Will investing in index funds protect me against paying too many fees?
I am going to retire soon and am pretty close to being debt-free. Should I put the vast majority of our money (one million dollars) in index funds to save thousands of dollars in fees? Or should I try to find something else?
Generally speaking, less management in a fund means less fees, and fees compound over time! Do you want to know PRECISELEY what you can expect to pay over the life of your investments in fees alone? Don't take my word for it, visit the unbiased, Financial Regulatory Agency (FINA) website called Fund Analyzer, this agency that regulates financial advisors. They have an incredibly powerful tool that will estimate these funds. All you need to do is input the ticker symbols for your investments and voila! You may be SURPRISED to learn how much you can expect to pay in fees alone over time. http://apps.finra.org/fundanalyzer/1/fa.aspx
My firm can do this for you free of charge and send you a no obligation PDF report on the results. Visit www.denverwealthplanners.com for this.
Read on to learn more about INDEX FUNDS.
No matter whether you're a seasoned investor or a novice at the stock-trading game, there's a popular option that may suit your portfolio-offering the stability of proven performers you know, plus the growth potential of innovative companies you may not have heard of yet. It also has additional benefits like low costs and tax efficiency.
QQQ-the trade name for the NASDAQ-100 Index Tracking Stock (NASDAQ: QQQQ)-is a type of investment product known as an exchange traded fund (ETF). With a trading volume averaging 99.7 million shares per day, it is the most actively traded, listed equity security in the U.S.*
Active investors appreciate the simplicity and liquidity of trading a basket of stocks in a single transaction. Long-term investors appreciate that the fund is based on NASDAQ's 100 largest non-financial companies and diversified across sectors. The investment covers a range of industries, including computer hardware and software, telecommunications retail/wholesale trade, biotechnology and transportation, with a simple purchase of a single stock.
Additionally, QQQ is eligible for 401(k) and IRA investments, making it attractive for a long-term buy-and-hold investment strategy. And because QQQ represents the collective performance of these companies, the impact of price fluctuations caused by a specific company is another reason QQQ is also attractive.
For the first time, investors who purchase the same dollar amount of shares at regular intervals can have direct access to an ETF such as QQQ. QQQDirect is an affordable online investing service that provides one plan purchase of QQQ per month free of any charge. It is a fractional share, dollar-based service that allows as little as $10.00 per month to be invested with QQQDirect's AutoVest Schedule.
"NASDAQ has played a significant role in the equification of America and QQQDirect is yet another way we can break down barriers to stock ownership," said NASDAQ Global Funds CEO John Jacobs. "By buying a single share of QQQ, dollar-cost average investors will own a portfolio of NASDAQ's industry-leading companies-including the likes of Microsoft, Starbucks and Dell."
"We believe this new service expands the ability of investors to make sound investment decisions," said John Markese, president of the American Association of Individual Investors (AAII). "As an advocate of investor education and empowerment, AAII views the introduction of QQQDirect as a new, cost-efficient opportunity for individuals to practice the principles of sound investing."
Congratulations on your transition to a new chapter in your lives.
You have asked a good question and have no doubt found that there are numerous options.
You have a couple of different things going on here. Investing is but one piece. And you certainly can't go wrong over the long-term if you have funds invested in index funds. There are few things you can control when it comes to investing. One of them certainly is fees. This is from Vanguard: https://vanguardadvisorsblog.com/2017/04/25/why-active-vs-passive-is-the-wrong-debate/?utm_content=sf73662300&utm_medium=spredfast&utm_source=linkedin&utm_campaign=FAS&sf73662300=1
I'm a big fan of low-cost investing vehicles including mutual funds, Exchange Traded Funds and indiviudal dividen-paying stocks. But don't lose sight that fees are but one part of the equation.
But don't overlook the other piece of the puzzle: planning. While you can find a number of strong contenders for passive index funds at low cost (Vanguard comes to mind), what you'll need to consider is how to start withdrawing from these funds in such a way that you can sustain your retirement lifestyle anticipating inflation, possible future health care costs and the inevitable stock market pullback during retirement.
This is where you will do well to bring someone aboard who can provide you with this kind of holistic plan and support in implementing it.
Oftentimes, investment advisers talk about retirement planning in general and may say that they offer a retirement plan as part of thier investment services. Some do. Some don't. You should consider whether or not the adviser can provide comprehensive and competent counsel on a range of retirement issues: cash flow, tax planning for distributions, estate planning for your legacy, investment allocation and distribution advice.
You may want to speak with an adviser even if this person isn't directly managing your investments. Some (not all) registered investment adviser firms will offer a division of services so you may continue to invest through your own choice of platform or direct your own investments with perhaps periodic advice scheduled throughout the year to integrate investment changes into any plan.
Either way you should consider the positive value that a fiduciary financial planner can provide. Vanguard details this in a recent study at about 4% per year with part of the ($2,600/year) in the form of direct retirement planning services.
Index funds are a great foundation upon which to build your retirment nest egg. If you are investing on your own, I would argue that you should use index funds exclusively. If you engage an advisor, their core holdings should be passive.
Be careful, though. Not all index funds are alike. There is still a wide range of fees. Mutual funds that track the S&P 500 have management fees that range from 0.03% to over 0.50%. Stick with providers that have a strong presence in the index space. Vanguard and Schwab are among the cost leaders in index funds today. While Schwab's in house index funds are not as extensive as Vanguard's, they've become a low cost player in the areas in which they compete. You should'nt have to pay more than 0.10% for indexed equity strategies.
In taxable accounts, you might want to consider using index ETFs rather than mutual funds. It's a technical point ... but you will likely find that your tax exposure is a bit less with ETFs than their analogous mutual funds. Good providers of ETFs include Schwab, Vanguard, State Street, and Blackrock.
Index funds are great but that shouldn't be the bulk of your portfolio. An account that size needs to be in a combination of funds and stocks. Find a a fee only advisor that doesn't charge for trades and you will save thousands.
What type of fees are you referring to? Passive investments that attempt to replicate a broad index such as the Russell, S&P or CRSP have low expenses ratios. The Vanguard Total Market Index Fund has an expense ratio of 0.0004 or 4 bucks per 10,000. The average active equity fund is in the area of 80 dollars per 10,000. Whether or not you need someone to assist you in portfolio design or defining your goals or addressing issues that may come up for the next 20 years is a different matter.
Many times people use a core and satellite approach where index funds are the mainstay and active funds are the satellite. The idea is that you should derive a bit of value added from the active and the core will give you the market returns.
I think that your question is a great one and think that you should speak with a Registered Investment Advisor, who must act in your best interests, and explore some ideas.