An early retirement couple made $ 100,000 after firing their financial advisor

  • Kiersten and Julien Saunders joined the FIRE movement and retired at 40.
  • In their book “Cashing Out”, they share the decisions that helped them earn their first $ 100,000.
  • They fired their financial advisor and decided to manage their investments independently.

At the peak of their corporate careers, Kiersten and Julien Saunders delayed their honeymoon for months to accommodate their busy work schedules. When they finally took their long-awaited vacation, the couple still found themselves compulsively checking their work emails.

It was then that they realized that their lives had to change. Julien had already heard about the Financial Independence / Retire Early (FIRE) movement through his friends and online searches. After their honeymoon, the couple decided to let go and start living minimally – at one point saving as much as 70% of their combined income – in order to retire early.

Now in their 40s, the Saunders have quit their full-time corporate job, live modestly on passive income from their investments, and travel across the United States helping the black community achieve financial independence.

In their new book, Cashing Out: Winning the Wealth Game by Walking Away, they share the key moves that helped them earn their first $ 100,000 towards early retirement.

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Julien studied the term “expense ratio”, the hidden commission he paid to manage his mutual funds

In the past, Julien relied on a financial advisor who invested his retirement savings in mutual funds. Mutual funds are groups of securities purchased with money pooled by a large group of investors. They are professionally managed by fund managers who monitor the market around the clock and transact on behalf of the fund’s investors.

Determined to make the most of his money, Julien has been trying to invest for months. He learned that mutual funds charge a fee called an expense ratio, which covers the fund’s operating costs. Spending ratios may seem small at first – typically ranging from 0.25% to 1%, although some companies may charge a premium for their expert market analysis – but they greatly impact your portfolio’s performance.

For example, $ 20,000 in assets with a 5% annual return and no additional contributions generates a gross value of $ 52,065.95 over 20 years. With an expense ratio of 0.25%, you’ll end up paying $ 2,471 in fees. If the expense ratio is 1%, you are looking at $ 9,243 in commissions.

Ultimately, the fund with an expense ratio of 0.25% ends up with a net worth of $ 50,595, while the fund with an expense ratio of 1% has a net worth of $ 43,822 – almost a loss of $ 7,000. only for the fees associated with the management of the fund.

The Saunders had to fire their financial advisor to transfer their money into index funds

Julien’s research led him to index funds, passively managed investment vehicles that track the performance of specific groups of shares on the market. Because they are passively managed, their expense ratio is around 0.49%, with some as low as 0.03%.

“Index fund investing had been around for decades, but it was considered a boring, predictable and lazy approach to investing. However, I was intrigued and ready to try it,” he writes.

When he told his financial advisor what he wanted to do with his portfolio, Julien was met with resistance. This led him to research how financial advisors are paid in the first place.

“It turned out that Martin’s pay was largely commission-based,” writes Julien. “Whenever one of his clients bought specific funds or financial products he recommended, he made money from that transaction.”

Although Julien’s financial advisor was not intentionally mischievous, Julien was shocked to learn that his financial advisor was not legally obligated to make recommendations in his best interest.

He writes: “In theory, he could recommend funds that earned him and his company a nice commission, even if they weren’t the most convenient for me.”

In legal terms, financial advisors are not always bound by fiduciary duty, an ethical obligation to give the client the best advice for his financial situation. Certified financial planners are always trustees.

The pair has focused on index funds

After making the difficult decision to break up with his financial advisor, Julien moved all his retirement savings into index funds. The pair also initiated their employer-sponsored 401 (k) plans and reallocated 90% of their portfolios to index funds and the remaining 10% to bond funds.

The pair earned their first $ 100,000 by hitting their respective 401 (k) highs through the end of their career. They write: “Sometimes, whenever we received a surprise influx of money, we invested in a separate brokerage account and bought, as you guess, multiple index funds.”

In the book, the couple compares investments to basketball. On any given day, any player can be anointed “the best” depending on who is having a good season. Trying to bet your money on the best player is a risky investment, since you may or may not get it right. If you do, you can make a lot of money, but if you don’t, your investment could be lost. It’s similar to how investment managers manage mutual funds – they spend the day hunting for the best stocks to buy.

On the other hand, you could bet your money that basketball fans will keep watching no matter who is on top. It’s a safe and boring bet, but you’re pretty much guaranteed to make money. These are index funds – a bit boring, but a safer place for your money in the long run.

“When you invest in index funds, you are betting that overall a given index will continue to deliver favorable results,” the pair writes. “You understand that some companies will succeed and fail far beyond anyone’s imagination, but don’t let those individual wins or losses distract you from the overall market performance. This is because you are paying attention to the market as a whole and its performance for a long time. term, not day by day “.

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