Slowly Sipping Coffee

Is investing on your own that scary?

Something funny started happening a few weeks ago – first with a close friend, then again with numerous colleagues… I have been having more and more conversations about financial advisors and investments. Now, you may think this shouldn’t be so funny, I mean, I do blog about personal finance (well, sometimes). But, if you had told Mr. SSC from five years ago that he would be having multiple conversations about finance where he was considered the ‘expert’ of the group – well, younger Mr. SSC would’ve thought you were drunk.

Let me give you some background, first and foremost mentioning that I am NOT a financial advisor. I had very little good financial sense prior to meeting Mrs. SSC, but since meeting her, I’ve read a lot about investing, different strategies, different funds, and educated myself to the point that I held my own, by myself, in a financial advisors office. Yep, I was really nervous going in and came out thinking, OMG, there’s no way we’re investing with them, followed by – holy cow, I really did learn a lot reading all those finance blogs, and articles and forum discussions! Thanks guys! Anyway – back to my story about my recent conversations…

These conversations usually trend along the lines of:

Friend: “Oh, I’ve got a financial advisor.”

Me: “Nice! Do you mind if I ask how much they charge?”

Friend: “Um, I’m not sure, I think a flat fee. It’s pretty low though, and it’s set up to not go above a certain amount.”

Me: “Cool, how low is low, what’s the ceiling on it?”

Friend: “Um, I don’t know offhand, but it’s worth it. I don’t know about investing. They handle all that for me.”

Me: “So, what are you invested in? Do you know if you have low expense ratios or trading costs if you’re in mutual funds?”

Friend: “Ummmm… I’m not sure because they handle all that, but that’s their job, so I’m not worried. They come by the house twice a year and go over our report. (pause…) What are expense ratios and trading costs?”

Me: “Let me show you.”

To date, I haven’t talked to anyone that has a financial advisor and also knows what funds they are invested in, how much they’re paying their advisor, and especially not their Index Funds Operating Expense Ratio (OER), or mutual fund trading costs. First let’s discuss “What are OER’s?” Essentially, they’re the costs associated with investing in certain Index Funds and they reflect what it costs to own that fund. It is effectively the “overhead” that is needed to keep that fund running. Some have high overhead costs, and some have really low overhead costs. By choosing the right fund for your portfolio strategy and risk tolerance, you can manage to keep these costs quite low.

A sanpshot showing different OER's for different funds

A sanpshot showing different OER’s for different funds

The same is true with Mutual fund trading costs. If you get sold an actively managed mutual fund, it will probably come along with high trading costs because it takes a lot of overhead to keep people watching the funds and actively trading them around, hopefully to get you more money in your return right? Except that your return is now getting eaten into by the higher trading costs, so it has to do that much better to make money. Generally, you can find mutual funds with lower trading costs that will perform as well or better than higher cost mutual funds.

“But wait!” you say, “my advisor says that by investing with them, I have access to better accounts than you can find as average Joe Investor.” To that I say yes and no. Yes, they have larger sums of money to play with, and these come from you, and all their other clients. These would allow them to buy into different funds that may not be available to me, because I don’t have those large buy in sums available. Oh, and I’m also not a business. Yep, some funds are only traded to business like the ones that employ your financial advisor. (Sad Trombone music – bwaa bwaa bwaa bwaaaa…)

However, this doesn’t necessarily mean that they are better. Getting back to my visit with a financial advisor he showed me how much more his company could potentially make on my current investment portfolio. He showed me the funds they can invest in that I can’t, the historical returns on those, and how they beat or match our current funds’ performance, and how overall, his company should be able to deliver potentially 4-6% better than the historical performance of our current funds. That sounds awesome, right?! Hell yeah it does!

So did I invest with them? Um, No… This is because, behind all of that extra return over what our potential current investments could make was a fee, and higher expense and trading ratios that ate up the other 4-6% “profit” that they could “improve” our portfolio by. In essence, it was a wash, except I wouldn’t have much control over my money, investments, etc… No thanks, I’m good where I am.

For instance, our portfolio had an Index Fund OER of 0.11%, until Mrs. SSC was using a Personal Capital comaprison tool and realized that Vanguard offered essentially the same mix of funds, but with 0.09% OER’s. A simple clickety-click of the mouse, and we she swapped those funds over. The same with some mutual funds that had a little higher trading cost. Mrs. SSC found some that were a little lower, but essentially the same mix of funds, and she lowered our costs. However, the financial advisor I met with recommended a plan with 0.33% OER which is 0.24% higher! This also came with mutual funds that would jump our trading costs up from 0.11% to 0.34%. Of course, this makes perfect sense!  (Side note, it really doesn’t, not in my mind at least.)

Ths was their recommendation - I'm serious as can be...

Ths was their recommendation – I’m serious as can be…

Their recommendation for our current mutual funds. Yes, increase our trading costs, please!!

Their recommendation for our current mutual funds. Yes, increase our trading costs, please!!

Going from $90/$100,000 in investments to $330/$100,000 is HUGE. It would mean that if our accounts were at, let’s say $500k, then we’d be paying over $1600/yr just in expense fees alone, or over 3x what we currently pay. Let’s say this stays constant for 20 years, that’s $33k we lost out on through expense fees… not even including any potential returns we could’ve made if that money had been invested. That’s a lot of money! Put his advising fee on there for 20 years, and that’s over $60k just to have someone “manage our money” for us. That’s a WHOLE YEAR of our FFLC budget just gone. Yeah, one whole year of living expenses lost to fees. That’s not even accounting for the mutual funds increased costs. Ridiculous

That would still work out better than the Elephant Eater’s posts detailing their financial advisor situation. Mr. PIE had a similar experience. All I can say is Yeesh! Things can always be worse.

After explaining all of this to my friends and colleagues, most responses were inquisitive and wanted to learn more. Their situation was, “But, my family doesn’t have a “Mrs. SSC” and investing seems difficult. I don’t want to mess up and lose money.” That led me to forwarding a great post from Afford Anything about investing for people scared of investing. It’s a great article talking about how best to invest and explains the strategies well. Everyone I forwarded it to has gotten something out of it, and I’d really recommend reading it if you’re at all curious about more of this stuff. (Funny side note, I forwarded it to my old boss, and somehow he thought I wrote it. He recommended a couple of younger people to come talk investments with me because, “I think he’s a financial advisor on the side…”)

Let me repeat, I am NO financial advisor. I’m just trying to shed light on some things I recently learned and show that it isn’t that difficult.

We use Vanguard for investing because they are pretty dang cheap, and offer a good mix of funds. We also use Personal Capital and their research tools to compare funds and do some background work. Sidenote- by “we”, I mean Mrs. SSC as she pretty much runs the show.

The bottom line is that with a little background research, you can save yourself a LOT of money over the course of your retirement investments if you just do a little background research into your current fees and see if there are accounts offered that have the same mix of funds with lower fees. Also, you don’t need a financial advisor to invest your money – thank-you to Vanguard, Fidelity, and the other brokerage houses out there that make this possible. With simple google searches like, “what should my investment portfolio look like if I’m not sure about investing?” You can get loads of answers on a good allocation mix for your risk tolerance and your portfolio. I’ve included lots of links to help on your way as well – no affiliate links, just palces to get you started.

Do you do your own investing? Have you had a pleasant run in with a financial advisor? Let me know!

42 thoughts on “Is investing on your own that scary?

  1. Mr. PIE

    Mmm……all looks remarkably familiar……
    Deja vu all over again…

    Thanks so much for the link to our own experiences. ?
    We came through relatively unscathed but it is a cautionary tale none-the-less.

    And to those out there looking for their path to wealth/freedom, it just takes some time and a little reading to chart your course. The information out there these days is so much more digestible than it ever was. You can do it!

    1. Mr SSC Post author

      I agree that there is SO much information out there now – IF you want to take the time to read and learn from it. The biggest response I get from younger co-workers is generally, “I don’t know anything about investing, it seems like a big risk.”

      I pounce on that and start with that Afford Anything article and other sites that don’t seem as intimidating as the boglehead forums. Even then, some of them are like, “Meh, I’ll just pay someone, they’re the expert.” It kills me. Just kills me.

      That’s why I put together a powerpoint with a few more snapshots than I put here showing how easy it is, and if they’re already investing with Vanguard or similar how you can save yourself even more money. I email that to them too just to point out – it’s not that hard or scary.

  2. Our Next Life

    I feel like I’m having these same conversations! I recently got my dad to move all of his money to Vanguard, and now we’re working on Mr. ONL’s parents (they will be a tougher sell — they actually think it’s worth money to not have to deal with that stuff). But seeing that chart of fund fees made me realize I need to go rebalance my 401k! Mine is with Fidelity, and those are my fund choices — and holy crap, I didn’t realize some of the fees were *so* high. I mean, I knew they were more than Vanguard by a good margin, but geez. Thank you for the kick in the pants!

    1. Mr. SSC

      So many of my friends think the same thing – I’ll just pay someone – it’s worth it. I keep a bunch of links handy to show them that it ends up costing a lot!
      Only 1 person at the office “got it” when I showed her and she replied, “That’s like a years’ salary for most Americans!”

      If it helped you get some of your fees lowered, then that’s awesome. Mrs. SSC found similar funds with lower fees using the fee analyzer tool in PC, but I bet each place has their own version. Also, with your accounts probably being pretty sizable, we’ve never had trouble getting a real, breathing, person on the phone to help with those sorts of things.

      Good luck!

  3. Elephant Eater

    You think it is funny that you’re the expert in the room? My horrible experience that you cited only came to an end <5 years ago and I have that same sheepish feeling that I'm the "expert" when I'm sharing with others who I see are making the exact mistakes we did. It is amazing how simple this stuff is if you know where to look and dedicate just a little bit of time to learning. Keep spreading the word, even if it means sharing our pathetic and somewhat embarrassing history. We put it out there to help others learn. Preventing others from suffering our fate is the only way we can think of to make anything positive of the experience.

    1. Mr. SSC

      It’s scary that it can be so simple, yet so intimidating at the same time. I was really feeling nervous about the advisor meeting, especially being solo, and wow, it really can be as simple/complicated as you make it. I’m not so great with math either, but halfway through our meeting I realized this was probably going to be a wash. When he suggested IRA’s and I reminded him that we don’t qualify for them (we did send financials and the like prior to the meeting) he was like, “Oh… right..Um…”

      I just try to take the intimidation factor out for anyone that brings it up, and depending on their comfort level, depnds on which links and articles I send them, lol.

    2. Mr. PIE

      I share the pain. We have some similar experiences. But we are both here thriving and financially sound. One of our first posts on our new blog was to share some of those pains and give a little back to this great on-line community we have learned so much from. Cheers to that!

  4. Isaac

    Just some clarity – was this recently you went to a financial adviser or some point in the past? If recently, what we’re you hoping to gain? I’m surprised that you guys would even consider going if it was recently!

    1. Mr. SSC

      Looking at the emails from the advisor, this was about a year ago now. Sparked mainly by Mrs. SSC trying to get ahead and she started an IRA and when she did taxes, she found out she had to sell it because we made too much to have an IRA. Funny how that doesn’t prevent you from starting one, but anyway… So, essentially this was a free advising session through my work if you wanted to get a second opinion from an advisor, or if you had questions about college savings, etc… I ended up going alone because Mrs. SSC was like, no thanks, but take good notes!

      So I wanted to find out if we should be diversified more, if our projections were fine, if college savings seemed fair, etc… and bounce some ideas off of a financial advisor/expert in the field. OMG, little did I know that we were doing just fine. It was a good experience for me, and we weren’t planning on using him – I told him that up front so he wouldn’t feel like we were wasting his time if he didn’t want to meet. Plus, it put him on the offensive to make a better sales pitch as to why we should let them handle our money. Sales pitch fail…

      Except for realizing we could still get the same projected returns without exposing ourselves to as much risk as were taking on (we swapped some more funds into lower risk funds/bonds/whatever) the rest we were pretty spot on for our plans and risk tolerance. It was great for me, because it drove home that this stuff really was sinking in for me, and that our projections are pretty valid (as valid as any 10-20 year projection) and that no I still do not want to develop an estate I can use to donate to my alma mater when I die… Surprisingly, something the advisor brought up no less than 4 times…

  5. Semira

    Great article! I’ve already shared it with a few friends that have expressed this exact sentiment :).

    To answer your questions: I do my own investing, but originally I listened to my parent’s financial adviser about where to invest. Since starting my financial education a few years ago I’ve realized he was giving me the usual standard advice that is not ideal for me, but benefited his business.

    I had a ‘pleasant’ run in with a financial adviser after that. It was a really awkward situation. My boss asked me to meet with one of her college friends who was now a financial adviser and looking for clients…which I thought was borderline inappropriate, but I was curious to see how my new found knowledge would stack up and met with him. I was shocked with how little he knew and (it seemed) how ignorant he thought I would be. I tore his proposal apart (respectfully) and completely shot him down. I then sent my boss a ten paragraph email about everything that was sketchy about his proposal so she wouldn’t fall into the same trap (she’s 40 and just had a baby and apparently has never invested before). It was an eye opening experience.

    Expense ratios and fees have a huge impact on your returns and I’m so glad I started learning about it so I could turn things around. Thanks again!

    1. Mr SSC Post author

      Yeah, that was pretty much my reason for going as well – not because my boss suggested it, but to see how our strategy panned out if we were investing the right way, etc… Like you, I was all over a lot of things in his proposal for us and his recommendations were ridiculous – yes please, increase the amount I’m paying in fees, that sounds like perfectly great advice, lol.

      It was a big eye opener in how much all of this investing reading ahd paid off on my part. Especially because I don’t feel like I’m one of those guys that is like, “Well, time to browse some financial bogs, and do some stock research”. I’m way more of the mode that something pops in my head and I google it and read about it and then move on. 🙂

      I’m glad your situation turned out well and you didn’t get hooked by that advisor.

  6. Prudence Debtfree

    Well, I came pretty close to understanding almost all of what you said . . . I am definitely scared of investing, as it is a world very unknown to me. My husband and I are in debt-repayment mode, and now that we’ve paid off everything but the mortgage ($109,000 to go), we are also saving. Part of the reason I’ve felt comfortable in my investing ignorance is the fact that I have a pension coming my way. I don’t want to be too comfortable though. I’d like to shift into investing, but I would also like to learn the basics first. I’ll read that article you linked to by Afford Anything.
    (And by the way, after reading your comment on my post about discretionary allowance, my husband has said the Mrs. SSC is his new hero. He wants to ramp up his already excellent discretionary fund management so that he has as much in investments as she has : )

    1. Mr SSC Post author

      I’m glad you got something out of it. 🙂 That inspires me to write a follow up post similar but different to the Afford Anything article. Mostly about our approach, and how I got started with investing and learning about it, and put a lot of links to other blogs, forums, and that sort of thing where people have already addressed this issue and then some.

      As far as learning the basics, you could peruse the bogle head forums – , although they can seem intimidating if you’re just starting. However, the people that write on those love helping educate new people and demystifying investing, stock market issues, personal finance topics, etc… If you feel overwhelmed on where to start, just post a new forum question and wait for the answers to roll in. 🙂

      It sounds like your husband could be a good one to set on that path too, then you can be like me and just ask your significant other, and when their answer doesn’t quite do it for you – turn to google. 🙂 Like I said, I learned a LOT just by following that sort of lazy method myself.

      Oh, and Mrs. SSC loved the comment about being someone’s hero with allowances. 🙂

        1. Mr SSC Post author

          Nice! I’ve been finding some more detailed articles and things I can link to in the followup article that go into more detail, while still remaining easy to follow. Not quite step by step,but REALLY close. 🙂

  7. Fervent Finance

    It seems like everyone in this FIRE space has had similar experiences to you. I invest my own money. I was raised as a DIYer and when I want to learn about things I bury my head in articles, books, Youtube videos, etc., until I have a good grasp and feel confident in doing things on my own.

    What stinks about the financial advisory space is that it was predominantly run by insurance companies for so long. Hopefully with the new fiduciary standards, it’ll push the scummy advisors out of the space. only time will tell. I’ve thought about starting my own RIA since it seems like there is definitely room for some quality advisors, but I’m scared to leave my profession and decent salary.

    1. Mr SSC Post author

      Yeah that’s a good point. I don’t think alla dvisors out there are bad per se, but they definitely have incentive to push you towards “good enough” investments that get them a better bonus/quota/etc… than actually doing what’s best for you. In my case, it was definitely more of “these investments you can’t access through Vanguard and they have better returns.” That was a true statement, but with th almost tripling of OER fee’s and trading fees, plus the financial advisory fee – it turned into a wash for me.

      I agree learning about it on your own is the way to go especially if you’re unsure. It’s seems to be the best way to get what you want and have some peace of mind.

  8. Apathy Ends

    I have never used or met with a financial advisor and it was something I have been considering – but I have a feeling it will go the same way you described.

    Love vanguard!

    I was surprised to see how high the expense ratios are in my 401k – the selections are limited but I shuffled a lot of the %s around to get out of some funds.

    1. Mr SSC Post author

      Nice! Even at my work who uses Vanguard for our 401k’s I swapped some stuff around to lower the fees. If the investment mix is roughly the same, and the returns/risk still fit the same profile, then why not.

      That was my only time meeting with an advisor, and it was purely due to a cold call/work provided free session and to satisfy my own curiosity. I feel way better about what I have learned and feel badly for people that go in unprepared or uneducated about these things. It’s really easy for them to throw out terminology that can make you seem like you’re doing the wrong things – which he tried to impress upon me a few times as well. I knew that he was wrong and was able to point it out, but if you’re not very confident or uneducated about what your options and situations are, it would be easy to get signed up for a lot of extra fees and losses you have no clue about.

      I’m a big Vanguard fan too!

  9. amber tree

    When I was younger, I had the bank as my advisor… I only remember I once paid a ski holiday with a high tech fund. This was 1999… Just in time before the burst. The only reason I sold was me wanting 2 ski holidays that year, not insight from the advisor or me.

    Nowdays, it is all do it myself.

    The one change that can be made: my mutual funds. I know they are expensive. They have a good track record throughout 2008/2009. I guess this is the element I need to b able to invest myself

    1. Mr SSC Post author

      If you know your fees are high and are ok with it, then that’s exactly what makes investing for yourself great. 🙂 You get to choose and get stuff you’re comfortable with even if they don’t fit someone else’s model and investment profile.

      Nice sell on the tech fund before the bust, it’s good to sometimes just say, “Hey, I want this and have the means, so I’ll treat myself.” Again, I think it all comes down to doing what’s best for you and balls to the rest of us and our opinions, lol. 🙂

  10. The Jolly Ledger

    So true! We have become the experts in the room with our friends as well! Scary. I have been asking lots of follow-up questions and they have no idea what their advisors do for them or what the funds mean, they merely focus on what they have been told about the 10-year historical return. None of my friends have taken action (yet!) but I have them thinking about it. Now I will probably started getting uninvited to potlucks for dragging down the room.

    1. Mr SSC Post author

      That’s crazy right? I mean for me, these are the same friends that make recommendations and decisions on multi million dollar wells and development projects and they’re scared of making financial decisions in their own life. I seriously have a powerpoint that I put together that I email friends now when we get to the follow up questions and they ask, what do you mean by expense ratios, and trading fees? (and you thought you were the only one getting uninvited to parties, lol) Or if they don’t know how much they pay their advisor, OMG, it kills me. Like you, I’ve gotten most friends at least thinking about it and finding out their advisor only charges $1500/yr flat and since they don’t want to mess with it, that’s worth it to them. I did get one person on board and she was shocked how much you could lose over time just by not paying attention to that stuff. So I guess that’s a small win. 🙂

  11. The Practical Saver

    This is a post for all those who want to invest.

    I do my own investing. I don’t feel comfortable getting advice or recommendations from financial advisors. I feel like part of them want to get my business so they will say what they will say to convince me to hire them. On the other hand, I also feel that they have the knowledge and experience to provide me pieces of advice.

    Like what you stated above, I’ve got a lot of friends who don’t know what investments they are going to just because my friends didn’t take time to study the investments or understand what they are getting into. They relied on the recommendations of the advisors. Unfortunately, a lot of them are paying high fees. They would be better of investing their money on their own by opening and investing some Vanguard funds.

    The lesson that I always tell my friends is to study first before investing and ask a lot of questions.

    1. Mr SSC Post author

      Eve now, I find myself learning more and more about investing, strategies, classes, etc… The more I talk with people about it, the more I run across a question that I say, “I don’t know, I’ll look into it and get back to you.”

      I’ve been there and I am far from the guy that ever thought he’d be interested in this stuff (I’m still not really) and trying to get other people into learning more. By saying I’m still not into it, I mean I don’t find it enjoyable sitting around reading about asset classes, lazy portfolio building and that sort of thing, but I find it’s really expensive to NOT learn about it. So when I have questions I go and learn and then go back to something else. 🙂

      I totally understand being disinterested, it just isn’t worth it to me anymore to be disinterested after realizing how expensive it can be in the long run.

  12. Tawcan

    It’s interesting that we’ve all become so called “experts” among our friends. I don’t think I know enough to call myself an expert. You’re right, a small difference in MER can make a huge difference in the long run.

    1. Mr. SSC

      Yeah, because even today at lunch I was peppered with questions about investing, different investment strategies and even home buying. I ended up putting together an email with various links that explained index funds, different lazy portfolio strategies and more. I made sure to find some links that mentioned actual finds we could pick in our 401ks as well, they’re vanguard so that was easy, lol.
      Yeah, it’s amazing how with just a little study you can quickly become an “expert” just due to the fact you can answer basic questions or what now seem like basic questions. I tried to impress upon my colleagues that with just even this basic reading of the 10-12 links I sent they could be “experts” too and save themselves $30k over 20 years of paying an advisor, and most likely have better returns on investment too.

  13. Brandon @ Nurse on Fire

    Thanks for sharing your story; I, too, have found myself having an increasing number of conversations with coworkers regarding investing and personal finance topics. As a federal employee, our workplace investments are through the FERS pension and Thrift Savings Plan and you wouldn’t believe how many people have absolutely ZERO clue about any of it…or even where to seek out information on them. We are a rural facility and there is nobody in-house to speak to so apparently I am becoming the go-to guy. I’m not sure if I should be honored…or, more likely, terrified! :S lol

    As far as personal investing is concerned, I am in the process of switching our stuff over to Vanguard from E*Trade because of the lower fees and free trading of Vanguard mutual funds and ETF’s. It’s amazing how much of a difference a fraction-of-a-percent can make, especially once you reach a multi-six-figure net worth (we’re not there yet…*frowny face*… lol), and extrapolate it out over multiple years and decades. The math is simple (as I’ve attempted to explain to my dad!) but it doesn’t appear overly scary until you look at it on a larger scale and see what it’s really costing you over that extended period of time

    I’m gonna go check out that Afford Anything article now. Maybe I’ll take after you and direct fellow employees to it. Thanks again!

    1. Mr SSC Post author

      You’re welcome! I’m going to post a follow up article on why DIY investing shouldn’t be scary and will have even more and better links to other sites, blogs, etc… to explain index funds, mutual funds, investing for beginners, and even how to build a Lazy portfolio. I’m getting that one together so it may be another week before i get it all polished up, but it’s being written now.

      I was amazed by how many people in both companies I’ve worked for that have no clue how to allocate their 401k’s, what they should put their assets in, what mix, what class, etc… Again, these are “smart”people that make lots of decisions regarding money and risk every day, but maybe it’s the ownership factor of it being your own money?

      Vanguard can’t be beat for low fees, and like you’ve notice, even small changes can make a huge difference. I think Mrs. SSC calculated that she saved us ~$45k over 20 yrs just by switching around some funds from a low fee to a lower fee. It’s pretty amazing when you see how much it adds up to be.

  14. Financial Slacker

    You could be talking about me.

    I am curious if anyone ever has positive experiences with a financial advisor.

    I wrote a post about my experience as well. I started off with someone I liked, but she retired. We tried self-managing (or not managing) for a while, but that didn’t go over because the funds we were invested in were those that you needed to have an advisor in order to keep putting new money into. So we hired an advisor who put us into 30 high cost mutual funds with poor performance.

    And now we’re back to self-managing (and actually doing it this time around).

    I’m actually contemplating setting up shop as a RIA as I have met all the required qualifications.

    1. Mr SSC Post author

      I have friends that seem to have positive experiences with their financial advisor, but then they also don’t track the trading fees, or anything else, because it’s worth it to them to just pay the man and not have to worry about that stuff. 🙂

      I like the self managaing and even though me 5 years ago would have been intimidated by it, and not interested, I’m amazed by how simple it can be.
      You’re the second person on here thinking about setting up as an RIA. Maybe I should look into those certifications as well, it could be an interesting side gig later on. 🙂

  15. Dividendsdownunder

    Lots of good explanations and discussion in one article, very nice.

    I suppose the thing boils down to: if all the funds are investing roughly the same, then the one with the cheapest expenses is the best option for us (Vanguard and other cheap ones). If there are funds out there that consistently achieve a higher net return (after expenses) then theoretically they’re better..but it’s impossible to say which ones will achieve better results 🙂

    It’s a shame so few people are willing to look after their finances, as many of these people could become millionaires much quicker if they did, like you’ve said – a higher expense can reduce an amount by $10,000s if not $100,000s by retirement age.

    There are only 2 financial advisors that most people I’ve come across have good experience (these people are Australia). One being and another one I’m aware of. I haven’t used either of these and we believe we can do better than what any of these advisors would advise. Even before thinking of their fees.


  16. Stockbeard

    Yup, I drive my own investment strategy. Had a Financial advisor for 2 years when I was “financially dumb”, it was a terrible experience that led me to really beef up my financial knowledge. In a way I guess I can thank the financial advisor for finally giving me the required “kick in the butt” to wise up.

    1. Mr SSC Post author

      If you’re paying attention the financial advisors will give you that incentive to DIY investing. Especially once the fear factor is gone and you are more comfortable with it. Another great reason to get educated to your point of comfort on these matters. 🙂

  17. EarlyRetirementNow

    Great points. And nice blog, which I just found through Mr. and Mrs. Pie’ blog!
    It’s amazing how little people know about the specifics of the contractual arrangements surrounding their financial advisors. I once asked a neighbor what fees he pays and he said, “not sure, maybe 1%, so it’s very low”
    He hadn’t even realized that this means 1% of the principal per year, every year. Not 1% of the capital gains. Not 1% at the retirement date. Smart guy, lawyer. But not so smart with his investments.
    Over the decades a financial adviser could walk away with a quarter of your money. And once retired, and you target 3-4% withdrawal rate? Wait, now you can do only 2-3% withdrawals, another 25 to 33% reduction.
    People do more research on a $500 iPhone than the arrangements for managing a $500,000 portfolio.

    More reasons to DIY! I am so stingy with my money, I wouldn’t even spend the 0.15-0.35% for a Robo adviser:

    1. Mr SSC Post author

      It’s amazing how many people give that same response to financial fees, “I don’t know – but it’s low!!”

      I’ve only ahd one person “get” how much that can cost you over a lifetime, but even if it’s jsut one person, I count that as a win. 🙂

    1. Mr SSC Post author

      Haha! I would have never thought someone would say that sentence about me enjoying talking personal finance and investing and also having other people to talk it with. 🙂

  18. Edifi

    Howdy, Rock Dr’s,
    Just for clarification from the examples above, aren’t reported returns usually after regular fund and marketing expenses (but exclusive of bid-ask spread and trade costs)? Also aren’t the returns quoted on an annualized basis? Based on those assumptions, the AM (actively managed) fund beats the index fund(?) Hence the argument for indexed returns is more about sustained, decades-long performance?

    1. Mr SSC Post author

      In the examples I was given from the advisor, I asked the same question, because I was looking at the increase in fees, and his yearly rate versus the higher returns he was showing us. His reply wasn’t clear and so I possibly can’t answer your question. However, when I pointed out that based on the increased fees, and the yearly management fee, we would effectively be at a wash versus if we kept our same funds in our vanguard account he didn’t disagree. What he did do was try to point out that they had access to “bigger and better” funds that a common investor couldn’t access. While that may be true, I was skeptical that he didn’t say, “No, these returns are accounting for the higher trade/management fees and we still do 10-11% better”. Because he didn’t say that and instead went back to sales mode, and I couldn’t get a clear answer from him about it, I assumed they were returns without the fees accounted for. Due to the higher cost that would, in my mind, negate almost all of the gains, while at the same time putting all of our money in someone else’s control and effectively out of our control.

      Hopefully, that answers your question, but since I couldn’t get a clear answer, I suspect it may not. If you google index funds versus actively managed fund returns, or do index funds beat managed funds, you can find links to a lot of different studies that say, yes, maybe, and sometimes. 🙂 Helpful, aren’t I? Like this one by Morningstar says that in general, yes, index funds are better, BUT low cost managed funds can beat them over time. However, if you end up in a high cost plan, you’re pretty well hosed every time with an actively managed plan. So my main message is “pay attention to your fees because they can eat up a lot of equity”.
      The great thing about personal finance is that it’s personal, and my approach fits great for my family, but probably not many others. Other families approaches i wouldn’t want to get close enough to to touch with a stick. 🙂 Just not my preference or style. Those are great questions, and by doing your research into it, you can find a conclusion that you like that fits your risk profile and feel way better about it than me or anyone else saying “this plan is always better and the best way to go.”
      Thanks for the comment, that was a great one!

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