How A Chrome Client Reclaimed Over $100,000
Recently, a client transferred her account to me, partly in the form of a global mutual fund from one of the big fund companies. The position was worth about $100,000. To be sure, I loved the idea of this fund as it provided a high degree of diversification, covering large, mid and small cap equities from around the world. Upon analyzing the fund a bit further, I discovered that it has an Operating Expense Ratio (the OER is the total annual cost to the investor) of 1.05%. All funds have OER’s, some more than others. In addition, this fund has a front-end sales charge, or load, for buying shares equal to 5.75%. Loads on funds are handled differently depending on the share class you buy, A, B or C shares, but it’s important to note that many excellent funds have no loads or even transaction fees.
Because Chrome Asset Management and our advisors do not get compensated for selling investment products, but rather receive an annual advisory fee, we look at a wide range of investment options and try to pick the lowest cost products for our clients, taking suitability requirements into account as well. And that’s exactly what I was able to do in this case.
In researching funds with a similar asset allocation and performance as the fund described above, I was able to put my client into a no-load fund with an OER of 0.18%, and it even had a higher dividend yield than the more expensive fund. The net difference due to lower fees and higher dividends in this case is a positive 2.25%. The client was still receiving a higher return even after my advisory fee, and we can invest more in this fund as may be appropriate without incurring sales charges in the future.
The bottom line is if you compound these savings at a very conservative return of 7% per year, we’ve returned $100,000 to the client over 20 years just by taking the time to do some research!*
It is critical to realize how much money you can be leaving on the table, even when you’ve done a good job of selecting well-diversified funds that are suitable to your investment objectives. (This can be particularly true if you have money sitting in a 401(k) from a former employer, where your investment choices were limited.) As a financial advisor, I do exhaustive research to insure that I consider all aspects of investments for my clients and I have no conflicts of interest when it comes to recommending products. Consider meeting with me now to discuss what you would do with the money you could save, by transferring your account to Chrome or rolling over your old 401(k).
Prior Month in the Markets
The markets were up slightly in the month of June, with low volume and mixed economic data continuing to persist. It turns out the the winter had a much more dramatic effect on the US Gross Domestic Product (GDP) than previously thought, showing a 2.9% contraction. This is really viewed as an anomaly due to the weather and no one expects that to recur in the coming quarters. (In other words, it’s unlikely that we’re headed for another recession). As I said last month, modest growth remains the forecast for the balance of the year.
Investors and economists continue to watch interest rates as the Fed keeps unwinding quantitative easing, but we seem to be stuck in a range on the 10-Year Treasury Bond between 2.45% and 2.65%. As the job market picks up and inflation remains low, expect rates to increase as the Fed tries to move toward a more normalized monetary policy, albeit slowly.
A Little Something About Me
Back in 1993, I was living and working in New York City. I had been to Colorado twice in my college years to ski at Steamboat, going from plane to bus at Stapleton Airport when it was still dark outside. One cold, rainy winter night, the subways by the Empire State Building were down and I couldn’t catch a cab back to my Upper West Side apartment. After walking home 90 blocks in the rain (and trashing a previously new pair of dress shoes), I decided to move to Denver, having never before seen the city. I’ve never looked back.
Much has changed over the past 21 years, and I am so happy to call Boulder my home now. Skyscrapers have been replaced by mountains and I love that my daughter will grow up with the sunshine, landscapes and activities that Colorado has to offer. Imagine my surprise then when she told me she hopes to live in New York City someday!
Portfolio Tune Up
Like our cars, our investment portfolios need the occasional tune-up. In June and July, I will be offering free portfolio reviews to anyone who is interested. Drop me a note and we can set up a time to get together. Maybe we’ll find some of those pesky high cost funds.
* 2.25% on a $100,000 investment is $2,250 per year back in the investors account. Compounding that at a very conservative 7% growth rate (the 25-year historical return of the stock market is about 10%) at the end of each year equals $101,947 over 20 years. You can plug the numbers in yourself here: http://www.moneychimp.com/calculator/compound_interest_calculator.htm.