Well the whole theory was to do better by investing in things that might beat the market. I haven’t seen a synopsis of how that’s been going for these funds but i suppose you are saying that this effect is not better than the market as a whole, at least at the consumer level. I’m going to check out this Bogle stuff.
All three of those (growth stocks, small caps, emerging markets) are available in Vanguard index funds, with the typically low Vanguard expense ratio. It’s not necessarily the case that they’re managed funds.
These answers have been superb. Thanks everyone.
Here’s a question: What are the main questions, stats, numbers etc. that you should use to compare brokerages?
I’m a long-term investor. Fees are just part of doing business. They have to make a living too, and chasing to get low or no fees is really foolish in my opinion. What you really care about is the “net” return. It is like shopping for interest rates you use APR to compare them. I recommend going with the large big name brokerage houses who has the resources, and stay away from the locally owned brokerage house no one has heard of.
What you should do is call the branch or regional manager for a couple of the big brokerage houses. Tell them how much your portfolio is worth, and what your net worth is, and ask them to recommend one or two financial advisors you can meet with to determine if you want to move your accounts there. Talk with each of them on the phone first, ask what you should bring to the meeting or what they want ahead of time. They might ask you for the last statement from each of your accounts, for example.
When you meet with all of them, and this costs you nothing to do, you ask questions. If someone tells you something you don’t understand, ask them to explain it. If anyone at all pressures you to sign something now or make a choice now, then drop them from consideration. What is most important is that you have to feel comfortable with this person, because you will be talking with them on the phone usually quarterly until things are set up.
What you have to ask yourself is, do you feel comfortable talking to this person and asking them questions. Remember, you are interviewing them. Ask them how long they have been in business doing this, and what on average the kind of net returns they have gotten for their clients.
I know this is going to upset some people who are telling you to go without a broker and just do things yourself, but a real professional financial advisor is going to do a much better job, save you time, and give you less risk and a larger net return than anything you can do on your own. I know plenty of people who do their own investing and like gamblers they always talking about their “winnings” and never talk about the mistakes they made.
I hope this advice is useful to you.
Except that the advisers who cost nothing usually work on commission. The best, least biased advice might come from an adviser whom you actually pay for the advice (i.e., a “fee only financial planner”.
+1
Delighted to have your perspective on this.
in 2014 there were 285,000 registered financial advisors in the US (Cite). If each one were simply subject to random variation, and had a fifty/fifty chance of beating or losing against the market, there would have been 9,000 of them who had beaten the market 5 years in a row. There were more than a thousand who beat the market 8 years in a row. There is no evidence that a string of past successful years will be followed by another one, the “hot hand” theory has been thoroughly debunked.
Every office will have one advisor or another that will be able to point to a series of positive years, and a series of suckers who fall for it. I’ve currently got a 4-fund portfolio, 40% US stocks (VTSAX) , 20% international stocks, (VTIAX), 30% Bonds (VBTLX), and 10% REITs (VGSLX). My fees for this portfolio are 0.065%, less than a tenth of what the average investor pays, and I meet the market every year, while those with advisors do not, especially when you deduct the thousands of dollars extra fees they pay. My rate of return over the last 28 years has been 10.9%. Not all with that exact portfolio, but an approximation most of the time.
An advisor can help with social security strategies and long term care insurance concerns, but for stock picking, buy the indices. Don’t let one manage your portfolio.
Cite?
Here are some contrary views:
Even top-rated active funds underperform
99% of actively managed US funds underperform
I’d agree that meeting with a fee-only financial planner to create a long-term plan is a good idea, but pay a manager for a investment plan that will be on autopilot? I’d just as soon buy a whole life insurance policy.
A couple of websites I’d look at for investment advice:
Both focus on the fundamentals of buying broad index funds, watching costs, and resisting emotional responses to the market.
+1. I don’t know if edwardcoast meant that a broker was likely to increase your returns over indexing. If so that’s not ‘upsetting’ it’s just not correct. All the active managers together, including people trading on their own must get the same return as the index. That’s a mathematical identity not a theory. But brokers charge more than index funds, or on top of index funds they have clients trade in and out of. So after expenses active investors must get less on average than index investors.
You can only get more return with a broker/active manager than indexing if you choose a better than average one. But how do you know who is better than average? As others have stated, the stats show that overperformance is not consistent enough over time to determine this from past performance.
However reading the pro-professional advice position more broadly, it does have merit in other respects:
- A professional can help with basic set up, say in this case consolidating several inherited IRA’s into one.
- A professional can help you deal with tax and other govt rules, Social Security as you said, estate planning, etc.
- A professional can help you understand your own risk tolerance to make the most appropriate decision about asset allocation in terms of risk, not which investment ‘is going to make the most’ (they can help educate you to begin with how that’s not the right question).
By and large reading lots of threads on ‘Bogleheads’ forum is a good free education. Though as you’ll see if you do, even once everyone agrees indexing with low cost funds is the way to go, there’s is no single answer to ‘how much of my assets should be in safer v riskier?’. A flaw of that forum community IMO is too many people too gung ho on stocks. The ‘Boglehead Philosophy’ leaves that question open to each individual, but that forum community tends to be perma-bullish on higher allocations to stocks than make sense for many people IMO.
Starting from a very basic level, a pro adviser might add value to help a person better understand their own risk tolerance and set that risky % appropriately…to where they don’t panic and bail out at the bottom of some future stock market downturn, then be afraid to get back in till it’s gone way back up, as millions of people did between 2008/9 and more recently.
So again I agree. A professional fee only planner to help set things up and choose a risk allocation a person is more likely to be able to stick with, for less experienced investors: yes. An ongoing active manager type broker: no.
There’s really no simple answer to the percentage in stocks question. That whole 100 minus your age in stocks is too simplistic. Clearly the more you have the more risk you can afford to face, if you have enough in cash and bonds to last more than ten years you have enough to outlast any foreseeable downturn and you can put all the rest in stocks, whether that’s 10% or 90% it doesn’t matter. The one thing I fear is having to sell stocks into a depressed market, so I keep enough cash and bonds to not have to sell any stocks unless I want to.
I will underline what Corry El and Bill Door have said.
It may make sense to consult a financial advisor/planner, fee-only - i.e. you pay him a direct and explicit amount so that he has no incentive to sell you products that give him a commission kickback. But you do not want him to “manage” your portfolio in any active way. If he had the skills to make money consistently beating the market, he would not be working as a financial planner, he would be earning far more working at a hedge fund. Pay for a one-off review of your financial situation, and if you feel you need it maybe do the same again every five years or so, but do not get sucked into paying for ongoing “management” of your investments.
The sensible role of a financial planner is to understand the purpose of your investments - what your life plans are, when you will need the money, your personal tolerance for trying to achieve better long-term returns, and better long-term protection against inflation, when the trade-off is higher short-term risk. This will lead to a basic decision on what proportion of your investments you want to put into stocks. When this decision has been made, you can easily learn to execute and manage the investments yourself using a few low-cost broad index funds or ETFs. Even if you want to include a portion in international markets, you can achieve a balanced stock-bond portfolio with only 4 or 5 ETFs that you buy and hold forever. Paying somebody a fee to “manage” this on an ongoing basis really is a waste of money and will eat into your returns over time.
The other big area where your advisor can help you is tax efficiency. But, again, this is not something that usually requires active ongoing management. It’s a question of making sure that you’re taking best advantage of retirement accounts, that you have a sensible estate plan, etc. It’s something that you want thorough advice on to set everything up correctly, and then perhaps a review every few years if something significant changes in your life.
How old are you?
Some workplaces have a benefit where you can get a few sessions with a financial planner. That may be a way to talk to an independent person for free.
What are the common competitive rates for handling a portfolio over 500,000?
What are the variables?
Vanguard will partner you with an advisor for 0.3% of the amount under management. On half a million that works out to be only $1,500 a year. It’s the best deal in the industry. but you do consults by video and telephone, as far as I know there are no office meetings. There are newer, web based outfits like Personal Capital who charge 0.89% for the first $100,000 sliding down to 0.49% when it reaches the $1,000,000 mark. Again, I don’t think Personal Capital does face to face.
Edward Jones has a Guided Solutions Flex account plan that will charge you 1.35% for the first $250,000 and 1.30% for the second $250,000. For that you do get face to face, handshakes and coffee with your advisor and schmoozing. You’ll have to decide for yourself whether it’s worth $6,000 a year.
Remember, those account management fees are over and above the fees charged by the individual investment vehicles you choose, so if Edward Jones puts you in an annuity with a 2% fee, you’ll pay that first, then give Edward Jones their 1.35%, and from what I know about Edward Jones, they love annuities with fees. Somebody’s got to pay for the coffee. I hope I haven’t stepped on Jonathan Chance’s toes, he works for one of these firms.
Then there are robo-investment outfits, some even cheaper than Vanguard, but no human advisor, just algorithms. NerdWallet reviewed a bunch of them last spring and did a way better job describing them than I would.
Fidelity seems to have no charges along those lines. I’m waiting for a phone call back from them.
Lots of good advice given.
The fact of the matter is NO ONE cares as much about your money as you do. So the best course of action is to become an educated investor. Then you can choose the level of risk you are comfortable with.
While it might be boring or something you are ok with handing over to someone else, in reality, it is your money, it should be interesting to you.
It is not rocket science.
I met with a guy to invest some money that was left to our daughter when my wife’s dad died. We wanted to invest it for college. He wanted to put it in all this managed stuff and diversify, etc. In reality, I am good with leaving it in as long as necessary. As long as over time it will be up, she can do student loans or we can pay or whatever. I went with a basic index fund of stocks (SP 500) my estimation is if the entire SP 500 is down dramatically, we are probably all screwed short term. If that is the case, I will wait it out.
I am not going to buy and sell and all that with any of my investments. My personal investment with my company 401k is in 3 different indexed mutual funds. All three are the highest returns on the 1 yr, 3 yr, 5 yr and 10 yr, so I feel pretty good that keeping them over the long haul is the way to go. I cannot pull money for several years anyway (I am 47). The investment company suggests are less risky mix, but again, in my estimation, giving up gains for lower risk, to hopefully lose less in a downturn is not what I want to do at this point.
My wife and I will have a guaranteed pension upon retirement, I will have an amount of company stock, I will not have to liquidate the 401k until we are ready.
But that is MY level of risk, I also ride a motorcycle in Atlanta traffic, so I know I might never get to retirement. 
Again, no one is as interested in how my money does than I am. So I have to educate myself and decide what is right for me (and yes me includes my wife).
As NBC says “The more you know.”
Good job on working to educate yourself.
I noticed Bank of America/Merrill Lynch became a lot nicer to me once I got about $100k in my investment account.
Turns out I just Googled it, and they have a slider right there on their website that tells you how nice they’ll be based on how much you have invested: https://info.bankofamerica.com/preferred-rewards/#benefits
Presumably the >$250,000 category is a “don’t call us, we’ll call you” type of benefits program.
People on this board love Vanguard - here’s a piece they did on the value of an advisor.
How do you work your advisor relationship? How often do you talk? How often do you need their guidance?
Fidelity seems to have more options for not having all your money under “management.”
Also I think there are vehicles for investment that don’t need to be calibrated by a person. It’s built into the fund that it changes over time for balance.