This newsletter provides articles each week that are of interest to traders in the financial markets. As of today, we are also including articles about long-term investing. Our intention is to fill a need for information on building wealth for retirement, with lower risk and higher returns than the conventional methods.
Most investment information available elsewhere comes from the companies looking to induce investors to buy their funds, annuities, or other investment products. Our only product is education, and we have no bias with respect to any particular investment vehicle.
What we do have is decades of experience in both trading and investing, and a straightforward, rule-based investing strategy. Its purpose is to create a program with the combination of protection, growth, and cash flow that is tailored to each investor, at any stage of life – and that includes you!
We call our students Proactive Investors. As the name indicates, our method involves something other than simply buying and holding stocks or mutual funds.
The Proactive method has just a few building blocks. The first one of these is to avoid having your investment funds eaten up by unnecessary fees.
People are often surprised at just how big an issue this is, and even more surprised to learn that there is something that they can do about it.
The first hurdle is sales commissions. If you buy an investment through a provider such as a financial advisor, insurance agent or broker, there is a high likelihood that the provider receives an immediate commission. These can range up to ten percent of your principal for certain products. This is just like starting off your new investment with a 10% loss on the first day. If you bought $100,000 worth of stock on Monday, and by Tuesday the account balance was down to $90,000, you would not be happy. Yet that is the exact situation with many investment products.
Nickel-and-diming is expensive where there a lot of nickels involved. And it doesn’t stop with the sales commission.
Here are some other fees that are routinely charged on various investments. Some of these fees are disclosed in prospectuses if you read the fine print, and some are not:
- Back-end mutual fund sales commissions, where you may pay as you exit, of 1 to 4%
- Ongoing sales commissions of a fraction of a percent every year, typically ¼%
- Management fees bled off your account every year, from a fraction of a percent to 2% or more
- Caps on variable annuity returns that insure that even if the market has a great year, you probably don’t
- Hidden differences between a fixed annuity payment rate you are quoted and the real ROI
- And a host of others
What all of these fees have in common is that they sap your returns in return for “services” of dubious value.
One of the first steps any investor should take is to assess the investments they currently have and understand how much they are paying in fees, and for what. If your current investments are in standard mutual funds, hedge funds, fixed or variable annuities, variable life insurance policies, managed accounts or wrap accounts, and many kinds of predefined IRA investments, you will almost certainly be unpleasantly surprised.
The good news is that there are investments, available to everyone, that do not involve these levels of fees, and in fact barely have any fees at all. They allow any investor to participate in the markets for stocks, bonds, precious metals, commodities and foreign exchange, as appropriate for the investor, rather than for an advisor, all at very low cost.
You may have worked out by now that one of the types of investment vehicle I’m describing is the exchange-traded fund, or ETF. Used in combination with other vehicles, and wielded with the right strategy, ETFs can be a key tool for investment success.
The exact selection of ETFs along with other tools to be used, will be individual to every investor, and the Proactive Investor Course teaches this in detail. But this first basic principal is common to all:
- Do use low-fee instruments exclusively.
- Do not pay investment fees that you don’t have to.
That’s all we have space for today, and that is just step one. More to come in future weeks.