White Oaks Investment Management, Inc
CEO & Chief Investment Officer
Robert Klosterman, CFP® is CEO and Chief Investment Officer of White Oaks Investment Management, Inc. and its predecessor R.J. Klosterman & Co, Inc. Bob has been a Certified Financial Planner licensee since 1989. He has a clear vision for the future having worked in financial planning and investment management since 1975, and feels a strong need to provide people with expert investment management services. As a Certified Financial Planner and certificate holder for Family Wealth Advising, Bob’s expertise and guidance have helped to fuel the steady growth of the firm.
Bob’s leadership within the firm’s Advisory Committee regularly encourages fresh thinking and new approaches that provide clients with innovative wealth management solutions in the areas of economic and investment market analysis, stock option strategies and wealth transfer techniques.
Bob has been listed as one of the Top 250 Financial Advisors in the United States by Worth Magazine. He has also been recognized as one of the top 150 Financial Advisors by Mutual Fund Magazine, Medical Economics and Bloomberg’s Wealth Manager Magazine. Bob’s published quotes appear frequently in dozens of local and national publications, including USA Today, the New York Times, Minneapolis Star Tribune, CFP Today, Barron’s and Fortune.
Bob and his wife have lived in the Twin Cities since 1971 and have three children. Bob’s hobbies include reading, walking, bicycling and sailing.
Assets Under Management:
A great question, particularly in light of our current environment of interest rates likely rising instead of falling. You did not mention the interest rate on your mortgage. You also posed the possibility of paying it all off at once which suggests you may have the money to pay it off now.
A key factor for me is what the interest rate is and what you can earn on other investments. For example, I believe that a broadly diversified portfolio of equities, bonds, and cash can earn 5-6% per year. If the mortgage interest rate is lower than that, and it could be based on the time and the term of the mortgage you described, paying the mortgage off early may not be the best solution. You can improve your finances more effectively by investing than paying the mortgage down.
Back to your question. If you are committed to paying the mortgage off and have the funds and don't feel other investment opportunities could be more attractive, then, by all means, pay it off. If the funds are not in hand, making pre-payments can dramatically reduce the amount of interest paid ad earlier payments on the mortgage will have the most impact.
Robo-advisors have come onto the scene and have gained some level of traction, particularly, with younger investors. Most are low cost and provide a model portfolio based on how an investor answers a few questions in an attempt to ascertain the investor's tolerance for risk. Over time the technology will evolve, yet, it is not clear what direction this will take. In your question, you remarked about being "bombarded" with ads for Robo-advisory services. Of course, this costs money and the early reports are that the "cost of acquisition" for new clients to the Robo-advisory system are quite high. Only time will tell if they can obtain enough scale to justify these high costs.
What can an in-person or human advisor offer? Great advisors know what questions to ask and can take your personal situation into account in their recommendations. Most Robo-advisor platforms ask a handful of questions. In my personal experience, the nuances of a client's personal financial situation and their own life history and experiences can have a huge impact in making the "best recommendation. The other factor is when a client becomes nervous about the current market, economic, or geopolitical events, an advisor can be a vital resource in taking the appropriate action.
Here are tow other resources that may be helpful in evaluating the differences.
If your focus is strictly on costs, index funds are often a good way to begin. That being said, not all index funds are created equal when it comes to fees. It is possible to see the term index fund used and the index resides within another investment vehicle such as an annuity or another sort of structure where there are higher fees or additional layers fees to watch out for.
There can be a vast difference even in the index fund universe between various sponsors of index funds or Exchange-traded Funds (ETF's). In some cases, the fee's can be very low, less the one tenth of one percent annually and others are quite high. In assessing fee's, expect to pay more for International, Emerging and Small Cap indexes when comparing to the S&P 500 or Large Cap US portfolios.
Index funds, ETF's provide a good starting point in lowering costs but some investigation is still in order to ascertain the best fit for you as the investor.
Debt is not automatically "good" or "bad", it depends on how you use it. For, example let's start with an assumption that you have $20,000 in cash. You also need a new car that you could buy or lease. Let's further assume that the car loan is going to cost 6% a year in interest and the money is sitting in a money market account earning .5%. Paying 6% and earning .5% doesn't make sense. You are behind by 5.5%. Better to pay cash and save the payments to replenish your savings and this debt goes into the "bad" column.
Yet, let's change the assumptions and instead of assuming the cost of the lease or loan is now 3% and the investment is not a money market but an investment in a stock portfolio you expect to earn 6% per year over the long term. Now the borrowing is can be used as a constructive tool by earning more than you are paying and therefore goes in the "good" column.
As you can see, there is no automatic good or bad debt. If you can earn more of your investments than the debt costs, great. If not, the debt can be "bad".
Congratulations! You seem to be happy with your current portfolio, and it is in the middle as far as costs go. As an advisor, I am often asked this question. The highest priority, of course, is whether or not you are happy and you have indicated you are. If so, why change? The following are some reasons some investors consolidate holdings:
- Simplify the management. 33 different mutual funds and 5 stocks add a level of complexity and additional work for you.
- Potential to lower costs. While .7% is better than many, it is not anywhere near the lowest costs. Are your funds outperforming a relative index? If yes, then the management fees are justified. If not, index funds may reduce your costs significantly and improve your outcome.
- Will your spouse be able to handle? It is not unusual for one spouse to be the dominate person handling the finances for a family. Can the survivor deal with a portfolio with this many moving pieces?
A good choice is often a discount broker(Schwab, Fidelity, TD Ameritrade) that can handle your request. In many cases the assets are transferred in kind and decisions to sell and buy funds is made later. Often, a fee-only advisor can help, but clearly, this can be done without one.