Most individuals who use advisors pay outrageous fees for investment management- and yet the historical evidence clearly shows that at least 8 out of 10 under-perform the market. Individuals are paying 1st class rates and sitting in coach. Some don't even know their performance. I know because I ask them. Just as important, they have no idea what Wall Street, and its many layers, are siphoning off from their asset performance --much of it deftly hidden. Fees are taken before results are reported,, and then many advisors automatically deduct their charges.
Take for example, an advisor who invests your assets in mutual funds. What kind of costs are involved? Consider the following chart from Bernstein, "The Investor's Manifesto:"
CLICK TO ENLARGE As shown, even the most basic large cap active fund has fees that average 2.2%. This is before your advisor takes his cut of 1 to 2%! Don't be surprised 20 years from now if you've severely underperformed. But then, hey, who knows? Maybe you'll get lucky and have the 1 out of 10 or 2 out 10 managers who outperform. But there is a way to get into 1st class; and it's straightforward, it doesn't take a lot of time, and, best of all, it helps you get a fix on exactly what is happening with your investable assets. On the basis of historical performance data, it puts you into 1st class. It uses a low cost, low turnover, indexed portfolio, well-diversified portfolio.
Yesterday's post reported on the version reported by BlackRock that provides long-term performance data. The year-to-date performance of the low cost, low turn-over, well-diversified portfolio was 5.47%. Again, do you know what your performance was? The cost of the portfolio is 0.22% and uses sectors of the market that Bernstein's table shows charges over 4%!
Furthermore, this week's posts showed that it is not that difficult to get solid, lost-cost performance with your investable assets. Something worth thinking about: this is an area where you can go 1st class and pay coach pricing.
If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at http://www.rwinvestmentstrategies.com. If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.