Managing your Investments, Fees and the Financial Planning advice you need
As the RRSP deadline approaches, our attention invariably draws to reviewing the performance of our investments, the management fees we pay and for many people, the success of their Financial Plan ends there!?
Yes, we definitely want to know how well we are doing in terms of growing our money, long term and paying a reasonable fee, to be successful, but the much bigger question is, how much closer are we getting to our goals?..and what changes need to be made along the way to keep us on track?
In my 30 years of experience providing investment guidance and Comprehensive Personal Financial Planning advice, I can’t tell you the amount of time I’ve had in depth conversations with people about fees and performance – both of which were always good and never an issue – but remained the primary focus for the client, while in fact they were still contributing $200.00/m to their RRSP when they needed to be contributing $2,000.00/m and the money was there, but they were focusing on other things. Eventually, over time, I’ve helped those clients get to a position where they feel GREAT about it all! But there are a lot of distractions along the way.
Today I want to provide a few tips (and perspective) on performance, fees, and advice. As they always seem to be at the forefront of the conversation.
For generations investment advisors have told you the markets are full of risk, and you need them to pick and choose the exact stocks at the exact time in order to navigate pitfalls and ensure success. We now know this isn’t necessarily true! There are only so many good companies to choose from. All well represented in every exchange. Good companies dominate the index and bad companies fall off. Today, individual stocks can have an outsized influence on the index, which can often make a manager look out of place. Long term, the average investor is far better off putting their money in a globally diversified portfolio of indexes that grows their money safely through low-cost diversification.
Complete a risk tolerance profile questionnaire to determine your comfort with volatility, then invest in a low-cost ETF (Exchange Traded Fund) that mixes your portfolio globally among stocks and bonds to achieve a desired result. Then, save regularly..and wait, just leave it! Through all the ups and downs, DO NOT try to figure out what’s going to happen next. You’ll just be adding a far greater level of risk and volatility to your investments, and the results could be disastrous. Staying invested removes that risk, because every down tick in your portfolio will eventually be matched with an even greater up tick, as your investments will grow just like the markets have always grown for over 100 years. Consistently. (Explaining why, is for another article). Just decide when you need the money? In 3 years, for a down payment on a home? In 25 years, for retirement? And leave it!
Managing the selection of individual indexes yourself, can cost less than 0.25% per year. Using a professionally managed portfolio of ETF’s (which I recommend) can cost 0.25% – 0.95% per year.
Having an advisor help you manage the selection, administration, feedback, AND Comprehensive Personal Financial Planning… costs an additional 1%.
Comprehensive Personal Financial Planning
Overall…if you are paying less than 1% per year, you are a Do It Yourselfer, and should be able to grow your money safely, without any help or advice. If (on the other hand) you are not a Certified Financial Planner (CFP) and need advice reducing taxes, renewing your mortgage, buying or leasing a car, planning for retirement, saving for your kids post-secondary education, reviewing your employee benefits plan at work, buying life insurance, updating your will and power of attorney, and… virtually any other ‘financial’ question you can think of… then paying an overall cost of 1.5% – 2.0% is well worth it! You should be getting BOTH investment advice / administration as well as valuable Comprehensive Personal Financial Planning advice included for this cost. Money extremely well spent long term.
It’s this last piece – Comprehensive Personal Financial Planning – that many people think they can do themselves… and often don’t know, what they don’t know, until it’s too late. I have witnessed this time and time again. On average and without question, I have saved my clients tens of thousands of dollars more than the cost of the fees they pay for planning advice. Not to mention the peace of mind it provides.
On average, a reasonable rate of return long term after fees from working with an advisor have been deducted:
- 3-5% annually for someone in retirement simply hoping to outpace inflation (cost of living increases) with the least amount of risk possible, OR… someone saving for a purchase requiring money in 1-3 years.
- 5-7% annually for someone in a balanced risk profile nearing retirement or in early retirement, wanting to continue to grow their investments with a moderate level of volatility / fluctuation from year to year.
- 7-9% annually for someone invested primarily in the stock markets, less in bonds, looking for maximum long term growth, not so much concerned about volatility or needing access to funds in less than 10 years.
Hopefully this summary has answered some questions for you? Or helped set some reasonable expectations? If you would like to speak with me further about your own investments or Personal Financial Plans, please feel welcome to contact me any time.
Source: Glen Oliver CFP, CLU, CHFC Glen Oliver & Associates Financial Consultants Inc 416-972-6004 x222 firstname.lastname@example.org