Share story


Q: I’m retiring at year-end and am interviewing financial planners. The planner who I’m considering hiring doesn’t charge any fees. He said that he does not charge a management fee because all the vehicles into which he would invest my money have compensation for the adviser already built into the product.

This sounds too good to be true. What are your thoughts about this?

A: The fact that the product compensates him means several things. First, that he is primarily a salesman, whatever his business card says.

Second, that it is highly likely that his recommendations will be heavily influenced by the commission schedules of the products he has to sell.

Third, that it is very likely that the number and type of “solutions” he offers are very limited. Fourth, that it is a good bet that he primarily sells one or two products from a single company.

The fact that the compensation is “built-in” doesn’t mean that it’s reasonable. It just means it will never be clear and visible to you. So it is unlikely that you will ever get full disclosure of what you are paying for the product itself, or for its sales and marketing. When you can’t get clear and concrete answers to questions about costs and sales fees, it’s time to head for the door.

Q: I am a 75-year-old widow in good health. A certificate of deposit for $25,000 just matured, and I cashed it out to reinvest it in something that will earn more money.

Currently I have an IRA with Vanguard invested in three of its funds: Wellesley, Target Retirement and a small amount in Life Strategy.

What do you suggest for the $25,000? Should I invest in Vanguard again? If so, in what fund? Or should I invest through Fidelity or some other mutual-fund company?

I worry about having all my eggs in one basket if something happened to Vanguard.

A: I don’t think you should fear having all your eggs in one basket: Vanguard is safe.

Vanguard Wellesley is a good choice, so long as you understand that it is not a guaranteed investment like a CD.

Wellesley may be a single fund, but it has a sterling track record, and it provides you with significant diversification in one fund. Typically, this fund is about 40 percent equities and 60 percent fixed-income.

While both Target Retirement Income and Life Strategy have slightly different allocations between fixed-income and equities, neither offers a major difference.

You might consider investing in the Vanguard REIT Index Fund (ticker: VGSIX) or the Vanguard REIT Exchange-Traded Fund (ticker: VNQ). Adding this would increase your investment income and provide a bit of an inflation hedge.


Copyright 2013, Universal Press Syndicate