RETIREMENT INVESTORS – IS IT TIME FOR A FINANCIAL CHECKUP?  YES!

I recently performed a financial review for a new client who used one of the largest brokerage firms in the U.S.  The opportunities for improvement summarized below could result in a 57% higher ending balance from an equity portfolio over a 30-year retirement timeframe.  On a $1 million opening investment this could result in a $2.3 million higher ending balance.

Costs – The financial advisory fee on the account was .40% per year and the funds were invested primarily in actively managed mutual funds with a weighted average expense ratio of .65%, resulting in an overall average fee of 1.05% per year.   

Taxes – the client had both a taxable and non-taxable account.  The taxable account had actively managed U.S. mutual funds driving meaningful taxable gain distributions every year. 
 
Asset allocation – the clients fixed income exposure included large amounts in preferred stocks, high yield debt and other fixed income assets that are not low risk.  This could lead to larger than expected losses if a deep recession occurs and/or interest rates rise.
 
Asset location – the client had foreign equities held in a non-taxable account.  Moving the foreign equities to the taxable account could enable the client to take a tax credit for the dividend withholding tax on the foreign equities.
 
Complexity – The client held a closed end fund investing in REITs using borrowed money (buying more investments with leverage).  And guess what, this higher risk fund also has a very high expense ratio.  
 
The above findings are consistent with maximizing the profits at the financial advisory firm, not earning the highest level of investment income given the appropriate risk level for that client.    

Sebetic Advisors offers a confidential no obligation financial review.  There is no charge for this review and only recommendations that are in your best interests will be made.  If interested, I’d love to hear from you (paul@sebeticadvisors.com).  Also contact me if you would like to see the calculation of the above mentioned savings.

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.

Leave a Comment

Your email address will not be published.