The tax and cost efficiency improvements summarized below could result in 43% higher net investment income over a typical 30-year retirement timeframe. On a $100,000 opening balance this could result in $229,000 more net investment income over 30 years.
Taxes – Stock investing in taxable accounts generates dividend and capital gains income taxes. However, tax efficient stock investing can lead to 23% more net investment income over a 30-year timeframe compared to the typical U.S. actively managed mutual fund. Actions to take to realize these savings may include investing in tax efficient investment strategies (much longer holding periods), investing in ETFs and locating assets & investment strategies in the correct vehicle (taxable vs IRA) for tax efficiency.
Costs – Per Investopedia.com, the average annual financial advisory fee is 1.02%. Simply reducing this fee to .50% per year can increase net investment income on your stock portfolio by 17% over a typical 30-year retirement. Actions to take to realize these savings may include switching to lower cost mutual funds or ETFs (be careful not to indiscriminately sell existing funds with large unrealized taxable gains), asking your financial advisor to help you reduce the fees you’re paying, or move part or all of your assets to a more cost-effective financial advisor.
If interested, contact me and I will send you the calculations supporting the information above. I also offer a confidential no obligation financial review to help clients and potential clients identify these efficiencies. There is no charge for this review and I will only make recommendations that are in your best interests. I’d love to hear from you (email@example.com).
Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Source for all return data is “2020 Stocks, Bonds, Bills and Inflation Yearbook”, Roger G Ibbotson and Duff & Phelps. For our full disclosures, click here.