Millennial Investing: The Ultimate Starter Guide – The Worth Project

by admin

Millennials are the most educated generation in history. Our student loans attest to that achievement. Perhaps student loan debt is the reason millennial investing hasn’t started yet?

Or millennial investing hasn’t started because of a few reasons…

  • the Great Recesion caused post traumatic stress
  • the political environment creates investing jitters
  • annoyed that our expensive education didn’t include a personal finance class
  • we don’t feel knowledgable about investing

I am in the camp of the last bullet. Millenial investing is slow to start compared to our predeccesors due to a lack of knowledge.

An Investopedia survey found half of affluent millennials don’t feel knowledgable about investing. If the ones who have done better than average on income don’t feel good about it, how do the rest of us fair? Those with an income above $132,000 find it “risk” or “overwhelming.”

The financial service industry, that we all know, love, and trust, makes investing a tad bit complicated. While the historical returns from stock or bond investing has beaten your Bank of America savings account return, the jargon and the process can feel overwhelming.

This millennial investing guide will get you interested, maybe even started, in dipping your toe into the world of investing.

Why is it for millennials? Because this beginners guide for investing discusses robo-advising, fee-only financial advisors, and financial firms that millennials actually trust. This investing guide is written for 2020, in our language.

Let’s take investing 101 in bite-sized pieces. This guide is divided into 4 parts. Feel free to jump around or come back to a part later.

Part 1: Why Should Millennials Invest?

There’s a huge emphasis right now on millennial investing. Every day I feel like there’s a new tool coming out or a new way that makes investing easier for the most educated generation in history, which is great as long as you totally understand where your money is going and why you’re putting it there.

When I was straight out of college, I kind of knew what investing was. I’d taken finance classes. I’d read A Random Walk Down Wall Street.

But just because I knew what it was, doesn’t mean I made smart decisions about it. I was a pretty decent little saver, but when it came to investing as a 22-year-old, I was completely risk averse.

When I was signing up for my benefits at my first job, I remember asking if there was an option to keep my 401K in cash. I didn’t want to lose my hard earned cash by investing poorly, so why not just keep it in something safe?

To me, cash was king. It sat in my savings account. I could see it. I understood it.

And I wasn’t alone.

Turns out millennials are great at saving money, but millennials really drag their feet when it comes to investing money.

Especially women.  Women keep 71% of their assets in cash (see Blackrock gender findings survey for details), which means we’re not actually investing all that much.

I get the reluctance to invest, obviously. It feels time-consuming to research your options. It can be scary to think about losing it.

Spoiler: it doesn’t take that much time to invest well. I’ve found 2 great resources where I’ve moved my money and set up automatic monthly investments to organize our finances in 15 minutes a month.

There’s a reason that we focus on earning more as half of the equation to living a better life. Earning more isn’t just being paid more in your job (though that certainly helps). It’s also starting a side hustle and making the dollars that you do earn, work for you.

To get the point across that investing should be somewhere on your to-do list, I wanted to break down an easy example.

First, what does investing mean?

Investing comes in a lot of different forms. You can invest in your education, buy a rental property, put your money in CDs or bonds, buy stocks, and more. But the simple idea is this: you want the money that you invest to generate additional cash.

For this article, we’ll compare putting $100,000 today into a savings account or invest $100,000 into a stock market Index Fund or ETF.

How much is that $100,000 that you invest worth in 30 years?

$100,000 invested in the stock market

From the 1950s to 2009, the S&P 500 had an average annual return of 7%. Remember, the S&P 500 is an index of stock issued from 500 of the largest companies in the US.

Which ones? It doesn’t matter for this exercise. Just know that the S&P 500 is an indicator of how the overall stock market is performing.

For this example, let’s say you invest $100,000 today in a fund that mirrors the performance of the S&P 500. Historical returns of the stock market show an average of 7% growth, adjusted for inflation. While past returns definitely don’t predict future results, most people agree that 7% is a reasonable estimate for growth.

Sometimes there will be large dips where you lose a lot of money (like in 2008) and sometimes you’ll see huge returns where you earn a lot of money (like in 2017).

What does that 7% add up to over 30 years? A jaw-dropping $761,225.

$100,000 in your savings account

Right now it’s pretty easy to find an online bank offering high yield savings accounts that earn 1-1.3% interest per year. A money market account (another type of savings account) might bring in a little more interest, but not much.

Rather than taking that $100,000 and investing it, like in the example above, you stash it away in your sweet little savings account that pays you 1.3% each year.

What does that 1.3% add up to over 30 years? You’ll score yourself a balance of $147,327.

Celebrate that growth? Nope.

Easy arithmetic shows that you’ve earned way less money in a savings account that in an investment account.

Inflation reduces your savings – the elephant in the room

We know that $1 today won’t buy the same amount of things in 30 years. That’s why our grandparents reminisce about 10 cent movies and buying shoes for $4. I know it doesn’t seem like it but fast forward 30 years and we’ll be talking about that time when movies only cost $12.

Prices go up because of inflation. And if your money doesn’t increase with inflation, every dollar that you have will be worth less and less over time. The year over year inflation rate for November 2017 was 2.2%.

If you deposited $100,000 in a bank account on January 1st, 2017 you would have $101,300 sitting there at the end of the year, thanks to the 1.3% interest on your account.

But since inflation was 2.2%, your money didn’t keep up with how quickly average prices were rising. Something that cost $100,000 to buy on January 1st, 2017 would now cost $102,200. Suddenly, your money doesn’t go as far.

What does inflation do to your money over 30 years? Something that costs $100,000 today will cost $258,000 in 30 years because of inflation (historical inflation data is here). Ouch.

Are savings accounts overrated?

Does this example mean that keeping your money in a savings account is a bad idea? Heck no!

Most experts agree that investing is a long-term strategy because you want to be sure you can weather the ups and downs of the market over a long period of time in order to see a decent return.

You should keep your emergency fund and money that you can’t afford to see weather the market’s ups and downs somewhere safe, like a savings account. For example, Jordan and I keep savings accounts for all of our smaller goals, like our different trips, our emergency fund, or money that we need in the short term.

If you keep your money in a checking account, savings account, a money market account, or a CD, your cash is likely FDIC insured. That means up to $250k of your money is insured by the government, should something happen to that bank.

But for money that’s going to be used down the road, like for retirement? Stashing it all in a savings account may be a losing proposition.

Want to read more about investing? Read Investing is Complicated: This Analogy Explains Everything breaking down investing basics in a quick 5 minute read by relating it to a juice bar. You won’t forget what investing means ever again.

1 done, 3 to go. Keep reading our 4 part series on millennial investing.

Part 2: What is the Investing Fee?

Anyone who knows me knows that I love a deal. I’m definitely not cheap, but it drives me nuts to pay more than I have to for something. I’m the person who looks around the airplane and wonders who paid more for their seat and who paid less.

Needless to say, I go out of my way to avoid paying excess fees. I loathe paying banking fees, I hate being charged penalty fees, and I will always pick up the phone to dispute a late payment fee.

But when it came to investing, I found understanding the fees to be a little confusing. There are so many different types and they vary based on the type of investment that you’re making.

I also didn’t realize how much these fees really add up over time. The first brokerage account I ever opened charged $7 for trades. It didn’t really occur to me that paying $7 to make my $150 trade wasn’t the best use of my money.

Note: now Robinhood has made trading stocks free (they make money on the money you keep in their cash account). Other brokerages have jumped onboard.

Because I hate being in the dark and not understanding exactly how my money is being used, I did a little more research into what all the different fees are called, when I’d see them, when it makes sense to pay them, and when it’s better to just say “thanks, but no thanks” to a fee.

While fees aren’t exactly exciting to talk about, it’s good to know just enough so you’re not like the poor guy on the plane who has paid 3x’s more than everyone else and has no idea.

Fees aren’t the only thing you should pay attention to, but they are a good thing to know since they take away directly from the return that you make.

Sure, sometimes it’s worth it to pay more in fees. But it’s never worth it to blindly pay fees without knowing how much you’re paying and why. Millennial investing is smarter than that.

Related articles:

How much do fees actually matter?

A lot. You invest your money to earn a return, and fees eat away at that return. While fees shouldn’t be the only thing you’re concerned with when you are investing your money, you will want to make sure you understand exactly what you’re paying and why.

Let’s say you invest $50k in a fund that has an expense ratio of 0.75% annually. The fund increases an average of 7% annually. After 25 years, you’ll have $227,611 – hooray!

But let’s say you invest in a fund that performs similarly with average increases of 7% annually but the expense ratio is only 0.05%. After 25 years, you’ll have $268,219. That’s $40k more, just because you’ve paid less in fees.

So while fees aren’t the only thing that matters when you invest, you should invest knowing exactly what you’re paying and make the decision as to whether that extra fee is worth it.

Ok got it? Now here’s where I think a lot of us get confused. What exactly are all of these fees? And when can you expect to see them?

I’ve got you covered. Here’s a quick rundown of some of the common fees and when you can expect to see these pop up when you start millennial investing.

Expense Ratio

What it is: These are the costs of running the fund that your money is invested in. Some funds are much cheaper to manage than others. Expense ratios will be shown as a percentage of your investment. An expense ratio of 0.25% means that for every $10,000 that you have invested, you’ll pay $25 annually toward the management of the fund.

Expense ratios can vary greatly. Actively managed funds (where you have a person who is managing the fund) can have expense ratios of 0.5% or higher. Passively managed index funds (where the investments in the fund track an index, like the S&P 500) have lower fees.

**active, passive, what? Need a refresher? Read this quick pocket guide to investing.

When you’ll see it: You won’t get a bill or see a direct charge for these fees. Instead, these fees are deducted from the return you get on the investment.

You will be able to see what the fee is before you invest. For example, if are looking at purchasing an S&P 500 ETF from Vanguard, you’ll see the expense ratio listed as part of the information about the fund. The expense ratio on the fund below is 0.04%. If you have $10,000 invested in this fund, you’ll pay $4 annually.

Transaction fee

What it is: In order to buy or sell a stock or a share in a fund, you’ll likely be charged a transaction fee. These fees can range from a few dollars to $50. Not every transaction will be charged a fee – there are options for investing without transaction fees, or with low transaction fees. For example, investment app Robin Hood doesn’t charge a transaction fee. Vanguard doesn’t charge a transaction fee if you’re investing in a Vanguard ETF.

When you’ll see it: You’ll see the charge included in the total price of your purchase or deducted from the total returns from your sale.

Load fee: front-end load or back-end load

What it is: When you start looking at investments you’ll likely start noticing that some of them advertise “no load”. So what exactly is this load?

You can have a front-end load, which is essentially the commission that you pay when you buy the investment. Or you can have a back-end load, which is the fee you pay when you sell the investment. You’ll see huge back-end loads on annuities if you sell the investment early.

When you’ll see it: when you buy or sell an investment. You’ll usually see these load fees on mutual funds, insurance policies, and annuities. Don’t want to invest in a mutual fund with a load? Look for or ask about “no load” funds.

Management Fee

What it is: When you work with an advisor, some of them choose to bill you based on the amount of money they manage for your (this is called assets under management). So if you have $100,000 managed by an advisor and they charge a management fee of 1%, you’ll pay $1,000 fee annually.

If you use a robo-advisor, you’ll also pay a management fee, though this will usually be lower. For example, Wealthfront, Ellevest, and Betterment charge management fees of 0.25% annually. If you invest $10,000 with them, you’ll pay a $250 annual management fee.

When you’ll see it: when you use an advisor (either a person or a robo-advisor) to manage your investments.

What to note: You’ll pay a management fee on top of any other fees that your investments have. Your advisor will charge this management fee to cover their costs and whatever funds they invest your money in will also have an expense ratio.

Annual Fee or Custodian Fee

What it is: an annual fee for maintaining your account.

When you’ll see it:  you’ll see this on a lot of retirement accounts to cover annual reporting that they need to do. You may also see an annual fee on any of your other brokerage accounts.

One way to check fees

I’m kind of a broken record when it comes to Personal Capital and all of the ways I use their free tool (to be clear, I only use their free tool, not their investment options. See my review of their free tool here). One thing I do semi-regularly is to check their fee management tool. The fee tool doesn’t include every fee that we pay, but it does track down the management fees and expense ratios on our investments and gives you an average of the fees you’re paying.

As you can see in the chart below, we have an average expense ratio of 0.33%.

Now that Jordan and I share money this is helpful to get a full picture of what we’re paying in fees as a household.

TL;DR? Summary on Millennial Investing Fees

When you invest there will be fees. Smart millennial investing is understanding the fees.

These fees can eat away at your return significantly. Are fees the only thing you should think about? No. But you should know what you’re paying for before you buy. You’re smart, you’ve got this.

This was part 2 of a 4 part series on millennial investing, keep the learning going with part 3.

Part 3: Options for DIY Investing. 2 Easy Ways to Start Millennial Investing

I was 22 when I started investing, and like most people, I didn’t know where to start. I knew I wasn’t ready to meet with a financial advisor – I had something like $1,000 to invest – but I wasn’t sure what my options for a semi-DIY approach were.

I ended up opening a brokerage account with my bank, acted like I was a day trader (not my finest moment), and quickly realized I should learn a little bit more before I made any more bad moves. Stories like this is why millennials and investing hasn’t gone over well.

Today there are so many more options for the DIY or semi-DIY investor, but they’re still a little overwhelming.

I’ve sat down with my girlfriends to walk them through the process of

  1. choosing a brokerage company,
  2. opening an account,
  3. and picking investments.

It’s made me realize that though we have so many options to choose from today, it can still be really difficult to pick a brokerage company and get started. This part will hopefully give you additional help and motivation to find the investing approach that works for you. So you can start millennial investing.

As you know, this isn’t personalized financial advice. I’m laying out two simple ways to get started – there are more. And investing comes with the risk of loss of your money. But you already knew that.

Investing 101: What is an index fund

Before we get started on different approaches to investing, lets go over what an index fund is and why it is important for millennial investing.

What is an index fund?

An index fund is a portfolio of investments that are constructed to match different market indexes. For example, the S&P 500 is an index of stocks from the 500 largest companies in the US. Rather than investing in just a few stocks that are part of the S&P 500, you can invest in an S&P 500 index fund, which gives you a sliver of the entire S&P.

If you invest in a total market index fund, again instead of picking a few stocks in the market, you’ll be invested in a broad number of companies that will reflect the performance of the total stock market.

Why invest in an index fund?

Spreading out the risk is the name of the game when it comes to long-term investing. An index fund is an easy way to spread out the risk because instead of investing in a few companies, you’re invested in a lot of companies. They also have extremely low fees, which means you get to keep more of your earnings.

What’s the downside?

Just like any other investment, you’re exposed to risk. If the market declines, and it always does at some point, your investment will dip as well.

DIY Approach with Vanguard

There are a lot of low-fee brokerages that you can use if you’re going the DIY route for investing. I’m just going to talk about Vanguard because that’s what I’ve used nearly my entire adult life.

What do they offer?

Vanguard is famous for their low-cost index funds. In fact, they were the first company to offer index mutual funds to individual investors in the US.

They offer a variety of different accounts including the following:

  • retirement accounts
  • taxable investment accounts
  • college savings accounts

When choosing investments, you can select an “all in one” fund or pick different investments individually.

With an all in one fund, you pick how long you want to hold onto an investment and how much risk you’re comfortable with. Then, they will suggest a mixture of different investments designed to help you reach your goals.

An easy example of this is when we invested in the Nevada 529 plan for our son Henry’s education. We input his age, the date we think he will start college, and how risky we wanted to be with the money. Since Henry is 3 months old, the money is currently invested in riskier stock funds. As he gets closer to college, the money will shift to funds with less risk, like bond funds. This happens automatically as part of an “all in one” option. We don’t have to do a thing once it’s set up.

If you invest in individual funds, you research the funds and decide for yourself which ones you’d like to invest in.

For example, you might decide that you want to have some stock index funds, some bond index funds, and some CDs. You would decide how much of each you want to buy and buy each investment individually.

If you want to make changes over time – say you decide you want more bond funds than stock funds – you would do that manually.

Where do you find information on fees and performance?

On their website under “Investment Products,” you can see details for different individual funds. You’ll find the fund name, the expense ratio (fee), and the previous average annual returns.

Just remember that past performance does not predict future performance. A fund that has performed well in the past isn’t guaranteed to perform well in the future.

One of Vanguard’s big selling points is that they have very low fees (their fees are the expense ratios in the table below). You can find more details about their other fees here.

How do you get started?

You can create a personal account on their website. You then have a lot of different options to explore, including the following:

  • what type of account you want to open (taxable, retirement, college savings, etc) and
  • what type of investments you’d like to buy (stock index funds, bond index funds, actively managed funds, CDs, individual stocks, etc).

Account minimums range from $1k-$3k.

What are the drawbacks?

I find parts of their website to be a little confusing.

For example, it always takes me a while to click around and find where the automatic monthly transfers are. Also, if you have no idea where you want to start investing, there’s not an easy to use guide that walks you step-by-step through decisions, like you’ll get with robo-advisors.

What if you want more help?

They offer personal advisory services for an annual fee of 0.3% of your total assets. If you have $100,000 invested with them, your annual fee will be $300. This service is more robust than that of a robo-advisor, but the service is only available to people who have $50k or more to invest.

What do we personally use it for?

A lot. I have my Individual Retirement Account (IRA) with them, Jordan and I have joint taxable investment accounts, and we have our son Henry’s 529 college savings plan with them.

Looking for similar options?

You can check out Fidelity and Charles Schwab for similar low-fee investments.

Robo-Advisor: a semi-DIY approach with Wealthfront

You’ve probably heard a lot of buzz around the robo-advisors. They’re a low-cost way to help people invest with just a little more hand-holding than the Vanguard option above.

There are a lot of robo-advisors out there, but I chose Wealthfront because of their low fees and because the author of my favorite finance book, A Random Walk Down Wall Street, is their Chief Investment Officer.

Robo-advisors are marketed hard to millennials as they are tech-savvy. When it comes to millennial money, most millennials would still prefer to outsource their financial management to a financial planner. That is cool but a robo-advisor might be the best and lower cost option for you as a millennial investor.

What is robo-advisor?

A robo-advisor offers a little more hand-holding than going with a company like Vanguard but doesn’t have the personal touch of a human advisor.

When you open an account with a robo-advisor, you’ll be asked a series of questions to help them gauge your goals, priorities, and risk level. Based on that questionnaire, they’ll suggest different accounts for you to open as well as a mix of investments.

What do they offer?

Just like Vanguard, they’ll use index funds or Exchange Traded Funds (ETFs) to build your portfolio. You won’t be invested in individual stocks.

The whole process is automated and once it’s set up, you don’t have to log in and make any changes. The software will manage your investments for you.

What are the fees and account minimums?

Because a robo-advisor offers continual management compared to investing in funds directly on your own, they charge management fees. With Wealthfront, I pay a 0.25% management fee on the money that I have invested with them, plus the actual fees on the funds (the expense ratios).

In the screenshot below from my account, they break down exactly what fund I am invested in and what the expense ratio for that fund is. I’m paying 0.04% for the Vanguard fund that I’ve purchased through Wealthfront plus the 0.25% annual management fee.

The fees are higher, yes, and I technically could’ve purchased that fund directly from Vanguard. But Wealthfront will automatically rebalance my portfolio so I don’t end up with too much money in one fund and too little in another. Therefore, my risk level stays exactly where I want it. That is important for me.

They also do something called Tax Loss Harvesting.

It sounds fancy, but the idea is that when an investment does poorly, you can sell it to offset the taxes you’d pay on the investments that made you money.

The goal is to save you money on the taxes you pay.

How do you get started?

With their easy-breezy questionnaire. You can actually start the questionnaire before signing up for an account. After the questionnaire, they’ll suggest the type of account you should open as well as the mix of investments you should purchase.

What are my investment options?

After filling out the survey, Wealthfront gives you their suggestion to build a portfolio for you. My risk tolerance from the survey put me at a risk tolerance of 10.0 (out of 10) and an investment plan that looks like this:

Be honest when filling out the survey so you can get a risk tolerance that’s right for your situation. I have a 10 out of 10 risk tolerance. I let it roll.

This is because this is a taxable account that is separate from my retirement, Henry’s college fund, or any money that we plan to use relatively soon. I feel really comfortable taking on more risk here and I won’t panic if I lose money in the short term.

What if you want more help?

There’s no human option here, aside from technical support, but they do have a tool called Path that can help you visualize your financial future.

You can put in different amounts to save and invest to see what that does to your future retirement or college savings.

What do we personally use it for?

A taxable investment account.

What are some similar options?

Any other robo-advisor will offer similar services with fairly similar fees. Some options are Betterment, Ellevest, Wealthsimple, and Personal Capital*.

*Note: I use Personal Capital’s free account aggregator, but not their investing options. See my video tutorial and a full review of Personal Capital here.

How do you know what’s right for you?

Read their websites and reviews and pick up the phone to call a prospective company.

It was overwhelming to look at all of the options out there when I got started and calling different companies actually helped ease my concerns about the process.

Be honest with yourself about whether you’d prefer to take the time to DIY or if you’d rather have a set it and forget it attitude.

You’ll also want to consider how you would act in a downturn. Are you the type of person that might panic and sell investments when the market declines? If so, a DIY approach might cause you to make decisions that aren’t in your best interest.

And if your still not comfortable with either approach outlined here, next up in this investing series, we’ll talk about when you might consider bringing on a professional.

3 done, 1 to go. Keep reading our 4 part series on investing for millennials:

Part 4: Is a Financial Advisor Right for You?

I love fielding questions from readers (seriously love, so send them to me!). One of the most asked questions is around hiring a professional financial advisor.

Whether it’s because someone wants accountability, has very specific investing and financial planning questions, or is going into a new phase in their life. I get a lot of millennials asking how to even go about hiring someone to help with their money.

In full disclosure, Jordan and I manage almost all of our money ourselves. The only money that we don’t manage is a taxable investment account we have with Wealthfront, where we rely on the robo-advisor to manage the investments for us. We’ve talked about hiring a financial planner, and we may at some point, but at this point, we really enjoy managing money ourselves.

Though we don’t use a professional to help us with our finances, I completely see the benefit of a professional. If you have complicated questions, they can help you work through the right answers. If you have a partner that you manage cash with, they can help with money conversations.

They can provide you with peace of mind that you’re making the right decisions.

And, most importantly, they can help keep you from acting rash.

Remember the financial crisis? As the stock market crashed I had numerous acquaintances sell all of their investments and keep their money in cash. Years later, once they started to trust the market again, they were buying into more expensive stocks.

Selling low and buying high isn’t a winning strategy and if they had a financial professional talking them off the ledge, they may have acted differently.

But how do you get started hiring a professional and how much do they really cost? I spoke with two Certified Financial Professionals (CFP), Sophia Bera of Gen Y Planning and Shannah Game of Your Millennial Money to get the details for you.

When do you know you’re ready to work with a financial advisor?

Right after Jordan and I got married, we debated hiring a financial advisor. We heard that after a big life event it was good to get an outside opinion to help us craft a financial plan. Post-nuptials seemed like the perfect time to hire someone.

But is that right? Should you hire someone after a big life event like getting married or having a baby? These are classic millennial money decision points.

Game agreed that hiring someone to help you through life’s big transitions is a good idea. “The entry point is usually when you’re going through a life change. When you get married, are expecting a baby, want to start a business, get divorced, or when your parents pass away. You may even want to hire someone when you get a new job with a big salary increase, which is a great problem to have.”

Bera added that aside from life events, there may be other signs that you’re ready to hire a financial advisor. If you’re making six figures, that’s often a sign that you might benefit from some more complex tax planning. Or, if you have more than $1,000 per month that you’re able to invest, it might be time to work with a professional to decide how best to use it.

She says that there is a lot you can do on your own before hiring someone. “There are 3 important things you can do to build financial stability:

  1. Have you eliminated high-interest debt?
  2. Do you have 3 months of net pay in your emergency fund?
  3. Are you getting your company match on retirement or putting money away consistently for retirement?

These are things people can do on their own before they’re ready to work with a financial planner.”

What are the different type of advisors you can work with or hire?

I found this a little confusing. What do all of the different acronyms and credentials mean?

Game, a CFP,  helped break this down for me. A financial advisor is a general term that encompasses a professional that helps you with money. This can include stockbrokers, insurance agents, estate planners, etc. They may not look at your entire money situation and instead recommend investments and products based on just one or two of your financial goals.

A financial planner is a type of advisor who creates plans to help you meet your long-term goals. A Certified Financial Planner (CFP) completed training on tax planning, estate planning, life insurance, budgeting, and investing.

They look at your money situation from a holistic point of view.

Bera also described a CFP as a quarterback for navigating different money situations. They generally work with a network of other financial professionals and can recommend people to work with for estate planning, taxes, and insurance so you’re not relying on Yelp reviews.

What should you look for when hiring a financial advisor?

Bera advises that your advisor should be two things: Fee-only and a fiduciary.

Let’s break that down a little. Fee-only means that your advisor isn’t paid a commission or compensation based on product sales. So you know if an advisor is recommending a product or investment, they’re not getting a kickback from the company selling it.

Some advisors may say they are “fee-based.” This means they are likely getting paid from a combination of places: a fee from you, a percentage of the money they manage for you, or from commissions based on selling products.

Fiduciary means that the advisor is required to act in your best interest. There’s no conflict of interest.

One common complaint of hiring a fee-only advisor is that they are more expensive than those that are compensated based on commission. This might be true, but it’s best to weigh the benefits of getting advice without conflict of interest (or with little conflict of interest) with the increased cost. If you’re weighing the pros and cons of fee-only, I found this article from Investopedia incredibly helpful.

Game broke down some questions you should ask before hiring anyone to help you with your money:

  • How are they compensated?
  • What does their typical client look like?
  • How long have they been in business?
  • What were they doing before becoming a financial advisor?

What’s the cost of a financial advisor?

This, to me, was one of the most intimidating aspects of working with a financial professional. I didn’t know exactly how much they cost and whether the money being spent on a plan would be worth the investment.

Once I started looking into this I found that there are a lot of different ways financial advisors structure their fees and there are different levels of help (for different prices) that you can receive.

There are 3 main ways that an advisor will earn money:

Flat fee: an hourly or flat fee charged to you for planning services they provide

AUM: assets under management. Typically an advisor will charge 1% of the assets that they manage for you. So if you have $100,000 of investments with an advisor, you’ll pay $1,000 annually.

Commissions: payments from product sales or stock trades

One thing to note is that just like a robo-advisor, which will charge an annual advisory fee, if you’re paying an advisor a percentage based on AUM, you’re also paying the underlying investment fees. If you have $100,000 with an advisor who charges AUM and then invests it in a fund with a 0.25% expense ratio, you’ll pay $1,000 AUM plus $250 annually.

Bera has a variety of different options for clients. Her financial plan set up fee starts at $2,000 plus a monthly retainer of $215. For this, her clients get 3 virtual meetings per year plus unlimited email support.

For clients that aren’t ready for a full financial plan, she offers quick start sessions. In these sessions, she’ll answer your most important financial questions and give you a bit of advice to ensure you’re on the right path. These sessions are $600 for an individual (1-hour session) and $900 for couples (90-minute session).

If you’re thinking of hiring a professional, have an idea of how much help you’d like.

  • Do you want a quick meeting to ensure that you’re on the right track, or do you want someone to map out your full financial picture and help you make a game plan to meet your goals?
  • Do you want to manage your investments yourself, or would you prefer to have someone take that over for you?

Answering those questions will help you find services – for the right price – that match your needs.

What advice do they have for someone setting goals on their own?

Since I had two professionals on the phone who give great advice, I couldn’t help but ask them for their best piece of advice when it comes to setting goals. And, as expected, their advice was spot on.

Bera has an exercise that she advises everyone to do: envision that you were to inherit $100k. What would you do with it?

If a client was to say that they’d use $5k to go on vacation, she’ll ask what is stopping them from taking that dream vacation now? Is there something they can do now to work towards taking the vacation, without having to wait for that inheritance? She also says this is a perfect exercise to do with couples, so they can understand what luxuries they each prioritize.

Game suggests that once people are working toward financial goals, they really need to understand where their money is going. When you actually understand what you’re spending money on, you’re empowered to make choices. You can then make choices that have an impact on the big things you actually want to do with your life.

There isn’t one right way to do this. Try out different apps to track your spending. Or take a deep dive into your spending habits by printing out your bank statements and looking at what you spend line by line. Find the way to track money that works for you.

Want to connect with Sophia Bera and Shannah Game? You can find Sophia through her company, Gen Y Planning. You can find Shannah through her podcast, Your Millennial Money.

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