Retirement is the time to relax, enjoy life and pursue meaningful activities — not spend time managing your money. Yet, hiring a financial advisor can set you back 1 percent or more of your investable…
Retirement is the time to relax, enjoy life and pursue meaningful activities — not spend time managing your money.
Yet, hiring a financial advisor can set you back 1 percent or more of your investable assets — if you have $250,000, you’ll spend $2,500 per year in expenses. That’s money that could have gone toward reinvesting and growing assets, taking a vacation, paying taxes, enjoying local theater or exploring new restaurants.
But how hard is it to manage your own investments? Can a regular guy or gal get it right?
Know the basics. Managing your investments isn’t rocket science, but it does require basic financial knowledge. You must understand the basics of stock and bond market investing. Stock and bond fund prices bounce around in the short term, so don’t put your mortgage payment or your summer vacation savings in the stock market.
Rich Winer, associate vice president and wealth advisor at Steel Peak Wealth Management in Los Angeles, recommends free and low-cost resources to help with investment management. Yet, “while all of those resources can help investors select good investments and develop an appropriate asset allocation, none will help retirees address the hardest part of investing, which is managing their emotions and behavior during the market’s ups and downs,” he says.
Keep it simple. Urban Adams, investment advisor at Dynamic Wealth Advisors in Orange County, California, recommends that investors use one custodian — Schwab, Vanguard, Fidelity, E-Trade, Interactive Brokers or another — if they are managing their own retirement accounts. Then roll over old 401(k)s into an IRA and combine all similar accounts so you have only one traditional IRA, one Roth IRA and one taxable account.
Don’t gamble if you aren’t ready to lose. Avoid swinging for the fences with money you can’t afford to lose. “A lot of people are looking for the big score, in other words the next Google ( GOOG, GOOGL) or Facebook ( FB),” says Russ Blahetka, founder and managing director of Vestnomics Wealth Management in Cupertino, California. “The best advice I can give to folks wanting to do their own investing is to build a well-diversified portfolio.”
Famed investor Warren Buffett’s plans for his estate are to invest 10 percent in short-term government bonds and 90 percent in a low-cost S&P 500 index fund. If that’s too narrow a focus for your stock investments, pepper in an international stock exchange-traded fund, a small-cap fund or a few other diversified funds for an easy-to-maintain retirement portfolio.
For most retirees, Buffett’s allocation of 90 percent stocks and 10 percent fixed assets are likely too aggressive. Most retirees are best served with 40 to 50 percent invested in fixed assets such as bond funds and cash, with the rest in stock funds. Ideas for a low-cost diversified retirement portfolio are readily available online.
Know where you can get help. If you want guidance managing your retirement portfolio for free or for a low fee, there are options. Choose a free or ultra-low fee robo advisor to create and manage your diversified investment portfolio. M1 Finance allows users to choose from pre-made investment portfolios or create a custom portfolio for free. The platform then rebalances assets according to the user’s preferred allocation.
SigFig will manage investments in Fidelity, TD Ameritrade Institutional or Schwab accounts, and will charge a fee of 0.25 percent of assets under management more than $10,000. SigFig also offers a robust portfolio tracker and analysis tool.
United Income is a newer robo advisor designed especially for retirees. Although its 0.5 percent management fee (with higher fees for additional services) is more than some others, United Income offers a suite of services geared toward those in retirement, including asset diversification, legacy planning, trusts and account sequencing.
Know your potential pitfalls. Be aware of the dangers of managing your own investments in retirement. “This is difficult, because you have to manage distributions in a way that does not alter your portfolio allocation, unless intentional,” says Crystal Wipperfurth, wealth advisor at Bronfman Rothschild in Madison, Wisconsin. “It can be done, but to do it right takes a lot of time and energy.”
And sometimes it’s practical to pay for financial advisory services. “During periods of excessive market euphoria and optimism as well as periods of excessive market fear and pessimism, there is no substitute for having a good, experienced financial advisor,” Winer says.