A global recession has every investor looking for ways to reduce costs. From the number of times we visit fast food restaurants or how we regulate the home thermostat, it seems like everyone is beginning to track every dollar. With the markets in distress and retirement accounts taking a nosedive, it might be time to start looking into what is often the biggest money-hole. How much are you over-paying for your investments?
Cutting Out the Excess
It’s easy to see how small savings can make a tremendous nominal difference. The daily latte accounts for $120 per month, and that digital cable package you never watch removes the same amount from your pocket each year.
When it comes to investing, the majority of fees are percentage based, meaning they impact us more when we have more money. Percentage based fees are everywhere, and in this economic climate, it makes sense to track down every last basis point.
Kill the Target Fund
Any financial planner worth his pay will tell you that target date funds are an absolute disaster for making money on Wall Street. Target date funds are those that guide your allocation process for you, making decisions based on the “target date” for your retirement. For example, someone with a 2010 target date fund would be almost exclusively in bonds, while a 2050 target date fund would be almost all equities.
Target date funds are a pure and simple way for retirement planners and fund managers to make more money. Almost all target date funds are reinvested in other mutual funds with an added expense tacked on, and there is no evidence that these funds even keep relevancy to your expected retirement date.
In reality, the allocation process is simple and can be done once a year to maintain a decent retirement portfolio. Don’t pay someone a few percentage points of your retirement balance to perform a five minute job for you; reallocate yourself and save thousands on a reasonably sized portfolio.
The Premium Broker
Retirement investors have no need for the advanced features and options that premium brokers offer and similarly do not need to pay more for access to these items. If you’re paying anything to buy and sell mutual funds, you’ve already lost profits, as most discount brokers offer free mutual fund trades. Premium brokers are for the frequent trader and not for the long term investor. Commission costs may not seem high as a percentage of your retirement balance, but $20 is better invested in your portfolio than paid to maintain your portfolio.
Tell the Stockbroker Goodbye
The worst time to hire a stockbroker is in periods of bear markets. Stockbrokers by-in-large are dedicated to the brokerage and not to the individual investor. The brokers work for the firm and want to sell large volumes of stock and other investments for their paycheck – not for your retirement future. Getting good advice from the average stockbroker is like asking for a car’s history from a used car salesmen; there is simply a conflict of interest. Stockbrokers are keen on selling the most expensive products, as that is where their income is derived.
Investigate Your Tax Possibilities
Tax savings is what may generate your biggest benefit. Tax codes are difficult to understand and put in terms that few investors are willing to read. Your best investment is to hire a proper tax professional who can guide you through the process of writing off losses and lowering investment income. There are plenty of perfectly legal and advantageous ways to save on your taxes – giving you a better bottom line, even in a bear market.