True but sometimes it’s made “complicated” to hide the fees—front load, back load, annual & other management fees, commissions, and more. They also may take “bonus” if their earnings “exceed expectations,” etc. They may also limit or eliminate investor’s appreciation while exposing investor to depreciation.
I asked the guy who wants to be our financial planner to give me a sample sheet that shows what expenses, costs, etc would be connected with a $1mm transaction to roll it into a deleware statutory trust and then the 721 REIT it feels like he’s promoting—he says he will “try to get to it.”
In the meantime he wants all kinds of info from me. Nope, I’m not interested until he can at least provide the straight-forward info I requested.
You might want to check for Retirement Planning classes helped locally. Around here they are about 6 hours, spread over a few weeks. About $60. There is option for an individual review with the instructor/advisor. It’s a really good way to force you to gather your info together, get SS estimates etc.
If you live in a state with taxes, you’ll probably get a higher return with a state/local tax exempt fund like FDLXX, which is at 4.95% APR = 5.06% APY. This can be used like a core for purchases, such that if you pay a credit card or other bill, it will be automatically deducted from FDLXX like cash, without directly selling.
A money market is fine for a simple an easy way to use short-term cash to pay bills or to hold between investments, but if you really want to optimize, I’d favor something that doesn’t have a 0.42% expense ratio, such as purchasing t-bills directly, which also can be done through Fidelity. Without the expense ratio, short-term t-bills have APY of ~5.5% and are also state/local tax exempt.
This is fine for an after tax brokerage, but I wouldn’t recommend it for a Roth. You want something that has a high expected average return in the Roth, to take advantage of capital gains being tax exempt. A money market is the opposite.
I believe you mentioned you thought your FP would spend time with you to better explain the types of investments she is making. In my opinion she SHOULD be explaining that to you in a way that makes you comfortable. I envision a conversation something like:
FP - I’m putting $X in laddered CDs.
Snowball - What are laddered CDs?
FP - A CD is XYZ. Laddering means ABC. Does that answer your question? And I’m doing because LMNOP.
If she can’t have such a conversation I’d seriously consider another FP.
Thanks. Yes, I have been buying far too many Treasuries and dealing with the dreaded accrued interest manual calculations while filing my taxes this month.
I only mentioned the higher yielding MM for the OP who was looking to park cash while developing an investment plan.
I think it was a misunderstanding that the OP was looking for a place to park cash, she has a FA who is managing things, and just wants to understand better what is being done.
My FP would absolutely spend time with me reviewing and explaining; I was just looking to educate myself at my own speed. When I started working with her it was a month after my husband’s death; I wasn’t able to focus on anything new at that time. I threw the life insurance into a high interest saving at Schwab since I already have my IRA there, until I set up with the planner.
I probably looked like a crazy person, running to the insurance agent to pick up the check, and them to the FP at Schwab, who I had no relationship with. The check was coming next day air, so once I knew the insurance agent had it, I went to his office. They were in 2 different parts of my city and took a couple of hours to complete the transaction. I wanted that money somewhere ASAP to start earning! Oh, and of course it was a Friday!
That makes complete sense. I think I got the timing a bit twisted up in my mind, thinking you’d been working with her a bit longer.
I can only imagine how scary it must be to be handed a large sum of money, when your life has just been turned upside down, and not really having a “plan”. Not that you should be expected to have one. It sounds like you are taking things one step at a time and doing what works best for you while getting yourself as comfortable as you can be all things considered.
My IRMAA link in Retirement thread from October just showed as “popular” (50 views). So I’ll repeat it here.
Most retirees don’t have enough earnings to worry much about IRMAA, a sort of medicare extra “tax”. But folks considering Roth rollover (converting taxable 401K to a non taxable Roth, ie eat the tax pain now), sale of appreciated assets etc need to be aware.
NOTE: If all of your taxable income years will be under $194K (joint) or $97k (single), IRMAA is not a concern. Also not a concern if those years happen before you are about age 63 (IRMAA based on 2 year prior tax forms), since Medicare starts at age 65.
@snowball, I have not read all of this thread. I know a fair bit about finance (former bus school prof, worked on Wall Street, helped start a quant hedge fund). Although I could manage my own money, I don’t have time to pay attention. I hired a fee only financial planner to first do a financial plan for us and then later to manage some of our money. I selected a woman who seemed very good (she was) in part because my wife found it almost traumatic to think about money (her parents used to fight about money). While this FA was good, a thirty-something guy on her staff was fantastic. Could explain without jargon and would spend a fair amount of time with my wife answering her questions. Also worked with the kids of the family when they were in HS, college and thereafter. My wife is no longer anxious. The FA’s that I work with help with a lot of other stuff – do we have the right insurance, how to minimize taxes doing various things, can we afford to buy a house in Florida (under the assumption we don’t make it our tax residence, under the assumption that we do, under the assumption is eventually is submerged by rising ocean, etc.). The fee is fixed but as @CFP pointed out, the fixed fee tends to rise with assets under management.
I know someone very capable who created something called Napkin Finance to be able to explain key financial concepts simply. It has a website. She has her own book call Napkin Finance. I have not read the book but think she is very good.
This isn’t because they are basing it on AUM, but that there are more things to consider as assets grow. AA is easy early on, but as you age, you have to develop and implement a strategy and routinely balance. There are easy and more arduous ways to do this. You have you consider RMDs and Roth conversions. There’s Social Security strategies. Medicare planning. The list could go on.
I’ve done two fee only consultations with the same advisor. The first report was 5 pages. The second, 20! There was a LOT more to cover. Still, for a one time fee under $1000, from a published Boglehead…money WELL spent!
I’ll add that I found listening to some basic financial podcasts (geared to the elemental level) helpful. I found reading financial education books tedious and websites like boggleheads were just overwhelming with people discussing acronym-heavy jargon in confusing detail.
Listening in the car when I run errands or at home doing chores makes it much easier. And I have to listen to concepts in this area many times until it sticks so this makes that do-able…lol
Take these terms and then google or go to a library to get more info on them. You will not be able to get all the knowledge in a short period of time. Break it down into small pieces and read more in depth about each term. If you devote 1 hour a day to learning about all this I think you will be amazed that in 3-6 month how much knowledge you have gained.
I dont have any statistical evidence but there are probably some “fee based” advisors who either do not discuss, or recommend, Roth conversions because they will manage fewer assets.
Since Roth conversions are very client specific, it’s difficult to prove whether someone is recommending against it because it’s the right strategy or if they have an ulterior motive. To be clear, Roth conversions are not in the best interest of everyone but it may be appropriate for some.
The irony is if these advisors were pure commission based and got paid upfront (without an annual advisory fee or received trail commissions), they may not have the same conflict of interest for future assets.
