I’m 59 years old and plan to retire in 13 months at age 60. I have always used a financial advisor. The people I’ve used have spread my money around so if the market goes up I go up just enough to make it look like I’m doing okay and if it goes down, it doesn’t go down as much as the market does. My desk tolerance has always been moderate to aggressive. Now that retirement is setting in, I’m looking a little harder at what they have done in the past. It seems that I could just as easily have taken my asset allocation wheel and picked funds, bonds, stocks, just like them and done just as well, or better.
The simple answer is that you shouldn’t. First, you can probably do better than the 1% asset management fee. Second, if you have the emotional strength to remain disciplined and rebalance when necessary, then you may not need an advisor. Educated, disciplined, and do-it-yourself investors can construct efficient portfolios using low-cost index funds. Vanguard is a great option. Consider starting with a simple three-fund portfolio of Vanguard Total Stock Market Index Fund, Vanguard Total International Stock Market Index Fund, and Vanguard Total Bond Market Index Fund. With this portfolio you’ll end up doing better then most of your peers (and better than most active advisors) over the long term.
If you do work with an advisor, or even if you invest on your own, don’t fall for speculation nonsense, they are just cost-generating gimmicks. The idea that professionals know what the market is going to do tomorrow based on this, that, or the other is for your benefit so that you feel like you are getting your money’s worth. There have been more than 4 decades of data that show that speculation is a myth (market guru grades; investment bank grades). In fact over the long-term it ends up being detrimental to your returns, although quite profitable for your advisor. Don’t pay for supposed skill.
Finally, if you do need comprehensive financial planning on top of investment management advice, you’ll end up paying more. Most CFPs that I know and work with charge extra for financial planning. Many are moving to a flat-fee monthly container model inclusive of all services, including AUM. If you only need investment management, look for a fiduciary, fee-only advisor; they must work in your best interest, which also includes minimizing costs. Good luck.
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