THE NEW YEARS MONEY RESOLUTION
Achieving financial security or “getting rich” has overtaken “losing weight” as the top New Year’s Resolution. Over the holidays, dozens of clients, readers, viewers, and friends from church asked me how to get started. I heard from a wide range of people: Young families living in an apartment $1000s in debt and a modest income, people who have had a recent inheritance, and doctors who have been out of school for a while without significant savings or much to show for it. I wrote this article to help get all of them started in the right direction.
Just as I was graduating, my trusted advisors encouraged me to go through several financial training courses. Between those courses, many other programs, and wealthy advisors it has become really clear that there are some irreducible minimums to establishing financial security and affluence.
I’ll never discuss the many get rich quick schemes and programs; they just about never work out. I teach exactly the opposite. With the proper management of even small amounts of money, you could and should become financially independent or even “rich.”
There are layers, details, and complexities to financial management that I work through with my clients every day. This starts with “Setting up your financial machine.” There are a few, key foundational first steps you need in order to get going below.
1. Choose the right financial advisor. If you do the math, it’s been proven that even an hourly wage earner can retire a millionaire. That is because of how the pennies add up if invested wisely. Most advisors, life-insurance representatives, brokerages, and the products they sell come with fees. These fees make many people rich on your money. The only person not getting rich is you!
I was warned about this a very long time ago. Plus – Anthony Robbins has done an excellent job in his research to help many people become aware of the financial planner problem. Financial advisors and most brokerage relationships exist to make money selling you products. In an upmarket, it seems fine; although you’re losing a fortune as those fees go to the wrong party rather than compounding in your account over time. In a down market, you still lose the fees plus a chunk of your principal.
A fiduciary advisor cannot sell you products they have a vested interest in where they are compensated above and beyond their <.5-1.2% commission they already get from the client.
While you may pay as high as 1-1.2% when you start investing initially, that number should continue down to under 1% as the total amount of the portfolio grows.
Brokers/Financial advisors, on the other hand, can receive any kind of fees or compensation based on the various instruments they sell and they and their firms are often incentivized to sell certain products. These fees, commissions, and incentives come out of your upside and can equate to huge dollars over time.
A financial advisor isn’t necessarily a Fiduciary and a Fiduciary can also broker other products. Questions to ask to assure you have a purely fiduciary relationship with an advisor:
a. Are you a registered investment adviser? If no, we’re done. If yes, are they required by law to be a fiduciary and are they a broker and a fiduciary?
b. Are you or your firm affiliated with a broker-dealer? If they are, then they’re incentivized to push you into certain deals.
c. Does your firm offer proprietary mutual funds or separately managed accounts? Again, they’re making extra money here selling you products that rob from your upside. A similar question is if they or their firm gets any outside compensation for recommending certain investments.
2. Pick the proper allocation for investments. Simply abdicating this decision to your advisor can make you a market victim. If it doesn’t work out, you blame the advisor or the economy. While you do need expert advice; it’s important you set the standards for how the money in your accounts are allocated across the different types of investments for a healthy, long-term strategy.
3. Allocation to the rest of the “Financial machine.” While the machine includes the markets, you need to create an allocation strategy for all of your money. You don’t put everything into stocks and bonds. There’s also a cash allocation for personal and to have in place for other investments, real estate, alternative investments, a purchases account, taxes, expenses, and leisure.
Anyone can become financially secure and those who make an above-average living can and should become affluent. Of course, the better we can define a budget and the more investable capital we can generate above and beyond our needs – the wealthier we can become.
You don’t want to go the wrong way fast or the right way slow. We’re here to help you go the right way fast.
Have fun saving the world
Dr. Ben
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