I think it’s like anything, if you put some effort into learning how to do it, you can handle many/most situations.
Example: I’m not an electrician but I’ve done enough over the years that I can do things like wire three-way switches or add a breaker into a panel. Some people aren’t comfortable removing a switchplate. If I ran into something I felt uncomfortable doing, I’d get a professional.
Managing your money is no different, really.
I do not but statistically the far majority of pros don’t beat the indexes. They are handicapped from the get go. If you pay 1% in fees, then they need to earn 1% more than the index.
Many large fund groups today have target funds - you say I want to retire In 2060, then they set the mix - for a tiny fee. And as you get closer, they adjust the risk level.
But for those who say, what if they are wrong - then get two companies. One may have 50% in the S&P while the other 65% with the same target date.
And even if your target fund does poorly, it’s likely to beat your adviser. If the index does bad, everyone does.
Now there are some esoteric products out there to hedge and some advisors use those.
Btw if you have an advisor, please ensure they are only buying no load funds or you could be losing 2-5% off the top that fund companies charge. More today use no load (no commission) but not all.
But as an example, if you plan to retire in 2050, it’s as easy as buying this linked.
.08% so $.80 per $1k invested. So you’re $9.20 ahead (on each thousand invested) of most advisors plus the higher fees of the funds they are likely using.
And you have someone who is managing your account - by adjusting for risk as the year’s go on. They remove risk as you get closer to the target date.
But you have an FA and that gives you comfort - and you are happy with that, so that’s great too. In the end, you need to sleep comfortably. You can’t put a value on that.
https://investor.vanguard.com/investment-products/mutual-funds/profile/vfifx
Actually, the level of knowledge and understanding to change a light switch (which I learned to do as a middle schooler) is IMO dramatically different than the knowledge and understanding needed to successfully manage ones’s portfolio, understand tax implications, etc. I am happy that this is something my DH enjoys, and he handles our finances himself, though he does have some of our $ with a FA friend, and much of other investments are housed with Schwab. But if something happened to DH I’d turn immediately to our FA friend and have to get help with the Schwab accounts as well. I know what I know, and what I don’t know. IMO experts are available for a reason. I would rather be penny wise than pound foolish.
I think I’m in good shape with my FA, thankfully. My parents were with the firm 20+ years prior to Moms passing. No commission and the fee is half of a percent, I’m sure due to my family’s long relationship with them. It’s a relationship I’m very comfortable with.
I’m a very intelligent person, but for whatever reason, I’m just out of my element when it comes to my own personal finance. We managed our own for years, with a check in from my TIAA rep every so often. In 2008, we lost half our portfolio. We knew that we couldn’t withstand that happening in retirement, so we looked around for someone to help us. We really like our FA - at first, we paid him a small quarterly fee to review our investments and help us rebalance. Since H retired, we have had him managing our assets. We told him how much money we want deposited in our bank account monthly, he determines the best way to make that happen, and his firm both withholds taxes and sends them to federal and state each month. For us, he’s a valued professional who makes our life less stressful. My MIL was excellent at managing her assets, and she did it until she was in her early 90’s (we have a trusted advisor helping her now). She saved a lot over the years doing things herself, but that’s just not something H or I feel comfortable doing.
We hired an independent financial advisor a month before we got married. We had been with her until Dec 2023 when she retired. She worked for us and managed our retirement plan. We liked her a lot and were sad when she retired. She referred us to another financial advisor. We took her suggestion. So far, So good.
We have been pleased with the service. We don’t have time, energy or enough knowledge to do it ourselves.
Our financial advisor managed our finances for 28 years before she retired. To us, it’s money well-spent.
Lawyers protect your physical freedom, financial advisors protect your financial freedom. The honest Abe quote speaks for itself.
The users over at the bogleheads forum might take offense at that.
I’m not saying it’s bad to have a FA but I’m not accepting that it’s foolish not to either. Many people are fully capable of doing their own financial planning. That shouldn’t make them be considered a “fool”.
How do you select a lawyer or financial advisor if you are not familiar with the subject?
My definition of a fool is those who lack a willingness to acknowledge the shortcomings of their own expertise. The risk of entirely managing one’s own finances is you don’t know what you don’t know, your emotions can lead to bad decisions, your time lines will often get sidetracked and your sense of risk vs reward are often skewed by personal experience vs data.
That is why having a trained confidant is worth every penny in my experience. The term “fool” was Lincoln’s and I used the quote hyperbolically. No offense.
Recommendations, informed interviews, resume review, check with regulatory bodies and ask for independent referrals are a great start. Then have a detailed discussion to understand if the FAs approach and perspective is consistent with your goals. You need to be informed and not abdicate your role but use the trained professional as a resource.
Here is the % who manage different ways, per Goldman Sachs.
Interestingly most funds will say
And here’s a chart showing that active funds aren’t beating the S&P - it’s using funds that use the S&P as its benchmark.
Research. Ask people you know. Check for discipline administered from the regulating authority. Request an introductory meeting. For an attorney, look at their areas of specialization. Do you feel comfortable with them? Are their staff members professional?
I think the decision to use or not use a financial advisor is one each person or couple needs to make.
There are plenty of folks who feel comfortable and confident handling their financial planning themselves…and that’s fine for them.
There are others who feel more comfortable having the advice of a financial planner…and that’s fine for them.
I’ll compare to Medicare…many folks just handle the choice of supplement plans, and RX plans themselves. Others use brokers. Whatever works for you is what you should do!
I’m personally a big fan of the S&P500. I don’t need anyone else to confirm that either.
Are you sure you are maximizing your long term tax position? Do you have portfolio diversity that will protect you under certain interest rate scenarios? Are you geographically over exposed to the US market via S&P? How will your portfolio perform under certain “change of life” scenarios? What is your fall back plan if you are tied up in equity indexes and simultaneously experience a market decline and health emergency? S&P has just experienced a historic two year run (everyone feels smart), what’s the most efficient way to protect those profits and ensure future growth? Are you employing a dividend plan (to maximize income) as part of your equity allocation?
I could go on. But once again you don’t know what you don’t know if you don’t have the right person to ask. To each their own, but please don’t be under the delusion that finances are one of the few areas where a novice is on equal footing with a trained and experienced professional.
But in the end, there is a “cost” to being able to sleep at night - and for some, even underperformance, gives them that peace of mind.
I never look at my 401k - I wait til the statements come in.
Others check their performance every hour or every day.
I hear from peple all the time - the market is down, I’m getting killed. They struggle emotionally with the ups and downs.
Sometimes folks like that…or folks not comfortable, need a guiding hand - and I get it.
It’s just like any other product or service - you pay for (as much or as little) as what you want. Some are paying for psychological/emotional aspects and not just $$ performance.
I found the Goldman Sachs stat interesting that most manage their own. I would have thought otherwise. I’m not sure if they had a $$ invested qualifier - i.e. someone with a million dollars is probably more likely to have a manager than someone with $10K. And in most 401Ks, which are the only investments some have, few use an advisor I’d surmise but many might use target funds. In fact, my company sets a target fund as the default option - unless you change it. So if you are 25, they might buy one 40-45 years out. So I’m not sure what their pool was - but I was surprised self manage was by far the biggest winner.
The largest brokerages have done a good job wedding the two (the Vanguard and Fidelitys) as well as other FINTECHs who now have low cost guidance (robo advisors) - done through computer programs, etc. They have you fill a questionnaire to measure your goals and then they invest - at a fraction of the cost of full serve advisors. So they take the emotion part out - but are using software - you get the same thing without paying for the “peace of mind” talking to someone.
The largest three robo advisors are Vanguard, Betterment, and Wealthfront.
I think there are enough products, services, and capacity out there for every type of customer to have their need fulfilled - whether they want to self manage, get low cost help, or get the full guidance with in person meetings and more.
The industry is like the Cheesecake Factory menu - something for everyone!!
I’ve been in the S&P for decades. The historic return is over 10%. I understand it will not always return positively. Can a FA tell me when it is going to go up and duwn in advance?
I seek help when i feel i need it. I’m pretty happy with my investing decisions regarding retirement.
A coworker that just retired was completely unhappy with his FA and his performance over a period of time when I was happy with my choices. If i need help, I’ll seek it.
For example, the SPIVA1 report noted:
yep but the big banks and fund companies don’t want you to know that.
And then you are given statements from the companies like this:
Top 10% over 1, 3, and 5 years among 594, 569, and 547 Morningstar Small Blend Funds, effectively as of 9/30/24 based on total return.
They don’t typically show vs. an index - unless they are beating the index - some do but do they beat them 2 years or 3 years or 5 years - almost universally no - as you showed - and how do you know you are getting that fund?
But - I appreciate those who have someone - it gives them comfort. It’s no different than College - some of us set budgets and others are willing to pay full with no budget.
As long as people are happy with their choice, regardless of the ROI - or in this case the ROI has to come in via non-financial items since it’s likely those with FAs are underperforming - well to each their own.
There’s nothing wrong with professional help - nothing at all - we all use it in some aspects of our lives - whether a plumber or accountant or otherwise. They all perform services we could do ourselves for less if we really wanted to.
