Imagine you had $10,000 in cash.

This cutting edge approach shows you how to figure your return on your investment (ROI) in your personal 401K, IRA, other investment accounts, and everything like these. The method is below the doggie in the window pic. Best of all, you don’t need to know about fees charged or anything. Just know how much you deposited and when. So, now to your $10,000.

You can keep it at home. This may be the most risk-free place to put your money. In general, it may be a safe place except for break-ins, fires and floods if you don’t let insurance know the money is in the home. Generally, your money will be there when you want it. In return, your money will not grow at all. It will not shrink in dollar value. It will be safe from any temporary downturn in stocks and bonds.

You can deposit your ten grand it in a bank or credit union and this is risk-free. Banks and credit unions are risk-free because the Federal Deposit Insurance Corporation (FDIC) insures them. FDIC guarantees your individual deposits up to $250,000 per bank. In the bank, you may get a little return. Your money may grow at some very small rate of interest. Certificates of deposit lock your money up for a time, but offer a better return. The added benefit of debit cards means your money may be more useful to you than keeping it at home. There are many advantages to a bank.

I talk with people every day who complain about low interest rates and the fees some banks charge. They feel these fees are unnecessary and have taken them by surprise. The fees eat into their returns. I understand and sympathize but there is a bigger problem.

Most people don’t know and have little way to really discover how much it costs them to invest in the stock and bond markets through IRA’s, money managers, and the large well-known investment companies. Yet, this is where the bulk of their money for use in the future is. The return on these funds is unknown because it becomes too difficult for most advisors to separate growth from deposits. No wonder there is so little trust at the deepest level in financial services providers.

The 800-pound gorilla in the financial services industry room is actual return on your investment after fees. Few can tame this beast. Fees are so deep underneath all the reporting that many people don’t even know all the fees that are there. Legislation to make it clearer has been largely ineffective. Get your statement and look for fees. Then look for annual return on investment in your statement. Most fees are hidden and return on your investments is missing. At least with your bank, the all the fees are listed and the earnings on your money listed too.

What are these fees?

The fees that can be charged by financial advisors include:
Statement fees and low balance fees.
Fees of up to five or more percent, called “loads”, for purchasing mutual funds.
Advisory fees based on the total amount of assets under management.
Transaction fees when you buy stocks and exchange traded funds.
Various third-party payments for services provided.

So how much do all these fees total? If you think your bank’s fees might be high, doesn’t it make even more sense to have some way to know how much in total your financial advisory firm is paid? Even more important, is “what am I paying for?” Not only are we quite in the dark about how much is being paid, everyone I know is in the dark about what the return is on their funds invested.

How much is the doggie in the window?

Figuring out your ROI on your account.
Financial firms tend to sell their expertise and wisdom like a cute “doggie in the window”. Few, if any, seem to know how to figure out the real costs or benefits of that doggie. Instead, if you have seen them, we are treated to a steady stream of little orange, origami-type, rabbits in TV commercials, people trashing their homes rather than talking to about their investments, and other symbols of all kinds imaginable. You can be smarter than that with just a little information.

What’s going on here? Many people see their accounts going up but how much of that going is just your deposits and not growth. How much growth is there? After all the fees are quietly and almost secretly removed, you can know your growth and actual growth is the result you desire. Few firms can tell you how to know how much growth you have attained after they take out all the fees and charges. So, I’ll tell you how to do it now. While the process is simple, I am the one who has developed the method after years in the investment profession and looking at statements that hid fees.

How to measure the growth in your investment account

Let’s say your last statement showed $12,000 in total value. You’ve been with the group for 5 years and deposit $2,000 per year. That adds to total deposits of $10,000. Your account grew by $2,000 (12,000-10,000). The difference between total deposits and account balance is growth. Your account grew 20% over 5 years or 4% per year. Yet not all the money was in all the time.

To deal with this, we can pro-rate. Deposits in the account for the full five years count 100%. Money in the account for just 1 year counts 20%. This is the “time-invested equivalent” amount. Here is how it looks:

Years Deposits % of time Time Investment Equivalent
1 $2,000 100% $2,000
2 $2,000 80% $1,600
3 $2,000 60% $1,200
4 $2,000 40% $800
5 $2,000 20% $400
Total $10,000 $6,000 Total Time Investment Equivalent

Growth is $2,000. This is steady. But, we have to adjust the full $10,000 in deposits  based what percentage of time it was growing in the account. In this case, $6,000 is the time investment equivalent amount if 5 years is the growth period. Now, real ROI is 33% over five years or an average of 6.6% per year. These are the numbers important to savvy investors and persons like yourselves who now, without any preparation in school, have to be guardians of your own future. I predict, as the populations changes and more young voters come on the scene, the political will to save social security will execute the DNR (do not resuscitate) orders. Regardless, you need to know your ROI.

Now that you know how to see though the clutter of the things called “statements” you receive by email or snail mail, do it. You can continue to go blurry eyed at the fine print on the bottom of most statements that promise you everything, warn you of some things, and deliver nothing about performance in your account. That will not be on the statement…anywhere.

When firms charge fees, they show up in poorer performance. Low fees and excellent money management skills are my forte at Buffalo First Wealth Management.

That is why I’m giving you this proprietary method of calculating your ROI. Go ahead and try it. It works. When this method is officially published, I’ll send copies to those who request it.

You can even do this with IRAs at your work if you’d like as well. I’d be happy to help if you are stuck on determining your IRA. In the end, when you need it, that is all that matters. The money in your account is the base of the service of financial advisors. Getting it when you want or need it is utmost critical.

Using this method, you can protect yourself through knowledge and choose the best firm for yourself. You can know today.

I suggest this method to you and hope you find it valuable. Please connect with me for any challenges you have.

Dr. James D. Smith, MBA

The views expressed are the views of Dr. James Smith are subject to change based on market and other conditions. The opinions expressed may differ from those with different investment philosophies and are independent of Buffalo First Wealth Management. The information provided does not constitute investment advice and it should not be relied on as such. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon.

This material is for informational purposes only and does not constitute investment or tax advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

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