This is probably my most important piece of advice. Know your total cost of investing! Your total cost of investing is one of the most important factors in determining your future investment performance. Whether you are investing $10,000 or $10mil, this is extremely important.
What does Morningstar say about it? According to research done by Morningstar, fund fees predict future success or failure…and the expense ratio is the most proven predictor of future fund returns. In other words, the lower your costs, the better your future returns are likely to be. Basically, your total cost of investing is one of the most important factors in determining your future investment performance. Of course, this assumes the investments being compared have a similar objective. And when two investments have a similar objective, costs matter.
(Click here to read more about this Morningstar research)
Think this isn't important? Consider this. If you have $1mil in total assets and you reduce your total cost of investing by 0.50% per year, you will save $5000 each and every year. Over a 10 year period, that's $50,000 in total cost savings. I get that some investments cost more than others, but make sure your total costs are fair and reasonable for the types of investments you own.
Don't fall for the fancy financial "buzz" words: Many financial advisors use fancy financial "buzz" words. Here are a few: alpha, beta, smart beta, standard deviation, capture ratio, alternative investment, hedged, hedge fund, leveraged, long/short fund, market-neutral fund, etc. Much of this “stuff” is based on the review mirror, and it’s not necessarily predictive of the future. If you hear these “buzz” words, your total cost of investing is likely higher. Don't fall for these "buzz" words. Remember, according to research done by Morningstar, it’s the fund fees that predict future success or failure…and the expense ratio is the most proven predictor of future fund returns (not this other “stuff”). If your financial advisor focuses more on these “buzz” words than your total cost, they are probably focusing on the wrong “stuff”.
Active mutual funds and "wrap" fee programs: Be aware! If you are investing in active mutual funds within a mutual fund "wrap" fee program, your total cost of investing is likely quite high. You should be skeptical of this type of arrangement. This arrangement includes an advisory fee paid to your advisor (and their firm) plus the additional "hidden" internal costs of the active mutual funds in the program. The advisory fee is typically paid monthly or quarterly and ranges from 1.00 to 1.50% per year. The mutual fund fees are hidden and ongoing and typically range from 0.05% to 1.50% per year. With this type of program, your total cost of investing is likely approaching 2% per year, and in some cases, you might have a total cost that exceeds 2.5% per year. That's way too high. It will be tough to get ahead if your total cost of investing approaches 2% per year, and especially if your total cost of investing exceeds 2% per year. These fees are not always shown on your statement, so be sure to ask.
Personal confession: Earlier in my career, I focused on some of the “buzz” words I mentioned, and I recommended mutual fund programs very similar to what I described above. But then brokerage firms and financial institutions began offering more efficient ways to invest. And more research and studies came out showing how important costs and fees were to investors’ long-term performance. So I made changes based on these facts. I made improvements to how I manage my clients’ money. I evolved with the times. Many other advisors have evolved as well. Has your financial advisor evolved with the times?
Here is what you should ask your financial advisor: I would get this in writing. Email your financial advisor today and ask, "What is my total cost of investing with you? Please provide me with a break-down of all costs associated with my investments, including any ongoing costs/fees, one-time costs/fees, upfront or back-end sales charges, commission fees, as well as any hidden/internal costs. Please reply in writing". If you have several funds in your account, you may want to ask your advisor to determine and pass along the weighted average cost of your funds, which is likely hidden. Many investments have "hidden" costs such as internal fund expenses, sales charges, etc so make sure they disclose these to you. By asking them to reply in writing, they should feel more obligated to disclose ALL costs so it’s important they reply in writing. If they are doing good, honest work at a fair and reasonable price, this question shouldn't offend them. In fact, they will probably welcome the question. If they are offended with the question, it might be a sign their total fees are high. If that's the case, who cares about their feelings. If you prefer, you can send (email, fax, or mail) me a copy of your recent statement, and I will likely be able to determine your total cost of investing including the “hidden” fees. I can't stress enough how important this is. Fees, expenses, and commissions…these don't come from thin air. They are paid by you. It's your money. You deserve to know so don't hesitate to ask.
(Click here to see details on our Cost/Pricing)
What value are you receiving from your financial advisor? Advisors charge different rates/fees, and some advisors are worth more than others based on the advice and services they provide. Just make sure the advice and service you are receiving is worth the fees you are paying. Make sure your financial advisor is adding value to your financial situation. If your advisor isn't adding value at a relatively fair and reasonable price, find an advisor who does.
Business Owners / Employers: This applies to you too! Do you have a retirement plan (401k, etc) for you and your employees? Do the costs seem relatively high? Have you been thinking you should make a change? There’s never a better time than now to start saving on costs. With retirement plans (401k,etc), it’s a priority of mine to keep costs relatively low. Let me know if you’d like a quote for your plan.
HyLine Bottom Line: Know your total cost of investing. According to research done by Morningstar, fund fees predict future success or failure…and the expense ratio is the most proven predictor of future fund returns. In other words, the lower your costs, the better your future returns are likely to be. Make sure your financial advisor is adding value to your financial situation at a fair and reasonable price, and if they're not, find an advisor who does.
What can I do at HyLine Wealth to help you control your total cost of investing? One of my main priorities is keeping the total cost of investing for my clients relatively low. My advisory fees are fair and reasonable. And I use low-cost index funds to keep your "hidden" internal costs extremely low. I'm confident your total cost of investing with me would be less than what you would pay with most other full service advisors. For regular investment accounts including IRAs, your total cost of investing with me would be less than 1.10% per year, and this includes any "hidden" costs. If your household assets with me exceed $1mil, you hit break-points that will lower your total cost of investing even further. For example, if your total household assets equal $10mil, your total cost of investing with me would be less than 0.65% per year; this is less than 1% and includes any "hidden" costs. Even with my relatively low total cost of investing, I still offer high quality advice and service.
(Click here to see details on our Cost/Pricing)
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Questions? Don’t hesitate to reach out. If you have questions on anything, feel free to email me at firstname.lastname@example.org or call me at (605) 275-2343.
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5809 S Remington Place, Suite 101
Sioux Falls, SD 57108
Office (605) 275-2343
Location-Independent: Pretty much wherever you are located, we can work together. I am registered in the state of South Dakota and have an office in Sioux Falls. The “de minimis exemption” allows me to do business in most other states (with only a few exceptions). I consider myself "location-independent" as I use a heavy dose of technology to communicate and serve you. This includes screen sharing technology, electronic signatures when possible, and shared client portals so we can view the same information at the same time. Frankly, I can probably offer you better service than your "local" financial advisor.
HyLine Wealth is an investment advisor firm registered in the State of South Dakota. We do not provide tax or legal advice. Past performance is no guarantee of future results. Always consult your financial advisor, tax advisor, attorney, and/or insurance agent before implementing any specific strategy to make sure it is right for you and your unique situation. We are not responsible for the accuracy or upkeep of information on the links we provide to outside websites. If/when we provide a link to an outside website, be sure to independently confirm the accuracy of any information.