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

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]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 [/quote]

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?
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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.  [/quote]

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.

[b]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.[/b]  
[/quote]

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.  [/quote]

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