Should I get a professional money manager or go it alone?

Even if you can't do it alone, get a Vanguard 20XX where XX is the year you want to retire. It is a mix of index funds and the overall expense ratio is just an average of those index funds (very cheap). It automatically readjusts the allocation as you age.

Way better choice than an advisor in my opinion even if you know nothing/have no time.

hamazoza said: So I spoke to some money managers at small firms and talked to a couple of the big guys (Fidelity/Vanguard)....after talking with them, I'm very much inclined to just create my own diversified portfolio (combo of large/mid/small/international ETFs) and go it alone.

I'm kind of hesitant to give 1% to these money managers when I have a feeling I can do almost the same with ETFs that track the major indices. By the way, I'm talking about investing a sizable amount of money that would get the attention of a money mgr....

So anyway, do any of you have thoughts on this? Should I go with the wealth mgmt services of the big boys or should I do it on my own and just re-balance my allocations every so often?
No where in this post did you state your age, the age at which you wish to retire, or a round figure of how much money you wish to invest. "A sizable amount of money" to you may mean nothing to a MM. I'm sure FW has a few lurking around here; checking over at MotleyFool or Forbes would do you some good as well.
If you wish to play it safe, go with an Index Fund that has a proven track record & good management. Otherwise, you'll be throwing that 1% around for nothing. Also keep in mind that MM will make a few based on new activity; you may just get phone calls every few months (weeks?) to go with "a hot new Index fund". In that case, your 1% fee will just put some extra junk in your mailbox and your voicemail.

Do things the FW way.

Depending on how much you are putting away go 1/2 and 1/2 investing by yourself and finanal guy. This way you can see how you are doing and not put all your eggs in one basket. I also like the retirement by year funds offered by vanguard, fidelity and T Rowe Price. These are a good place to start and put a good amount of money but hopefully at some pt. you will have enough funds to spread out more and add. Even a mix of the 3 above because they will vary some in there investments.

hamazoza said: By the way, I'm talking about investing a sizable amount of money that would get the attention of a money mgr....You would have to be talking about more than $10 million to truly get the individual attention of a money manager. If you are, good for you! If you aren't, you'll simply get their cookie cutter portfolio that these so-called professionals churn out for all their clients in the $100,000 to $1,000,000 range.

You guys are fantastic! I've been struggling with a salesman, I mean broker, who's trying to convince me to move everything to his firm, and you've summed up in a few short responses what every schlump like me with a limited nest egg should understand before making that jump. Thank you from the bottom of my heart (and slim wallet). And, thanks to hamazoza for the original post!

A forum moderator might please consider pinning this or putting it in the FAQ located at http://www.fatwallet.com/t/52/457977/.

xchinamanx said: Do it yourself. It's easy. I read somewhere that only 5% of mutual funds beat S&P500.

asdf9876 said: Even if you can't do it alone, get a Vanguard 20XX where XX is the year you want to retire ... Way better choice than an advisor in my opinion even if you know nothing/have no time.

theman2 said: I'd do it yourself as long as you have a basic understanding of the market, are willing to sit through the downturns, and rebalance your portfolio as your risk tolerance changes (ie: get old).

SeriusBlack said: ... play it safe, go with an Index Fund that has a proven track record & good management. Otherwise, you'll be throwing that 1% around for nothing... Do things the FW way.

theman2 said: ... a fee based financial advisor/planner that you pay by the hour occasionally for professional advice... having your portfolio reviewed every X months/years by a professional. They can suggest rebalancing, reallocation, etc. Things that either a) you don't want to do yourself or b) you don't know. They don't even have to have access/control over your accounts.

yanks0114 said: ... If you are planning for retirement, do it on your own. If you have tax liability questions (such as) estate planning issues, absolutely go to a wealth manager/estate planning specialist. You have correctly recognized that the 1% can yield huge reductions in wealth over a long period of time so unless they can really bring a skill (picking stocks is not a skill, it's more of luck), do it on your own

Yeah, Mr. Colorado, spoken just like my would-be broker. Only a financial planner can do the same thing for a one-time fee, and not keep docking 1% of your total ad infinitum. Or you can figure all that budgeting out yourself, too. These brokerages play a neat reality game on us naive consumers, kind of like "Fear Factor Finances."

hiteckee said: Yeah, Mr. Colorado, spoken just like my would-be broker. Only a financial planner can do the same thing for a one-time fee, and not keep docking 1% of your total ad infinitum. Or you can figure all that budgeting out yourself, too. These brokerages play a neat reality game on us naive consumers, kind of like "Fear Factor Finances."

You misread my post (or more accurately, I didn't express myself clearly). I didn't intend to say that a planner needs to do it. I meant to say that it needs to be done. In my defense, I DID say that you could do this by yourself.

bNeta86 said: If you want to learn about investing and take the time to keep up with the "goings on" in the market then by all means asset allocate. I think the dumbest thing you can do it buy a target fund though.

I find this comment amusing. If pay you 1% to pick out my allocation then I'm a smart, savvy customer who values my time. If I let Vanguard, a huge respected company which probably has 10s of people like you working on the allocation of the target fund then I'm making the dumbest decision possible.

If I think Vanguard gets too conservative at the end game then I can simply use it for the first 10-20 years and save a ton of money in the process.

So I have to ask, why do you feel that your asset allocation is superior to Vanguard's or Fidelity's allocation?

I went to a financial advisor once, she asked for all of my accounts. I went through them all and she gave me a 2 hour sales pitch. In the end though she never could explain to my satisfaction how she was going to out perform the market by 1% consistently in order to make up her fee since my investments were already tied to various index funds.

I also found the "only" pay 3.5% to buy mutual funds comment funny. I'm sure the mutual funds don't have a 0.0% expense ratio. Then there are quarterly readjustments! Wow so you could be paying a lot more than 3.5% if you have to make several adjustments throughout the year. 80% of all mutual funds underperform the index. But I'm sure you only recommend the 20% that don't, right?

do it yourself seriously

if you are young.. invest heavily in equities.. trade actively whenever you can

hiteckee said: I still have to tell both my wife (who brought in the advisor) and the advisor himself that, while I appreciate what he's showed me so far, I don't want to continue.

Last time an FA spoke to me, that wasn't hard at all. He made two huge mistakes in his spiel.

1. He misrepresented an investment as having 7% ROR fixed. If I kept the money in for the entire year, I got an extra 12% on top of that. I gasped and said, "A guaranteed ROR of 19% fixed?!?!?" He said, "Yes, but let's move along. I want to show you some other investments." I kept trying to get more info about it, and he kept changing the subject.

2. He told me that another investment was so conservative that the reserve ratio was 1.00. I stopped him and explained that a RR was the amount of cold hard cash required to keep on hand. So his story was that 100% of all funds invested were stuffed under a mattress, and the fund paid dividends. He corrected me to explain that "reserve ratio" as he used it, meant that 100% of the funds were invested in stocks or bonds, or kept in cash. I told him that I wasn't aware that he had many other possibilities.

hiteckee said: Yeah, Mr. Colorado, spoken just like my would-be broker. Only a financial planner can do the same thing for a one-time fee, and not keep docking 1% of your total ad infinitum. Or you can figure all that budgeting out yourself, too. These brokerages play a neat reality game on us naive consumers, kind of like "Fear Factor Finances."

For those with $1 million to give to a firm charging 1% annual fee, I say that is a bargain. $27 a day to manage $1 million is nothing. Pick the right firm and you just freed yourself of the time required to do it yourself. That means you can live a life of fulfillment instead of a life of managing your money.

this thread couldn't have come at a better time.

at my parents' request, I met with their financial planner earlier this week. It turns out he has never told them how he gets paid. He has never told them he takes 2% off the top annually, whether they earn 10% a year, or earn -5% a year. he tried to get credibility by flashing a very misleading chart that said over ten years someone who invested $700 had only $150 less than someone who invested $1000, at the same annual rate of return. He gets his fees automatically by the proprietary fund company, who jacked the annual expense rate up articially based on his firm's desired profit.

he has them in a proprietary ETF which is a group of ten funds reallocated a few times a year to mix his chosen allocation. the problem is every time he adds or removes $$, it generates a sale of each of the TEN funds. that's ten $18.00 fees. Say they want to add a $1000 bonus check, that's a whopping 18%--$180 in fees. plus he said there are about ten automatic reallocations per year, which equal 20 extra $18 fees. And a ~$100 annual fee.

He hasn't given them a simple way of accessing their funds yet--a checkbook for a money market balance. he prefers instead to mail them letters which they have to sign to request money. It can take 3 weeks to get a check for some recurring expenses, and I'm told by another relative that they get quizzed every time they need to take a few hundred $$ out of a large account for personal purchases.

We all seem to agree that good financial advice, and portfolio allocation services, are worth something as they are performed. Are they worth 2% on a six figure portfolio? not a chance.

I asked this advisor if he ever charges clients an hourly or flat annual fee, he said he wouldn't consider it unless they had a million dollars or more. I'll admit this guy sounded good for the first few minutes of our meeting, since he didn't put them in high management cost proprietary mutual funds. however the ETF's with 2% a year of extra profit/kickbacks in the management fees were his catch and made things just as bad, if not worse.

I seem to remember there was a nice website where you could enter all your holdings and it would generate a unique pie chart showing your asset allocations. can anyone provide a link?

rouzbie said: hamazoza said: I'm kind of hesitant to give 1% to these money managers when I have a feeling I can do almost the same with ETFs that track the major indices.

If you're talking about deciding between mutual funds and ETF's you should know that they have BOTH have fees.

Yes, but:

1. ETF fees are lower
2. I was really referring to going with a money mgr versus self directed, irrespective of the MF vs ETF discussion.

hama

I think you are certainly on the right track. What I think is funny is that folks keep referring to this as if the advisor brings nothing to the table.

One idea you might look into is a program available with russell advising the accounts. They have a wonderful track record and a very unique and well diversified program available which would be different from just about everything you have looked at so far (just as a way to get some other ideas brought to the table).

Most advisors will significantly discount the fee for dealing with over 7 figures. My firm does a reduction in fees to ~.5% for any 7 figure account without even a discussion. Anything above and beyond that requires approval but is most certainly available.

You would have access to just about any type of investment and can opt to set up the allocation with the help of the advisor - or go through a preset allocation which is updated as the managers feel appropriate. There are so many options available to you I think you are going about it in the right way - get a feel for what everyone is like. Decide from there. Kudos to you on a job well done - just dont freak out if things dont work out perfectly right away. The market is a fickle beast and one of the most important things you can do is stay invested for the long haul. Also - you might want to consider a dollar cost average approach to investing the money - you've got a significant upfront figure to invest...you dont want to pick the wrong day to invest

I actually think target funds are a pretty decent investment if you're interested in a half do it yourself approach. They are more flexible than people are making them out to be here. If you're going to retire in 2030, and you want to be more aggressive, then you can buy the 2040 portfolio? If you want to be more conservative, go with the 2025 portfolio. Either way, you don't HAVE to buy the portfolio of the year you plan to retire. You can rebalance using strictly these portfolios with differing dates.

You might even hold 2 of these portfolios. Maybe if you're retiring in 2020, you can go with some in a 2015 fund and some in a 2040 fund if you want to be aggressive... The options are really wide open.

Before you make a decision regarding going with an advisor, Vanguard, ETFs, index funds, or alone, I STRONGLY recommend you read the following EXCELLENT free ebook on investing. (Full disclosure, I USED to invest with ifa.com, but don't anymore.)

Part 1 (Warning - LARGE File Size)
Part 2 (Warning - LARGE File Size)
Part 3 (Warning - LARGE File Size)

IFA, along with some fee-only advisors, like Evanson invest in the DFA family of index funds which have more value and emerging market funds to choose from than Vanguard or ETFs.

IFA has a VERY informative website, and has done some comparisons of investing in DFA index funds versus:
1. Vanguard Summary - DFA beats Vanguard by 2%-3%
2. ETFs Summary - DFA beats ETFs by 2%-4%

Anyone familiar with Marathon Advisors, Inc. A North Star Resource Group Company? These guys tell me they will charge no upfront fee, but that they get paid by the funds, etc. they refer me to invest with. Does this sound like a good situation?

johnqh said:

Numbers can be cooked easily. The notion that one index fund outperforms the same index fund from another mutual fund company sounds alerting to me.

For example, if you look at their comparison, you will see "Vanguard Index Portfolios with IFA Weights (Net of IFA Fees)". What the heck is that? Why would Vanguard portfolio pay IFA fees?

It just means it is comparing IFA vs Vanguard while pretending Vanguard needs to pay the same amount of IFA fee.

On the other words, it is comparing IFA (before the fees) to Vanguard (after the fees).

Shady comparison - enough to tell me to stay away from them forever.

I didn't realize in the comparison of IFA vs. Vanguard that IFA added their fees to the Vanguard returns. However, don't throw the baby out with the bath water.

So I completely recalculated the Vanguard returns using info from the Yahoo Finance and Vanguard websites.

Some notes:
1. The DFA returns are from the IFA website and include IFA's fees.
2. The Vanguard returns are as reported on Yahoo Finance and Vanguard websites.
3. The Vanguard returns don't include the $10 annual fee Vanguard charges for index funds with balances below $10,000.
4. The results are for almost 8 years of data, and begin in January 1999 because this is when the Vanguard Small Cap Value Index began.

Here are the results:

(The 1st column is the index portfolio as defined by IFA. Portfolio 05 being 85% bonds and portfolios 90 to 100 being 100% equities. The second column is the Vanguard portfolio return. The third column is the DFA funds return, as reported by IFA. The fourth column is the Delta between DFA and Vanguard returns)
IND VAN DFA Delta
05 5.09% 4.80% -0.29%
10 5.27% 5.24% -0.03%
15 5.46% 5.69% 0.23%
20 5.65% 6.12% 0.47%
25 5.84% 6.55% 0.71%
30 6.03% 6.97% 0.94%
35 6.22% 7.38% 1.16%
40 6.41% 7.79% 1.38%
45 6.60% 8.18% 1.58%
50 6.79% 8.58% 1.79%
55 6.98% 8.96% 1.98%
60 7.16% 9.34% 2.18%
65 7.35% 9.71% 2.36%
70 7.54% 10.08% 2.54%
75 7.73% 10.44% 2.71%
80 7.92% 10.79% 2.87%
85 8.11% 11.14% 3.03%
90 8.30% 11.48% 3.18%
95 8.77% 12.35% 3.58%
100 9.24% 13.20% 3.96%

Some observations:
You may think that all index funds are the same, so just go with the one with the lower fees. However, the devil is in the details and there is good reason that the DFA portfolios consistently beat out Vanguard.
1. DFA has 3 types of international indexes - International Value, International Small Company and International Small Value. Vanguard has only one comparable international index fund - Developed Markets Index (VDMIX).
2. DFA has 3 types of emerging markets indexes - Emerging Markets, Emerging Market Value and Emerging Markets Small Cap. Vanguard has only one comparable emerging market index fund - Emerging Markets Index (VEIEX).

Vanguard has no small cap international indexes, and no emerging market value and emerging market small cap index funds. Due to the lack of exposure in these particular market segments that tend to outperform the other international indexes, DFA equity portfolios consistently out perform a portfolio of Vanguard equity index funds. Over the past almost 8 years, with portfolios of 100% equity index funds, DFA has outperformed Vanguard 3.2% to 4.0% (this takes into account the management fees IFA charges to invest in DFA funds, but does not include the $10 annual fee Vanguard charges for an index fund balance below $10,000).