Recently, I developed several financial plans for clients who work for employers with weak 401(k) plans. These plans have few investment options, don’t offer proper diversification tools, and utilize mutual funds with poor track records. What did I advise these clients to do? It depends on the individual’s personality.
Visit this link to learn potential ways to deal with a sub-par 401(k) plan.
A financial plan should include an investment management section which outlines your strategy for managing your investment portfolio. First and foremost, this section should identify an appropriate asset allocation mix between stocks, bonds, and cash. This mix should coincide with the investors’ risk tolerance. Next, the plan should determine a diversification strategy that outlines how much of the portfolio will be invested in certain asset classes, such as large cap stocks, international bonds, and money markets.
However, after we determine how much of our portfolio is going to be invested in each of these asset categories, we still need to identify high quality investments. This is where the mutual fund funnel can be of use. There are currently over 26,000 mutual funds. How do we know which ones to trust?
Start by only considering funds that invest in the asset category you are looking for. In our example, we’ll assume we are looking for a large cap value fund. Of the 26,000 funds available, only 1,076 invest solely in large cap value stocks.
Of course, we want a mutual fund that is going to achieve superior investment performance. As we all know by now, past performance is not an indicator of future success. However, if you were looking for a coach for your basketball team, would you want a new coach with an unproven track record, or would you jump at the chance to hire Phil Jackson? We can further narrow our search by looking for a fund that has achieved above average performance over 3, 5, and 10-year investment horizons. This reduces the number of funds under consideration to only 143.
What are the remaining steps of the mutual fund funnel? Click the link to visit the blog of one of Net Worth Advisory Group’s financial planners to learn how to narrow the number of quality mutual funds to just 9.
One of the major components of a financial plan is a complete, objective analysis of your investment portfolio. Note, a portfolio analysis is only one element of a comprehensive financial plan. If your financial advisor presents you with a review of your investments but not a retirement, insurance, estate, and tax analysis, you do not have a truly comprehensive financial plan.
A financial plan should be objective in nature. If the investment section of the plan revolves around pitching certain products, you may be working with a commission-based financial advisor. From my experience, the best comprehensive financial plans are developed by fee-only financial planners who are not motivated to sell products.
The investment section of a financial plan should begin with general, basic financial principles, such as determining an appropriate asset allocation between stocks, bonds, and cash. After identifying an asset allocation, the investor can then narrow their focus and develop a diversification strategy. Only after committing to an asset allocation and a diversification strategy is an investor ready to again narrow their focus and evaluate certain stocks, bonds, mutual funds, or ETFs.
Click on this link to learn more about these investment management techniques.
According to the Wall Street Journal, the average U.S. stock mutual fund has an expense ratio of 1.31%. Investors pay these fees to compensate a mutual fund manager and cover operating expenses. However, the expense ratio isn’t the only fee investors must pay when owning a mutual fund. Trading costs, which aren’t required to be reported and can be nearly impossible to identify also weight down investment performance in mutual funds. In fact, recent studies indicate that the average stock mutual fund incurs an additional 1.44% in trading costs, bringing the total cost of investing in the average mutual fund to 2.75%!
That’s right. The average mutual fund must earn 2.75% per year to simply break even. So what other options do you have? The “Best Stocks, Best Funds” investment strategy offered by Net Worth Advisory Group rarely costs more than 1.5%, and can be as low as 1%, depending on the amount of assets invested. This fee is all-inclusive, and covers not only all investment and trading costs, but includes the services of a full-time financial planner. A comprehensive financial plan, including retirement planning, portfolio management, estate planning, and an insurance analysis is also covered by this fee. Further, our financial advisors will meet with you at least every six months to update your financial plan, review investment performance, and answer your questions.
What sounds like the better deal: investing 2.75% for an average mutual fund, or paying 1.5% to have a custom built portfolio developed by a full-time financial planning professional who will be in your corner to answer questions and deal with issues that come up? Call to schedule a complimentary consultation.
For more information on fees and the trade-off between mutual funds and the services provided by Net Worth Advisory Group, click here.
One of Net Worth Advisory Group’s advisors, Lon Jefferies, was honored to have the opportunity to write an article for Utah Business Magazine focusing on what you should look for in a financial planner. The article, titled “Adding it Up: Advisors Help You Get the Most for Your Money,” appeared in the February 2010 issue and advises people to focus on a couple key issues:
Swing by a news stand and check it out.
For those of you who were interested in attending our webinar event back on February 18th but had a scheduling conflict, click here to view a recording of the presentation.
This is our firm’s first webinar, and addresses the importance of having a written comprehensive financial plan. It also provides value information about what should and should not be included in a plan. Finally, the presentation illustrates how having a financial plan and updating it frequently is one of the best ways to ensure you reach your financial goals.
Of course, we’d appreciate feedback. Did you feel the information contained in the webinar was useful? Was the information conveyed in a way that made it easy to understand? Thanks in advance.
Net Worth Advisory Group will be teaching a retirement and financial planning seminar at LaCaille on Thursday, February 25th at 7:00 pm. Both those who are retired and individuals who will be retiring in the next 12 months are welcome.
We will be covering many of the topics outlined in Ray LeVitre’s book (The Retiring Boomer’s Financial Handbook) and each guest will receive a complimentary copy of the book. Mr. LeVitre, our firm’s managing partner, will be available to address questions after the presentation. Here are the details.
Date: Thursday, February 25, 2010
Location: LaCaille
9565 Wasatch Blvd.
Sandy, UT 84092
Time: Dinner at 7:00, Presentation at 8:00
RSVP to Lon Jefferies at (801) 566-0740, or lon@networthadvice.com.
Thanks for your continued confidence. Please let us know if there is anything we can do to enhance the services we provide. We love our jobs, and appreciate your business.
One last reminder about our financial planning webinar that will be taking place tonight at 7:00 MT. The webinar will contain great information concerning what should and should not be included in a comprehensive financial plan, how to utilize the written financial plan to boost your wealth and maximize the probability of obtaining your retirement and other financial goals, and how to ensure your financial plan is frequently updated to reflect your changing situation.
The webinar can be viewed from the comfort of your home. Simply click the “Register Now” link below, and you will be provided with a web address to visit tonight. Once you arrive at that site at the appropriate time, the webinar will take place right on your screen. Please let me know if anyone has questions. Of course, all are welcome to the educational session.
Space is limited.
Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/815413008
Join us for a Webinar on February 18
Space is limited.
Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/815413008
According to the SEC, individuals with a written financial plan have twice the money in savings and investments as those who don’t. Investors with a comprehensive plan are twice as likely to take actions that lead to financial success, such as saving enough to meet their retirement goals, rebalancing their portfolio, and selecting low-cost investments. In addition, 88% of those with a financial plan feel they have a clear financial direction, twice the percentage of those without professional support.
During this educational web seminar, an industry expert will discuss how a comprehensive financial plan:
• Will identify the amount you need save and the return your investments must achieve to enjoy the lifestyle you’ve envisioned.
• Ensures your investment portfolio is customized to achieve your retirement goals and reflect your risk tolerance.
• Can determine the best strategy for managing Social Security, 401(k)s, and pensions.
• Allows you to accurately assess your insurance coverage, ability to fund a child’s education, and estate planning efforts.
• Will identify potential liabilities that can decimate your nest egg, such as an undiversified portfolio and long-term care costs.
Don’t miss this opportunity to learn how to construct a financial tool that will benefit you for the rest of your life. REGISTER TODAY!
Title: Using a Financial Plan to Boost Your Wealth
Date: Thursday, February 18, 2010
Time: 7:00 PM – 8:00 PM MST
After registering you will receive a confirmation email containing information about joining the Webinar.
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A Change of Scenery
Net Worth Advisory Group has been busy preparing to move to a new office location. As of April, our address is:
Net Worth Advisory Group
9980 South, 300 West Suite 110
Sandy, Utah 84070
As always, we offer complimentary consultations to learn how we can add value to your financial planning efforts. Please stop by and check out our new location.