We all know that investing in the stock market is one of the most efficient ways to invest your money. The idea is to put your money in the market and let it grow and work for you.
But how do you decide in which stock, mutual fund, or ETF to invest?
Most people use the help of a financial adviser. They get an appointment. They show up at the office. The adviser gets a piece of paper to assess their risk profile and he sells them an investment vehicle (most of the time a mutual fund) full of high management fees and high commissions. It’s funny, they will not give you a bill. That’s because they make their money from commissions. Most people don’t know how much they are paying their advisers. This is NOT your best option. Over the history of your investment, you will pay a very high fee for that “free” service.
What are your options?
The investment world has evolved a lot. There are thousands of ETF and Index mutual funds and other low-cost products from where to choose. The problem is that there are so many that once again, you don’t know what to choose. When do you buy? When do you sell? How do you rebalance? It’s overwhelming.
I believe this is the way of the future
In the past, financial advisers would meet with you to sell you the funds they were selling. I know, I was a financial adviser once. Then, they will never get in touch with you again. All they care about is their continuous trailer fees of 1% to 1.5%. Life is sweet. The more accounts the adviser has, the more money he earns from those trailer fees, even if he never sees you again. As long as your account is open, he continues to get rich.
What the client needs is to own low-cost investment vehicles and pay low or zero management fees. This is all becoming possible now.
Recent experience
I met a couple a few weeks ago. Their financial adviser purchased only Canadian banks for them. Canada is only 2% of the global economy and this couple had all their money in Canadian banks. There was no global diversification, there was not industry diversification, there was none of that, they had all their money in Canadian banks. And of course, they were getting charged 1.5% for this poor service. In addition, their money was not invested in the most tax-efficient way.
Conclusion
The secret to financial success is to invest in low-cost financial products and have proper diversification. To reduce your risk over time, you can rebalance your portfolio at the end of the year and just sit there and watch your money grow.
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