Personal Finance

Recently, as the stock market has gyrated from a surprisingly up year last year into an early “correction”, I’ve been thinking about returns – and financial advisors – and it seems to me that we can (and need to) do the “advising” model better. A friend of mine has been attending a 6 week lecture series on personal wealth, and the group has heard from a financial planner, a tax attorney, an estate attorney, a stock broker and a cpa – all of whom are potential players on a personal financial team – and the information they’ve shared has, by and large, been really helpful for him as he seeks to increase his personal knowledge and make thoughtful choices. As he was reflecting on the course thus far, though, and doing the math (not complicated – simple addition) – he realized that if he hired each of these professionals at their stated rates, he would be paying an annual rate of 6% of his wealth – in fees. (I should say that he depends on this portfolio as his income source). “I’m just learning about this, but this is my perspective: I’m being told that over the long term, a conservative expectation for returns is 4-6% in this ‘new normal’ economy. If I’m paying these professionals 6% in fees, and I’m only making 4-6%, I’m going to be spending the principal so I can pay myself. Which means that if I have a budget of spending 6% of my portfolio annually, I need a return of at least 12% annually, or I’m behind the eightball before I start.” It’s true that he probably doesn’t have to hire ALL of these professionals at the same time for an annual fee, but can we understand how confused, upset, angry – you name the emotion – people get when they are trying to plan for their financial health – and end up paying for everyone else’s??? I don’t know what the perfect solution is (yet), but something’s gotta give – and support a healthier conversation – and solution.

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2 Comments on “Personal Finance”

  1. I guess the long term solution would be to educate yourself instead of paying someone else who has educated themselves. We manage our own money and have an estate attorney but that’s too scary for a lot of folks, understandably.

    I think we all have to be careful. Wherever there’s a “need” people will fill it. And since the economy is now “new” there’s a lot of people who hope to cash in on everyone’s fears about losing it all. Just like anything else. I’m a writer and there’s a ton of would-be professionals who give you all the secrets to getting published, or they’ll edit for you, etc. all for a fee of course. Same thing. In the end you’re no better off, but you’re out a bunch of money.

    This is just a ramble. No solution here either! But, I agree. We need one that works.


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