by: Roderick MacKenzie
Financial Investment Advisors can be found everywhere you look these days. You can see them in magazines, television commercials, radio ads and internet ads…all telling you that they are the best answer to how you should manage your finances. They’ll tell you It’s much too complicated to take care of your own investment and financial needs…that your wealth is in good hands with them…and that without the help of a financial investment advisor you’re destined to retire poor and homeless.

But is all of this true? Do they live up to the hype? Are financial investment advisors really the best way to go when it comes to growing a your wealth and planning your future? There is growing evidence that they may not do much better than you can yourself in managing your finances. The learning curve isn’t really that steep and the management fees you pay mean that your financial investment advisors actually have to do substantially better than you would in order to see the same net gains on your investment.

Michael Edesess is an economist and PhD mathematician who has vast experience in many financial and investment related fields. He is the author of the book ‘The Big Investment Lie‘. In this book he discusses the numbers around investing if you are using financial investment advisors, and he comes up with some interesting conclusions…

Financial Investment Advisors May Take Over 50% of Your Gains?

Most financial investment advisors use managed funds like mutual funds as their investment of choice. These funds can be expensive to the investor because fund managers are paid ridiculous amounts of money to manage them. Between the fees for transactions, broker fees, and the fees of your financial planner, Mr. Edesess in ‘The Big Investment Lie‘ estimates about 2.5 percent (on average) of their funds under management would be the cost for an average person to invest their money with financial investment advisors.

Here’s where it gets interesting: If you take into consideration inflation and assume an average return on your investment…50 to 60 percent of the gains you make will be paid to financial investment advisors and the other financial professionals managing your money over the lifetime of your investment!

This includes fees to everyone in the entire chain, not just your personal financial investment advisors, and the lifetime of your investment would be around 25 years. If these numbers are accurate, that would mean your financial investment advisors, if they are using managed funds, would have to get 50% or more in higher returns than you could manage on your own investment before it would be worth paying them for their services.

Manage Your Finances Yourself?

If you take a good look at their numbers, typical financial investment advisors don’t do much better than the overall market averages…and it isn’t too tough to find an investment vehicle that will track the average returns of the financial markets. You can inexpensively do this yourself. It isn’t as tough as some financial investment advisors would have you believe. Using funds that track market averages is not really the best way to grow your wealth either, but this simple financial strategy could still outperform many average financial investment advisors.

Learning to manage your finances isn’t for everyone and there are some good financial consultants out there if you are in the market for one. However, even if you find good financial investment advisors who use the best strategies, you have to remember that no one cares more about your money than you do. You need to learn as much as possible about how to manage your finances so you can play the lead role in making decisions about what is being done with your financial investment. You need to be the one making the decisions, not your financial investment advisors. Only then can you truly take control of your financial future.

Financial Investment Advisors: Should You Really Use Them?

A good one can be invaluable. However, if you find they are just recommending a few mutual funds with a ‘buy and hold forever’ strategy, then there are better options…and one option would be to fire your financial investment advisors and manage your finances and your investment portfolio yourself. On the other hand, it is great to have advice and a second pair of ‘financial eyes’ looking at any investment decision you might make. Fee-only financial investment advisors are a good option for this. They charge per hour, so you know your exact costs and do not have to worry about biased advice surrounding commissions they may make on your investment.

Whether you are using financial investment advisors or not, make sure you take the time to learn as much as possible and know what’s happening with your finances. It could make the difference in retirement between deciding on where to shop for the biggest discounts on groceries…or where you would rather build your vacation home in the Caribbean.


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Comments (4)

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