Should you buy a portfolio of
individual stocks recommended by the most-respected minds on Wall Street? Or
should you buy a diversified portfolio of stocks that you can get in an UNmanaged, low-cost index mutual fund? One year ago today, a business channel
ran a story about the top individual stock picks recommended by some major
investment banks. When you look at the performance of these recommended stocks,
it has to be compared to the overall stock market and what you could have
earned if you simply bought all stocks instead of just one recommended stock.
The US stock market is up around 20% over the last year. So how did these #1
recommended stocks do? One giant
investment bank chose Northrop Grumman as their top pick and this stock is DOWN
12% in one year. A different giant investment bank chose Bank of America as their
top pick and this stock is up only 6% over the last year, 14% less than the
U.S. market overall. These major investment firms try to create an aura
of knowledge to convince you to pay them 1% of your portfolio per year to have
them manage your money. But you won’t hear them a year later tell you that an unmanaged
index fund would have been a better investment. Some level of stock ownership
is right for most people if you have a long-term horizon and even people on the
verge of retirement have 30 more years of life to plan for. Hiring an
investment professional to help you create the right portfolio for you and
create a long-term plan can be very beneficial but you don’t have to pay tens
of thousands of dollars per year for false promises of superior performance
when many advisers charge a flat fee or by the hour. (Past
performance may not be an indicator of what to expect in the future and your
individual circumstances should be considered in any investment decision.)
Larry Pike, CFA
Client Priority Financial Advisors LLC
www.clientpriority.com
Hourly, Fee-Only Financial Planning and Advice.
No Commissions. No automatic, annual fees.
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