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Recently, retirement was the subject of Last Week Tonight with John Oliver on HBO. (Note: The video contains some adult language.) The news satire program typically does a segment each week of “edutainment” and this time Mr. Oliver focused on a number of investing topics: financial advisors, annuities, what is a fiduciary, and the large impact fees have; he even goes into detail on the show’s own John Hancock 401k plan.

Oliver makes several important points, such as investors should know the fees they’re paying, they should work only with an advisor who is a fiduciary and active management can be expensive and rarely works. Oliver prescribes 5 steps every investor should take:

  1. Start Saving Now

     

    We’ve all seen the growth of a dollar charts and videos which illustrate the massive effects of compounding over time, especially when invested in stocks. As pensions become a thing of the past for most of us — and we lead ever longer lives — the need has never been greater for investors to put their financial houses in order as soon as possible.

  2. Low-Cost Index Funds

    We don’t need Orlando the cat’s example to know that most active managers struggle to match simple index returns. There are a wealth of academic studies (including from SPIVA and Nobel laureate, Bill Sharpe) proving that most active managers consistently fail to measure up to index performance — and charge a lot for that privilege.

    Given these findings, we also encourage investors to steer clear of active managers with high fees and high turnover who attempt to time the market. We believe there are some key ways to improve on purely indexing strategies, but by and large we advocate broad-based, efficient market exposure.

  3. Ask your advisor if they are a fiduciary

    For 25 years Loring Ward has been a strong advocate for the fiduciary standard. We believe that the advice all investors receive should never be compromised and must always be in their best interests.

    We’ve written frequently on the essential value of fiduciary advice and recently held webinars on the new DOL rulings which promote a Fiduciary standard for retirement accounts.

  4. Shift from stocks to bonds as you age

    A classic investing rule of thumb is to hold a percentage in bonds equal to your age (a 60-year-old would hold roughly 40% in stocks and 60% in bonds). Oliver suggests increasing your bond allocation every time a new actor takes over the role of James Bond.

    Generally it does make some sense to reduce the amount of risk (stocks) you have in your portfolio as you age. However, a financial advisor can tailor your portfolio to your specific situation. If much of your portfolio will go to inheritance or charity bequests, a higher stock allocation may make sense even in advanced age. Conversely, if there is a short-term need for a lump sum of cash, a more conservative allocation may be prudent.

  5. Keep fees low

    As Oliver’s comical domino segment showed, fees are important and add up over time! However, as any experienced vacationer will tell you, value does not necessarily mean the lowest cost. The reasonably-priced hotel with a gym and wifi may, in the end, look like a value compared to the less expensive accommodations infested with bed bugs.

    A financial advisor simply delivering a lineup of funds may not provide huge value to an investor, but an advisor helping with financial planning on a more comprehensive level can easily justify most fees. According to a Vanguard study1, an advisor can add roughly 3% in value through rebalancing, asset location and behavior coaching (helping prevent hasty, emotional decisions when markets are volatile).

While the John Oliver piece may have overlooked much of the value advisors can bring to investors, his attention to conflicts of interest, need for financial education and lack of transparency in much of the industry are topics well worth addressing. We hope his message encourages investors everywhere to gain a deeper understanding of their own investment portfolio and be better prepared for retirement.


1“Putting a value on your value: Quantifying Vanguard Advisor’s Alpha,” Francis M. Kinniry Jr., CFA; Colleen M. Jaconetti, CPA, CFP ®; Michael A. DiJoseph, CFA; and Yan Zilbering, March 2014.

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All investments involve risk, including the loss of principal and cannot be guaranteed against loss by a bank, custodian, or any other financial institution.

Stock investing involves risks, including increased volatility (up and down movement in the value of your assets) and loss of principal. Investors with time horizons of less than five years should consider minimizing or avoiding investing in common stocks. Bonds are subject to market and interest rate risk. Bond values will decline as interest rates rise, issuer’s creditworthiness declines, and are subject to availability and changes in price.

Indexes are unmanaged baskets of securities in which investors cannot directly invest; they do not reflect the payment of advisory fees or other expenses associated with specific investments or the management of an actual portfolio.