Are You Managing Your Retirement Account Correctly?

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Retirement accounts are massively important – once you stop working full time, they become your new source of income.  But they are also important during your working years.  If a 25 year old invests $3,000 annually in an investment account, at age 65, it will be worth the following amounts:

• At 4% annual returns - $300,056
• At 6% annual returns - $496,994
• At 8% annual returns - $847,557

In 2014, Vanguard did a study that shows advisors can add up to 3% of value to their clients through the following methods:

• Behavioral coaching (up to 1.5%) – Investors tend to chase recent performance and focus on the short term.  Some additional studies show that the average mutual fund investor underperformed the average mutual fund by 2.5% per year due to poor buying and selling strategies.  This usually means people buy the recent winners and sell the recent losers, and it costs them significant returns over time.
• Applying an asset allocation strategy (up to 0.75%) – Placing assets in tax appropriate accounts
• Employing cost effective investments (up to 0.45%) – Lower cost funds tend to outperform higher cost funds, all else being equal
• Rebalancing (up to 0.35%) – Returning the investment portfolio to its target allocation over time as investments vary in performance
• Implementing a spending strategy (up to 0.7%) – Advising clients how to efficiently spend down assets

Obviously, the biggest value a good advisor adds is through behavioral coaching.  By educating you, recognizing the common pitfalls, and using past experience, advisors can help you realize better results over time and maximize the impact of your investment accounts.

Please feel free to call us if you want help or advice on managing your retirement accounts.