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Why Should You Pay a Financial Adviser? Thumbnail

Why Should You Pay a Financial Adviser?

Why Should You Pay a Financial Adviser?

I've gotten several questions in regards to our fee structure lately and wanted to address how we charge and why we charge what we do.

Our main objective is comprehensive retirement income planning. We want to partner with you to create a retirement income plan that will meet your goals and needs throughout your retirement.

We believe the best way to do this is by charging you a percentage of your retirement assets, For example if you have 1 million dollars or more and we manage that money, we charge .50% which would be $5,000 per year. This is billed quarterly at $1250 per quarter and is deducted directly from your investment accounts we manage. 

We charge this way because we believe that it aligns us better with our clients. Meaning we have the same objective and we are sitting on the same side of the table with you. You succeed and we succeed. We view this as a long term, team type relationship. We don't need to sell you unnecessary products because our goals are the same as yours.

Several people I have spoken with seem put off by fees or maybe don't understand why they would pay a financial adviser a fee to do something they can do themselves. Also, many people think our fee is for investment management services only. Our fee is billed to your investments but it covers all your financial planning needs not just the management of investments. It covers income planning, special goal planning, cash flow planning, insurance planning, tax planning, and estate planning. Managing your investments is a very small part of the job, but it's the simplest way to bill a client.

Back to managing investments. Many think this process is 95% of what we do as retirement income planners. When actually it's a very small part of what we do. None of us have some great insight in investments and anyone who tells you different is not telling you the truth! At 80/20 Financial Services we believe in a common sense approach to investing. Ever read The Tortoise and the Hare? The Tortoise wins every time I read that story and that's the approach we take with your retirement money.

We will never try to sell you on some brand new stock or some risky mutual fund. We do not believe in investing your retirement income in single stocks. However, we do believe in investing your money in mutual funds with at least 10 years or more of history with well known and respected mutual fund companies.

We also believe a significant portion of your retirement money should be in equity type mutual funds. Equity type mutual funds are stocks bundled together. For example, we might look at an S&P 500 mutual fund. This fund would hold stocks in the 500 most successful companies in the United States. So when we buy this fund we own stock or equity in all 500 companies at the same time. One of those companies fails, there are 499 others to keep that mutual fund from failing.

Why do we believe you should have a significant portion of your retirement money in equity type mutual funds? Because historically speaking, it's the only way to keep up with and out pace inflation. We all know 20 years ago you could buy a stamp for about $0.32. Today that same stamp costs $0.55. The exact same thing will happen to your retirement money in 20 years if you don't invest in equities. Your purchasing power will be cut in approximately half. This is not a question of if, but when.

Many believe investing in the "market" is too "risky". However, many are confusing the word risky with volatile. Does the market fluctuate daily? It absolutely does, however, look at the history in terms of years and not days. Twenty years ago in 1999 the Dow Jones wast at approximately 15,000 points. Today in July 2019 it stands at 26,000 points. That's nearly a 75% increase in the last 20 years! And this includes the recession in 2008. My point is we aren't investing for the day. We are investing for the next 30 years of your retirement. So on a daily basis it can be volatile, but on a long term basis, we don't believe risky is the word that describes what actually happens.

Many of you could put your money in an S&P 500 index fund and be just fine. The S&P has average 9.8% return the last 90 years. Let me repeat that. The last 90 years! But as I mentioned earlier, picking mutual funds or any other investment is probably 5% of our job. That's not why you pay a financial adviser. So why would you even pay a financial adviser a percentage of your retirement assets? Here's why.

1.) Does it seem probable to you that with the sources my firm has access to that it might cause your long-term investment return to be at least one percent per year more than you might obtain on your own?

2.) Does it seem probable that we will save you at least one percent per year in the costs of mistakes you might make on your own that we might be able to help you not make?

3.) Does it also seem probable that we might save you at least the equivalent of one percent per year in time, energy, worry, and record keeping?

Only one of these services needs to save you 1% for it to be a 100% return on your investment. This is why you pay a financial adviser.

Many people think the secret sauce is the adviser picking the investments for you. The real secret sauce is the adviser keeping you from making costly mistakes. Think of us as a 1% insurance plan for your retirement nest egg. Except unlike most insurance plans we protect you before a disaster strikes, not after a disaster strikes.

There is no fine print and there are no hidden fees. We strive for complete transparency.

Hope this shed's some light on what we believe and why we charge what we charge.

Thanks for reading. If you think we could work together, please contact us today.

Brian Coleman/Investment Adviser Representative