You should learn to manage your own investments. Too much can go wrong hiring an advisor.
Naturally for someone who Accidentally Retired, I earned and saved enough money in large chunks to find myself in this position.
But it wasn’t easy along the way. I ran a startup and it was a grind. I can’t tell you how many vacation days were interrupted to handle this issue or that, or how easily fires started that needed putting out.
After years of hard work and grinding, we ended up selling our business, with all of the partners staying on to work for the new ownership group.
We didn’t end up making a ton of money, but it was still more than we’d ever had by far. So we did what we thought was best at the time, my wife and I went out and hired a Financial Advisor.
This Advisor was recommended to me by a family member, who had done quite well and was extremely picky, so I felt if this person liked the job the Advisor was doing, this was the right person for my wife and I to trust with our money.
We invested 95% of the money that we had made with our new Financial Advisor, and kept the rest in savings.
We put the money out of sight and out of mind. Both my wife and I simply ignored it’s existence, and we let the money continue to be invested and compound.
And this ended up being a great way to really become wealthy over time, is simply invest and forget it.
Except there was one major problem.
You could be invested too conservatively.
We paid so little attention to our money and ignored it’s existence, that we also failed to realize that we weren’t properly allocated.
Not being properly allocated, cost us hundreds of thousands, of dollars, because we were invested as two eighty year old retirees should be invested, NOT two folks in their thirties.
The silver lining was that we were at least invested, but we missed out on a huge bull run, and estimate that we likely missed out on a 50% increase in our net worth, had we simply invested a bit more aggressively.
This was a huge mistake in that we paid so little attention we had no idea what we were actually invested in. Our allocations were misaligned with our goals.
You are paying higher fees than you think
We made a big mistake in that we paid so little attention we had no idea what we were even invested in. No idea. I mean NO IDEA.
But we were not only invested in mutual funds that had high fees and high expense ratios, but we were also paying fees to the Financial Advisor as well.
We knew we were paying fees, but I don’t think we really comprehend how much.
It turns out, it was greater than 1.2% per year.
But it was hidden, because the mutual fund fees were NOT SHOWN on the monthly statement. So we had wrongly assumed we were actually getting a “Family Discount” and our fees were more around 0.6%.
We were wrong.
And the worst part of this is that, fees compound over time. So for the many years we were using this Financial Advisor, we were paying higher fees, and we were losing the benefits of compounding returns by over 1.2%. For more, check out how investment fees over time could cost you millions.
You may not be able to move funds without selling them first and taking capital gains
This is something I would have never thought about that, but portability of those investments matter.
Being able to say “I want to change advisors and move to a different firm” AND being able to actually move those funds, matters so much.
Why?! Because not having portable investments will force you to sell your assets and take capital gains when you least want to.
In our case, we had a huge amount of money tied up in proprietary funds that could not be moved anywhere else. So we were forced into either selling and taking capital gains, OR holding them at the current brokerage until such time it made sense to sell.
Unfortunately for us, we had to do a combination of both. In fact, even after moving 90% of our money, we now still have 10% hung up in proprietary investments that will take another year to sell off.
You need to be more involved with our own investments
Clearly the worst offender of all when dealing with a Financial Advisor, was myself.
Our strategy to invest in the long-term and forget about the money worked, but we made the mistake of not paying attention to the right things when we chose to work with an Advisor.
It is now time for you to fire your Financial Advisor and learn to pick your own investments
So after reading to this point, I hope you realize that you should fire your Financial Advisor right now!
As JL Collins puts it:
If you are a novice investor you have two choices:
You can learn to pick an advisor.
You can learn to pick your investmentsJL Collins
And I agree. The best way to work with a Financial Advisor in my opinion, is simply don’t pick one, and focus on learning to pick investments.
Picking investments can be really simple now with low-cost index funds and ETFs.
Yes there are a lot of choices, but once you get brushed up on it, it turns out that it is much better to invest in the entire market (an Index fund), than stock or fund picking.
The best resource for this, that I can recommend is The Little Book of Common Sense Investing by John C. Bogle, the Founder and former Chairman of the Vanguard Group. It is short, and it is brilliant. A must read, before making any decision to invest, period.
When does it make sense to work with a Financial Advisor?
But, if you really must work with a Financial Advisor, then I recommend the following:
- Make sure you are not paying more than 0.5% (this is advice straight from Mr. Bogle).
- Make sure you are using a fiduciary.
- Know what your money is being invested in. Is it in stocks or funds, or ETFs or some combination?
- Ensure that no matter what you are invested in, that you can move it elsewhere for no fees and no portability issues.
- Make sure that you have the right allocation for your age. You can get an understanding of this, by looking at target date funds for your projected retirement date and ensuring that your allocations are similar.
- Sign up for Personal Capital and/or track your investments yourself periodically. You can ignore your money like us, you can be detached from it, but at least ensure that you check on it every now and again.
I can also say after having done a thorough search for a replacement Financial Advisor, that Vanguard’s Personal Advisor Services meets the above spec. There are plenty of robo advisor services popping up, but if you want to work with an actual person, and only pay a small fee of 0.3%, then Vanguard is likely a good fit.
I am sure I could go on here for days, but I won’t.
Do you have any further suggestions or things that I missed? Let me know.