When I first started investing back in the 1970s, the costs were absolutely sky-high. In those days — long before the internet and the massive competition we see today — it was expensive to buy a mutual fund, expensive to trade stocks, and expensive to do just about anything with your money.
Comparing the costs then to the costs now is almost impossible because the landscape has changed so dramatically. Today, it has never been cheaper to build wealth.
The Rise of the “Free” Investment
I was reading recently that Vanguard now has an average mutual fund cost of just 0.06%. That is so incredibly low that it’s essentially free. They are charging you next to nothing to manage your money for an entire year.
But it gets even better. Fidelity Investments now offers “Zero” funds. These are fee-free and commission-free. Fidelity uses them to bring you in the door, allowing you to keep 100% of the returns on your investment.
Think about that:
Mutual funds: Many now cost virtually zero.
Stock trading: What used to cost hundreds of dollars in commissions is now free.
Beware of the Gimmicks and “Junk”
While the “good” side of the investing world is getting cheaper, the “bad” side is getting more creative with how it tries to separate you from your money. Non-fiduciaries are constantly pitching “private placements” or “private equity” deals.
These often come with massive upfront commissions and a “20% carry” — meaning if the investment actually makes money, they take another 20% of your returns.
The insurance industry is one of the worst offenders. They will try to convince you that insurance is an investment. It’s not. They hide huge, undisclosed commissions that can swallow up every cent you contribute for the first couple of years.
The “A-Word”: Annuities
We have to talk about annuities.
The insurance industry has spent millions on lobbyists and political donations to ensure they don’t have to act as fiduciaries. Because they aren’t legally required to do what’s best for you, they sell “piece of junk” annuities with:
Gigantic upfront commissions.
High ongoing expenses.
Surrender charges that can leave you with less money than you started with — even 10 years later in a bull market!
When a salesperson sells you a junk annuity, you are paying for their trip to Hawaii or their European vacation. You are sitting at home while they are sunning themselves on a beach — and your future security paid for the ticket.
Note: There are two Clark-approved exceptions for annuities. You can learn more here.
How To Protect Your Wallet
There is a glimmer of hope. There are a small number of fiduciary financial planners who sell commission-free annuities. If an annuity is actually appropriate for your specific life situation, a fiduciary will find one that isn’t loaded with fees.
To keep your money safe, follow these two rules:
Only hire a fiduciary: If you pay for financial advice, the advisor must sign a fiduciary contract. This legally binds them to do what is right for you, not what lines their pockets.
Watch out for banks: The investment arms of banks are rarely true fiduciaries. They often have higher costs and work for whatever pays the highest commission.
Investing is simpler and cheaper than ever before, but you have to be on guard. Don’t let the terminology intimidate you. If someone says, “I’ll take care of you,” make sure they’ve put it in writing that they are a fiduciary first. Otherwise, they might just be taking care of themselves.
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