Q&A: Retirement account bears close scrutiny

Dear Liz: About five years ago, I transferred a 401(k) account to an IRA with a financial advisor recommended by a friend. I receive monthly statements, but like most people, I am busy and do not study them, which is my fault. The statements are very confusing, even though I am a college graduate with a business degree. I recently realized that the account has not grown at all, even though it’s invested in stock mutual funds. The Standard & Poor’s 500 has been up about 10% each year on average, so I feel that I should have a much better return. How do I best go about finding out why I am not making any money? Approaching this financial advisor is useless.

Answer: It appears your advisor is worse than useless; he or she is a hazard to your financial health.

A properly diversified retirement portfolio may not grow at exactly the same rate as a stock benchmark such as the S&P 500, but it certainly should have grown significantly in the past five years. It could be that the advisor has been trying to “beat the market” with actively managed funds, which typically fall far short of the mark and do little other than cost investors too much. Or the advisor could be pushing high-cost funds that pay fat commissions and benefit the firm far more than they benefit you.

The Department of Labor recently instituted regulations that should stop many of these shenanigans by requiring advisors giving retirement advice to put their clients’ interests ahead of their own. You shouldn’t wait for those changes to be implemented, though, because you’ve already lost enough ground. Transfer your IRA to a low-cost provider such as Vanguard, Fidelity or T. Rowe Price and consider investing in a target-date retirement fund that will take care of asset allocation and rebalancing for you.

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  1. Rodney Sanders says

    Liz, your reply to the “Retirement account bears close scrutiny” was way off base. You did not answer that person’s question. The question was how do I find out why I am not making money? You advised the person to transfer their account to a “low-cost provider.” How about that person taking more accountability. He or she mentioned being too busy, not studying the statement, & the statement being confusing. That would still happen if he transferred the account. That person has probably cancelled scheduled appointments with the advisor because of being too busy. This person mostly likely told the advisor that they wanted to be conservative; therefore, the portfolio probably is not 100% invested in stock mutual funds. It could already be invested in a low-cost fund that could just be in a period of under performance. You should have admonished that person for not paying attention to their money & directed that person to another advisor or to Morningstar to find out why the portfolio is not making money.

    • Liz Weston says

      I’m not sure what the point of admonishing the reader would be. He’s already acknowledged responsibility and knows his inattention cost him five years’ worth of returns. He was not invested conservatively–he was invested in stock mutual funds. Given that and the name of the company he used, it wasn’t a big stretch to assume he was invested in high-cost funds that benefited his advisor. Fortunately, there are plenty of low-cost investment options today that don’t require contact with salesmen masquerading as advisors.


    Dear Liz. I am a 69 year old man ,retired 13 years, my husband is 60 and has be disabled for 15 years. We have a 3 unit apartment house in Silverlake (bought in 1998) and a 3000 sq ft house in Mt Washington. We have a doublewide in Cathedral City where we have lived in for 6 years. The tenants in Mt Washington are leaving and we want to sell that house ($850,000 – bought in 2000 for $305,000).
    We could stop renting the house and re-occupy house for 2 years and then sell taking the 500,000 (2X25000) exemption, or we could sell now and pay the taxes.
    My SS is $1250. my husbands is $1800. The apartments gross $54,000 per year the house gross $48,000. There are no mortgages.
    I know I need to recapture the 13 years depreciation when I cash out. . The cost of our reoccupying the house for 2 more years would be about $30,000?. WHAT IS OUR LEAST EXPENSIVE WAY TO SELL HOUSE?

    • Liz Weston says

      Hi, Peter. You need a tax professional who can review your entire financial situation to offer you personalized advice. Consider hiring a CPA who is also a comprehensive financial planner. These folks are known as CPA-PFS, for Personal Financial Specialists. You can search for one in your area here: http://pfp.aicpa.org

    • Liz Weston says

      Clearly, moving and taking the exemption would save you a lot of taxes, but are you and your husband up for the disruption and dislocation a move would cause? Another option is exchanging the house for another rental property in a 1031 exchange. This would be a good discussion to have with a tax pro.