Most investments are not very good.  One of the more common investments today is mutual funds. As a whole, mutual funds are a great idea and can work very well…but the very rich generally don’t use them. There is good reason for this. Deferred annuities are also popular. They come in many varieties and most sound too good to be true. In this case, the most successful money managers do not use them.

John Bogle, Founder of Vanguard Funds, Explains the Costs of Mutual Funds

John Bogle was asked by an interviewer from the TV program Frontline, “What percentage of my net growth is going toward fees in a 401(k) plan?”

Bogle replied, “Well, let me give you a little longer-term example. An individual who’s 20 years old today is starting to accumulate for retirement. That person has about 45 years to go before retirement — 20 to 65 — and then, if you believe the actuarial tables, another 20 years to go before death mercifully brings his or her life to a close. So that’s 65 years of investing. If you invest $1,000 at the beginning of that time and earn 8 percent, that $1,000 will grow…to around $140,000.”

He continued: “Now the financial system — the mutual fund system in this case — will take about 2.5 percentage points out of that return, so you’ll have a net return of 5.5 percent, and your $1,000 will grow to approximately $30,000 to you, the investor.”

“Think about that. That means the financial system put up zero percent of the capital and took zero percent of the risk and got almost 80 percent of the return. And you, the investor in this long time period, an investment lifetime, put up 100 percent of the capital, took 100 percent of the risk, and got only a little bit over 20 percent of the return. That’s a financial system that’s failing investors because of those costs of financial advice and brokerage, some hidden, some out in plain sight, which investors face today. So the system has to be fixed,” said Bogle.

In other words, the longer you invest, the more the investment house makes. That’s why the financial institutions recommend you invest for the long term.

Choose the Right Advisor.

If you have an investment portfolio of $250,000 to $500,000, there are a lot of suitors for your business. If your portfolio is $500,000 to $2 million – the potential managers will line up. If your portfolio is $2 million or greater; most will practically beg. You are always in the driver’s seat even if you don’t have an 8 or 9 figure portfolio.

Here’s a short list of the professionals who will likely be offering their services to you:

Bank Money Managers – Inside the banking industry are thousands of money managers.  This would lead one to believe there should be hundreds of very suitable options, but it may actually be the contrary. Within the industry, banks have a historied reputation of paying employees less than industry standards.  In a highly competitive and lucrative field, it is hard to attract and retain high quality employees with low paying salaries…which begs the question:  If bank managers were really good, why would they be working for the bank?

Brokers and Financial Planners – There’s one obvious reason many wealthy investors look elsewhere for investment management. The reason is that most are very talented salespeople and they spend the majority of their time selling, i.e., looking for new clients.  Most would agree that the people responsible for managing your money should not consume the majority of their time selling, but thinking instead about how to better manage your money. In order for most brokers and financial planners to earn a good living, they must be well-trained at managing relationships and selling – so there is little time for portfolio management training, even for those who’ve been in the industry for many, many years.

Private Wealth Management – This is the preferred method for many wealthy investors.  When working with a private wealth management firm, the financial planning and asset management are done at the same location and done exclusively on a fee-only basis. There are multiple professionals that each have defined responsibilities, so receiving good service from someone who only focuses on good service is not an issue; yet having access to the money manager is also available. By having the varying components of the wealth management team in the same location, it is very easy for these professionals to interact and provide seamless service with a high level of customization.

We hope this blog has provided some new information that will help you become a more careful and focused investor. We also hope we have made our point about seeking substantial investment advice from a Certified Financial Planner®.

At Synergetic Financial, your financial goals are our priority. We start by listening to your plans for the future, and then set your dreams into short, midterm, and long-term goals.

We then create a financial plan to achieve your goals, and monitor and manage your customized financial plan for steady but cautious growth, loss protection, limited taxes, and estate preservation … assuring your financial future.

Please contact us so we can review the possibilities for securing and increasing your personal wealth while enhancing your retirement. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

701 Fifth Avenue Suite 3520

Seattle, Washington   98104

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com