Recent Posts



The Wealth Secret That Hides In Plain Sight


As investors, we must have a built in bias to take anything that is simple at its core and mold it into something complex and expensive.

What brings this to mind is a recent appointment with my newest wealth management clients, a professional couple who have done an admirable job of living within and below their means so as to systematically build up their investment and retirement portfolios.

Unfortunately, they had fallen into the hands of the investment/retirement complex, and into the most expensive thicket available.  They had the bulk of their funds invested with one of the so-called “independent” firms built on a platform of extravagantly commission compensated sales of investment “products”.

It was a mess.  A jumble and hodgepodge of cat and dog funds, which systematically underperformed in hitting the bogey of the major market indexes.  Even if the management of the funds had been exemplary…and that was hardly the case…the overlay of management fees, high volume trading, and the obscene 12b-1 marketing fees placed a deadweight of nearly 200 basis points (2% in plain english) on the entire portfolio.

The good news is that we are moving the funds over to Schwab, where the current promotional bonus offers 150 free trades per account over the next six months, plus a cash bonus for transferring new funds into Schwab.  All told, these bonuses should tally in at a little over a thousand bucks…not bad, considering that the Schwab platform is so user friendly to cost conscious investors that we would have made the switch even if there had been no extra incentives to do so.

But the lesson learned is that virtue triumphed over the greed of the previous firm’s policies.  And that virtue was the simple result of systematically funding retirement accounts and not living above one’s means.  I see this in action almost every day.  It’s the act of conscious savings…of paying oneself first…and of doing so month in and month out that produces the seven and eight figure net worth statements.

The investment industry is littered with ridiculously overpriced products.  The worst offenders are the limited menu, trash offerings of small business 401-k plans, that are stacked with high priced and low performing funds.  It’s an ongoing scandal, at a time when the federal government has carved out ultra-ultra low cost broad base index funds for its federal employees, while foisting this legally sanctioned thievery onto the private sector.

But even for those who are trapped into such dysfunctional plans, they gain the benefit of the employer match, and the habit of systematic funding taken off the top from their gross paycheck.  That’s the deal maker.  Not the low returns or the outrageous fees…just the habit of saving upstream before the client ever gets their hands on the money.

Worst of all are the plans forced on public teachers, the notorious 403-b plans, which achieve the dubious distinction of being even less viable than the sluggish 401-k plans.  Somehow, the insurance industry hijacked the 403-b at its creation, and loaded it up with high fee annuities as the exclusive option.

The next time teacher’s unions want to go militant, this should be the focus of their rage.



Comments are closed.