I try to picture 84-year-old me being told by my kids that it is time to hire a financial planner. I may not be so keen myself when the time comes. Maybe I should bookmark this column.
I took over the management of my mother’s finances toward the end of her life. She seemed reluctant, but she knew it was time. I think she still saw me as her little boy even though thousands of clients and readers looked to me for advice that she was hesitant to take.
Managing your own investments to save on fees
If you expect to pay $35,000 a year on fees to invest in mutual funds, Laasya, I am speculating here, but you probably have somewhere between $1.5 million and $2 million of investments. Mutual fund management expense ratios (MERs) are embedded fees that are paid from the fund’s returns each year. They are about 2% on average but can range from under 0.5% for low-cost, passive index funds to 3% or more for segregated funds from insurance companies.
If you have $1 million or more to invest, there are discretionary portfolio managers who use stocks and bonds or proprietary pooled funds who may charge 1% or less of your portfolio value. (Discretionary means the portfolio manager makes buy and sell decisions on your behalf.)
You could certainly invest in exchange-traded funds (ETFs), and now there are plenty of simple asset-allocation ETFs (also known as all-in-one ETFs) that can be a one-stop shop for investors. Fees are in the 0.25% range.
Why self-directed investing may not be the answer
The problem with buying an ETF, Laasya, is that your kids are concerned about you investing on your own. And if they wanted to be self-directed investors, they probably would have offered to help you manage your investments. They did not. So, if you pull your investments to manage them yourself again, you may be putting your kids in an uncomfortable position, as they may potentially have to become DIY investors at some point if you’re unable to manage your own investments.
Self-directed investing may seem easy to people who are comfortable doing it. But I remain convinced that some people will never be able to manage their own investments, no matter how simple it becomes.
Have you considered a robo-advisor?
I often joke with my wife that I am very good at a short list of things in the financial planning realm, but not much else. There are plenty of things that I could probably learn to do around my house or in other aspects of life that I have no interest in learning. I would rather pay an expert.
You also need to be aware of taxes when you move investments if they can’t be moved in kind. Obviously not a problem in registered accounts. But a problem with non registered investmenst esp if they’ve been held for a long time. My non registered investments on average have a ACB of less than half their market value because many were purchased quite a while ago. Esp with the new capital gains inclusion rate, simplification and consolidation of my self managed portfolio would prematurely cost a large % of my portfolio. A lot of which could be reduced by realizing over the years at the lower inclusion rate