A 1% fee doesn’t seem like much at first glance. After all, basic math tells us that it would only claim a single dollar out of a hundred or ten out of a thousand. To a new investor or aspiring retiree, signing over one or even two percent of a portfolio’s earnings might seem like a reasonable — or even small! — price to pay for enjoying the remaining 99% later in life.
A 1% cost might not look like much — but appearances can be deceiving. When it comes to investments, administrative expenses that may have seemed almost negligible at first can burgeon into costly financial demands. Mutual funds are particularly notorious for their plethora of so-called “hidden fees,” which often carve a significant portion of a portfolio’s future value away in a series of small cuts. Worse, these costs are often applied internally and may not be visible on your monthly statement; if you don’t go out of your way to investigate your accounts, you may never know precisely how much of your profits minor fees claim each year.
To continue our example — one dollar out of a hundred isn’t much of a loss. However, the primary financial drain to your account isn’t the initial deduction, but the opportunity cost posed by losing that dollar. By giving it up, you sacrifice its potential to compound and grow as an investment asset. For robust retirement accounts, these 1–2% fees could end up costing a retiree hundreds of thousands in lost profits. In 2018, analysts from Nerdwallet applied these average fees to a hypothetical millennial and found that over 40 years of saving, the investor would lose more than $500,000 to average charges.
Let’s break this down further.
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All financial advisors are not equally helpful. In this episode, Michael and Anthony Pellegrino illustrate why your choice of financial advisor could guide — or derail — your journey into retirement. The advice you receive will set the foundation for your financial future; you need to make sure that the person you turn to for help has your best interests at heart.
As Michael explains, there are two primary categories of advisors. The first is a fiduciary. All of Goldstone Financial Group’s advisors are certified fiduciaries and are thus legally obligated to put their clients’ needs above their own financial interests. The second category of advisors holds to a suitability standard. Unlike fiduciaries, suitability-grade professionals do not consider the client’s long-term financial health. So long as the advisor deems a product suitable for the situation at hand, they can sell it — regardless of whether it will still be useful in five or ten years. The only way that a client can be certain that their advisor has their best interests at heart is to sign on with a fiduciary.
However, a fiduciary certification alone doesn’t guarantee that an advisor is right for you. As Michael and Anthony Pellegrino point out in this episode, a genuinely effective advisor has other positive qualities.
Good Listening Skills
Even the best-qualified advisors will fall short if they don’t bother to engage with their clients. They need to listen to their clients’ goals, acknowledge their concerns, and ask the questions that will give them enough context to establish a solid financial plan.
Advisors should be accessible — and yet, many retirees find it difficult to schedule an appointment that lasts long enough for their advisor to address their questions and concerns fully. This issue is particularly pressing at larger firms that have higher turnover rates for advisors. With these organizations, clients might cycle through advisors every six months, and never get a chance to build a long-term, trusting relationship with any one person.
We exist in an ever-changing market environment. Retirees need advisors who can be proactive and adaptive in good and bad times alike. If an advisor is reactive and only makes a move after circumstances have changed for the worse, they won’t be as effective as someone who acted preemptively.
To sum up — when you look for an advisor, search for a fiduciary that you like and trust!
Where there is internet, is there more prosperity? Generally speaking, yes.
It costs much more to lay fiber to outlying communities than it does in larger metropolitan areas, which may contribute to the growing geographical discrepancy between income, education and even health care. Some places, like Indiana, hope to bring rural areas up to speed by expanding broadband access. Indiana, for example, is planning a $1 billion infrastructure update.1
Internet access opens the door for opportunities in a variety of areas, including education. Enrollment for online higher education classes is increasing each year, according to the report “Grade Increase: Tracking Distance Education in the United States.” Most of this enrollment (67.8 percent) is by students attending public institutions, with about half of students also attending on-campus classes. While online educational enrollment is rising swiftly, the number of students studying on a campus dropped by more than 1 million between 2012 and 2016.2
Keeping in touch with friends and the world’s current events is also simplified by internet access. Use of social media websites and apps is widespread among all demographics. According to a Pew Research Center study, while the share of teens using Facebook fell 20 percentage points over three years, a larger share of lower-income teens continue to use Facebook. Sociologists interviewed noted that higher-income teens often seek the prestige of the next “hot” social media platform, whereas lower-income teens continue to rely on Facebook to connect with a diverse network of friends and family.3
Unfortunately, the internet also has become a tool for negativity, particularly when it comes to bullying and misinformation. While social media has done much to establish and strengthen connections among people, it also enables the propagation of cyberbullying, a growing threat for teens and preteens. In 2018, 26 percent of parents reported their child had been a victim of cyberbullying. However, this share has dropped from 34 percent in 2016.4 First Lady Melania Trump has made cyberbullying her primary focus, encouraging adults to provide children with information and tools to develop safe online habits.5
Perhaps one of the most detrimental uses of the internet in recent years has been the spread of misinformation, particularly “fake news” stories that look like legitimate articles but which report inaccurate or fabricated facts and statistics. The problem is exacerbated by social media users who read and believe the stories, then share them with friends and followers.
Worse yet, these fake articles are circulated by bots on Twitter and other websites. A “bot” is an automated account made to look like a human user that is programmed to spread false information. More than 13.6 million Twitter posts shared misinformation linked to bots between May 2016 and March 2017.6
Sadly, people tend to be more interested in dramatized falsehoods than the truth. One researcher found that while true news stories tend to spread to no more than about 1,600 people, shared false stories on the internet tend to reach tens of thousands of readers, even though they originated from far fewer sources.7
Content prepared by Kara Stefan Communications.
1 Lindsey Erdody. Indiana Business Journal. Sept. 14, 2018. “Broadband blitz to lift economy, study says.” https://www.ibj.com/articles/70471-broadband-blitz-to-lift-economy-study-says. Accessed Oct. 4, 2018.
2 Online Learning Consortium. Jan. 11, 2018. “New Study: Distance Education Up, Overall Enrollments Down.”https://onlinelearningconsortium.org/news_item/new-study-distance-education-overall-enrollments/. Accessed Nov. 30, 2018.
3 Hanna Kozlowska. Quartz.com. Aug. 15, 2018. “Do teens use Facebook? It depends on their family’s income.” https://qz.com/1355827/do-teens-use-facebook-it-depends-on-their-familys-income/. Accessed Nov. 30, 2018.
4 Sam Cook. Comparitech. Nov. 12, 2018. “Cyberbullying facts and statistics for 2016-2018.” https://www.comparitech.com/internet-providers/cyberbullying-statistics/. Accessed Nov. 30, 2018.
5 Jordyn Phelps. ABC News. Aug. 20, 2018. “First lady Melania Trump speaks out against cyberbullying.” https://abcnews.go.com/Politics/lady-melania-trump-speaks-cyberbullying/story?id=57284988. Accessed Nov. 30, 2018.
6 Maria Temming. Science News. Nov. 20, 2018. “How Twitter bots get people to spread fake news.” https://www.sciencenews.org/article/twitter-bots-fake-news-2016-election. Accessed Nov. 30, 2018.
7 Maria Temming. Science News. March 8, 2018. “On Twitter, the lure of fake news is stronger than the truth.”https://www.sciencenews.org/article/twitter-fake-news-truth. Accessed Nov. 30, 2018.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.
The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.
Anthony Pellegrino, Goldstone Financial Group founder and firm principal, has dedicated his practice not only to helping individuals plan for their financial future but also remaining by their side as a partner in achieving their desired results. When Goldstone Financial Group helps a client prepare for retirement, they aren’t afraid to talk about the worst-case scenarios.
“Everyone likes to hope for the best – heck, we like to hope for the best,” Anthony Pellegrino says, “But we have to think about the practical issues, too. The last outcome we want is for a client to put away money every day for two, even three decades and then find themselves struggling to pay their bills after an unexpected and financially catastrophic life event.”
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In this ongoing series, Goldstone Financial Group principals Michael and Anthony Pellegrino answer personal finance questions from the residents of Chicago. This episode centers on employer-sponsored retirement accounts — and, more specifically, the strategies a retiree can use to grow the money they save further.
How limited am I to my company’s 401K options?
MICHAEL PELLEGRINO: Unfortunately, you probably are relatively limited. Most people only have a few options available when they sign on to a company 401(k) plan. If you do enroll, it’s crucial that you contribute — and if your employer offers a match, take them up on it! That’s free money in your account. Aside from that, I’d suggest working with an advisor to see if you’re eligible to make an IRA or Roth contribution.
ANTHONY PELLEGRINO: Another factor to consider is age. Most people assume that they can’t touch their 401(k) while they’re working, but you have more options once you reach 59.5 years of age. If you’re still working and contributing at that point, a fiduciary could help you put together an in-service rollover. You can go in and access some part or all of your 401(k) and then roll over those funds to an IRA. At that point, you have more options for your investment — and you don’t have to stop contributing to your 401(k), either! You’ll have two buckets to grow your investment, instead of one.
Should I leave my old 401k with my past employer?
MICHAEL PELLEGRINO: That’s one option, but you may have others. It’s important to look at the specifics of your 401(k) before you make any decisions. Again, though, an employer-sponsored plan is going to limit your options. It might be worth looking into rolling the money over into other investment vehicles — an IRA account, for example.
Should I take out money from my pension fund from a previous employer, or should I leave it there to grow over time?
ANTHONY PELLEGRINO: Those of us at Goldstone Financial Group specialize in these “lump-sum pension option rollovers.” People come to us all the time to ask about lump-sum buyouts, wondering whether they should take their pension money out all at once or access it in installments as “income” in retirement. In our view, a pension is just a large annuity. Once you start drawing income, you give up all access to its liquidity. You’re locked into that model, and you have no way to move the money you’ve saved into other investment vehicles. Worse, a pension does not come with death benefits — if a retiree were to pass on after spending decades with a company, their family would get nothing.
MICHAEL PELLEGRINO: As fiduciaries, we can create a comparison of your options and help you determine whether you should keep your 401(k) as is or roll those funds over into another investment vehicle.
When it comes to money, most people prefer a predictable approach; they feel secure with the regular schedule of a paycheck or the guarantee of a reliable income. There are some who may find a thrill in the possibility of a riskier and potentially more profitable investment, but their worry exceeds their optimism. Understanding the actual level of risk can make a huge difference.
The calculated risks investments demand isn’t for everyone. However, for Goldstone Financial Group founder and principal Anthony Pellegrino, assessing risk is a way of life. Anthony Pellegrino has built his career on determining good investments from bad investments while guiding his clients towards a secure financial future. Assessing and determining the level of risk in investments, he explains is one of the most important aspects of his job – mainly because many of the people he connects with do not realize how risky their portfolio really is.
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