Recently, I took my daughter to see the movie "Hidden Figures." It highlights the true stories of Katherine Johnson, Dorothy Vaughan and Mary Jackson, three brilliant African-American women who each played an integral part in the success of the NASA space program and, in 1962, helped launch the first manned spacecraft. (The man inside, of course, was astronaut John Glenn.)
Their accomplishments are even more tremendous when you consider that they happened during a time in history when women were mostly limited to homemaking or administrative positions. Because of their race and gender, Johnson, Vaughan and Jackson’s contributions were long overlooked, but that didn’t stop them from exhibiting an impressive dedication to their work. They understood their part in the bigger picture and nothing stopped them from pursuing excellence. That was powerful for me. Watching their lives portrayed on screen inspired both me and my daughter.
Even in 2017, I can relate to their experiences. As an African-American female certified financial planner, I am one of just 23% of certified financial planners nationwide who are women. In my mind, the movie mimics real life.
Hidden Figures in Investing
However, the term “hidden figures” can also apply to topics like investing. Hidden figures show up in portfolio fees that can go unnoticed but have a major effect on the total growth of your investment returns:
- Expense ratios are the internal fees a mutual fund or exchange-traded fund (ETF) will charge for its operations. This cost is presented as a ratio such as 0.65%. That means you pay $6.50 for every $1,000 you’ve invested in that fund, and it's taken out of the total return. (For related reading, see: Pay Attention to Your Fund's Expense Ratio.)
- An investment management fee is the annual amount a fee-based financial planner will charge to manage your portfolio. This is represented as a percentage, such as 1% of the total amount you invest with that planner. If your planner invests $500,000 of your portfolio, the total cost of your investment management fee is $5,000 for the year, or $416 per month. This fee may be classified under “professional services” for tax purposes.
- Transaction fees represent the costs charged to purchase or sell a stock, mutual fund or ETF.
- Front-end load is the commission paid if you use a broker to purchase A shares in a mutual fund transaction. (For related reading, see: How Mutual Fund Companies Make Money.)
- Surrender charges are associated with annuities and other class shares of a mutual fund, such as B or C, and are applied during the sale of an investment. If you’ve been investing for years, you may still own these in your portfolio. Mutual fund companies have been exchanging these B and C shares out for lower-cost A shares. An alternate term used is back-end load.
- An annual custodial fee is charged for the accounting and IRS reporting of your investment transactions, including the cost of a monthly, quarterly and annual statement from the financial firm. (For related reading, see: Uncovering Hidden Broker Fees.)
As you review the list, you may feel like these are just too many fees or too many incremental deductions you haven’t noticed. But consider these costs as similar to the expenses associated with designing and manufacturing those gorgeous shoes that make their way from the warehouse to the shelves of your favorite boutique to a space in your closet. You’re paying for the labor and knowledge that creates a product. That’s why most of these costs don’t go away, even if you take a DIY approach to portfolio management. (For related reading, see: Manage My Own Investments? Are You Kidding?)
Where you place value is where you spend money. Savvy investors recognize soft costs and do their research to alleviate blind spots when they’re making crucial decisions. It’s also important to understand that having access to a team of experts—such as a specialty attorney for legal matters, a CPA for tax planning, and a financial planner for goal-setting and portfolio management—is a critical investment in and of itself. Their inside knowledge helps to avoid hidden figures that can (and often do) show up because:
- You don’t know what you don’t know. There are details you may know you need to learn, but what about the specific concepts you don’t even know to learn? How do you plan to become aware of them?
- You aren’t familiar with the myriad effects. Do you understand how the different concepts correlate and interrelate? As we know from Sir Isaac Newton, every action has an equal and opposite reaction. Therefore, an action in one area often affects another. How do you plan to stay aware of all of the interconnected relationships and consequences?
- You haven’t ventured deep into the unfamiliar. Do you have the emotional confidence to do what’s necessary to succeed financially? Sometimes the correct action is nonsensical. Trained and certified professionals can help you manage unplanned difficulties and disasters. Do you have one on your team? (For related reading, see: How to Avoid Emotional Investing.)
- You’ve decided what’s really important. How valuable is your time? Would you prefer to spend it trying to solve a problem outside of your expertise or hire someone else who’s already an expert with built-in resources and knowledge to help you solve it?”
I can just imagine all of the girls—and women—who will benefit from seeing "Hidden Figures." the movie. I can also imagine all of the future and current investors who will benefit from understanding the hidden figures in their portfolios so they can be empowered, prepared and financially fierce.