“My financial advisor made me money so I don’t mind the fees I
paid.” But did she make you as much as she
should have? If not, that $5,000 fee you
paid on a $500k retirement account doesn’t seem like a good investment. A simple balanced portfolio of low-cost
Vanguard funds returned over 17% in 2017.
So if you made 15% for example last year then you paid a $5,000 fee to lose
$10,000 relative to what you should have made.
Don’t be fooled by advisors who tell you that you had a great year and
made 10%. Of course the right portfolio is different for each person and
someone requiring a lower-risk portfolio would have earned less but the return
above is what many 50-something couples should have earned in 2017. (This hypothetical starting portfolio is 50%
US stocks/20% international stocks/25% bonds/5% REITs.) The Vanguard Target Retirement 2035 Fund did
even better with a 19% return. The
bottom line: If you’re paying high fees, make sure you are getting your money’s
worth. And ask me how sensible advice from
an hourly, fee-based advisor may provide you with a different option.
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com
You can't be the best all the time, though. I wouldn't argue with my advisor over a small loss, as many circumstances affect that. I used to be "all or nothing" type of person, but Linda taught me to be a little bit more easy-going when it comes to small losses in one particular year.
ReplyDeleteLosses are fine. They are part of the volatility of the markets. But many of my clients tell me how their former adviser boasted of their positive 7%, or 9%, or whatever, performance in a year when the client should have done much better. The advisor knows that many clients don't know the difference and would be happy to hear that they made money. Too bad the client doesn't realize they should have made thousands more. So losing money is part of the game in investing, but when you trail the market, those are unnecessary losses. Low-cost index funds let you match the market (minus a tiny fee) and never trail it. High-cost advisors more often than not trail the market and this can cost clients a far larger amount of money than you might guess. Thanks for the comment. - LP
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