Save Money With an Investment Audit
In this video, Ed Mahaffey breaks down the importance of conducting two essential audits for your investment portfolio: a risk audit and a cost audit. Learn how to spot concentrated risk in your portfolio and verify you're not overexposed to U.S. stocks or certain investment styles. Discover how a cost audit can help you identify hidden fees, including advisory and ETF costs, that could be eating into your returns. If you're a retiree or pre-retiree, understanding these audits is crucial for minimizing risk and maximizing savings.
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Transcript
What if an audit actually saved you money?
According to Morningstar, investors should conduct two audits, a portfolio risk audit as well as a cost audit of all investment expenses.
Portfolio Risk Audit: Spotting Overconcentration
First, review your portfolio for concentrated risk. Overconcentration to a particular style?
The Hidden Style Bet in Your Portfolio
You may be making a style bet without realizing it, a big style bet, especially if you own index funds.
How Index Funds Impact Your Portfolio
Let me explain. The indexes are constructed with a heavy overweight to large U.S. growth stocks, and you may be overweight in that area, as well as U.S. stocks in general.
The Risks of U.S. Stocks and Home Country Bias
There may also be some home country bias, resulting in potential under allocation to international stocks, especially after a big run in U.S. stocks, for example.
The Role of Your Financial Advisor in Risk Management
If you have a financial advisor, they should already be paying attention to this, as well as the totality of your financial plan.
Conducting a Cost Audit: Identifying Investment Fees
The second audit Morningstar recommends is a cost audit, identifying the internal expenses of your investment vehicles and comparing them to low-cost index funds.
Understanding Your Advisory Fees
This audit includes advisory fees. You should know exactly how much you're being charged, what services are being provided, and how your advisor's fee compares to the fees of other advisors.
Fixed-Income ETFs: Watch Out for High Fees
One area retirees and pre-retirees should pay particular attention to is the operating expenses for fixed-income ETFs.
The Hidden Costs of High-Risk Fixed-Income ETFs
According to Morningstar, the ones charging the highest fees are the ones taking the most risk, as they attempt to boost performance to justify their fees.
A Warning for Retirees: Risk and Fees in Fixed-Income ETFs
Retirees who depend on fixed-income ETFs to reduce risk and generate safe and secure income may be in for an unpleasant surprise.
Conclusion: Get a Free Portfolio Review
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