The Finance Blogger


Big Threats to your Financial Well Being

Big Threats to your Financial Well BeingSlow erosion caused by high fund expenses can reduce your retirement pension significantly. Most people never even realize that their income in retirement could be much higher. There are other big threats to your financial well being. For example, this writer is particularly vexed about an annual fee that I pay to my investment adviser for managing my retirement savings. His company is paid this fee regardless of how they do. It is not performance related at all. The amount is only $125 a year which does not sound like a lot, however over 10 years it is $1,250 plus interest. Over 30 years it is 3 times this amount or $3,750 plus interest and the interest actually ends up higher than the amount I pay the company. If I could invest $125 a year at 5% for 30 years I would have $8,304!! This is just one example of how fees can add up over time and become a threat to your financial well being. Read on for more examples.

Big Threats to your Financial Well Being

Hefty advisory fees – whether it is trading fees or a so-called advisory fee, they will add up over time. If you do a lot of trades as a result of advice from your adviser, you are going to pay much more than the $125 we discussed earlier. Some consumers will do a lot of trades every month and these fees just shave money off your financial retirement health. Another area is the fees that mutual funds charge every year in addition to either front end fees or rear ended fees. In both cases consumers pay these fees when they make a purchase of a fund. In addition any trades that completed in the fund, and there are lots, generate trading fees which are deduced before any dividends or distributions are paid. Did you ever notice that the fund managers always get paid regardless of whether the fund does well or not?

Investment-related tax bills – triggering income tax as a result of selling an investment can rob you of thousands of dollars. Manage your trades in such a way to minimize taxes. Sometimes selling a stock at a loss to minimize tax might just be the best answer. You need to do the math for your situation.

Failing to buy life, health and disability insurance – not having insurance to cover you when you get sick or disabled, or not having life insurance to cover your debts can be the single largest threat to your family and to yourself.

Holding a badly diversified investment portfolio – all of your eggs in one basket is not the best approach. If that mutual fund or stock goes down, you will need to work for a long time to recover. Just consider those people who were invested in GM when it went bankrupt. They lost everything.

Wagering on one or two heavily mortgaged rental properties – same issue as above. Diversity is key to a good investment strategy. Risking everything on one or two properties can really jeopardize your retirement if they go south or you lose your job.

Betting big on stocks when you don’t really have the stomach for it – can you sleep at night? All stocks will go up and down, some will pay dividends. Can you handle the volatility or should you stick with blue chip bonds, GIC’s etc?

 

 

 

 

 

 

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