Meanwhile, a few comments on keeping commissions and fees small. Depending on the size of your nest egg, if you decide to manage your portfolio assets yourself and do not buy and sell them frequently, but agree to pay your broker a 1% or more fee, in lieu of commissions, you may be short-changing yourself. The services provided are often offered for free or at minimal cost by discount brokers, such as Charles Schwab, which also have stock trade commissions generally half or less those of the full service financial institutions. (Discount service commissions for online trades are usually only a small fraction of normal full-service charges for buying or selling securities.) Frequently the sum of the commissions you're avoiding would not equal the fee, unless you are churning stocks like a professional stock trader. If your well allocated portfolio will only be averaging about 5-6% a year before such fees, they will subtract 16% or more from your annual total return.
If your broker will be directing the portfolio for you, it's a different story, of course. A reasonable management fee then is quite appropriate. You have a right to expect in that case that he or she has a good record of money management, beating the averages for several years, relative to the corresponding risk-adjusted benchmarks. (For instance, through 12/31/02 and over the last decade, per AAII, the average annual return of a 40% Lehman Aggregate Bond Index and a 60% S&P 500 Index was just slightly below 8.9%. A $10,000 investment, so allocated and left invested for the decade ending 12/31/02 would then be worth $23,546. Source: The Vanguard Group, "In the Vanguard," p. 5.) Otherwise, your fee might be better spent on an investment in successful, tax efficient, no load index funds. There are a number of these with yearly management fees as low as .3% or less. (Of course, the decision to use a full service broker and/or to pay him or her a standard fee may have other motivations, which I do not mean to denigrate. One might, for instance, simply wish the reassurance of a trusted relationship, which very well might count for more than a precise calculation of costs vs. benefits.)
Besides index funds, a few carefully selected managed mutual funds offer records of superior returns over many years. These, particularly if they have a low total of loads and/or all fees (generally 1.5% or less a year), deserve serious consideration. Some of the best of them provide the manager a small higher fee incentive payment for beating the averages, with a reduction in his or her fee if this goal is not achieved.
In a lower overall rate of performance scenario, keeping fees or commissions small will be more important than ever and will pay large dividends over the long-term.