Paying for Investment Advice
Generally, I believe the average person does not need to pay for any investment advisory services to achieve their retirement goals. The most important steps to reach your retirement goals is to be disciplined in your saving and investing over a long period of time as discussed in the posts in this blog. However, some people want to have another opinion before making an investment. I can understand this feeling. When so much about investing is uncertain, sometimes it is comforting to know that there are professional people who see the markets and/or individual investments the same way you do.
If this describes you, I am not suggesting that you go out and higher an investment advisory firm or a money manager. This is much too expensive for the average investor. As I wrote about in this previous post and this post, firms that manage money are expensive. Over time these advisors can take a sizable chunk of your investment returns.
Money managers charge at least 1% per year of the assets they manage. If you have a $400,000 nest egg, that equates to $4,000 per year. And it is not just the $4,000 per year you lose; it is the loss of the long-term compounding effect on the $4,000 as well. At a 7% average annual return each $4,000 taken from your assets would represent about a $7,900 loss to your portfolio in 10 years and about $15,000 in 20 years. Just 10 years of fees could translate into a $150,000 loss to your portfolio. I don’t know about you, but I could use an extra $150,000 in retirement.
If you do not pay a money manager, what does an investor do to get another objective opinion on the markets or specific investments? A more economical way to get unbiased investment advice is taking advantage of the economy of scales available through published investor newsletters.
I subscribe to about a half dozen monthly newsletters from different sources that cost about $1,200 per year. These newsletters provide specific investment recommendations, but I rarely purchase their recommendations. I read the letters only to get different opinions on the general market direction and different things to be aware of such as government actions. In my opinion it is not necessary for the average long-term investor to subscribe to investor newsletters. I do this because it is one of the things I like to do.
However, if you want a source to get objective investment opinions and you do not want to spend a lot of money, I would opt for Morningstar. Morningstar is available by subscription only so they have no conflict of interest in their investment evaluations. What’s good about a Morningstar subscription is they not only evaluate individual stocks, they also evaluate almost all mutual funds available from large brokerages. They describe the investment objective of each fund and provide a list of the fund’s largest holdings. This is important because many retail investors hold several different funds thinking they are diversified, but upon close examination some of the funds hold many of the same stocks. Morningstar analysts also advise you about competing funds and which funds have the lowest fees.
Morningstar also has many very good online tools such as stock and mutual fund screens, research tools, and portfolio management tools. Every day Morningstar’s site has a new article on a particular stock sector, personal finance, retirement planning, or some other topic.
The last time I checked an annual subscription cost to Morningstar was $189. They usually give new subscribers a 2-week trial to see if they like it. I get a free subscription to Morningstar through my relationship with T. Rowe Price. You might check with your broker to see if they have some arrangement.
There are other sources of objective investment advice, but I think Morningstar is the best overall value for the average investor. I have been a subscriber to Morningstar for over 15 years and I never purchase an investment without first reading their opinion
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