I don't coach on the financial side of divorce, but I do want to share my experiences on how to invest a lump-sum settlement or your financial share of a marital property settlement.
I lost 10 years of potential earnings through investing with high-fee "advisors," so this post is about how to avoid that trap.
At the time of my divorce, I had no idea what to do with my share of our financial assets. My father recommended his brokers at Wells Fargo, and with no financial knowledge of my own, I went with his recommendation.
Divorcees, beware of financial advisors!
As the years passed, I kept waiting to see my investments appreciate in value. There was very little growth. After eight years of this, I realized that I was going to have to become more knowledgeable.
My first step was to find out how much I was paying in fees. It turned out that one account was costing me 2% a year, and the other, 3% a year. No wonder these accounts were stagnant -- Wells Fargo's fees were eating up almost all the earnings during a few bad years. And, in addition, my "advisor" made some bad recommendations that lost half their value before he got me out.
If you're counting on your advisor to watch over your portfolios, and you're (to him) a small investor of less than a million dollars in assets, you're on your own. You would need to have the expertise to monitor your accounts, and be in regular touch with this person with your concerns.
Silly me. I thought that was what I was paying the advisor for.
Who needs this kind of "expert" advice? My personal experience with post-divorce investing is by no means an isolated incident. For example, during my marriage, my then-husband's stock broker brother talked him into an investment that quickly lost all of its value. I've heard countless stories like this from my coaching clients. Playing games with your money is not a smart choice for the average, middle-income divorcee.
How to invest your post-divorce assets
After realizing I was a fool to invest via a financial advisor, I thought a good solution would be to seek the advice of a non-fee-based financial planner. Naively, I thought that I could get some basic advice for a few hundred dollars. Imagine my shock when no one would talk to me for less than $2000 to start.
It was time to read one of those Investing for Dummies books, so I did. One of the things I learned was that people without financial knowledge, and who didn't want to spend time managing their portfolios, shouldn't bother trying to beat the market.
Turns out that the rationale for paying a percentage of the value of your portfolio to a broker is that experts, in theory, are supposed to get the investor a better rate of return than the stock market average. But, even if your financial analyst succeeds in this, a good portion of the return on investment is eaten up by his account management fees (which can be accrued in a number of ways, so it can be hard to get a handle on exactly how much you're paying, but that's another story).
Luckily, there is an easy alternative for know-nothing investors like me: Index funds.
Instead of trying to beat the market, an index fund attempts to replicate the performance of a given index of stocks or some other investment type, for example, to match the performance of the S&P 500. Conservatively speaking, over a 20-year period, one could estimate a return on investment of about 6% a year, which would double your investment every 12 years or so.
My personal solution was to invest with a reputable robo-advisor, with my portfolio based on index funds, and incurring very low fees.
A robo-advisor is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners (yay!).
Once you've established an account, you truly can sit back and let time and the market grow your portfolio. And, of course, speed the process by making regular deposits into your account. Over time, you will start to see amazing things happen that will make you feel much more secure about your future.
I chose to invest with Betterment, which is currently the industry's biggest robo-advisor and consistently rated as one of the best.
What I love about it is that the online interface is very easy to understand and to use. Its annual fee is . . . wait for it . . . just .25% (no matter how little you initially invest). And, if you refer others to Betterment, you can receive fee-free months when your accounts just earn money without costing you a dime.
Whatever you choose to do, please consider staying away from high-fee managed accounts. You will lose years and years of precious time waiting to see substantial gains. And, please know that many advisors of all stripes will push their own financial products, so do beware.
My last 12 months with Betterment
Betterment is not the only robo-advisor out there, but it is the leader, very responsive to questions, and I do love the online interface. You can sync up all of your non-Betterment accounts to your Betterment dashboard, so you can keep track of all your assets on one page. It's very easy to make one-time or automated deposits into your account, transfer money among several Betterment accounts, and track your financial progress overall.
When you first visit the site, a great place to start is with the Betterment retirement calculator, where you can set a post-retirement income goal, the number of years you have to get there, and receive an easy-to-understand investment plan, as well as suggested portfolio.
In the 12 months since I kissed Wells Fargo goodbye, my earnings are 11%, and I couldn't be happier. I still know next to nothing about investing, but I'm no longer playing Russian roulette with my money -- and expecting a so-called "expert" to be worth his fees and create miracles with my money.
It's so much fun when you see that you can provide for your own future, even if you start out, post-divorce, in a much less than enviable place.
Dynamic Divorcees: Don't let loved ones talk you into spending your retirement fund on them
Sisters are doing it for themselves, and, among other things, this gives you the freedom never again to be at the mercy of a bad relationship, or tied to a bad job at age 75! Every year (or, at least, most years), you get to see your wealth go up and up.
The only challenge will be to keep that money invested, and not let some seeming soul mate or sob-story relation talk you into funding his crazy dream or bailing him out. Or allowing your kids guilt you into funding their higher education when you haven't fully funded your own retirement yet.
You can circumvent this by never talking about your investments with the victim personalities in your life.
Women are so often taken advantage of financially, and people who want your money will promise you literally anything. You'll want to believe their promises, but, truly, you've lived long enough to know that you must protect yourself. Where are all of those people, now, who made promises to you in the past? Case closed.
If you know that it won't be possible for you to pay for your children's higher education, teach them now to save for their futures in the same way you are doing. If your children are young, you can start them off now, investing little by little and gaining this valuable habit early. Be up front, now, and let them know that they'll need excellent grades, stellar extracurricular activities, and a background of community service in order to earn college scholarships instead of going into debt for their own college loans.
Share the wealth of helping everyone you love to become self-sufficient and empowered. There is no better gift you can give to the important persons in your life.