Refinancing Your Investment Account: The best move you can make -- now more than ever


An old Chinese proverb tells us “To attain knowledge, add things every day. But to attain wisdom, remove things every day.”

Two thousand years later, the advice still rings true -- especially when it comes to investing. Reducing expenses is the only sure-fire way to increase your results – dollar for dollar. In fact, when it comes to investment accounts, the power of compounding makes the benefit far greater than dollar for dollar when you reduce or limit recurring fees.

While you may not be able to slash every fee from your investment account, you can drastically reduce expenses by understanding and keeping an eye on the cut your advisors and portfolio managers are taking.

Refinancing is an extremely smart move, now more than ever: Thanks to the so-called “new normal” of lower return expectations of 5.5% suggested by most investment managers going forward (compared to a historical rate of 7.9% for a typical fully-diversified portfolio), your investment suffers significantly while your advisors’ take hardly suffers at all.

Let’s do the math, as shown in the chart below. If your total investment expenses are a typical 1.8% (for accounts under $1M), your fees to invest $100 over the course of 10 years would be $28.

At first glance, $28 might not look that outrageous.  But when you consider the “new normal” 5.5% return, your earnings after fees only add up to $44 over 10 years. And the $28 you pay in fees adds up to a whopping 40% percent of your before-fee earnings. Compare that to $80 in earnings after fees, based on historical returns and expenses of $34 that represented “only” 30% of your return.

So how do you reduce the massive 40% hit to your returns?

First, be more diligent than ever in monitoring fees and expenses. Let your advisor know you want to be very careful about when and where to pay higher fees for managers that promise to beat their passive index alternatives. Then, ask your advisor what discounts or other fee breaks you might qualify for.  Next, reduce transactions and portfolio turnover: Trading costs money. Period. 

And most important, sign up for GuardVest. We provide a comprehensive assessment of your portfolio expenses, risk profile and returns and give you the information needed to refinance your account and improve your results.    GuardVest is your 2nd set of eyes watching over your portfolio 24/7 to keep you informed and hold your advisor accountable.

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