Liquidity. Are my investments illiquid? In other words, will I be able to access cash when needed for unforeseen expenses? A key concern with all retirement accounts is the ability to liquidate the investments quickly when the need arises, such as paying for medical expenses. A well-balanced investment portfolio should properly plan for the need for liquidity, especially as an investor ages.
Sustainability. Am I withdrawing too much money on an annual basis such that I may not have enough money to last me for the remainder of my life? Can I reasonably rely on the income generated from my account to last? A good broker or financial advisor will have a firm grasp of your retirement plans, and then help you budget how much money you will need to enjoy your retirement. This includes knowing when you plan to retire, the standard of living you hope to enjoy, and other factors, such as major purchases or expenditures you expect in the future.
Costs and Commissions. Am I paying too much in costs and/or commissions? Different products generate different commissions for brokers and their firms. Stocks, bonds, and mutual funds generally produce a lower commission, for instance, than private placements and other non-publically traded investment vehicles. Many investors are often surprised when they find out the amount of commissions they are paying brokers for various products, and are further surprised at costs they incur when they liquidate those assets. Educate yourself about the products in your portfolio, especially the ongoing costs and fees associated with those products.
Knowledge. Do I have a full understanding of what investments are in my account and how they contribute to my financial goals? Most brokerage firms send a monthly statement to clients, which details the products in their investment portfolios. Do you recognize these products, and know how they operate? For instance, stocks are generally held as their value hopefully increases, can be sold at any point, and do not typically generate monthly income. In contrast, a private placement such as a Real Estate Investment Trust (REIT) generates periodic income payments but is generally not able to be resold on the open market. Even though you hire a broker or financial advisor to make recommendations regarding your investment portfolio, investors need to understand the type of products they hold and their function in the portfolio.