Why My Mother-In-Law Should Be Your Financial Adviser

BECAUSE SHE WOULD RECOMMEND THAT YOU USE THE VANGUARD TOTAL STOCK MARKET INDEX FUND!  While we don’t normally talk much business, she recently sent me a link to a story referencing this great fund.  Very smart.  (Well, she just sent me the link – she didn’t really recommend the fund.) 

ONE OF THE MAIN TOPICS OF THE ARTICLE WAS TO BE SKEPTICAL OF ROLLOVERS.  The article implies that if you are using low-cost funds in your 401k plan like the Vanguard Total Stock Market Index Fund you may not want to transfer it to your broker’s more expensive IRA.  This is true – you should be smart about your investment fees.  They matter – a lot.  Of course, advisers will argue that their charges are justified.  They believe their clients are getting good value for their professional assistance and, well, advisers have to make a living too, right?

THE DECISION TO KEEP THE FUNDS IN THE 401K PLAN OR TRANSFER TO AN IRA WILL VARY FROM PERSON TO PERSON.  There could be compelling reasons to leave the funds in the plan (like low fees) and there could be compelling reasons to transfer to an IRA (the 401k could be expensive; their adviser might charge reasonable fees; etc.).

THE REAL MESSAGE OF THE ARTICLE IS TO UNDERSTAND YOUR FEES. Many people simply don’t know how much advisers make on transactions and how their compensation can affect their recommendations.  It is perfectly fine to drill down on how your adviser is paid – be a good consumer and protect your interests. Transferring your funds from your 401k plan to an IRA, when you work with an adviser or a broker, can generate a big commission or pay day.  So make sure it is the right decision for you – not for them.   

MY MOTHER-IN-LAW WILL NOT BE ON CNBC ANY TIME SOON.  However, if you follow her lead and use a healthy dose of skepticism, you can learn how to become a smarter consumer of investments and financial service products.