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Investing for Retirement

How to Find a Financial Advisor if You’re Not Rich

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

If you think about it, the people who need a financial advisor are the ones who can't afford one. If you're impoverished or firmly in the middle class and can't seem to make it to the next level, you're the one who could really use financial advice. If you're wealthy, you know what you're doing.Yet many financial advisors simply aren't interested in working with the middle class. Many firms in recent years have stopped paying commissions to brokers for accounts that are considered small, including accounts ranging from $100,000 to $500,000 in assets. Firms that do take less than those minimums sometimes charge as much as 2 percent in annual fees, though 1 percent is more typical.So what should a middle-class investor do to find a good financial advisor? Experts recommend following these tactics.Know Where to LookAt the beginning of the process, you should think about what type of financial advisor you want to meet with: fee-based or commission-based. Think about what you're looking for. Are you seeking help with investments and retirement planning, or simply someone to go to when you have questions? Some advisors include financial planning in their fees for managing your investments, while others charge a separate fee or hourly rate for advice.As for where to find a financial advisor, there are several places, from the obvious to the unexpected: Ask friends, family or colleagues for recommendations. Obviously, you'll be more likely to find somebody who will work with you if your friends, family members or colleagues are in a similar tax bracket as you are. The Garrett Planning Network. GarrettPlanningNetwork.com offers a map of the United States where users can click on a state and find a listing of financial advisors who cater to the middle class. The National Association of Personal Financial Advisors. The association's website, NAPFA.org, allows you to find a financial advisor near you. It isn't for financial advisors who generally cater to the middle class, however. Still, you may want to take a look and see who shows up near your home. Robo advisors. You may want to consider an automated portfolio management service as a cost-effective option. For example, Schwab Intelligent Portfolios does not require advisory fees, account service fees or commissions, though you will need $5,000 to get started with them. Meanwhile, Wealthfront, another popular robo advisor, has a $500 minimum account requirement, and only charges an annual advisory fee of 0.25 percent on all assets under management deducted monthly. The Accredited Financial Counselor website. "I would strongly encourage true middle-income people to look (at Afcpe.org) for an accredited financial counselor," says Justin Chidester, who is both an accredited financial counselor and a certified financial planner – as well as the owner of Wealth Mode Financial Planning in Logan, Utah. Search engines. This one may seem like a no-brainer, but the power of search engines can't be overlooked. Chances are a search engine is how you found your way here. So if none of the above prove fruitful, consider a quick Google search for "financial advisor near me" or "financial advisor for the middle class." You've probably heard of certified financial planners, but accredited financial counselors have been around for a while too, according to Chidester."They often have a focus on helping low- and middle-income people, at affordable prices, with topics relevant to everyone – saving, budgeting, paying debt, improving credit, preparing to buy a home and working through poor habits with money," Chidester says.He adds that they can't legally provide investment or insurance advice, but they can provide great education about any financial topic and point you in the right direction for those things.Know What Questions to AskAre you looking for help with investments and retirement planning, or simply for someone to go to when you have questions? Knowing what you're looking for in a financial advisor is the first step to finding the right advisor for you. Knowing how to match an advisor to your needs is the second step. Ask any potential financial advisors these questions: What services do you provide? What type of clients do you typically work with? How will we communicate with each other? How often will I hear from you? Are you a fiduciary? How are you compensated? And how much will I be charged for your services? Some advisors include financial planning in their fees for managing your investments, while others charge a separate fee for advice. As for how much you'll pay, it will vary depending on where you live and the scope of the work you're asking for. Some advisors may charge a couple thousand dollars for a comprehensive plan; others may charge around $200 to $400 an hour to dispense financial advice.Stephanie Genkin, a certified financial planner in Brooklyn, New York, charges hourly – as opposed to what's known as "assets under management." Most fee-only advisors charge according to assets and therefore have minimum thresholds an individual needs to have in their bank account before they'll even consider the person as a client. How much is the minimum? It varies, of course, but often you'll need at least $50,000 before many advisors will consider working with you."That means most middle-class people are automatically excluded from service as they don't have enough in investments to manage," Genkin says. Genkin, who charges $200 an hour for her services, is also a fiduciary. That's important to know because there are two standards that financial advisors adhere to. If you're working with a fiduciary financial advisor, they are legally bound to put your needs before their own. A financial professional who has a suitability requirement is legally bound to provide products that are suitable for your needs, but which may not be the very best for you. That doesn't mean somebody who upholds the suitability standard isn't going to look out for you – but it does mean that the rules for those advisors are less stringent.Registered investment advisors, investment advisor representatives and certified financial planners all carry fiduciary-level responsibility. You can easily spot these titles on business cards, websites and email signatures, if you look after the person's name. Chartered retirement planning counselor and accredited investment fiduciary are other designations that indicate a fiduciary responsibility. Keep in mind, your financial advisor will likely carry a Series 65 license or a Series 7.As for what you might discuss with a financial advisor, it can run the gamut. In Genkin's case, she says, "I work with students to help them create realistic debt repayment plans, self-employed individuals who need help figuring out what they can do to save for retirement and new families who have limited resources and would like to save for a down payment on a home and start a college savings plan for their baby at the same time."She also points out that you may not need many hours, at first, with a financial advisor. If you're just starting this journey, you probably have fewer assets, and you just need that initial guidance. By the time you need more help to manage your assets, well, you'll presumably have more money, and paying for more financial advice won't be as challenging.Stick Up for YourselfTo avoid getting scammed, make sure to get references and check out everything you can find on the financial advisor online first. And keep in mind, everyone pays something when they hire a financial advisor – and not everyone is out to get you.But after you find a financial advisor, you do want to make sure you're in sync. You'll want to get a sense of whether your advisor has a financial philosophy that lines up with yours.And the most important question of all? "Ask how can they help you reach your goals," says Brett Anderson, a certified financial planner and president of St. Croix Advisors, an investment advisory firm in Hudson, Wisconsin.And if you're anxious that you don't make enough money for a financial advisor to work with you, just tell the advisor upfront what you earn, Anderson says."Established advisors will want to have a dialogue even before they schedule an initial meeting with you," he says. "Be honest. Just lay it all out. You'll save everyone time."And the more time you save in looking for a financial advisor, the faster you can get started making your money work for you.

February 21, 2020 0 comment

Financial Advisors

8 Facts to Know About Mutual Fund Fees

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

Understanding mutual fund fees.
Mutual fund fees can be confusing to retail investors because of the different terms to explain how the investment is packaged and managed. Retail investors researching mutual funds can compare mutual fund fees, expenses and other information on financial news sites, experts say. "It's where most professionals start their research," says Craig Bolanos, CEO of Wealth Management Group. Knowing what a mutual fund charges compared to it its peers can help investors if a higher-priced fund is worth buying. Here are eight facts to know about mutual fund fees and expenses.

Know the basics.
Mutual fund fees come in a few different flavors and have different terms that mean the same thing, says Crystal Wipperfurth, a certified financial planner at Bronfman Rothschild. The term load is the fund's sales charge, which is the commission investors pay to the mutual fund company, usually expressed as a percentage of the amount bought or sold. Upfront load fees are paid in the beginning, back-load fees are paid when an investor sells. No-load funds mean no commissions are paid. Another fee is the expense ratio, it can comprise the management fee, which is how the managers get paid. The expense ratio may also contain a "12b-1 fee" – the cost to market the fund. But not all funds have those fees.

Focus on the two main share classes.
Looking at the different mutual fund classes can feel like looking at alphabet soup. For instance, there are A-class shares or B-class shares, to name a couple. There are also institutional and investor shares, all with different trading symbols. Wipperfurth says retail investors should focus on A-class shares and C-class shares. A shares have a one-time, upfront load, which includes the financial advisor commission. It can be as high as 5.75%, which translates to $575 for every $10,000 invested. C-class shares do not have an upfront sales charge but can have a back-end sales charge if it is sold within the first 12 months. Both A- and C-class shares may have a yearly expense ratio but the A shares tend to have lower expense ratios.

Determining which share class is better.
Investors may choose C-class shares automatically to avoid the A shares' upfront loads but they should think twice about the purpose of buying a particular fund. Investors should consider how long they intend to hold the fund when deciding which share class ultimately will be less costly. "The longer the holding period, the more appropriate the class A share might be simply because it has lower on-going expenses even though it's got the drag of the upfront commission," Bolanos says. Investors who plan to only hold the fund for a short time may want to opt for C-class shares. The Financial Industry Regulatory Authority, known as FINRA, has a calculator that can help determine how long it would take to hold a fund to make an A-share fund more cost-effective, he says. Generally, A shares can be more cost-efficient for investors who plan to hold it more than three years, Bolanos says.

Fees affect performance.
Although mutual fund fees have different structures depending on the share class, the bottom line is that's the cost to compensate the financial professional, says Aaron Benson, portfolio manager at Baird Private Wealth Management. That cost affects performance and affects what an investor received. In upfront commissions, the fee is subtracted before the money is invested. Yearly expense ratios are taken out of the fund's assets. "That's all reflected in the fund's performance," he says. Investors buying A shares should be aware of breakpoints as larger investments can mean a lower upfront sales load, he says.

Mutual fund fees are falling.
Ben Johnson, director of global exchange-traded fund research at Morningstar, says mutual fund fees as a whole are down from years past as cheaper index funds are taking a bigger chunk of investors' portfolios. Johnson's April 2019 research paper shows that the asset-weighted average expense ratio for active and passively managed mutual funds and ETFs combined was 0.48% in 2018 – that's significantly cheaper compared to 0.93% in 2000. This ratio has fallen every year since 2000, he says. The growth in target-date series funds and the default choices of index mutual funds in most 401(k) plans is one example of how index mutual funds are becoming more popular, he says.

Active mutual funds charge more.
The asset-weighted average fee for actively managed mutual funds in 2018 was 0.67% compared to 0.71% in 2017, while the average fee for the passively managed mutual funds was 0.15% in 2018 – down from 0.16% in 2017. Johnson says active mutual funds charge higher fees because it's related to the cost of creating the portfolio and delivering the strategy to the client. "Index portfolios have a meaningful advantage over actively managed portfolios in that respect because the index methodology can be boiled down to an Excel spreadsheet or a Word document," he says.

Higher fees occur in more complex strategies and sectors.
Johnson's research shows the average fund cost for an actively managed U.S. equity fund in 2018 was 0.7%. Those costs rose to 0.82% on average for an international-equity fund and as high as 1.35% for an alternative strategy active mutual fund. He says there are a few reasons for the differences in costs. Part of it is the cost of creating the strategy as the cost to build and maintain a portfolio of foreign stocks, for example, can cost more, especially as an active manager tries to hew closely to the benchmark. But other times, "the case for higher fees might not hold water," he says.

More to investing than just fees.
Bolanos says controlling costs and fees are important, "but it doesn't mean we should be just investing in things that cost zero." He says investors should look that what the investment represents and what it offers. Actively traded mutual funds that invest in niche areas like biotechnology or artificial intelligence may take more research time and will have a higher cost. "Where else can someone can exposure to those sectors," he says. "You can't unless someone creates it. If that's the only way to get access, it is what it is. But we owe it to ourselves to make sure there's a process and the selections are fair."

Facts to know about mutual fund fees:
Know the basics.Focus on the two main share classes.Determine which share class is better.Fees affect performance.Mutual fund fees are falling.Active mutual funds charge more.Higher fees occur in more complex strategies and sectors.There's more to investing than just fees.

February 21, 2020 0 comment

Business Growth

A Guide to Investing in Mutual Funds for Beginners

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

Mutual funds can be a smart place to start investing. They’re easy to access and don’t require you to read any balance sheets or even know what a balance sheet is. They’re also less likely to leave you high and dry than an individual company, which is more likely to go out of business.

“A mutual fund is an investment vehicle that pools many individual investors’ money together and is managed by professional investment managers,” says Dennis Baish, senior investment analyst and portfolio manager at Fort Pitt Capital Group in Pittsburgh, Pennsylvania.

They allow you to turn the selection of individual stocks, bonds and other investments over to professionals. This makes mutual funds “ideal for those who do not have the time or ability to select individual securities, but still want to participate in the market,” Baish says.

If you have a 401(k) or another employer-sponsored plan, you’re probably already investing in a mutual fund or two. Typically these plans default you into a target-date retirement fund (more on those later), but there are many, many mutual funds to choose from.

How to Start Investing in Mutual Funds

Pick an area of the stock market and there’s bound to be a mutual fund to help you invest in it. Whether you want to own only the biggest U.S. stocks or the smallest; if you want to invest in China or South America; if you want the security of bonds or the income from real estate without needing to own either directly, there are mutual funds to provide that exposure.

“Typically, a mutual fund will specialize in certain segments of the market whether just stocks, just bonds, just real estate,” Baish says. He recommends that beginning investors select a few different funds to start.

“By selecting a number of different mutual funds, individual investors can usually get diverse exposure to the overall investment landscape,” he says. “Since not all areas of the market or investment managers perform well at the same time, broad diversification among different mutual funds can be an important component of mutual fund investing.”

[

See:

16 Investing Questions That Intimidate You, But Shouldn't. ]

Choosing Mutual Funds for Your Portfolio

When it comes to choosing which mutual funds to invest in, start with your investment goal and time frame. These two elements will help determine what type of mutual fund you should use.

For instance, if you’re investing for retirement 30 years in the future, you can choose a more aggressive (read: stock-heavy) mutual fund than someone investing to buy a yacht in five years. The shorter your time horizon, the more conservative your mutual fund should be, generally speaking. Longer-term investors can afford to take on more risk as they’ll have time to wait out any stock market declines.

“In many cases, an allocation fund is a good place to start,” says Will Lofland, director, head of intermediary distribution at GuideStone Capital Management in Dallas. “This is a fund with a specific risk target that will provide the investor [with] broad diversification.”

An investor with a 30-year retirement goal who isn’t afraid of seeing her investments fluctuate in value between now and then could use a 90/10 or 80/20 asset allocation fund. These will invest 90% or 80% of their assets in stocks, respectively.

Less aggressive investors may opt for a 70/30 or 60/40 allocation.

“Another option would be a target-date fund,” Lofland says. “These funds are something that you select that have a year in the future that corresponds to some type of goal.”

The retirement saver who plans to retire in 30 years could use a 2050 target-date fund. This would start at a more aggressive, stock-heavy allocation but gradually become more conservative as the target date nears.

It’s worth noting that while target-date funds are designed for retirement investing, you can use them for any investment goal. Simply choose the fund associated with your end-goal date.

“More savvy beginners can build allocations themselves, but need to carefully study each fund they are considering, and to make sure that they are building a properly diversified allocation,” Lofland says.

[

See:

8 Free Investment Classes for Adults and Teens ]

How to Evaluate Mutual Funds

“Choosing which mutual funds to invest in can be intimidating for a new investor with little investment knowledge,” Baish says. “As you start your mutual fund investing journey, there are some things that are important to think about as you select mutual funds.”

He says to look for a mutual fund with a good long-term performance that compares well against other mutual funds investing in the same area of the market.

“Comparing a bond fund against a stock fund isn’t a fair comparison because both funds invest in different areas of the market,” he says. Instead, “look to compare a U.S. large-cap mutual fund with another U.S. large-cap mutual fund. This will give you a better idea of performance.”

And when evaluating performance, focus on the long term. “Short-term performance is less relevant than long-term performance,” Baish says.

The same holds for the investment professionals managing your fund. “Look for investment managers that have a long history of investing,” he says.

Simon Calton, CEO of the Carlton James Group, says his biggest tip for anyone investing in mutual funds is to look at how the fund manager did during the last economic downturn.

It’s been easy for mutual funds and their managers to do well in the extended bull market; what will differentiate the best managers is how they performed during stock market declines.

“You need to see that they have seen the ups and downs because it’s all well and good understanding how to make money when the going is good; it’s about how you buckle down and work through when things” aren’t going so well, he says.

You can find information on a given mutual fund’s past performance and manager experience on sites like U.S. News & World Report’s mutual fund pages or the fund company’s own website.

[

See:

7 Things to Know About Money Market Mutual Funds. ]

“Fund company websites are a great tool that offer information such as fees, commentaries, investment outlook, performance reports and much more,” Baish says. “Becoming knowledgeable about mutual fund investing will help you select the mutual funds that you are most comfortable with.”

8 Great Benefits of Mutual Funds

February 20, 2020 0 comment