Talk to me about why we should or should not use a financial advisor

[Anonymous]

Which market are you comparing your target date fund to? It will likely trail the S&P 500, because it's designed to hedge against risk by diversifying your holdings to include some international stocks, bonds, and possibly small or mid cap stocks. The good news is that if the S&P 500 tanks, then your portfolio should do a little better. Putting everything into the S&P 500 is much riskier, because all your eggs are in one basket.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I believe the long and short of it is that people with high HHI can afford paying the 1.5% fee just because they can.

But if you know all these facts and are still on the fence, it might mean you're just not satisfied with letting that 1.5% go. In that case, why not give 50% of your investment amount to the financial planner to play with, and dump the other 50% in an index fund. Wait a year or two and you'll have a better picture

Previous poster -- that's not a bad idea. Thanks! The "not letting the 1.5" go is mainly because of boards like these - people who say you are stupid for doing this. What I don't understand is that I readily outsource lots of other parts of my life that I could do myself. If I take what the fee is that the investment place would charge on the assets -- I pay 3x that amount every year just on my housekeeping service. Of course I could clean and vacuum myself but I don't and I don't even really think twice about it. So why is it so insane to pay someone to do this part of my life too?

Because, as many people have told you, the advisor doesn't get you better results. Netting the fees they charge, not to mention the expenses of the managed funds and other investments they'll inevitably put you in to justify their existence, the annual return would have to be exceptional to beat the 3 fund strategy a PP described (and s/he even suggested the funds!). Now, some managed funds/investment do that every year. But many don't, and your advisor most likely won't guess right every year. There are reams of research that show that over time, a buy and hold strategy index fund strategy is best for casual investors (thouse without millions and millions of assets).

To continue your housecleaning analogy, it's like paying a housekeeper every 2 weeks to make your house kinda clean, instead of spending, at most, 2 hours one time (to set up the account) and then 15 minutes each year (to rebalance it) to have your house be far cleaner. You don't have to make this a second career.

I think concepts here are valid but they're not always going to be true. You have to keep that in mind as well.

Advisors may not get you better results than just indexing. For the last 8+ years, the total market has gone up, so betting on that with index funds likely would have gotten you better results that using an advisor. It certainly got better results than a good number of hedge funds and other actively manged funds. But there are some configurations of investments that would have beat out indexing over the last 8 years (although, would your advisor have thought of them? who knows), and if you look historically over past stock performance, index fund would not have been a winner every year.

The only statistic that seems to hold true is that, if you have decades where you don't need this money, invest diversely in the stock market because over long periods of time (I think it was 25+ years), the market as a whole *always* goes up. But does everyone have that kind of time? I don't know...

I also believe that once you hit a certain level of investments, putting it all into index funds is not diverse enough. If you want to minimize risk, you're going to need some other stuff as well. This is why we have some $$$ with a (good!) advisor, and other $$$ in a Vanguard index fund that I "manage". Our advisor also provides financial advice that goes beyond investments, so that's a big bonus for us as well to buy into this strategy.

Personally, we did have years over the past 8 where our investments beat what an all-in index portfolio would have looked like for us.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I believe the long and short of it is that people with high HHI can afford paying the 1.5% fee just because they can.

But if you know all these facts and are still on the fence, it might mean you're just not satisfied with letting that 1.5% go. In that case, why not give 50% of your investment amount to the financial planner to play with, and dump the other 50% in an index fund. Wait a year or two and you'll have a better picture

Previous poster -- that's not a bad idea. Thanks! The "not letting the 1.5" go is mainly because of boards like these - people who say you are stupid for doing this. What I don't understand is that I readily outsource lots of other parts of my life that I could do myself. If I take what the fee is that the investment place would charge on the assets -- I pay 3x that amount every year just on my housekeeping service. Of course I could clean and vacuum myself but I don't and I don't even really think twice about it. So why is it so insane to pay someone to do this part of my life too?

Because, as many people have told you, the advisor doesn't get you better results. Netting the fees they charge, not to mention the expenses of the managed funds and other investments they'll inevitably put you in to justify their existence, the annual return would have to be exceptional to beat the 3 fund strategy a PP described (and s/he even suggested the funds!). Now, some managed funds/investment do that every year. But many don't, and your advisor most likely won't guess right every year. There are reams of research that show that over time, a buy and hold strategy index fund strategy is best for casual investors (thouse without millions and millions of assets).

To continue your housecleaning analogy, it's like paying a housekeeper every 2 weeks to make your house kinda clean, instead of spending, at most, 2 hours one time (to set up the account) and then 15 minutes each year (to rebalance it) to have your house be far cleaner. You don't have to make this a second career.

I think concepts here are valid but they're not always going to be true. You have to keep that in mind as well.

Advisors may not get you better results than just indexing. For the last 8+ years, the total market has gone up, so betting on that with index funds likely would have gotten you better results that using an advisor. It certainly got better results than a good number of hedge funds and other actively manged funds. But there are some configurations of investments that would have beat out indexing over the last 8 years (although, would your advisor have thought of them? who knows), and if you look historically over past stock performance, index fund would not have been a winner every year.

The only statistic that seems to hold true is that, if you have decades where you don't need this money, invest diversely in the stock market because over long periods of time (I think it was 25+ years), the market as a whole *always* goes up. But does everyone have that kind of time? I don't know...

I also believe that once you hit a certain level of investments, putting it all into index funds is not diverse enough. If you want to minimize risk, you're going to need some other stuff as well. This is why we have some $$$ with a (good!) advisor, and other $$$ in a Vanguard index fund that I "manage". Our advisor also provides financial advice that goes beyond investments, so that's a big bonus for us as well to buy into this strategy.

Personally, we did have years over the past 8 where our investments beat what an all-in index portfolio would have looked like for us.

Of course (but was it after taking into account the fees?). But, the key is *some* years you beat an all index fund strategy. Others you didn't.

One can always look back and say "These managed funds did great, much better than an index fund strategy." But as you say, they're really tough to predict. And index funds aren't going to gain every year, because the market won't. That's why as you get older, diversification mixes should change.

[Anonymous]

Anonymous wrote:Any experience with Raymond James?

Huge, huge fees: https://investorjunkie.com/29127/edward-jones-review/

And I talked with one advisor there who had just switched from being a salesperson to being a financial advisor and was a complete idiot - I had to correct him and explain things to him repeatedly - AND who tried to give me a hard sell. I have no idea if that is representative of their staff, but they certainly don't have a tight screening mechanism.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Any experience with Raymond James?

Huge, huge fees: https://investorjunkie.com/29127/edward-jones-review/

And I talked with one advisor there who had just switched from being a salesperson to being a financial advisor and was a complete idiot - I had to correct him and explain things to him repeatedly - AND who tried to give me a hard sell. I have no idea if that is representative of their staff, but they certainly don't have a tight screening mechanism.

I was quoted 1%. Advisor seems very knowleagable and comes with many good references. Is independent rather than working for a big investment firm. No hard sell, either. What am I missing?
I'm not on board with fee based as that can lead to a conflict of interest.

[Anonymous]

Your review was for Edward Jones, not Raymond James....
Not the same.

[Anonymous]

Trying again:
Anyone use Raymond James Investments?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Because most of the information you need is on the Internet.

I am the 9:19 poster -- you miss my point. Of course all of the information is on the internet. But I do not have the time to figure this out when I am Billling 2500 hours a year and trying to have some sort of personal life.

9:28 poster here. When I was a BigLaw associate, I just dumped all my money in Vanguard funds, starting with Windsor II in 1992. I now work in house, work much less than 2500 billable hours (3200 total hours, I'm sure) and am happy with how my investments have performed. Save yourself some precious time and just do index funds, rather than due diligence on advisors.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I believe the long and short of it is that people with high HHI can afford paying the 1.5% fee just because they can.

But if you know all these facts and are still on the fence, it might mean you're just not satisfied with letting that 1.5% go. In that case, why not give 50% of your investment amount to the financial planner to play with, and dump the other 50% in an index fund. Wait a year or two and you'll have a better picture

Previous poster -- that's not a bad idea. Thanks! The "not letting the 1.5" go is mainly because of boards like these - people who say you are stupid for doing this. What I don't understand is that I readily outsource lots of other parts of my life that I could do myself. If I take what the fee is that the investment place would charge on the assets -- I pay 3x that amount every year just on my housekeeping service. Of course I could clean and vacuum myself but I don't and I don't even really think twice about it. So why is it so insane to pay someone to do this part of my life too?

Because, as many people have told you, the advisor doesn't get you better results. Netting the fees they charge, not to mention the expenses of the managed funds and other investments they'll inevitably put you in to justify their existence, the annual return would have to be exceptional to beat the 3 fund strategy a PP described (and s/he even suggested the funds!). Now, some managed funds/investment do that every year. But many don't, and your advisor most likely won't guess right every year. There are reams of research that show that over time, a buy and hold strategy index fund strategy is best for casual investors (thouse without millions and millions of assets).

To continue your housecleaning analogy, it's like paying a housekeeper every 2 weeks to make your house kinda clean, instead of spending, at most, 2 hours one time (to set up the account) and then 15 minutes each year (to rebalance it) to have your house be far cleaner. You don't have to make this a second career.

I think concepts here are valid but they're not always going to be true. You have to keep that in mind as well.

Advisors may not get you better results than just indexing. For the last 8+ years, the total market has gone up, so betting on that with index funds likely would have gotten you better results that using an advisor. It certainly got better results than a good number of hedge funds and other actively manged funds. But there are some configurations of investments that would have beat out indexing over the last 8 years (although, would your advisor have thought of them? who knows), and if you look historically over past stock performance, index fund would not have been a winner every year.

The only statistic that seems to hold true is that, if you have decades where you don't need this money, invest diversely in the stock market because over long periods of time (I think it was 25+ years), the market as a whole *always* goes up. But does everyone have that kind of time? I don't know...

I also believe that once you hit a certain level of investments, putting it all into index funds is not diverse enough. If you want to minimize risk, you're going to need some other stuff as well. This is why we have some $$$ with a (good!) advisor, and other $$$ in a Vanguard index fund that I "manage". Our advisor also provides financial advice that goes beyond investments, so that's a big bonus for us as well to buy into this strategy.

Personally, we did have years over the past 8 where our investments beat what an all-in index portfolio would have looked like for us.

I wonder what level of investments you think you need to hit before you need more diversity. We have over $3 million with Vanguard and we're nowhere near that level, IMO.

[Anonymous]

We use an independent advisory firm. They charge 0.85% of managed assets. They don't get commissions for pushing particular funds.

Regarding index funds, no one has talked about risk really. Basically, in investing the more risk you take, the higher the returns but also the higher the downside. For example, our adviser has us in 100/0 (equities (stocks) vs bonds) for retirement funds because we won't be drawing those for 20-30 years, but for funds we may use sooner, we're in 70/30 equities vs bonds. Then that same advisor manages a trust for an elderly relatively where I'm a trustee, and we have that in 50/50 since she may need the money for long-term care in a few years.

So if you're in all index, yes you won't have high fees, but you also face large downside if the market goes down. That's fine for long-term investing (it's cyclical) but not great if you planned to use that money 2 years from now on a home renovation and you're down 30%.

Then the "just buy 5 different Vanguard index funds" can be tricky. What if the combination of them means you're holding 20% commodities while the market in general is only 10%? That may be OK, but most people don't check across investments.

Then, let's say you want to put in another $5k. Which fund? Evenly across all?

Here's what our advisor helps us on:
- Reviews our wills and provides advice on situations like if we both die before our children turn 18. Our lawyer wanted to give it all to them right at 18, but our advisors suggested milestones age-based due to the sums involved.
- Reviews our 401k allocations from employers against our investments with them, to ensure we have proper diversification based on our risk preferences.
- Reviews insurance coverage
- Does tax-advantaged management of our portfolio, like when certain funds are down, sell them but re-buy a similar fund the next day, for tax loss harvesting purposes. No wash sale since it's a different fund.
- Reinvests dividends and new money to rebalance the portfolio.
- Helps us plan for long-term financial scenarios, like how much needed to retire and when.

Yes, we can read books to figure all this out, and we can take the time to do it. Heck, we're both MBAs and know finance.. but we'd rather spend that time with our kids and on other matters. It's worth 0.85% per year to us.

We also don't mow our own lawn, or clean our own house, or fix our own cars. We know how to do all these, but the one thing we have a fixed amount of is time, and we've chosen to allocate it to different priorities.

[Anonymous]

You don't need one.

Financial advisors are really only interesting if you have an unusually complex situation. Yours is pretty cut and dried.

[Anonymous]

Anonymous wrote:We use an independent advisory firm. They charge 0.85% of managed assets. They don't get commissions for pushing particular funds.

Regarding index funds, no one has talked about risk really. Basically, in investing the more risk you take, the higher the returns but also the higher the downside. For example, our adviser has us in 100/0 (equities (stocks) vs bonds) for retirement funds because we won't be drawing those for 20-30 years, but for funds we may use sooner, we're in 70/30 equities vs bonds. Then that same advisor manages a trust for an elderly relatively where I'm a trustee, and we have that in 50/50 since she may need the money for long-term care in a few years.

So if you're in all index, yes you won't have high fees, but you also face large downside if the market goes down. That's fine for long-term investing (it's cyclical) but not great if you planned to use that money 2 years from now on a home renovation and you're down 30%.

Then the "just buy 5 different Vanguard index funds" can be tricky. What if the combination of them means you're holding 20% commodities while the market in general is only 10%? That may be OK, but most people don't check across investments.

Then, let's say you want to put in another $5k. Which fund? Evenly across all?

Here's what our advisor helps us on:
- Reviews our wills and provides advice on situations like if we both die before our children turn 18. Our lawyer wanted to give it all to them right at 18, but our advisors suggested milestones age-based due to the sums involved.
- Reviews our 401k allocations from employers against our investments with them, to ensure we have proper diversification based on our risk preferences.
- Reviews insurance coverage
- Does tax-advantaged management of our portfolio, like when certain funds are down, sell them but re-buy a similar fund the next day, for tax loss harvesting purposes. No wash sale since it's a different fund.
- Reinvests dividends and new money to rebalance the portfolio.
- Helps us plan for long-term financial scenarios, like how much needed to retire and when.

Yes, we can read books to figure all this out, and we can take the time to do it. Heck, we're both MBAs and know finance.. but we'd rather spend that time with our kids and on other matters. It's worth 0.85% per year to us.

We also don't mow our own lawn, or clean our own house, or fix our own cars. We know how to do all these, but the one thing we have a fixed amount of is time, and we've chosen to allocate it to different priorities.

I am the poster who started this debate and this actually captures my sentiment. I would also add -- inanticipate making significant monthly deposits and I also have wondered -- do I just spread this evenly? These issues are not always as simple as people on here make them seem.

[Anonymous]

Anonymous wrote:
I am the poster who started this debate and this actually captures my sentiment. I would also add -- inanticipate making significant monthly deposits and I also have wondered -- do I just spread this evenly? These issues are not always as simple as people on here make them seem.

What our advisor seems to do (I get the trade confirmations but don't look at them too closely) is spread it to get our portfolio in balance. For example, let's take a macro case like you want to be 70% equities and 30% bonds, and you invested $100k ($70k and $30k). Now let's say the equities went down a bit so you're at $67k in equities and $30k in bonds. They'll allocate the new money to get your portfolio back in line.

That's a simple case. The more common scenario is that in your equities basket, you want to be 20% tech, 20% commodities, 10% international, etc. You're in 20 different funds, one is the S&P500, another the Russell 2000, etc. Tech is doing well, so now your portfolio across all your funds is now 25% tech... but you only know that by analyzing the holdings across all your funds, to see what stocks is in each.. for example maybe 3 of the funds hold Apple stock and 2 hold Google stock. They'll run the numbers to figure out how much $ to put into which funds to rebalance it. Of course, they're just using fancy software and you can work this out on your own with many hours of work and Excel... but I just don't have that time.

[Anonymous]

Anonymous wrote:

Anonymous wrote:
I am the poster who started this debate and this actually captures my sentiment. I would also add -- inanticipate making significant monthly deposits and I also have wondered -- do I just spread this evenly? These issues are not always as simple as people on here make them seem.

What our advisor seems to do (I get the trade confirmations but don't look at them too closely) is spread it to get our portfolio in balance. For example, let's take a macro case like you want to be 70% equities and 30% bonds, and you invested $100k ($70k and $30k). Now let's say the equities went down a bit so you're at $67k in equities and $30k in bonds. They'll allocate the new money to get your portfolio back in line.

That's a simple case. The more common scenario is that in your equities basket, you want to be 20% tech, 20% commodities, 10% international, etc. You're in 20 different funds, one is the S&P500, another the Russell 2000, etc. Tech is doing well, so now your portfolio across all your funds is now 25% tech... but you only know that by analyzing the holdings across all your funds, to see what stocks is in each.. for example maybe 3 of the funds hold Apple stock and 2 hold Google stock. They'll run the numbers to figure out how much $ to put into which funds to rebalance it. Of course, they're just using fancy software and you can work this out on your own with many hours of work and Excel... but I just don't have that time.

do you realize that target date funds do the rebalancing for you? automatically.

https://investor.vanguard.com/mutual-funds/target-retirement/#/

[Anonymous]

Invest in an index fund. They outperform FA's by a long shot.