When it comes to investing, there are many professionals out there seeking your permission to invest your money with the promise of “beating the market” or “securing your retirement.” When I became interested in the financial topics I careso much about now, I looked into possibly reaching out to such a professional and seeing if there was any hope for such claims.
I’m glad I never bothered with them. They are at best a drain on your investments and at worst, taking advantage of you to further their own gains.
Why a Financial Advisor Isn’t Necessary
There are literally trillions to be made investing the money of strangers. The financial planning industry is huge and there are more than a few snake oil salesmen out there seeking to pull some profit out of your hard earned retirement savings. These professionals will attempt to sell you investments you do not understand that they stand to earn a tidy profit from recommending. In the case of some of the long-term annuities, your salesman may earn thousands of dollars the moment you buy one of them.
A Financial Advisor isn’t necessary because excellent companies like Vanguard and Betterment have made investing far cheaper. You don’t have to find someone to invest your money and pay them 1-2% of Assets Under Management (AUM) each year hoping to make some paltry return for yourself. You should pay less, and thereby earn the difference that in the “old days” you would pay to someone who had a financial degree or a six week course in sales – both of which are not necessary to make intelligent investment decisions.
Having said all of that, take for granted my view is not that you should go put your money in a low interest savings account (or tin can) and just let it sit. Doing that will likely never earn you the money necessary for retirement. Fortunately, investing for retirement is far simpler than the financial industry wants you to understand. Here are a few rules to live by when it comes to saving for retirement.
Take Advantage of Employer Saving Plans
This will likely be mandatory if it applies to you. Many people are already required to pay into Social Security, but if you have a job like mine that doesn’t pay into Social Security, then you likely have another retirement system. As I said, participation is not optional, and both Social Security and your retirement system will be able to give you estimates based on the date of retirement so you can know what sort of income you would have when that time comes.
Save Up To The Match
If your employer offers a match on your 401(k), 457, or 403(b), then you should definitely take advantage of this free money. For example, my employer matches 50% of my deposits into the 401(k) up to 6%. This means if I defer 6% of my income, then they will provide an additional 3% on top of that. This immediate return on my money makes this the most obvious of investments.
Max Out Tax-Advantaged Accounts
For us this means maxing out a Roth IRA ($5,500), maxing out the 401(k) and 457 ($18,000 each), and maxing out the Health Savings Account ($6,750) for a family. All of this is done before you even consider opening up a taxable investment account at a broker that will charge you way too much (e.g., Edward Jones, Schwab, Scott Trade) or even an excellent robo-advisor (like Betterment.) You don’t have to take advantage of all of your tax-advantaged accounts, but it would be a good idea to do so before considering taxable investments. Here is a bigger article discussing our investment priorities.
After taking advantage of all of your tax-advantaged, long-term investing accounts, then you can consider to open a taxable investment account. Right now, this is not something we are taking advantage of. After maxing out the tax-advantaged accounts, we just don’t have the additional discretionary income to add money to this sort of investment. Again, if you are unfamiliar with the world of taxable investing, I would suggest contact a robo-advisor like Betterment and learning about what they have to offer. They will put your money in broad based index funds and ETFs for a minimal expense.
For anyone who is interested in starting their process into the world of investing, I suggest highly that they read the Stock Series by Jim Collins or his excellent book The Simple Path to Wealth. He has a post about financial advisors that is very well thought out. The Little Book of Common Sense Investing by Jack Bogle was also instrumental in my education when it comes to Index Funds.
Please leave a comment below and tell me what you think!