A fellow national affiliate of Income For Life was recently in my office and offered an analogy about how Investment Advisory fees are similar to paying someone to pick out a cantaloupe for you at a local grocery store. Here is the story:
Picture yourself at a local grocery store and you are in the produce section – and you want to purchase a good cantaloupe. What do you do? You do what we all do: You pick one up and shake it a bit. You smell it. You maybe even ‘knock’ on it to try to determine if it is ripe or not. You continue this process until you find that special cantaloupe that is right for you.
Sound about right? Me too – every time.
Now, if you are like me, you understand completely that you have NO IDEA if that chosen cantaloupe is a good choice or not until you get home and cut it open. It very well could be bad inside – but there was absolutely no way to tell while at the grocery store without cutting it open in the store. Obviously, we do not do that!
Here is the analogy of the fees that an Investment Adviser charges you in your retirement accounts:
What would you say if a person charged you a fee to pick out a cantaloupe for you at the grocery store? They might tell you that they have ‘expert melon-picking skills’ and they might try to dazzle you with grocery produce ‘jargon’ that makes them look and sound as if they have all the abilities to pick the best melon for you – but do they REALLY have the ability to pick the best melon and know for sure it is a good one without actually cutting into it?
Nope. They do not. It is all just a guess. Just like Investment Advisers do not have a crystal ball to predict the stock markets. All they can do is dazzle you with financial ‘jargon’ and do their best to try to market themselves to the public that they have a crystal ball – and hope you will pay them for their ‘guesses’.
If you are currently paying an Investment Adviser to pick stocks for you – and this person could guarantee that they could predict the stock market AT LEAST 51 percent of the time – they would not be working for you. They would be sitting at home doing it for themselves. Sad, but true.
If you are over age 50 and you are doing this with your retirement accounts – you are playing with fire. You wouldn’t pay for a ‘guess’ with a cantaloupe – why pay for a ‘guess’ with your retirement livelihood?
Matt Nelson, president and host of Income For Life Radio