. Second, based on what you discussed they will find investments that will fulfill your goals. That is the basics of what they do.
Can you be your own financial adviser? Yes! Our website is designed so that you can. First, find a close friend or family member. Discuss with them your financial goals (an investment adviser doesn’t know you better than them). Second, with our website line up your financial goals with investment objectives. Third, find investments that match your financial goals. Our website will help you with this as well. Fourth, use your close friend or family member as a support that will make sure you won’t deviate from your financial goals and investment objectives.
The S&P 500 is a stock index of the top 500 U.S. companies. It is used as a benchmark for most investors. Most financial advisers invest in mutual funds and most mutual fund managers don’t beat the S&P 500. Therefore, investors are almost better off buying an S&P 500 index fund, instead of failing along with almost all of the other professional investors. The S&P 500 as a fund is one of the most reliable and best consistent funds to invest in.
Let’s say after you talked to your best friend you figured out a growth objective would be best for your financial goals, meaning you want your money to grow over a long period of time. Also, let’s say you have $10,000 to invest upfront and plan to add $100/month to that investment. Let’s take a look at the S&P 500 vs. a financial adviser. The S&P 500 has consistently grown 10% on average every year since it was invented. Let’s say the financial adviser you’re going to hire somehow matches it, but takes 1.5% of your portfolio annually. This is what it would like over 40 years:
In the end, the S&P 500 fund would produce $1,174,685 and the adviser $694,620. You would save almost $500,000 investing in the S&P 500 over the adviser. Having more money to invest your self is crucial with a growth objective.
Income, Capital Preservation, & Tax Management
It would also be just as easy to invest in a state municipal bond that would give you income in your retirement years. Government bond income is exempt from federal income taxes and if you had a particular state municipal bond you might be able to be exempt from state income taxes as well.
Now you’re old, you have 2 million in an S&P 500 index fund in your retirement account and you plan on retiring this year and need an income over the next 20 years. You can accomplish this task in many ways, but let’s say you find a government bond exempt from all taxes that will pay you 5% per year. The first five years you decide to take half of your money out of the S&P 500 Index fund and put it into the bond, the next five years you take half out again from the S&P 500 and put it into the bond, and the last ten years you put all your money into the bond. Here’s a breakdown of what it would like with you vs. a financial adviser at a 1.5% charge:
As you can see you will retain more money by investing yourself. Maybe, it doesn’t look like that much to worry about, but over the years you would have paid the adviser over $300,000 over the years. It still may be worth it for you, but for me, I would rather keep the extra money for my family’s sake.
Stock Market Crash
Everyone always worries about the stock market crashing. If you have a long-term mindset, the stock market crashing shouldn’t worry you at all. The average stock market crash is from 6 to 18 months. After that, the stock market will take 6 to 18 months to recover. So you’re looking at three years at the worst for your money to get back to the value it had before. Yes, that would be really tough. Three years is a long time, but it’s not the end. You will get your money back if you leave your money in the S&P 500. The annual 10% average return of the S&P 500 includes all the stock market crashes since its inception in 1928. Therefore, the S&P 500 index is proved to be the safest and most reliable long-term investment.
Okay, I’ve been pretty harsh on financial advisers and I would like to say that they can be really valuable. I do admit that some people really do need them to become financially independent. Learn more about financial advisers on Investopedia. However, I would also say if you can use the steps I listed above and use Google when you get stuck, you can be your own financial adviser. The best financial adviser is you.
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