Last week, a very intriguing finance article just popped up on my Google Finance dashboard. The headline of “$21.8M in investment fees was mistakenly charged” strikes my interest and I gotta find out how did such a mistake occurred. Ever since I started to invest for myself, I became a strong advocate for managing my own finance. It’s headlines like these that gave me the extra motivation to be the one accountable for managing my own investments. So for this post, I will be your money advocate and present the case for you to manage your own investments.
Why I Read Personal Finance Articles
Most of the time, when I read personal finance articles, I have two purposes. The first purpose is to learn new ideas on how to increase my personal wealth and to incorporate the ideas that fit into my investment philosophy. The second purpose is to become aware of the money mistakes that others made and try to avoid them myself. It’s much cheaper to be aware of potential mistakes and avoid them comparing to learning from your own mistakes.
Investment Fees Can Be Costly
When people invest, quite a few people don’t pay much attention to the fees that investment firms/advisors/mutual funds are charging them. The perception is that an annual fee of 1% to 3% is reasonable because they are professionals. This amount may not seem like much for one year, but let’s take my case for example. Based on my latest quarter’s net worth review, my combined family investment assets of just over $1M means that I’ll be charged an annual fee of between $10,000 and $30,000. Over a ten year period, it can cost me $100,000 to $300,000. For this amount of money, would you rather spend some time to learn how to manage your own money and earn the investment fees yourself?
Pay For Performance
For the fees that we are paying the investment advisors or mutual funds, there is no guarantee that we’ll make money on our investments. Everything depends on the stock market performance, the economy, the political environment, etc.. Even if our investment loses money, we’ll still be charged with the same fees regardless of performance. If that’s the case, my question is, “what are we paying the fees for?”
Scrutinize Every Investment Fee
In my final step to saving a million dollars post, one of my recommendations is to review all your account statements. Question any fees that were charged to your account that you don’t understand why those fees were charged. The reason behind it is if you don’t question why a fee is charged to your account, you would have lost that money. Most likely, the institution that charged you the fee would not voluntarily return the money to you unless you dispute the charge. Also, if you leave a charge for too long, some institution would not review it after a period of time.
Who Should You Trust With Your Money?
In the same week, I also came across another article on CBS Sports (I do have other hobbies besides personal finance) about Clinton Portis, an ex-NFL running back. He was once a millionaire back in his heydays and now just another bankrupted soul because he trusted the wrong person to manage his money. This is one life changing money mistakes that we can all avoid if we know how to manage our own money or investments. He almost committed murder of his money manager for ruining his financial life and I cannot imagine what I would do if someone I trusted ruins my finance.
Know What You Paid For
Now, getting back to the fees that Royal Bank mistakenly charged their investors. Very often, when we invest in a product such as a mutual fund offered by a financial institution, we are only given a rough percentage of the fees that they charge. We have no way of knowing what the charges were and if the fee was used to improve the performance of the fund at all. There is no visibility into the fees. As a result of this, I refuse to pay for fees that I can’t review or justify why it’s being charged.
Be In Control Of Your Retirement Money
Imagine that you had been working hard for the last twenty years and making regular contributions to your company’s pension plan and you are now ready to retire. You expect to enjoy your golden years and get a regular paycheque from your pension plan. Suddenly, your company’s pension is in shamble because your company just filed for bankruptcy and suspend their contribution to the pension plan. You may not get the full income that you worked so hard for the last twenty years. This is the most likely outcome for the Sears Canada employees. Hence, I will never voluntarily contribute to any company pension plan. I will move my money to my own retirement account and be in control of my retirement money if that option is available.
My Two Cents
Too often people think that managing their own money or investments is difficult and you need to be a math whiz to be good at it. It certainly is helpful if you are good with numbers, but you don’t have to be a genius to manage your own investments. If you start with the thinking that you can’t manage your money, then you definitely can’t. My motto is to be positive. Change your thought process to think that you are capable and you can do it, then you definitely can. You should be in control of your financial well being not anyone else. Psssssssst, here are the top money management secrets that I used to accumulate and control my $1.25M net worth: develop a disciplined mindset, continuous learning, only invest in what I know and seek help in the area that I lack knowledge. This is all it takes for me to manage my investments.
So, would you manage your investments? If you have someone managing your money for you, how do you know if that person has your best interest?