“For the average person trying to save for retirement, it doesn’t need to be this confusing.” That comes straight from the mouth of John Oliver, who delivered his rant against the finance industry last month on Last Week Tonight with John Oliver. In this episode, he hilariously chronicles a story of hidden fees and retirement investing myths, and points out that not every financial advisor legally has to have your back. It is well worth the 20 minutes.
Some traditional advisors like to throw tons of information at you and create portfolios with so many moving parts that you immediately think: I can’t possibly figure all this out on my own. I need "professional" help! Just think of it as job security – theirs, not your own. After all, once you find out the dirty truth, that investing really isn’t that hard or that complicated, they’ll no longer be able to prey on your ignorance. (For more, see: Should My Financial Advisor Be a Fiduciary?)
New Fiduciary Rule
Most of these advisors work on a commission basis. They are salesmen. In addition to annual management fees, they are often paid commissions on products they sell to you. However, the Department of Labor is forcing some change. Starting in 2017, financial advisors will have to work in a fiduciary capacity when managing retirement accounts. They will have to act in your best interest, putting your retirement account and your goals ahead of their compensation and other incentives.
5 Investing Tips
John also offers five solid tips to investing, which we’ve summed up for you below:
- Start saving now: Not tomorrow. Not next week. Even if it’s only $100 a month, anything you save will begin earning interest. If you invest those savings, that’s even more compounded growth. It’s ok to start small, just start now. It adds up quickly.
- Consider low-cost index funds: Lower fees translate to more little green soldiers working for you. Are you saving for your retirement or your financial advisor’s?
- Ask if your advisor is a fiduciary: Many financial advisors work on a commission basis, which is an extreme conflict of interest. They make their living by selling you stuff. Only a fiduciary will put your needs first.
- Gradually switch stocks to bonds: In general, stocks are more volatile than bonds. As you progress toward retirement, your goals will likely change from growth to preservation.
- Keep your fees like milk - under 1%: Fees can really add up, especially if they are 1% of your portfolio. That means the more your account grows, the more you are paying, for quite possibly the same service.
Investing doesn't have to be complicated. Keep it simple. Use proven, long-term strategies. Minimize fees. Remove emotion. Wise investing is all about asset allocation, picking a strategy and sticking to it throughout thick and thin. If anyone tells you they can beat the market, run. (For more, see: The Advisors You Don't Want Managing Your Money.)