Are You Being Tricked Out of Your Money?

Are You Being Tricked Out of Your Money?

May 24, 2022
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By Rick Hellberg, ChFC®, CLU® and Michael Diaz

Like the friction you create when rubbing your palms together, there are major sources of wealth friction that can get in the way of enjoying an abundant retirement. In Rick’s book Retire Abundantly, he discusses the not-so-commonly-recognized sources of wealth friction and how they can “TRICK” you out of your money. 

In our most recent articles, we discussed the 12 obstacles many of our clients encounter when they reach their career finish line. Now we’ll explore the 5 major areas that cause wealth friction and how you can stop your money from leaking out of your long-term retirement plan! (Details on how you can get a personalized copy of Retire Abundantly available at the end of this article.)

Taxes

The first cause of wealth friction is taxes. Most people focus on what they need to do to generate wealth and often forget that is only one half of the equation. Taxes, both before and during retirement, will also play a major role in how much money you get to keep and how long your wealth will last. 

Think about it. You’re taxed on income earned through working, investing, and selling appreciated assets. Then you’re taxed on gifting and passing on wealth to the next generation! Taxes are by far the biggest drain on long-term wealth, but the challenge is that they often go unseen. Usually you’re only aware of just how much you’ve lost when you file your return. By then, though, it’s already too late. Proactive tax management is crucial to avoid wealth friction and achieve an abundant retirement lifestyle.

Risks

Do you know how much risk you are taking in your portfolio? And if so, are you truly comfortable with your level of exposure? Many times people take more risk than they are comfortable with (and much more than is necessary) to sustain their preferred lifestyle. This is a quick path to wealth friction as too much risk in your investments will leave you exposed to unnecessarily large swings in your portfolio, putting both your retirement lifestyle and your legacy in jeopardy.

Conversely, even those who are comfortable with a high level of risk can experience wealth friction in the form of below-market returns. If you are taking substantial risk with your investments, you should be properly compensated with the potential for higher returns. If that’s not the case, you should reevaluate your level of risk and/or investment choice to ensure you’re not leaving money on the table and losing out to wealth friction.

Investment Mix

Investment mix is another area that can leave you exposed to unnecessary wealth friction. If your portfolio is not correctly tailored to your specific needs, you can find yourself wasting time and money with the wrong investment mix. 

It’s one thing to know, in theory, that proper asset allocation and diversification are key investment strategies. But it’s another thing to follow through by staying on top of your portfolio and making changes as needed. Without vigilance, you can easily fall victim to the wealth friction trap by investing in assets that will not maximize your long-term financial potential. When implemented, proper asset allocation can reduce risk and taxation while improving long-term profits.

Costs

It’s not about how much you make, it’s about how much you keep. This is especially true when it comes to unknown costs that can eat away at your wealth. Whether it’s rising healthcare costs, insurance premiums, or investment fees, unnecessary costs are one of the biggest sources of wealth friction. 

When it comes to investments, in particular, many people overpay in fees simply because they don’t know. The truth is that most people barely look at their monthly investment statements, let alone fully understand what they’re saying. Unfortunately, this keeps many clients invested in assets that don’t make sense for their financial goals and earning way less than they should due to hidden fees and transaction costs.

These costs include things like commissions, deferred sales charges, 12b-1 fees, and mutual fund expense ratios. Oftentimes they are not even itemized on your statement. Instead, they are rolled up into a percentage that is automatically deducted from the value of your account on a daily basis, as is the case with mutual funds. Combined with the other major source of wealth friction, taxes, these charges can significantly cut into your investment returns and leave an otherwise profitable investment barely breaking even. 

Knowledge Blind Spots

The final source of wealth friction comes in the form of knowledge blind spots. You just don’t know what you don’t know. But the sad reality is that what you don’t know can very much hurt your long-term retirement plan by creating disastrous wealth friction. 

All of the previous sources of wealth friction stem from what you don’t know. The IRS won’t give you your taxes back just because you didn’t know how to utilize tax-minimization strategies. The damage done from unnecessary risks, bad investment mixes, and excessive fees won’t just be reversed simply because you didn’t know any better. Knowledge blind spots are everywhere and you can’t rely on the talking heads in the media to guide you to the truth. Instead, a qualified financial professional can help you understand your unique exposure to wealth friction and how to maximize your long-term financial potential.

No finance blog or book series can understand your goals, needs, and money mindset. A financial advisor can. A financial advisor can provide customized recommendations to ensure your portfolio is diversified according to your risk tolerance, your tax burden is strategically reduced, and your records are optimally organized.

Are You Being Tricked Out of Your Money?

Don’t let your abundant retirement fall victim to the tricks of wealth friction. At PeterAlexander, we have the tools and expertise to help you navigate the road to a fulfilling and abundant retirement. We provide objective financial solutions so you can pursue your financial goals and create the legacy you desire. To learn more and for a free personalized copy of Rick’s book Retire Abundantly, reach out to us at 610.940.1441 or info@peteralexanderinc.com.

About Rick

Rick Hellberg is president and CEO of PeterAlexander, a financial planning firm founded in 1991. Rick is passionate about providing quality, objective financial solutions so his clients can pursue their financial goals and create the legacy they desire. He strives to equip his clients with comprehensive financial services and advice so they can be empowered to make sound financial decisions. The plans Rick and his team develop help their clients to reduce their taxes, educate their children, fund their retirements, pass their businesses on at fair value, and create programs to attract and retain valuable employees, all so that they can focus on what matters most to them. Rick has a Bachelor’s degree in Liberal Arts from Penn State, along with the Chartered Financial Consultant® (ChFC®) and Chartered Life Underwriter® (CLU®) certifications. He has spent over 40 years working with successful individuals and designs tailored solutions to meet his clients’ unique needs. 

Rick resides in Philadelphia with his lovely wife, Lisa, and their two Shiloh Shepherds, Bentley and Winston. He is also the very proud father of two wonderful young men, Peter and Alex. In 2010, Rick ran for Congress in the 2nd District of Pennsylvania and has stayed active in local politics. To learn more about Rick, connect with him on LinkedIn.

About Michael

Michael Diaz is a financial advisor at PeterAlexander with over 15 years of industry experience. Michael is passionate about helping people overcome financial challenges and avoid potential pitfalls so they can focus their time and energy on the most important things in their life. He spends his days working with successful business owners and families, implementing investment and tax reduction strategies to maximize their wealth. Michael’s goal is to help protect his clients’ financial security, putting them first and helping them navigate every stage in their financial journey. Michael earned his Bachelor of Science in Commerce and Engineering from Drexel University. When he’s not working, you can find Michael traveling, cheering on local sports teams, and exercising outdoors. Michael loves spending time with his wife, Abby, and their baby girl, Monroe. To learn more about Michael, connect with him on LinkedIn.