If you’re like many Canadians, your financial life story may go something like this: over the past 20 years you’ve been busy taking care of multiple financial commitments.
You may have gotten married, bought your first home and have made some good headway to paying it off, you may have even had a child or two and gone back to school to further develop your career. Now in your 40s, you’ve achieved quite a bit and are probably starting to seriously think about how you will fund your retirement, children’s education, a bigger house or something else specific to you. Throughout all this, you’ve managed to put away around $100,000.
But, this is most likely not enough for you to be considered a good prospect for many financial advisors. You’re either left to do-it-yourself or your hard earned money is probably going to be put into an expensive option, typically in a mutual fund paying up to 2.5% in fees each and every year. Though, you may not know how much you’re paying in fees and may even believe that you don’t pay anything at all because fees are not currently reported on investment statements. What’s more, these fees may destroy up to 50% of your potential gains in wealth - yes, small fees have devastating effects over time - leaving you with much more work ahead of you and a harder time reaching your goals.
Great Changes Ahead
We’re also seeing great changes in the financial services industry right now where the best practices that used to only be available to those with millions of dollars are now becoming available to more Canadians. You take better technology, low cost products like exchange-traded funds (ETFs), experienced financial professionals working at new companies providing digital wealth management and you end up with better solutions for investors.
New Services Available
Digital wealth management firms or “robo advisors” are at the forefront of the changes we’re seeing right now and may be able to help you achieve your financial goals. Instead of placing investors into buckets (or mutual funds), you answer a series of 9 or 10 questions that speak to your financial situation, investment time horizon, life goals and risk tolerance. With the use of leading technology and a dedicated portfolio manager, you get a customized portfolio solution of low cost ETFs that meet your individual needs. Your portfolio sits on the efficient frontier, that is, you get the maximum benefit for your specific risk tolerance.
How Does A Digital Wealth Management Firm Work?
In general, a digital wealth management firm is not just about establishing a portfolio of low cost ETFs and never touching it. With a company like Nest Wealth, you can get a professional wealth management solution with a portfolio manager assigned to your account. Your portfolio manager will help you get on track and makes the decisions that most people, even with the best of intentions, get too busy to make. This usually includes rebalancing your portfolio when assets stray from the proper mix. Adjusting your portfolio as your life situation changes. And, making sure that you are in the best products for the asset classes you need to be in. These are all part of a complete solution that I think gives Canadian investors the best of both worlds: customized low fee portfolios plus human advice. So what you’re in fact getting is a better solution and way to invest your savings.
But, Does This Apply to You?
Even if you’re just starting out or if you’re closer to retirement than in our example, the type of service offered by digital wealth management firms equally apply to you. The important thing to remember is that there are a lot of empirical studies on the best way for individuals to invest and it’s very similar to how many large institutional investors manage their portfolios. You figure out your risk tolerance. You create a properly diversified portfolio. You minimize your fees as much as possible. Stay the course and rebalance when things go off side.
That’s it. It’s boring but it works.