Friday, December 15, 2023

Being Smart with $$ - Don't Pay for False Promises of Stock Picking Ability

 


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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