Financial Advisor and Portfolio Manager
As an Independent Financial Advisor, David Michael Howard sits down with clients and prepare a plan that is in-line with their legal plan. David and his team focus on conservative investments at Simasko Financial, focusing on investments that preserve their clients' wealth with opportunity to accrue wealth.
David strives to provide clients with a wealth of information in the form of education on financial products and our services, calculators, and research reports. His specialty is to help clients better understand retirement planning and how he can make it easy to understand how they can protect their hard-earned assets.
David and his team have portfolios' developed for each type of client based on their level of risk; ranging from Income Preservation, Balanced Income, Balanced Growth, Growth, and Aggressive Growth. These portfolios are constantly updated to adapt to rapidly changing economical environment. Although they specialize in the elder community, they also provide financial guidance to prospective clients in all phases of their careers, and retirements.
David Michael Howard graduated from Central Michigan University with a Bachelors of Science in Business Administration, concentration in finance and economics, with distinction. David holds a Series 7, 63, and 65 license, and is a RIA in MI, IL, TX, AL.
BS, Finance & Economics, Central Michigan University
Assets Under Management:
Great question. There are several variables that, because of a lack of information, I am going to omitt so I may focus on the most important factor between investing and paying off debt. I cannot answer this in full because I do not know your interest rate, nor your rate of return on the investment accounts. But conceptually, if you are earning (or projecting to earn) a higher rate of return on equity, it does not make fiscal sense to pay off debt if the interest rate on debt is lower. For example, if your retirement account has averaged 8% over the past 10 years (Which the S&P has averaged, inculding the recession of '08) and your mortgage is only 4.25%, it does not make sense to pay off additional mortgage, as your time value of money has you losing out on a 3.75% opportunity cost. Inversely, if your investments comprise of only certificates of deposit at the bank, paying 2.75% for a 5 year, it would make more sense to pay off debt, as it is costing you 1.5% annually over the rate of return you would earn. To conculde, as you are only 48 years old, it would make more sense in my opinion to continue to contribute to your retirement accounts, and invest for long term diversification. If you get to the point where you have maxed out contribution limits, you may then look at paying off debt.
I would advise you team up with a financial planner to discuss your situation in greater deatil. I hope this helped!
David Michael Howard
Great question. There of course are other factors to consider besides the return. This depends on the type of investor you are. If you are someone to attempts to "beat the market each year" then it would make ficsal sense to pay higher fees for a potentially higher return. I myself do not believe in beating the market, as I focus on an indexing philosophy. With indexing, you attempt to match the market, or your level of risk, for the lowest internal fee possible. So, over a 10 year period, the account should have matched the performance of the S&P 500 almost identically, with an internal fee of 0.05%-0.10%. Meaning over a 10 year period, your portfolio would have trailed the S&P 500 be only 0.50% to 1.0% (The internal, annual fee times 10).
If you attempted to "beat the market" each year for a 10 year period with a popular mutual fund, on average the fund would have beat the market 3 times, matched the market 4 times, and underperformed the market 3 times.This "law" of economics is called reversion to the mean, as it is nearly impossible to consistently beat the market. The average annual internal fund fee ranges from 1.2% to 1.6%; the mutual fund would have had to outperform the S&P 500 by 12% to 16% just to break even! In the history of mutual funds, there have been a very small handfull fund managers who consistantly outperformed the market for several years in a row, making it a very uncommon practice.
Ultimately, the decision is yours on how you want to invest your retirement, but make sure you are aware of what you are paying, as underperformance with the addition of high fees only compounds your losses.
David Michael Howard
Independent Financial Advisor
Regardless of net worth, investing in index funds can always be considered both the most cost-efficient and the most effective long-term approach to investing. Sure, every year a few hot shot managers outperform the market, and charge a ridiculous fee to be apart of their funds. Over long periods of time, these managers always suffer from whats known as reversion to the mean; implying that poor managers should eventually find some success, and hot managers will eventually cool off, and start to underperform the benchmarks.
Investing in index funds that track benchmarks guarantees that your portfolio will always move in a similar demeanor to the overall economy. However, not all index funds are created equal. There are over two-thousand index funds rated on Morningstar, that track hundreds of different benchmarks. Choosing a few index funds on your own does not guarantee a performance equal to the overall markets. As a passive investor who may not have enough time to craft a low-cost portfolio of index funds, it may be beneficial to seek out a financial advisor who can prepare one for you. Pairing with a financial advisor when entering retirement allows investors the freedom to pursue endeavors stress-free, knowing their nest egg is being watched over by a professional.
I hope this helps your decisions, and congratulations on your pending retirement.
David Michael Howard
Independent Financial Advisor
TD Ameritrade / RBC Wealth Management
Some of Benjamin Graham's books are renownly known as the greatest fundamental investment books ever written, but for a non-advisor, they may become a little too technical. If this is not the case, and Security Analysis was a good read for you, check out his best selling book "The Intelligent Investor". However, I believe John Bogle's book "Common Sense on Mutual Funds" may be a much more benefical read for you, as it focuses on passive investing instead of stock picking. Without knowing what type of trader you are, these are the most general recommendation I can give.
David Michael Howard
Hello, great question. I myself was in a similar situation not too long ago. I opened my Roth IRA at about the same age, with a firm that was charging 40-60 dollars per trade. With a maximum contribution of $5,500 per year, that first year's trading fees can seem astronomical. There may not be a perfect one-fits-all scenario for this situation, but when starting a Traditional or Roth IRA, there are a few key principles investors should always consider.
- Does the firm holding the retirement account waive mutual fund loads for investors?
With the advancement towards fee-based advisors in the industry, many advisors can purchase mutual funds for their clients with the up-front loads waived. Commonly known as A shares, these funds are a great place to start an investing career. Mutual funds can give small investors access to hundreds of stocks and bonds at once, helping you diversify at low cost. Most firms have access to thousands of Load-Waived (LW) funds, and don't charge the client commissions or fees to buy them. However, the funds manager charges an annual fee to be apart of the fund, so make sure to research any funds you like. Generally speaking, funds that track the stock market as a whole are offered at a lower cost, with specialized funds charging more. A good range for an active management fee is between 40 to 60 basis points (0.4%-0.6%).
2. Firm doesn't waive loads? Then try Exchange Traded Funds
Exchange Traded Funds (ETFs) are a great alternative to mutual funds; and if trading fees were of not great importance, ETFs would be a better choice then mutual funds. ETFs track a "basket" of stocks, like mutual funds, but are offered for a much lower active management fee. These fees also vary depending on specialty, like mutual funds, but for much less. A good range for an ETF fee is between 10 to 20 basis points (0.10%-0.25%). Although you would have to pay trading fees to get into ETFs, they are a great way to diversify with small amounts of capital.
3. Like to be risky? Pick stocks
Probably the least recommended option, but actually what I ended up doing with my own Roth IRA. I would not recommend this to "laissez-faire" investors, but if you are someone who believes in a few strong, large-capitalization companies, picking stocks can be a good option. However, this strategy will not provide much diversification, but because young investors should not be withdrawing from their retirement accounts for several decades, it may be highly profitable and cost affective if we pick the right ones. Of course, there's a chance we pick the wrong ones. But, if we can assume that more contributions will occur in the future, this shouldn't be the end of the world. I would recommend holding on to our losers and not selling too soon, who knows what the next forty to fifty years has in store.