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How To Evaluate Your Financial Adivsor

People are good at comparing many things. If you are buying a car you will look at a few different places that are selling similar vehicles before you choose what appears to be the best deal.

One thing that is difficult for people to compare is financial advice. Because it is difficult to compare people are often unsure if their investments are doing poorly or if they are doing well. Most people are also unsure of how to tell how how expenses are affecting their returns since the expenses for many investments are hidden in the returns.

People need to be able to evaluate their investments and I will share one way with you here. It seems difficult to evaluate investment return because you don’t know the return until it has happened. You get your year’s returns after you have had the investment. It might seem difficult to go back and ask “What if my advisor had done something different?” But it’s not. There are investments that are good benchmarks that you can compare to to help determine if your advisor is doing well or not.

You can ask your financial advisor to compare your yearly returns to a target date fund.

Target Date funds are available from many different companies but the ones I recommend using are from Vanguard.

For example Vanguard Target Retirement 2030 Fund (VTHRX). You would consider this fund if you are retiring in the years 2027, 2028, 2029, 2030, 2031, 2032, 2033. If you are retiring in 2027 you could also consider the 2025 Target Fund. If you are retiring in 2033 you could also consider the 2035 Target Fund. Here’s a link to a video with more information about Target Date Funds. There are Vanguard target date funds for each 5 years, from 2020 to 2065. You will want to pick the one nearest to your retirement date as a comparison.

If your yearly returns turn out lower than the benchmark for your retirement year you should be having a tough conversation with your advisor of why your returns were lower.

The other thing you can evaluate your advisor on is his fees.

You can use the target date fund for this. The expense ratio of a Vanguard target date fund is. 0.14%.

You should ask your advisor the Expense ratio of every fund you have. If the expense ratios are over 0.14% your should ask them to explain the extra return you are getting from that fund for the extra money.

You should ask your advisor if there are any front loads on any mutual funds you own. If they say yes you should ask them if there are any similar performing fund that don’t have front loads, there ALWAYS are. There should never be a front load on a mutual fund today. The only reason there are still front loads is people don’t know they are paying them.

You should ask your financial advisor what their Management fees is. as you can see from the graphs in the link a manager could end up with more of your money than you after some years if the management fee is too high.

Most financial advisors are benefited by keeping their advisees in the dark. That lets advisors take as much of your money as they can without telling you about it. As a fiduciary, it is my role as an advisor to manage your money in a way that is best for you, not me. Ask your advisor if he is a fiduciary.

Contact me via email HooglandAxel@Highland-WealthManagement.com or phone 715-820-0377 if you’d like to review your current advisor and investments and see how you can lower your investing costs and keep more of your own money.

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