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Five Things to Ask Your Financial Advisor… And What They May Not Tell You

January 2, 2020

1. How do you get paid, and how much more do you make when my investments go up, and how much less do you make when my investments go down?

There is no doubt that anyone that works for you should be paid, and paid well if their efforts and advice yield above-market returns.  But is it fair that the earnings of your Financial Advisor should be about the same if those same investments do not perform?

2. What fees are paid to others that affect my yield?

According to Forbes, the real cost of mutual fund ownership is estimated to be over 4% annually for a taxable account.  These costs include disclosed costs, hidden costs and costs due to tax inefficiency.  This means that a fund that delivers a gross return of 6%, may only net the investor a mere 2%.

3. What cash flow do my investments provide?

Of course, this depends on your stock, bond or mutual fund if you are in the market.  Pick your index:  as of October 2017, the average annual dividend yield for those stocks that pay a dividend are as follows:  Nasdaq 100: 2.05%, S&P 500: 2.34%, and the Dow Jones: 2.67%.  If you prefer CDs, the current average 3-year rate is just over 2% per year according to Bankrate.com.

4. Will my investments outperform or underperform the major stock indexes?

Interestingly, only 40% of advisors over-achieve the market indexes in any one year, and indeed, many have stopped trying, simply advocating index funds.  According to the LA Times, stock mutual funds own an incredible 42% of their assets in index funds, an increase of over 300% from just ten years ago.  Why?  CNBC says that less than one in three fund managers are able to beat their market benchmark for three years.

5. What are the yields for “safer” investments?

It’s hard to determine what a true “safe” investment is, but many would say CDS or annuities which today are in the range of 2 – 3%. There is little doubt that someone in their retirement years would want to avoid a high degree of speculation in their investments.  The challenge for most investors is to be able to choose a growing investment while largely mitigating risk, rather than just parking their resources.

Unfortunately, many investors and their advisors equate risk with liquidity, the ability to get in and out of an investment quickly.  A relatively safe investment, perhaps a 3-year loan backed by real estate, maybe more challenging to exit early, but the protection of equity value of the real estate may make it actually less risky than many traditional investments.

Bottom Line:

Judge your advisor results against the performance of the market, but just as importantly, the performance that you require (balanced against the risk of course).  You may decide that taking control of your investments with a self-directed IRA may be the best course of action.  This will permit you to access thousands of investments that you never thought possible such as real estate, notes, private placements and much more inside your taxed advantaged IRA or rollover 401K.  Call NuView Trust to learn more about how their IRA programs may work for you.