Never Ever Trust Your Money to A Fee-Only Financial Advisor

Never Ever Trust Your Money to A Fee-Only Financial Advisor

It is a pretty good sign that the economy is heating up again when "fee-only" or "for-fee" financial advisors step back out from the woodwork. These folks should be avoided.

You need only to turn on CNBC for 5 minutes these days to hear the next market expert explain to you how they forecast the stock market’s 30% increase in 2013 and how certain they are that they know exactly where the market is going next. (I’ve never quite understood how stock market experts can have no qualifications but to be good at self-adulation, have decent PR and average marketing skills.)  These folks – and an entire industry behind them – have been dusting off their marketing skills that they had left in the back of the closing in 2008.   Many of them are back pushing “for-fee” or “fee-only” financial advisory services for which they charge anywhere from 0.70% to 1.00% as a flat fee on your asset base that they manage.

I myself have met with some of these folks.  While I find stockbrokers to be lacking in many respects, I can say pretty much that I find the entire industry of fee only financial advisors to be not only lacking but disingenuous.  Investment ideas that these folks have are never fully flushed out and can never really be explained with anything other than the most specious of arguments.  Since these folks never really worked a real job and usually sport MBAs from places like Harvard, Wharton or Chicago, they really cannot back up their investment theses.  They are cheerleaders for everything without deep knowledge.  In fact, one even tried to explain to me on January 16, 2014 why Argentina was a great investment for Americans, an argument which was not only not plausible, but especially troubling since he had just returned from an annual vacation there (Argentina’s currency free fall accelerated with rumors of default that circulated the next day).    Anecdotal evidence aside, these folks bring little to the table in terms of knowledge or insight into the market.

Since fee only advisors have no real inside knowledge, they wind up selling access to products that even moderately wealthy investors cannot otherwise invest in.  For example, a fee-only advisor could get you into a fund of funds that is composed of investment in leading hedge fund managers for only a $300,000 investment, whereas accessing those funds of funds directly would otherwise require $1 million.  While many investors would die to have someone like a Dan Loeb or Bill Ackman manage their money, accessing through a fund of funds is a watered down and expensive way to do it (these fund of funds usually charge their own management fees of 1 to 1.5%).   When you add up all of the fees here, you are paying not just the investment managers’ fees, but the fund of fund fees and your own for profit advisor’s fees.  The fees on top of fees on top of fees can easily total 3 to 4%.

Dan Loeb, Bill Ackman and many others are managers worth having on your side, but paying three levels of fees makes their continued exceptional performance necessary just to break even.  They and their peers will need to collectively meet such a high hurdle rate to make investing through fee only advisors worthwhile.  Most investors will find they will perform much better directly investing in individual stocks that they know and / or ETFs that match a strategy that they desire, and avoid all of these ridiculous fees by going to a discount brokerage.

Inside Edge: Pay Professionals for Professional Knowledge, but You Can See Cheerleaders for Free by Watching CNBC

Image: graur razvan ionut at FreeDigitalPhotos.net

Wine and Dine Your Valentine - On the Bank

Wine and Dine Your Valentine - On the Bank

It's Valentine's Day, or close to Valentine's Day and you are thinking about going out to eat with your significant other and wining and dining him or her with a nice, classy meal. The cost of such a meal is probably in the $200 - $300 range. For some, that's not a lot of money, for others, it might be the entertainment budget for the month, or for several months. So, how can you get the bank to pay for such a meal so that none, or almost none of the bill comes out of your own pocket? It's easy. Switch your money to an account that pays a decent interest rate when compared to the national average. Doing so can help you earn hundreds of extra dollars per year at no additional risk. 

Right now, if you are like 80% of the individuals in this country, your extra cash is parked in a savings or CD account at a big bank, earning close to 0%. The average savings account rate according to BestCashCow is 0.13% APY. The rates from bigger banks are closed to 0.05% APY. In essence, the bank is paying you nothing for keeping your money there.

But there are banks that will pay over 7X the national average to deposit your money with them. According to the BestCashCow savings rate tables, the top online savings account rate is 1.00% APY. If you have $30,000 in your cash savings accounts, and you move this over to a higher paying account, the BestCashCow Savings Booster Calculator shows that you would earn approximately $182 after-tax dollars per year. Over ten years, that difference in what you would save by moving your money accumulates to $2,197. That's a lot of nice Valentine's Day meals. 

Try calculating how much you can save. 

In this example, the bank offering 1% APY is FDIC insured, meaning that you take no additional risk moving your money to the bank. 

Take that extra cash you have set aside and put it to work. Opening an account online or at a physical branch takes less than 1 hour. It might one of the most lucrative hours you spend in a while. 

View the top savings account rates. 

There is competition for your money and some banks are willing and ready to pay you more. And in the process, impress your Valentine by showing him or her that you know how to grow your money the easy way.

Have a Happy Valentine's Day!

Image: Apolonia at FreeDigitalPhotos.net

Who Can Benefit from the New myRA Account Introduced by President Obama

Who Can Benefit from the New myRA Account Introduced by President Obama

Rate information contained on this page may have changed. Please find latest savings rates.

In his 2014 State of the Union address President Obama introduced the myRA account and said that the Treasury was taking action to make it available by the end of the year. The account will offer a decent rate of return for a federally guaranteed savings product but comes with some limitations.

In his 2014 State of the Union address President Obama introduced the myRA account and said that the Treasury was taking action to make it available by the end of the year. The goal of the plan is to help millions of Americans save for retirement.

myRA Details

Although the details are still being worked out, the following information has been released about these accounts:

  • All workers who have household income below $191,000 may invest in the plans.
  • The plan will work like a Roth IRA, where after-tax money is put into the account and the money can be withdrawn in the future with all gains becoming tax-free.
  • The only investment option is a fund of U.S. Treasury Securities. Because the securities are backed by the government, a saver will theoretically never lose their principal.
  • The White House says the plan will earn the same rate of return as Thrift Savings Plan's Government Securities Investment Fund that it offers to federal workers. That fund earned around 1.5 % in 2012. Its average return between 2003 and 2012 was 3.6%.
  • Principal can be withdrawn from the plan at any time penalty free although if interest earned is withdrawn before age 59 ½ it will be taxed.
  • Initial investments can be as low as $25 and workers can contribute as little as $5 at a time.
  • Individuals will be able to contribute $5,500 per year.
  • The maximum that can be saved in the account is $15,000. Once that limit has been reached, the excess money can be rolled over into a private IRA fund.
  • Workers can keep the plan even if they switch jobs.

The account is aimed at individuals who have not started saving. Those in high income brackets are ineligible. The rate is actually not that bad when comparing it to other no risk investments such as savings accounts and CDs. The 1.5% 2012 return is far higher than any savings account at the moment, and the money accrues tax free, boosting income even more. The best 5 year CD rates pay between 2-2.5% APY. The money is safe and protected and the principal is liquid, although the interest cannot be withdrawn without penalty.

Those who have never saved before might find this a relatively pain-free way to begin socking away money. From the myRA account, first-time savers can always graduate to private IRAs with more options.

Those under 50 who have access to other investment options should probably invest their money more aggressively in a mutual fund IRA that has the potential for much higher returns.

Those fifty and over who are looking to sock away some safe money until retirement might look at this account. The maximum that can be saved in the plan is $15,000, so it’s not going to significantly change a portfolio, but it’s an easy way to earn a decent tax-free return and keep money liquid.   

Image: foto76 at FreeDigitalPhotos.net