MONEY Ask the Expert

When It Pays to Pay for Advice—and When It Doesn’t

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Robert A. Di Ieso, Jr.

Q: I’m 42 and have $210,000 in my retirement account, invested in the Vanguard Target Retirement 2025 fund. Vanguard offers an advisory service that costs 0.30% of assets annually. Is it worth it? – Name withheld

A: Based on your age and current strategy, you probably could use some help planning for retirement, notes Daniel P. Wiener, editor of The Independent Adviser for Vanguard Investors. But don’t expect to get a whole lot of extra hand-holding from Vanguard’s low-cost advisory offering.

First, let’s talk about your current approach.

Target-date funds are a great solution for people who want an all-in-one retirement portfolio that automatically grows more conservative over time as the target date (a.k.a. retirement date) approaches.

While they’re not a perfect strategy, target date funds beat the alternative — investing too aggressively or too conservatively on your own because you’re not sure which approach to take.

Plus they’re cheap. Vanguard’s target date funds charge less than 0.20% of assets a year for managing your money.

You don’t have to pick a target date that matches perfectly with the year in which you plan on retiring. Investors who want to play it more conservative, for example, can opt for a closer target date fund, while those who want to be a little more aggressive might pick a target date fund that is a few years past their actual retirement date.

In your case, however, the Vanguard Target Retirement 2025 fund VANGUARD TARGET RETIREMT 2025 FD VTTVX -1.91% is probably too conservative for you. It is, after all, designed for someone who will be retiring in just 10 years. “Someone who is 42 should probably be looking at a 2040 target date,” says Wiener.

In addition to rethinking your target date, Wiener says you may want to look at adding one or two complementary funds to the basic offerings in the Vanguard target retirement series.

For instance, you might look at adding a dividend-growth fund “focused on large, battleship, balance sheet companies,” says Wiener. If you want to stay in the Vanguard family of funds, take a look at the Vanguard Dividend Growth fund VANGUARD DIVIDEND GROWTH FD VDIGX -2.53% .

Need a little more handholding?

That’s where advisory services come in. Vanguard’s advisory service is an inexpensive alternative to the typical 1% management fee charged by financial advisors.

The catch? “The advice is pretty cookie cutter,” says Wiener. What’s more, “the ‘planners’ are not independent and follow a strict Vanguard model.” In fact, the end product may look a lot like the allocation for a target-date fund pegged to your age and risk profile.

“If you don’t want to think about this stuff you could do a lot worse than pay 0.30% for a little extra help,” says Wiener.

That said, for many individuals it’s worth it to pay an advisor who can offer soup-to-nuts advice about retirement planning and more.

MONEY retirement planning

The 4 Most Important Parts of Your Retirement Plan Statement

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Dimitri Vervitsiotis—Getty Images

Forget the mumbo jumbo. Focus on these key parts.

Planning a successful retirement is important to us all. However, the amount of information on and offline can leave us feeling overwhelmed. One of the key places to find out where you stand is your quarterly retirement plan statement. The statement contains information that allows you to track your progress and where you need to pick up any slack. Here are the four most important parts.

1. Your Retirement Income Projection

The retirement plan projection is the most important part of our statement. The portion includes contributions made by the participant (you), employer matching contributions and vesting information. It also gives you a snapshot of where you are in comparison to where you want to be when you retire. For instance, you may see that you need to increase your contributions to reach your retirement goals.

2. An Asset Allocation Summary

The asset allocation summary is another important part of your statement. In this section, you will find a breakdown of the investments (cash, stocks, bonds, mutual funds, exchange-traded funds (ETFs), etc.). Think of your portfolio as a pie. Each slice represents an investment with outcome expectations. For example, a small-cap growth mutual fund may provide you with a higher return over time. In exchange for the chances of a higher return, you are also assuming higher risk. Asset allocation allows you to diversify your portfolio among high return/high risk, moderate return/moderate risk, and low return/low risk investments according to your long-term goals. It is important that you monitor this section and rebalance your investments periodically to keep them consistent with your goals.

3. Fees

Fees are often overlooked when it comes to reviewing your portfolio. There are a couple of important fees to be aware of.

  • Transaction fees: These are usually commissions that are charged on the purchase and/or sale of a security. These are usually avoided if you are buying the fund directly from the fund company.
  • Expense ratio: These are fees that are charged by the mutual fund or ETF company. These fees include the marketing, management, administrative fees and other operating costs of the fund.

4. Disclosures

The disclosure section is also an important section of the account statement. This is where you will find miscellaneous items. The firm is responsible for providing you with information that is required by federal and state securities regulators. This section also defines the various terms and codes that you will find throughout your statement. Any legal information or disclosures regarding your retirement plan may also be summarized in this section. It is important that you pay attention to this section for any changes to your plan.

As employers shift the responsibility of retirement planning onto employees, it is important that we familiarize ourselves with our retirement plans. Performing a retirement statement analysis every quarter will give you the ability to take control of your investments to reach your retirement goals. Although it may seem intimidating in the beginning, over time, it will give you the tools that will help you to enhance your financial situation.

Read next: Here’s How Many Bank Accounts You Really Need

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MONEY Ask the Expert

The Best Way to Fix Your Investment Mix

Investing illustration
Robert A. Di Ieso, Jr.

Q: I need to rebalance my portfolio. Is it best to adjust my investments all at once or a certain amount daily, weekly, or monthly? — Cheryl, Corona, Calif.

A: Rebalancing, which refers to periodically resetting your mix of stocks, bonds, and other assets to your desired levels, is key to successful investing over the long run.

Not only does it force you to lighten up on the parts of your portfolio that have seen the biggest gains recently — and therefore tend to have more risk — it forces you to stay true to your plan (i.e. asset allocation).

But as with most things, there can be too much of a good thing. Most investors should plan to rebalance their portfolios about once a year and, in most cases, no more than twice annually.

Why?

“Rebalancing means you have a transaction, and a transaction inherently involves costs,” says Bob Phillips, a chartered financial analyst and managing principal at Spectrum Management Group in Indianapolis, Ind. If you are rebalancing in a taxable account, there are transaction-related expenses, such as trading commissions or mutual fund loads.

There are also tax-related expenses to account for, which can be a real drag on returns. If you rebalanced daily, weekly or even monthly, says Phillips, “the tax recording would be ungodly and the cost of having your tax return prepared with all those transactions might be more than what you gained from rebalancing.”

In fact, in a study published by the CFA Institute, the researchers found that for most investors the best strategy was to do it all at once, generally once a year and only if your asset allocation is more than 5% out of whack.

“So if your target allocation is 60% stocks and 40% bonds, you would not rebalance if your stocks grew to 63% of the portfolio and bonds fell to 37%,” says Phillips, noting that the researchers ran thousands of scenarios to come to this conclusion. (In this case, you would only want to rebalance after your equity allocation drifted to more than 65% or less than 55%.)

In the case of a 401(k) plan or other retirement account, you can afford to rebalance more frequently. But even then, it’s best to do so in moderation.

After all, if you were rebalancing daily in a rising market, you’d be constantly selling investments before they’ve had much room to run.

Keep in mind that rebalancing need not require selling your pricier assets.

One way to keep things in balance in your 401(k) without incurring transaction fees and tax headaches is to simply tweak how you invest your new contributions (assuming you are still contributing).

For instance, say you want a 60% stock/40% bond allocation, but by year end you notice that it has drifted to 65% equities. Here, you would leave your already accumulated assets alone. But you would put most of your new 401(k) contributions into bonds until your accumulated balance shifts closer to that desired 60/40 mix.

MONEY strategy

Master The Art of Rebalancing Your Investment Portfolio

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Jeffrey Coolidge—Getty Images

Rebalancing is the most helpful when it is most difficult.

Portfolio design and rebalancing is both a science and an art. Understanding the science (see our previous article) is akin to understanding the physics of why a spinning ball hooks and bends. The art is the execution of the science, such as when you are actually playing soccer or golf.

It is the execution and follow-through that produces the desired outcome.

Knowing that rebalancing boosts returns is useless unless you as the investor have the time, discipline and nerve to follow through and actually strike the ball.

Rebalancing is the most helpful when it is most difficult. The exercise involves selling the investments that have appreciated and buying the assets that have recently gone down. People are biased to believe that recent occurrences will continue. When it comes to the markets, this instinct must be overcome.

This is one area where an investment advisor can add value. Even an advisor who does nothing other than help you set an asset allocation and then rebalance once a year might boost your returns by 1.6 percentage points over a buy and hold strategy. This rebalancing also lowers the volatility of your portfolio. Together, these bonuses help increase the likelihood that you will reach your retirement goals.

Yes, you could do this yourself, but many investors don’t. A few investors buy and hold investments while an even greater number chase returns, moving in the exact wrong direction. Even an advisor who only keeps you from chasing past performance might significantly boost your returns.

If you choose to rebalance yourself, you can accomplish this most easily by automating your rebalancing. Automatic rebalancing is most common in 401(k) accounts. If your account offers the feature, take advantage of it. If you must choose specific months or days to rebalance, we suggest May 1 and Oct. 1.

The important thing is to make sure your portfolio is regularly rebalanced. If the only available rebalancing method is manual, the danger is that you will emotionally pick the point to rebalance which will be the exact wrong time. Instead, you should pick times of the year blindly and then stick with it.

That said, receiving the rebalancing bonus requires that investors have an asset allocation plan in the first place. Most do not.

Your asset allocation definition matters. Rebalancing works best with non-correlated asset categories, like emerging market stocks and U.S. stocks. If you define your asset classes incorrectly, rebalancing between them may not help.

You should not define your asset class as one industry of the economy. One industry could lose value indefinitely as another industry rises to take its place. Rebalancing into a failing industry only brings your returns down with it.

Meanwhile, you dodge this problem with broader asset class definitions. Technology, basic materials, and manufacturing are good, broad definitions while VHS rentals, diamonds and buggy whips are too narrowly defined and may fail you.

It is even better to have two levels of asset class definitions: asset classes, like U.S. stocks and resource stocks, which are non-correlated categories – and then sub-categories, like technology, basic materials and manufacturing, which although they have some correlation are not highly correlated.

Lastly, some sectors such as gold or small cap growth are not on the efficient frontier, which identifies portfolios that achieve the highest return and the lowest volatility. Including them in your asset allocation is simply the wrong move. Rebalancing to a poorly designed asset allocation often means moving money from categories that are on or near the efficient frontier into inefficient investments, hurting returns.

There is a great deal to be said about the method of rebalancing. Keeping transaction costs and capital gains taxes low when rebalancing also helps boost the return.

Funds with high expense ratios put a drag on returns. Even an index fund drops off the efficient frontier when the expense ratio becomes excessive. Rebalancing into bad funds also hurts your returns.

While the science and art of setting an asset allocation and regularly rebalancing back to it is not an easy discipline, it can boost returns by as much as 1.6 point over a buy and hold strategy, and even more over buying and chasing returns.

There is an art to rebalancing, but it is better to rebalance poorly than not at all.

David John Marotta, CFP, AIF, is president of Marotta Wealth Management Inc. of Charlottesville, Va., providing fee-only financial planning and wealth management at www.emarotta.com and blogging at www.marottaonmoney.com. Both the author and clients he represents often invest in investments mentioned in these articles. Megan Russell is the firm’s system analyst. She is responsible for researching problems and challenges, and finding efficient solutions for them.

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MONEY Ask the Expert

When It’s Risky to Be Conservative With Stocks

Investing illustration
Robert A. Di Ieso, Jr.

Q: I’m 26 years old and have $100,000 invested in mutual funds, with 50% in stocks and 50% in bonds. Is this the right strategy for my age? — Oliver in Hillside, New Jersey

A: The right investment strategy is, ultimately, the one that makes the most sense for your goals, your risk tolerance, and your time horizon.

That said, if this money is for retirement, you should probably lighten up on the bonds given your age. “My recommendation for someone this age is to increase their stock exposure to up to 80% or 90% of the total portfolio,” says Brian Cochran, a certified financial planner with John Moore & Associates in Albuquerque, N.M.

If you’re wary of stocks, you’re not alone. “This is extremely common among people of this generation,” says Cochran. “Growing up during the financial crisis and recession seems to have left a bad taste in their mouths.” In a UBS Wealth Management survey published last year, in fact, millennials (people ages 21 through 36) reported having just 28% of their assets in equities – and a whopping 52% in cash.

Here’s the thing: Over the long term, it’s actually risky to be too conservative.

Historically, stocks have appreciated in the high single digits, says Cochran, and bonds have appreciated in the low single digits. With your allocation, that’s a difference of a couple percentage points a year, and it adds up. A $100,000 portfolio that appreciates 6% a year on average, for instance, would be worth about $600,000 in 30 years. One that grows 4% a year will end up at $331,000 or about half as much.

“The danger of a 50/50 allocation is that inflation could grow faster than a portfolio with that allocation,” says Cochran. “At 3% inflation, $1,000 today would be worth the equivalent of $412 in 30 years.”

And your time horizon may be even longer, possibly 40 years. “We’re preparing most clients in their 20s to retire around age 70,” says Cochran.

Meanwhile, after three decades of falling bond yields – which translates to rising bond prices – many experts warn that bond investors could actually lose money when interest rates finally move the other direction. “We don’t expect a lot of returns from bonds in the next two to three years,” he adds.

You can get a quick overview of where you should be using Bankrate.com’s asset allocation calculator.

If you have a retirement plan with a large brokerage, you should have access to some more robust planning tools, which will help you dial in that allocation in more detail.

If you’re still unsure, consider opting for a target-date retirement mutual fund that will allocate your assets based on your retirement age; you are probably looking at a 2060 target-date fund, says Cochran.

Alternatively, consider working with a fee-only financial planner to help you fine- tune your portfolio. In the end, these big-picture planning decisions carry even more weight than the individual stocks or funds you choose. Kudos to you for thinking about this now.

TIME

This Is a Horrible Realization About Retirement

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Getty Images

This might make you lose hope entirely

Retire at 65? Yeah, right.

Multiple surveys reveal that Americans are getting increasingly jaded about their prospects for enjoying a relaxing retirement, so much so that many are throwing in the towel and not even bothering to plan for it at all.

According to a survey of 2,000 Americans conducted for Allianz Life, 84% of them characterize the idea of a retirement where they can do what they want as a “fantasy.”

A second study, this one from the TransAmerica Center for Retirement Studies, also finds that one in five Americans thinks they’ll have to keep punching the clock until they literally can’t work anymore, and 37% expect wages earned from working to be part of their “retirement” income. More than 80% of workers who have already hit the 60-year milestone expect to work past 65, already are or don’t plan to retire at all.

“Retirement has become a transition,” Catherine Collinson, president of the TransAmerica Center, said in a statement.

About two-thirds of Gen X’ers and half of Baby Boomers responding to the Allianz survey think the amount they’re expected to save will be impossible to reach.

Of the two groups, Generation X is the more cynical by far, even though they’re the ones with more time to plan for their retirements. (They’re also the group likely to have higher expenses, though, with obligations like mortgages like kids’ college funds and mortgages that aren’t on Boomers’ radar anymore.)

Only 10% of TransAmerica survey respondents who are in their 40s are “very” confident in their ability to live comfortably in retirement, and more than half of those in their 50s admitted to just guessing how much money they’ll need in retirement. More than two-thirds of Gen X’ers responding to the Allianz survey say they’ll never have enough money to retire, and more than 40% say it’s “useless to plan for retirement when everything is so uncertain.” More than half say they “just don’t think about putting money away for the future”

“Their hands-off approach to planning and preparation is alarming,” Allianz Life vice president of Consumer Insights Katie Libbe said in a statement accompanying the release of the survey.

That’s bad news. Gen X’s reputation for pessimism and angst is on full display in this survey, Libbe points out, and these character traits threaten to undermine their financial future.

Generation Y is more engaged, but they’re not doing so hot, either. The TransAmerica survey finds that young adults don’t have great expectations for retirement, either. More than 80% are worried that Social Security might not be there for them, and more than half aren’t counting on it to provide retirement income for them at all.

The good news is about two-thirds of twenty-somethings are already saving for retirement, but they might not be going about it in the most effective way, given that 37% say they know “nothing” about how they should be allocating their assets.

Still, their longer time horizon gives millennials the best shot at saving for a comfortable retirement, Collinson points out. “They can grow their nest eggs over four to five decades and enjoy the compounding of their investments over time,” she points out.

 

 

MONEY retirement planning

1 out of 3 of Workers Expect Their Living Standard to Fall in Retirement

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But you don't have to be among the disappointed. Here's how to get retirement saving right.

One third of workers expect their standard of living to decline in retirement—and the closer you are to retiring, the more likely you are to feel that way, new research shows.

That’s not too surprising, given the relatively modest amounts savers have stashed away. The median household savings for workers of all ages is just $63,000, according to the 16th Annual Transamerica Retirement Survey of Workers. The savings breakdown by age looks like this: for workers in their 20s, a median $16,000; 30s, $45,000; 40s, $63,000; 50s, $117,000; and 60s, $172,000.

Those on the cusp of retirement, workers ages 50 and older, have the most reason to feel dour—after all, they took the biggest hits to their account balances and have less time to make up for it. If you managed to hang on, you probably at least recovered your losses. But many had to sell, or were scared into doing so, while asset prices were depressed. And even you did not sell, you gave up half a decade of growth at a critical moment.

Despite holding student loans and having the least amount of faith in Social Security, workers under 40 are most optimistic, according to the survey. That’s probably because they began saving early. Among those in their 20s, 67% have begun saving—at a median age of 22. Among those in their 30s, 76% have begun saving at a median age of 25. Nearly a third are saving more than 10% of their income.

Workers in their 50s and 60s are also saving aggressively, the survey found. But they started later—at age 35. And with such a short period before retiring they are also more likely to say they will rely on Social Security and expect to work past age 65 or never stop working.

Interestingly, the younger you are the more likely you are to believe that you will need to support a family member (other than your spouse) in retirement. You are also more likely to believe you will require such financial support yourself. Some 40% of workers in their 20s expect to provide such support.

By contrast, that expectation was shared by only 34% of those in their 30s, 21% of those in their 40s, 16% of those in their 50s and 14% of those in their 60s. A similar pattern exists for those who expect to need support themselves—19% of workers in their 20s, but only 5% of those in their 60s.

Workers are also looking beyond the traditional three-legged stool of retirement security, which was based on the combination of Social Security, pension and personal savings. Those three resources are still ranked as the most important sources of retirement income, but workers now are also counting on continued employment (37%), home equity (13%), and an inheritance (11%), the survey found.

Asked how much they need save to retire comfortably, the median response was $1 million—a goal that’s out of reach for most, given current savings levels. Strikingly, though, more than half said that $1 million figure was just a guess. About a third said they’d need $2 million. Just one in 10 said they used a retirement calculator to come up with their number.

As those answers suggest, most workers (67%) say they don’t know as much as they should about investing. Indeed, only 26% have a basic understanding and 30% have no understanding of asset allocation principles—the right mix of stocks and bonds that will give you diversification across countries and industry sectors. Meanwhile, the youngest workers are the most likely to invest in conservative securities like bonds and money market accounts, even though they have the most time to ride out the bumps of the stock market and capture better long-term gains.

Across age groups, the most frequently cited retirement aspiration by a wide margin is travel, followed by spending time with family and pursuing hobbies. Among older workers, one in 10 say they love their work so much that their dream is to be able stay with it even in their retirement years. That’s twice the rate of younger workers who feel that way. Among workers of all ages, the most frequently cited fear is outliving savings, followed closely by declining health that requires expensive long-term care.

To boost your chances of retiring comfortably and achieving your goals, Transamerica suggests:

  • Start saving as early as possible and save consistently over time. Avoid taking loans and early withdrawals from retirement accounts.
  • In choosing a job, consider retirement benefits as part of total compensation.
  • Enroll in your employer-sponsored retirement plan. Take full advantage of the match and defer as much as possible.
  • Calculate retirement savings needs. Factor in living expenses, healthcare, government benefits and long-term care.
  • Make catch-up contributions to your 401(k) or IRA if you are past 50

Read next: Answer These 10 Questions to See If You’re on Track for Retirement

MONEY retirement planning

Answer These 10 Questions to See If You’re on Track to Retirement

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More Americans are confident about retirement—maybe too confident. Here's how to give your expectations a timely reality check.

The good news: The Employee Benefit Research Institute’s 2015 Retirement Confidence Survey says workers and retirees are more confident about affording retirement. The bad news: The survey also says there’s little sign they’re doing enough to achieve that goal. To see whether you’re taking the necessary steps for a secure retirement, answer the 10 questions below.

1. Have you set a savings target? No, I don’t mean a long-term goal like have a $1 million nest egg by age 65. I mean a short-term target like saving a specific dollar amount or percentage of your salary each year. You’ll be more likely to save if you have such a goal and you’ll have a better sense of whether you’re making progress toward a secure retirement. Saving 15% of salary—the figure cited in a recent Boston College Center for Retirement Research Study—is a good target. If you can’t manage that, start at 10% and increase your savings level by one percentage point a year, or go to the Will You Have Enough To Retire tool to see how you’ll fare with different rates.

2. Are you making the most of tax-advantaged savings plans? At the very least, you should be contributing enough to take full advantage of any matching funds your 401(k) or other workplace plan offers. If you’re maxing out your plan at work and have still more money you can save, you may also be able to save in other tax-advantaged plans, like a traditional IRA or Roth IRA. (Morningstar’s IRA calculator can tell you whether you’re eligible and, if so, how much you can contribute.) Able to sock away even more? Consider tax-efficient options like broad index funds, ETFs and tax-managed funds within taxable accounts.

3. Have you gauged your risk tolerance? You can’t set an effective retirement investing strategy unless you’ve done a gut check—that is, assessed your true risk tolerance. Otherwise, you run the risk of doing what what many investors do—investing too aggressively when the market’s doing well (and selling in a panic when it drops) and too conservatively after stock prices have plummeted (and missing the big gains when the market inevitably rebounds). You can get a good sense of your true appetite for risk within a few minutes by completing this Risk Tolerance Questionnaire-Asset Allocation tool.

4. Do you have the right stocks-bonds mix? Most investors focus their attention on picking specific investments—the top-performing fund or ETF, a high-flying stock, etc. Big mistake. The real driver of long-term investing success is your asset allocation, or how you divvy up your savings between stocks and bonds. Generally, the younger you are and the more risk you’re willing to handle, the more of your savings you want to devote to stocks. The older you are and the less willing you are to see your savings suffer setbacks during market downturns, the more of your savings you want to stash in bonds. The risk tolerance questionnaire mentioned above will suggest a stocks-bonds mix based on your appetite for risk and time horizon (how long you plan to keep your money invested). You can also get an idea of how you should be allocating your portfolio between stocks and bonds by checking out the Vanguard Target Retirement Fund for someone your age.

5. Do you have the right investments? You can easily get the impression you’re some sort of slacker if you’re not loading up your retirement portfolio with all manner of funds, ETFs and other investments that cover every obscure corner of the financial markets. Nonsense. Diversification is important, but you can go too far. You can “di-worse-ify” and end up with an expensive, unwieldy and unworkable smorgasbord of investments. A better strategy: focus on plain-vanilla index funds and ETFs that give you broad exposure to stocks and bonds at a low cost. That approach always makes sense, but it’s especially important to diversify broadly and hold costs down given the projections for lower-than-normal investment returns in the years ahead.

6. Have you assessed where you stand? Once you’ve answered the previous questions, it’s important that you establish a baseline—that is, see whether you’ll be on track toward a secure retirement if you continue along the saving and investing path you’ve set. Fortunately, it’s relatively easy to do this sort of evaluation. Just go to a retirement income calculator that uses Monte Carlo analysis to do its projections, enter such information as your age, salary, savings rate, how much you already have tucked away in retirement accounts, your stocks-bonds mix and the percentage of pre-retirement income you’ll need after you retire retirement (70% to 80% is a good starting estimate) and the calculator will estimate the probability that you’ll be able to retire given how much you’re saving and how you’re investing. If you’re already retired, the calculator will give you the probability that Social Security, your savings and any other resources will be able to generate the retirement income you’ll need. Ideally, you want a probability of 80% or higher. But if it comes in lower, you can make adjustments such as saving more, spending less, retiring later, etc. to improve your chances. And, in fact, you should go through this assessment every year or so just to see if you do need to tweak your planning.

7. Have you done any “lifestyle planning”? Finances are important, but planning for retirement isn’t just about the bucks. You also want to take time to think seriously about how you’ll actually live in retirement. Among the questions: Will you stay in your current home, downsize or perhaps even relocate to an area with lower living costs? Do you have enough activities—hobbies, volunteering, perhaps a part-time job—to keep you busy and engaged once you no longer have the nine-to-five routine to provide a framework for most days? Do you have plenty of friends, relatives and former co-workers you can turn to for companionship and support. Research shows that people who have a solid social network tend to be happier in retirement (the same, by the way, is true for retirees who have more frequent sex). Obviously, this is an area where your personal preferences are paramount. But seminars for pre-retirees like the Paths To Creative Retirement workshops at the University of North Carolina at Asheville and tools like Ready-2-Retire can help you better focus on lifestyle issues so can ultimately integrate them into your financial planning.

8. Have you checked out your Social Security options? Although many retirees may not think of it that way, the inflation-adjusted lifetime payments Social Security provides are one of their biggest financial assets, if not the biggest. Which is why it’s crucial that a good five to 10 years before you retire, you seriously consider when to claim Social Security and, if you’re married, how best to coordinate benefits with your spouse. Advance planning can make a big difference. For each year you delay taking benefits between age 62 and 70, you can boost your monthly payment by roughly 7% to 8%. And by taking advantage of different claiming strategies, married couples may be able to increase their lifetime benefit by several hundred thousand dollars. You’ll find more tips on how to get the most out of Social Security in Boston University economist and Social Security expert Larry Kotlikoff’s new Social Security Q&A column on RealDealRetirement.com.

9. Do you have a Plan B? Sometimes even the best planning can go awry. Indeed, two-thirds of Americans said their retirement planning has been disrupted by such things as major health bills, spates of unemployment, business setbacks or divorce, according to a a recent TD Ameritrade survey. Which is why it’s crucial that you consider what might go wrong ahead of time, and come up with ways to respond so you can mitigate the damage and recover from setbacks more quickly. Along the same lines, it’s also a good idea to periodically crash-test your retirement plan. Knowing how your nest egg might fare during a severe market downturn and what that mean for your retirement prospects can help prevent you from freaking out during periods of financial stress and better formulate a way to get back on track.

10. Do You Need Help? If you’re comfortable flying solo with your retirement planning, that’s great. But if you think you could do with some assistance—whether on an ongoing basis or with a specific issue—then it makes sense to seek guidance. The key, though, is finding an adviser who’s competent, honest and willing to provide that advice at a reasonable price. The Department of Labor recently released a proposal designed to better protect investors from advisers’ conflicts of interest. We’ll have to see how that works out. In the meantime, though, you can increase your chances of getting good affordable advice by following these four tips and asking these five questions.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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MONEY Ask the Expert

Are Robo-Advisers Worth It?

Investing illustration
Robert A. Di Ieso, Jr.

Q: I downloaded the app from Personal Capital to get a better look at my finances. Is it worth the money to use their advisory service? I had a free discussion with one of their advisers and liked what they had to say, but I have a complex portfolio inherited from my parents. — Dan in Gillette, Wyo.

A: Over the last several years a new breed of technology-based financial advisory services — sometimes referred to as robo-advisers — have come on the scene in an attempt to serve investors who otherwise wouldn’t seek or couldn’t afford professional advice. Many investors don’t meet the minimum required by traditional advisers, while others are, understandably, reluctant to pay the typical 1% management fee for hands-on financial advice.

Enter the likes of Personal Capital, Wealthfront, Betterment and other services that help investors allocate, invest, monitor and rebalance their assets.

Personal Capital offers a free app that aggregates financial information on a single dashboard, and in turn uses that information to call on clients who may benefit from their advisory service, which melds technology with traditional human advice; clients and advisers communicate via phone, text, instant message and Skype.

Here’s the catch: At 0.89% for the first $1 million, the fee for Personal Capital is nearly as high as what you’d pay for a traditional advisory relationship.

“Is it worth it? We think there are several other options available that may be a better fit,” says Mel Lindauer, co-author of “The Bogleheads’ Guide to Investing” (Wiley) and a founder of the Bogleheads Forum, which focuses on low-cost, do-it-yourself investing à la Vanguard Group founder Jack Bogle.

If you’re primarily interested in help with asset allocation, he says, there are more affordable services worth checking out. Vanguard Personal Advisor Services, for example, charges 0.3% for its service. On a $1 million portfolio, that’s the difference between $8,900 a year and $3,000 a year, says Lindauer. An even cheaper option yet: target date funds, which peg their portfolios to investors’ retirement date.

Of course, asset allocation is only one piece of the financial puzzle. A good adviser can help you with everything from budgeting and taxes to estate planning.

Personal Capital advisors do work with clients on broader issues, but if your situation is truly complex, you may be better served sitting down with a traditional fee-only adviser.

MONEY stocks

10 Smart Ways to Boost Your Investing Results

stacks of coins - each a different color
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You don't have to be an investing genius to improve your returns. Just follow a few simple steps.

Recent research shows that people who know their way around investing and finance racked up higher annual returns (9.5% vs. 8.2%) than those who don’t. Here are 10 tips that will help make you a savvier investor and better able to achieve your financial goals.

1. Slash investing fees. You can’t control the gains the financial markets deliver. But by sticking to investments like low-cost index funds and ETFs that charge as little as 0.05% a year, you can keep a bigger portion of the returns you earn. And the advantage to doing so can be substantial. Over the course of a career, reducing annual fees by just one percentage point can boost the size of your nest egg more than 25%. Another less commonly cited benefit of lowering investment costs: downsizing fees effectively allows you to save more for retirement without actually putting aside another cent.

2. Beware conflicted advice. Many investors end up in poor-performing investments not because of outright cons and scams but because they fall for a pitch from an adviser who’s really a glorified salesman. The current push by the White House, Department of Labor and Securities and Exchange Commission to hold advisers to a more rigorous standard may do away with some abuses. But the onus is still on you to gauge the competence and trustworthiness of any adviser you deal with. Asking these five questions can help you do that.

3. Gauge your risk tolerance. Before you can invest properly, you’ve got to know your true appetite for risk. Otherwise, you could end up bailing out of investments during market downturns, turning paper losses into real ones. Completing a risk tolerance questionnaire like this one from RealDealRetirement’s Retirement Toolbox can help you assess how much risk you can reasonably handle.

4. Don’t be a “bull market genius.” When the market is doing well and stock prices are surging, it’s understandable if you assume your incredible investing acumen is responsible for those outsize returns. Guess what? It’s not. You’re really just along for the ride. Unfortunately, many investors lose sight of this basic fact, become overconfident, take on too much risk—and then pay dearly when the market inevitably takes a dive. You can avoid such a come-down, and the losses that accompany it, by leavening your investing strategy with a little humility.

5. Focus on asset allocation, not fund picking. Many people think savvy investing consists of trying to identify in advance the investments that will top the performance charts in the coming year. But that’s a fool’s errand. It’s virtually impossible to predict which stocks or funds will outperform year to year, and trying to do so often means you’ll end up chasing hot investments that may be more prone to fizzle than sizzle in the year ahead. The better strategy: create a diversified mix of stock and bond funds that jibes with your risk tolerance and makes sense given the length of time you plan to keep your money invested. That will give you a better shot at getting the long-term returns you need to achieve a secure retirement and reach other goals while maintaining reasonable protection against market downturns.

6. Limit the IRS’s take. You should never let the desire to avoid taxes drive your investing strategy. That policy has led many investors to plow their savings into all sorts of dubious investments ranging from cattle-breeding operations to jojoba-bean plantations. That said, there are reasonable steps you can take to prevent Uncle Sam from claiming too big a share of your investment gains. One is doing as much of your saving as possible in tax-advantaged accounts like traditional and Roth 401(k)s and IRAs. You may also be able to lower the tab on gains from investments held in taxable accounts by investing in stock index funds and tax-managed funds that that generate much of their return in the form of unrealized long-term capital gains, which go untaxed until you sell and then are taxed at generally lower long-term capital gains rates.

7. Go broad, not narrow. In search of bigger gains, many investors tend to look for niches to exploit. Instead of investing in a broad selection of energy or technology firms, they’ll drill down into solar producers, wind power, robotics, or cloud-computing firms. That approach might work, but it can also leave you vulnerable to being in the wrong place at the wrong time—or the right place but the wrong company. Going broader is better for two reasons: it’s less of a guessing game, and the broader you go the lower your investing costs are likely to be. So if you’re buying energy, tech or whatever, buy the entire sector. Better get, go even broader still. By investing in a total U.S. stock market and total U.S. bond market index fund, you’ll own a piece of virtually all publicly traded U.S. companies and a share of the entire investment-grade bond market. Throw in a total international stock index fund and you’ll have foreign exposure as well. In short, you’ll tie your portfolio’s success to that of the broad market, not just a slice of it.

8. Consider the downside. Investors are by and large an optimistic lot, otherwise they wouldn’t put their money where their convictions are. But a little skepticism is good too. So before putting your money into an investment or embarking on a strategy, challenge yourself. Come up with reasons your view might be all wrong. Think about what might happen if you are. Crash-test your investing strategy to see how you’ll do if your investments don’t perform as well as you hope. Better to know the potential downside before it occurs than after.

9. Keep it simple. You can easily get the impression that you’re some kind of slacker if you’re not filling your portfolio with every new fund or ETF that comes out. In fact, you’re better off exercising restraint. By loading up on every Next Big Thing investment the Wall Street marketing machine churns out you run the risk of di-worse-ifying rather than diversifying. All you really need is a portfolio that mirrors the broad U.S. stock and bond markets, and maybe some international exposure. If you want to go for more investing gusto, you can consider some inflation protection, say, a real estate, natural resources, or TIPS fund. But I’d be wary about adding much more than that.

10. Tune out the noise. With so many investing pundits weighing in on virtually every aspect of the financial markets nearly 24/7, it’s easy to get overwhelmed with advice. It might make sense to sift through this cacophony if it were full of investing gems, but much of the advice, predictions, and observations are trite, if not downright harmful. If you want to watch or listen to the parade of pundits just to keep abreast of the investing scuttlebutt, fine. Just don’t let the hype, the hoopla, and the hyperbole distract you from your investing strategy.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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