Financial Advisor Magazine just came in the mail. This month there is an article about attracting more single women as clients. There are two great quotes that I wanted to share with you:
“Women are better investors than men” – Wibberly, CIC Wealth
“80% of men will die married but 80% of women will die single” – Penta BBH, Center for Women & Wealth
If those two quotes aren’t enough to get to start investing, I don’t know what else to do. Those quotes tell us that women are AWESOME at investing and that heterosexual women are going to have a substantial amount of time not married (at least our 20s and ten, fifteen, perhaps 20 years after our partners die). What are you waiting for?
Start investing now. If your job offers you a 401k or 403b (tax benefits and usually matching) start contributing now. Call HR. Now. If you’re worried about how much money is going to start coming out of your check, start by contributing just 1% and increase your contribution percentage a bit every year.
If your job doesn’t offer you a retirement plan, open an Individual Retirement Account (IRA) as soon as possible. Depending on whether you choose traditional or Roth there are tax benefits now or tax benefits later. You won’t get the matching but you will get to take advantage of compound interest.
Not sure where to begin? Find a fee-only advisor and get hopping! If you’re 30 years old and can contribute $415 per month you can build a million dollar nest egg by the time you retire at 67 years old. Can’t contribute that much? No worries. Something is better than nothing. If your nest egg ends up smaller than you’d like, you can partner your investments with your Social Security payments and go live in one of these 8 beautiful countries.
Either way, it’s time to get hopping.
Do you know how your financial advisor gets paid? Money is a huge motivation for most people that hold jobs. There are generally three types of financial advisors in the US: percentage based, transaction based, and fee only. If you don’t you may want to find out, it may be costing you thousands of dollars a year.
Percentage based means that the advisor works on maintaining, and hopefully growing, your wealth. They get paid by taking a cut of your overall wealth every year. The idea is that if you’re worth more they make more. If you’re worth less, they make less. This encourages them to grow your wealth because their commission is tied to your financial health. The issue here is that in an effort to increase your wealth, there may be a motivation to make moves that are more risky that you’re comfortable with. After all, if they lose some of your money they have other clients they earn commissions from. Where will you make up the difference?
I’m using the term transaction based as a catch-all term that includes advisors that get paid as brokers (when you make transactions) and as advisors (suggesting funds to you). Basically, these people get paid when you buy something. It benefits them to encourage you to make many different transactions because the more you buy, the more they make. Let’s say that Mutual Fund A is a good fit for you, but only offers the transaction based advisor $100 worth of potential commission while Mutual Fund B is more risk than you want to take on, but offers the transaction based advisor $200 worth of potential commission. I’m sure that we can all see the temptation there.
Fee-only advisors require a set amount of money for a specific action, say creating a wealth strategy, a debt management strategy, an investment portfolio, etc. Since the fee-only advisor is already getting paid for her knowledge, there is little -to-know motivation to suggest funds that will give them a commission but may not be right for you, encourage you to trade more than is necessary, or make risky trades on your behalf to try and increase your wealth.
Finding out how your financial advisor gets paid may end up saving you thousands of dollars. It’s important that you have a solid relationship with your financial advisor. If you don’t know, ask. If you feel worried about asking… you may need to find a different financial advisor, but make sure she’s a fee-only advisor.