Right now, you're taking your hard-earned money and putting it into stocks, bonds, mutual funds or other investments with one purpose in mind: To make that cash grow for the future.
You're willing to do without this money, maybe scrimping for a while, hoping to dip into it when a child's college-tuition fees are due or when you're ready to retire and travel the world.
But if you're not careful, those investments can cost you more than you expected, possibly reaching into hundreds of thousands of dollars in potential earnings. It's a familiar caution: What you don't know can really hurt you.
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The U.S. Department of Labor estimates that investors as a group lose more than $17 billion each year through high fees and hidden costs. Congress passed legislation this year to try to rein in that number, making financial advisers and investment consultants more accountable for decisions they make on your behalf.
Hidden fees attached to investments are everywhere. Mutual funds, for example, can appear to be safe bets, but dividends can come minus commissions and expense ratios. Though they may seem minimal, if you know about them at all, they can add up to be a substantial cost over time.
How you buy them and who you buy them from can make a difference in the money you can save, and it may mean the difference between a month touring France and Italy and a week in a causeway motel.
We can't control the market, especially now with more volatility expected in the near future, but being able to control what you can should pay off in the long run.
Many people are unaware that the cost of their investments can exceed 1.5% a year. And, in my opinion, these costs are unnecessary in most cases. All they have to do is take a look at those internal costs and see what can be reduced or even eliminated. Many times, the costs are commissions, sometimes undisclosed, paid to brokers and advisers.
The new law, which takes full effect in 2018, says your financial advisers could face litigation if they can't prove their advice was in your best interest rather than their own. This definitely will clip some advisers' wings.
Either way, to me the best plan is this: Hire a financial adviser who is a fiduciary to analyze your investments and make recommendations on how to go about tweaking your nest egg so more money is coming in and less is going out in unnecessary, internal costs.
For most people contributing to retirement funds, all this investing stuff is incredibly difficult to understand, so most go to advisers, brokers and analysts for advice. But there are differences among those financial professionals, differences most people haven't a clue about.
A few years ago, TDAmeritrade conducted a survey that revealed some head-scratching statistics:
- 54% of those interviewed believed that all their brokers and investment consultants were acting in the clients' best interest, when in fact that wasn't the case. Brokers and certain other financial professionals are held to a suitability standard, meaning they aren't required to act in the best interest of the client, but rather are required to make recommendations that are suitable to the client's specific situation.
- 74% of respondents didn't understand the difference in the obligations of financial professionals acting under a suitability standard and those acting as fiduciaries. Fiduciaries are governed by a strict code of ethics and the law requires them to act in the best interest of their clients. They are required to report commissions, conflicts of interest and any fees charged.
- 79% of those surveyed just wanted to place the decision-making into someone else's hands.
Is that any way to watch over your money? Would you take your car into the shop and tell the mechanic to repair it no matter the cost? Would you buy furniture and leave your credit card to allow the store to charge you whatever it wanted?
While you can't control the political environment or ever-moving global financial forces, there are certain things you can control. Smart investors should constantly be looking at all the costs of investing, just to make sure they are under control.
That means understanding what you're giving up to get your fair share.
It's always good advice to have an investment analysis done, and it should be done by a fiduciary, one who is legally required to watch out for you and your money and take a seasoned look at the overall picture. A fiduciary will look at your lifestyle, and devise a strategy based on your goals and objectives. They must divulge all the internal costs of funds and work to eliminate what can be eliminated.
The actions you take now can make a big difference in how you live your retirement years down the road.
Reid Abedeen is a partner at Safeguard Investment Advisory Group LLC. As an investment adviser, he has helped retirees for more than 18 years with issues such as insurance, long-term care planning, financial services, asset protection and many other areas. He also holds California Life-Only and Accident and Health licenses (#0C78700).
Keith Morelli contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
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