Is your financial advisor costing you your FIRE dreams?
“Peace of mind.” That was the answer my friend gave me when I asked him why he pays 1% of his net worth to have his finances managed by a financial advisor. We calculated what having a financial advisor costs, and it ended up being more than he imagined … $40k/year! This was costing limiting his FIRE goal! Was that worth his peace of mind? His quick answer was NO!
We’ve all been there, a knot in our stomachs when thinking about our finances. Some of us have handed over the reins of our financial future to someone else, hoping for a magical solution. We’re not alone. Many people struggle with financial anxiety and the complexities of planning for the future, especially when it comes to achieving FIRE – Financial Independence, Retire Early.
In this three-part series, we’ll follow the real-life journey of my friend Xavier. He’s a successful professional who had ignored his finances due to fears we all face. We’ll see how he transformed from paying exorbitant fees for questionable financial advice to taking control of his own destiny and setting his sights on FIRE.
Along the way, we’ll explore the common fears that hold us back from achieving financial freedom, the power of setting clear goals, and the simple yet effective strategies that can transform your relationship with money.
Whether you’re dreaming of early retirement or simply want to feel more confident and secure about your finances, Xavier’s story offers valuable lessons and inspiration. So buckle up and get ready for a journey from fear to FIRE!
Disclaimer: The following is not financial advice, it’s for entertainment only! Don’t want to get sued here! Do your own research and if needed hire a financial advisor (but only pay hourly or a flat fee, not 1%!!).
Xavier’s Story: A Wake-Up Call
To keep his life private, let’s call him Xavier. Xavier is in his mid-forties, single. Professionally he’s navigated the Silicon Valley tech scene, non-profit sectors, Wall Street, and marketing. Through savings, successful startup ventures, and real estate investments, he’s amassed a net worth of around $1.35M.
Xavier and I have been friends for years. Recently, we reconnected after a long gap, and he asked me to review his finances. He believes I have some financial knowledge (which may or may not be true!). I enjoy reading financial blogs like Financial Samurai, Millennial Revolution, 1500 Days of Freedom, etc., and have explored some personal finance books… but I’m no expert.
He trusted me with his hard-earned money, and we embarked on a journey to understand his financial situation.
Disclaimer: The following is not financial advice, it’s for entertainment only! Don’t want to get sued here! Do your own research!
1%? That’s it?
How much was he actually paying the financial advisor? We first needed to understand the advisor’s role (Xavier wasn’t entirely clear on this). We logged into his brokerage account and the discovery of a daily “Financial Advisor Fee” of $22 shocked us. They calculate this based on your account balance, resulting in $8,000/year in fees alone. Next, we examined his investments.
I was furious to find that 50% of his money was stagnant in a 4% treasury bond for the past year since hiring the advisor. The other 50% sat in SSO, a leveraged ETF. Xavier had no idea why his money was allocated this way.
We analyzed his returns for the last 12 months and found them significantly lower than if he had simply invested in VTI. If it were 2022, a negative year, the losses would likely have been even greater. In the long run, VTI will vastly outperform this allocation. His total loss wasn’t just the $8,000 in fees but also the missed opportunity of investing in VTI.
And that’s not all. Projecting the advisor’s fees less than 10 years, due to compounding interest, the total cost would be close to $200k!
The High Cost of Complacency: Limiting FIRE
Xavier’s story serves as a stark reminder of the high cost of complacency when it comes to your financial future, especially if you’re aiming for FIRE. It’s easy to assume someone else is handling your money, especially when they offer “peace of mind.” But as we saw with Xavier, that peace of mind can come with a hefty price tag – both in direct fees and missed growth opportunities.
By taking control and educating himself, Xavier could have potentially saved hundreds of thousands of dollars, accelerating his path to FIRE.
Stay tuned for Part 2! We’ll explore how Xavier faced his fears and set clear goals on his FIRE journey. Subscribe to my newsletter: