Skip to main content

Sound Advice: November 2, 2022

The investment times they are a’changing.

Turn the clock back to the 1950s and 1960s and you’ll be back in a time when stockbrokers were the gatekeepers of the investment markets for most investors.  Those were the early days of stocks and bonds, customers’ men who got one or more shoeshines daily, and commissions for individual stock trades were $100 or more.  Mutual funds were still a new concept.  Exchange-traded funds, largely a new millennium addition to the roster of investment vehicles, barely existed.

In May, 1975, things changed dramatically.  That’s when President Gerald Ford signed the Securities Acts amendments, which started the process of commission discounting.  Now, nearly half a century later, commissions are down to zero at most broker-dealers.

Back in those early days, mutual funds were quite costly.  The entry fee for new investments, known as a load, a.k.a. sales charge, was 8%.  So when you invested $1,000, you had an immediate loss of $80.  These days, many, if not most, mutual funds are available on a no-load basis and you begin with an investment that’s worth what you paid for it.

Another concept of note was wrap accounts, which began in the late 1990s.  Those were packaged advisory accounts that included investment manager services and brokerage commissions, a combination that proved quite appealing for people seeking ongoing professional assistance.  Initially, the cost of these accounts was a hefty 3% of asset value annually, which dropped substantially in the period that followed.  Currently, the fee for wrap accounts is in the range of 1.25% to 1.5%.

The last few years have seen the rise of robo accounts, which place the tasks of management and trading under the control of computer models.  What’s typically seen as good news is the very low fee structure, which may well be in the range of 0.20% to 0.40% per year.  The other side of the picture is discouraging.  Although the investments are intended to be properly diversified, the net result of these machinations will probably be no better than what would be available through do-it-yourself efforts spread among a few total stock and bond market funds.  In addition, some robos invest in homegrown funds from which they reap fees and there is often a significant portion held in cash, so not all of your funds are working for you.

One more thing: There’s no personal interaction.  It’s just you and the computer.  Not very comforting.     

N. Russell Wayne, CFPÒ

www.soundasset.com

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: July 8, 2020

Jobs Are Up, But So Are New Infections Through the spring months, m ost of the economic data was extremely negative, with record declines in employment and consumer spending.  The speed of that decline had no modern precedent. We are now in a recession.   The shortest recession on record occurred in 1980 and lasted just six months.  Second place goes to a seven-month recession in 1918-19, which was tied to the Spanish flu pandemic.  The big question is: When will this recession end? Given surprisingly strong data in May, April may have been the bottom of this economic cycle.  If so, it will have been the shortest recession on record.  With massive support from the Federal Reserve, the federal government, and the reopening of previously closed businesses, employment surged unexpectedly.  At the same time, pent-up demand, stimulus checks, and generous unemployment benefits led to a reacceleration of commercial activity. Still, not all is rosy.   In his recent testimo
Post a Comment
Read more

Sound Advice: December 13, 2023

What You Need To Know About Long-Term Care Insurance Long-term care insurance (LTCI) is a type of insurance that helps cover the costs of long-term care services, such as assistance with activities of daily living (ADLs) such as bathing, dressing, and eating. It can also cover the expenses associated with care in a nursing home, assisted living facility or at home by a professional caregiver. Here's what you need to know about long-term care insurance: 1. Not Covered by Health Insurance or Medicare: Long-term care services are generally not covered by health insurance or Medicare, which only provide limited coverage for skilled nursing care and rehabilitative services. Medicaid covers long-term care, but you need to meet strict income and asset requirements. 2. Costs of Long-Term Care: Long-term care can be expensive and can quickly deplete your savings. LTCI helps to cover these costs, providing financial security and ens
Post a Comment
Read more

Sound Advice: December 6, 2023

Some Suggested Financial Adjustments for Retirees Financial adjustments for retirees are crucial to ensure a comfortable and secure retirement. Here are some worthwhile financial adjustments and considerations for retirees: 1.      Create a Budget: Establish a realistic budget based on your retirement income and expenses. Categorize your spending and prioritize essential expenses such as housing, healthcare, and groceries. 2.      Emergency Fund: Maintain an emergency fund to cover unexpected expenses. Aim for at least three to six months' worth of living expenses. 3.      Healthcare Costs: Be sure to fully understand your healthcare coverage and consider supplemental insurance plans to cover gaps in Medicare. Account for potential long-term care expenses as well. 4.      Minimize Debt: Aim to pay off high-interest debt before retiring. This can significantly reduce financial stress and free up more of your retirement income. 5.      Investment Diversification: Div
Post a Comment
Read more