For The American Dream Journal’s first post, we’d like to discuss an important issue affecting nearly every investor: the fees that are so damaging to the long-term health of an investment portfolio. Whether it’s a lack of interest, lack of time, or lack of knowledge, even the most sophisticated of investors can be taken advantage of without paying proper attention to the fees charged by mutual funds and financial advisers.
As we will stress over and over again, each individual is responsible for ensuring that their investments are in the right hands. That means being proactive, doing their own research, and not just blindly following the recommendations of a financial adviser, many of whom are not legally required to act in their client’s best interests.
One cannot assume that just because they are contributing regularly to Social Security and to their company’s 401(k) plan, they will have enough money saved for retirement. One cannot assume that their financial adviser is not just investing in what he or she deems “suitable” (the only legal responsibility they have) — what they consider suitable may not coincide with the investor’s long-term financial plan, while the fees and commissions they’re charging are certainly helping with their own. A certified fiduciary, however, must legally act with the investor’s best interests in mind.
This is a topic we will cover regularly on the site and in further detail. In the meantime, please read Jeff Sommer’s excellent (and brief) article in the New York Times that delves into the damage these fees can do (a 1% annual fee increase, over 35 years, can reduce overall retirement savings by 28%!). Sommer also mentions the Labor Department’s new proposal to require financial advisers to act in a client’s best interest as a fiduciary, albeit only with retirement accounts:
The proposal offers many loopholes for brokers to use to their advantage to continually dupe their clients. One of these loopholes is an exemption request that brokerage firms will be sending out at some point next year. If a written response to this exemption request is not received, that will be considered giving consent for them to do whatever they recommend. We will be tracking this proposal and informing our readers of any ongoing developments.
At American Dream Investing, we do our own research and don’t rely on financial advisers to make decisions for us, which has contributed greatly to our success. Our Private Class members have exclusive access to information about every trade we make and decide for themselves whether they’d like to pursue a similar course.