Start with the basics of investing.
Costs are Important!
When it comes to investing, the more you pay in advisory fees and fund expenses, the less you keep. Learn more about our flat fee, fiduciary retirement planning and asset management services.
The Advisor's Fee: This is the dollar amount you pay a financial advisor to manage your assets. If the advisor charges an asset-based percentage (assets under management) fee (e.g. 1%) always ask her to calculate the dollar amount you will pay before committing to investment management and planning services. The percentage fee and the dollar amount should be clearly stated in your advisor's written Client Agreement. Compare the asset-based fee with Clarity's low, fixed (flat) fees.
Sales Commissions: Fees that are associated with buying or selling a commission-based mutual fund (A, B, or C share classes) or an annuity. Have the advisor list all commissions associated with your investments. As your fiduciary, we do not offer investments with sales commissions. Fee-based (fee and commission) and commissioned advisors do.
Expense Ratio: This is the annual underlying cost of the mutual fund, variable annuity, or exchange-traded fund (ETF) you purchase or own. ALL mutual funds, variable annuities, and ETFs have expense ratios and some are extremely high. Again, ask your advisor to provide you with the expense ratios for your investments and compare them with our low-cost investment options.
Trading Cost: The cost to buy or sell a no sales commission (no-load) mutual fund, ETF or stock.
12b-1 Fees: These are the hidden fees embedded in some mutual funds (B and C share classes), also known as "kickbacks" since the financial advisor receives these additional fees as a kickback for selling you the fund. Ask about 12b-1 fees in the investments an advisor is recommending.
Anyone can call themselves a "financial advisor". When choosing a financial advisor, always look for:
Education: Your financial advisor must have a Bachelor's degree from an accredited institution.
Designations: Professional designations such as the Certified Financial Planner CFP® and/or the Chartered Financial Analyst CFA®. These are the two primary designations for financial professionals.
Experience: At Clarity, we have over 50 years of combined financial experience.
Fee-Only: According to NAPFA, "The Fee-Only structure is the best way to align compensation with a client’s needs, forgoing any and all commissions and referral fees." At Clarity, we take it a step further and offer simple and straightforward flat fee pricing.
Understand how your advisor is paid.
Work only with a fee-only financial advisor. Clarity Capital Advisors is a fee-only, fiduciary financial planning and investment management firm. Learn more about Fee-Only vs. Fee-Based Advisors.
How much investment risk do you need to take?
Investing begins by determining how much investment risk you should be taking to achieve your financial goals. Too much risk (which we see more often than not) may lead to the undesirable situation of selling after the market has plummeted. Too little risk may mean missing out on returns that could have been yours for the taking. It is also important to understand that not all risks carry an expected return (e.g., a concentrated stock position in a single company). Your fiduciary wealth advisor will create a personalized asset allocation combined with a well-defined financial plan to maximize the probability of achieving your goals.
The Different Types of Investment Risk
When we speak of risk as it relates to investing, it is important to understand that there are different types of risk, and investors will be affected differently by each of them.
First, the fluctuation in the value of the investment is measured by volatility or standard deviation. Investments with higher volatility (e.g., stocks) are more likely to be sold at inopportune times by investors with lower risk tolerances.
Second, an investment may exhibit low or even zero volatility yet fail to meet the investor's required rate of return, causing investors to fall short of their goals (i.e., shortfall risk). A bank CD during times of low interest rates provides a good example of this risk.
Third, many investors anchor their performance to widely used benchmarks like the S&P 500 Index. Over the decade from 1/1/2010 through 12/31/2019, the S&P 500 substantially outperformed funds with higher allocations to small capitalization and value stocks. However, over the decade from 1/1/2000 through 12/31/2009 (commonly referred to as "The Lost Decade"), the opposite occurred. Investors who closely follow the S&P 500 may have experienced the pain of what we call tracking error risk during the 2010s and 2020.
Wise investors understand and pay attention to these risks and invest in a manner consistent with their willingness, ability, and need to assume risk. At Clarity, we guide our clients to a low-cost, globally diversified portfolio that they can hold through all types of markets.