The death of 1%+ management fees!
 

Many investors don't realize it but your advisor/broker/bank has been overcharging you for years! In the past 7 years, fees have dramatically declined and most advisors have not reduced the fees for their clients. They know there is a risk that you may fire them and leave, but they are willing to take that risk because most investors don't ask the tough questions or do the math.

I encourage everyone who uses an advisor to request a total fee summary from your advisor for the last 2 years (longer if possible). You will be shocked.

What is the total cost of your portfolio?

Mutual fund and ETF expense ratios range from .05% to 1.5% per year.

Advisor fees range from .5% to 1.5% per year.

On a $1M portfolio, some investors pay total fees of $15k to $25k per year! Your advisor may have many social outings in TV (golf, wine, dinner, polo) but guess who is paying for these outings! YOU are!

So, if the "going rate" for investment management is .25% to .5%, what else are you paying for? Are you a high maintenance client? What can you do to get lower fees? Can you find a "fee only" advisor who is low cost?

Net of all fees, most investors would be better off just indexing (as long as you have discipline and a solid approach). In fact, have your advisor compare your performance (net of all fees) to the appropriate Vanguard LifeStrategy Fund.

*** If your advisor does not report your performance net of all fees, you should fire your advisor! They should also compare your performance to some sort of index fund strategy.

The Vanguard LifeStrategy funds offer global diversification for .14% per year. You can also build something similar with Schwab, TD or Fidelity.

Vanguard LifeStrategy Funds | Vanguard

Why do you think that so many people in TV overpay for financial services? Any thoughts?

Good luck to all. Also, FYI on the below.

The Investment Education Club will meet Thursday July 13th at 3 pm in the Daytona Beach Room, Sea Breeze Recreation Center. All residents and their guests are welcome.

Does your mutual fund manager provide returns above the fund's benchmark? If so, is that due to the manager's skill? We will explore that subject with the presentation "Seeking Alpha - Evaluating Mutual Fund Manager Performance." This presentation should be of interest to anyone currently owning or considering owning a fund.

John Bogle, the founder of Vanguard, has literally written books about this. Right now I am reading his book "Enough". On Wall Street it is never enough! lol

Are you an nvestnent advisor or similar occupation? In other words, do you have anything to gain with your post?

excellent advice. I finally took mine back completely because of everything you stated.

Nothing to gain and not selling anything. I guess I can disclose that I do own Vanguard funds, Vanguard ETF's, iShares ETF's and Schwab ETF's and had some industry experience in a past life. If everyone goes into these low cost funds I guess I could benefit from lower expense ratios. I think it is funny to question someone who recommends avoiding high fees, indexing and cutting out the middle men to protect your life savings. There are soooooo many advisors, brokers and insurance agents in TV selling all sorts of junk at free lunches. Good luck.

It's good info for people to consider.

For some, it's worth paying 1% (even thou, it's expensive and the fees really accumulate over time) so they "don't have to worry about it, or they don't have the basic knowledge to invest.

Thanks for sharing.

When we interviewed financial advisors, we always asked what is in it for them. Why would I not ask a stranger who is using a pen name?

There is more to it than the amount of fees. If my person changes 1%, but I get 8% gain after all fees and costs and you have no fees but only get 4%, then who wins?

When you ask your financial advisor for all fee's, most will respond why it's only X% of your invested amount. WRONG. If they are charging you lets say 1%, than the total will be significantly more. There are fee's for every purchase and sale and trade they make, there are loads on most everything they buy, there are kick backs from many of the products they use, and on and on. And all that is over and above their annual fee. For a 1% advisor, it is usually at a minimum 200% more or a total of about 3%. Most will never show you the true cost to you.

Index funds will almost always beat every portfolio manager out there. And if any advisor does beat index funds than they are taking significantly more risk with your money. And the return is not sustainable.

I have been using index funds for over 30 years. During those 30 years which include a couple of market crashes, my 30 year average is 8.2% total return annually after expenses. (I do use a small cap value tilt which does improve returns) My expenses using Morningstar Radar is .011% a year. I use Vanguard with a little bit in Schwab and Fidelity.

I will be happy to teach anyone how to do this for free. And I get nothing in return other than the satisfaction of seeing some advisor lose a client.

The OP is offering an investment club approach to help teach you sound investment strategy. I don't know him/her and have never even talked to any of the clubs members. I think I should attend a meeting and get to know them. Never hurts to keep learning.

Last 30 years, the S&P is up 9.99%.

And if I was in 100% stocks during that time, so would I. It's all about managing risk. So you set up a balance between stocks and bonds and maintain that balance.

Most people with 100% stocks would have bailed during any big market down turn. So they would have bought high and sold low. A disaster. Go stay in 100% S&P. And I will always beat you. Because you will never be able to stay when your portfolio drops 50% in value. Which the S&P has done.

Not trying to pick on you, but that is really a statement that an advisor might make to you to show you how they could do better. It is really a completely wrong idea.

No pick taken...........just threw out a historical number.

:wave:

Thanks for the invite
 

I hope you will not be overwhelmed.

I'm sure we will all learn something.

It seems like this thread has gotten a little contentious. I was just trying to help. A lot of people in TV just pay 1%+ for financial advice (2% to 3% total fees) because they think it is normal.... it is not and it is very expensive. Some people are ok with very expensive and some are not. I encourage your to not kid yourself about the data. Do the research yourself, do the math over a 3 or 5 year period (Does your advisor even show performance net of fees? If not, this is a huge red flag). Picking expensive mutual funds with high fees and picking individual stocks are less than optimal strategies. Math does not lie.

I am not affiliated with the investment education club. I have been to a couple meetings and they have some good content / education. They are going to specifically talk about mutual fund alpha. Alpha is the skill of the manager to beat their benchmark. The short answer is that most mutual funds do not have enough skill to cover their fees (thus, they fail to beat their index). All the marketing materials and Morningstar rankings don't mean anything. Low fees are the best predictor of success.

Some investors falsely believe the following:
This doesn't happen. In most cases (90%+), if you properly benchmark the portfolio by asset class, there will be ZERO outperformance before advisor fee. The evidence is overwhelming! Most investors don't do the math and most advisors won't show you the data. If you have a 60/40 bonds portfolio with a 1%+ advisor fee, it is very hard to beat a 60/40 mix of index funds (matched to the same asset classes).

You can read some books from Jack Bogle or Larry Swedroe to prove the points. See below from the SPIVA US scorecard December 2016. https://us.spindices.com/documents/s...r-end-2016.pdf

Hey paperclip, I appreciate what you are trying to do here. I have been trying to stay out of this thread because I could go on and on with my thoughts about why people do what they do when it comes to turning over investment decisions.

Some of the smartest people I know think they can't do their own investing. Granted, there are some who just don't want to. But for others, I think it is a response to the expertise of the financial industry -- expertise not so much in investment decisions -- but expertise in tapping into human nature, psychology.

One of the most interesting books I know is Vance Packard's "The Hidden Persuaders." The book is 60 years old. I was just a kid when it was published, but I found it somewhere along the way. It's about advertising and how the psychology of selling taps into the consumers' innermost hopes, dreams......and fears.

Selling is more about working the psychology of the consumer than it is about the product itself.

I've enjoyed reading your posts
 

I totally agree that you should never stop learning. Truth the more I learn the more I discover I do not know.

As to investment advice. If, asked I always make it clear that this is what I am doing and why I am doing that.

Reason-if someone follows your advice they will tell the world how smart THEY ARE. If, they follow your advice and loose money they will tell the world how dumb you are.