The following is a guest post by Mark from My Own Advisor.
Why I stopped making my financial advisor rich
I’m not sure I can put things more bluntly than that. I’ve made a number of dumbass financial moves over the years but this one might be my biggest mistake – I used to make my big bank financial advisor rich – but not anymore. Let me explain…
The early investing days
In my 20s, I started my investing journey with big bank mutual funds that charged money management fees close to 2%. I simply didn’t know how much high-fund fees would eat into my investment portfolio. For those that still don’t know what they don’t know, let me share some numbers for you.
- Assuming $10,000 was invested for 10 years in the TD Dividend Growth – Investor Series Fund (you would have paid money management fees of about 2% over that period); you end up with just over $15,000 in the bank but paying about $2,500 in fees during that time.
- Compare that to owning a low-cost Exchange Traded Fund (ETF) (paying money management fees of about 0.10% over the same time period); you end up paying only about $125 in money management fees – a savings of over $2,000.
- Compare that still to owning the company (TD Bank) and not the bank’s products, the returns are even more starling. $10,000 invested in TD Bank, from early February 2006 to this year, with all dividends reinvested throughout that 10-year period and your original investment would be worth just over $24,000 today.
Sure, hindsight is 20/20 and nobody could have predicted the 140% return of TD Bank years ago but the math doesn’t lie – high fund fees, simply put, kill portfolios over time. High fees make your big bank financial advisor rich (and leave you with less money in your portfolio).
The recent investing years
My big investing wake-up call occurred during the start of The Great Recession. I recall I was frustrated at the time, seeing my portfolio value crash and learning about the high active money management fees I was paying in the process. It was a double-whammy. I decided enough-was-enough and learned to educate myself about ETFs, stocks, and bonds, in hopes of changing my investing ways. I have.
- Over the years, I’ve learned that most mutual fund managers have no hope of beating their benchmark index over long periods of time. This makes investing in the stock market indices using diversified, low-cost ETFs a lazy but successful way to invest.
- I’ve also learned that companies with an established track record of paying dividends, will likely continue to do. This makes investing in these companies an excellent way to build wealth. Owning TD Bank could be one such stock. They’ve paid dividends since 1857. That is not a typo.
For readers that subscribe to my email articles (free by the way folks), they already know I’m a ‘hybrid’ investor. I own a couple of broad market, low-cost ETFs for portfolio diversification and long-term capital appreciation and I also invest in a number of companies that have a long history of paying dividends, for cash flow. I don’t dare touch any money earned from my portfolio. Instead, I reinvest all dividends and distributions paid to fuel future growth.
I have no idea what the future holds, but I don’t mind. I’ve made financial mistakes in the past and I’m sure I’ll make a few more in the future. That’s OK by me. You don’t learn in life unless you make a few mistakes now and then – so I’m actually quite thankful for my financial missteps – they’ve helped me become who I am today.
I can only hope the same for you. This means you’ll take some time to learn more about personal finance and investing, so your money missteps over time are few and far between. This way you can keep more of your hard earned money for you, and stop making other people rich. In summary, maybe this individual said it best when it comes to life’s lessons:
You may not realize it when it happens, but a kick in the teeth may be the best thing in the world for you. – Walt Disney
Learn, save, invest and prosper, and thanks for reading.
Bio: Mark Seed is passionate about personal finance and investing and is the blogger behind My Own Advisor. You can follow my friend Mark on his path to financial freedom here.