Do Not Ignore Your Investment Statements

Know your EAI, ROI, and COSTS

Most investors who come to me for help with their retirement accounts have never really read their brokerage or IRA or 401(k) statements. If someone asked them how their accounts were doing, they really have no idea. Furthermore, they don’t know some other important factors that will have significant impacts on their future retirement nest egg. While it is an oversimplification to say there are only three numbers, you can learn a lot if you know the numbers associated with three things you should see on your statement. It is likely your advisor doesn’t direct your attention to these numbers unless times are good and the market is growing like a teenager on hormones.

Overlooking the Costs

Do you know what your managed investments and the advice you receive cost?

Costs are inevitable. Brokers and advisors need to make a profit or have income for the services they provide. However, costs can also get out of control. Furthermore, costs are often “hidden” in the sense that the average investor doesn’t understand the types of costs and their total for the year. If you have $250,000 and your total costs are 2.0%, then your costs for the year are at least $5,000. It is not unusual for costs to be in the 1.5-2.5% range. Remember this truth: Every dollar that disappears from your account because of fees of any kind, is a dollar that you can no longer invest. If your total cost is greater than 0.10%, it is highly likely that you are paying more than you need to pay. Or, at least, you might want to consider other approaches for investing your retirement assets.

Estimated Annual Income and Dividends

Can you live off of the income your investments provide?

A good statement will disclose your EAI – estimated annual income. It should also show you the overall yield of your investments. The reason this becomes important in retirement for most retirees is that you want the income to supplement your Social Security and pension income. The ideal situation is to avoid selling any investments to fund your cost of living and growing inflation. If you have a $250,000 portfolio, it isn’t impractical to expect to have a yield of 2.0% on those dollars. This yield would provide you with $5,000 in income. Don’t give that income away in expenses!

Return on Investment (ROI)

Are you seeing remarkable returns on your investments?

If you have high expenses and low EAI, then you should have an outstanding ROI. Your advisor/broker should be giving you market-beating returns. If the market is up 20% for the year, your investments should be up 25% or more. If you are paying someone to manage your wealth, and they aren’t able to make your ROI eye-popping, then something is probably wrong.

Don’t Shackle Your Advisor

Of course, you can cripple or handcuff your advisor by being nervous and wanting a “safe” investment portfolio. A good fiduciary will follow your instructions and wishes. This often will mean that they will avoid very profitable investments and allocate far more to bonds and “safe” investments. However, you are fighting a losing battle with inflation if you take this cautious approach.

Do you know your numbers? If not, start digging into your February statement and see what you can find.