It seems everywhere we look today, there is cost; mortgage payment, grocery bill (diapers, again?), car expenses, the streaming subscription and the list goes on. With more time being spent at home, we cannot forget the sticker shock that comes with any kind of home improvement project today! Which leads to the question of, “where can I cut costs” when reviewing your overall financial picture.
During last year’s stock market recovery, a way investors seemed to cut costs was by trading their individual stocks and other investments on their own. While there’s always success stories (very commonly shared), there are far more outcomes that end badly (not usually shared). In speaking with individuals recently that do not use an advisor, it appears the majority believe this is an area that they can cut expenses by managing it themselves. Or maybe they have had a bad experience before that left them with a darkened view of the financial advice industry and thus not seeing the value of what they are paying for.
In today’s age of cutting expenses, is it wise to manage your own financial health? For investors, especially those that have amassed a sizeable retirement portfolio, or otherwise, this may turn out to be penny wise and pound foolish. Let us examine why.
In my personal experience over the last 15 years , individuals investing on their own tend to struggle with an overall portfolio strategy. There may be some individual stocks, some flavor of the month ETFs or a handful of funds picked from the company’s 401k menu. What many investors may not realize is that picking a few stocks may be fun, but it is not going to be the main driver of return for your portfolio. That is where asset allocation comes into play. How much you have in stocks, bonds, real estate, and other assets in today’s market cycle has been shown to be the main driver of portfolio performance, not security selection or market timing (Gary P. Brinson, 1986). This analysis can be challenging especially if you are not monitoring the markets daily. Most investors are busy with their own professional careers, families, and other hobbies to dedicate the time and energy into putting in the attention it requires. Is having an experienced investment team analyzing and trading the global markets for you, especially in times of volatility, worth the cost?
Vanguard, one of the world’s largest investment management companies, has come out with numerous whitepapers on putting a value on working with an advisor. In one of their recent studies, Vanguard concluded that advisors can potentially add about 3% in net returns by using various best practices (Francis M. Kinniry Jr CFA, 2019). These practices include asset allocation, asset location, spending strategy, rebalancing and more. Would a planner that implements these best practices to potentially add an additional 3% in net portfolio returns be worth the expense?
While portfolio management is important, there are a lot of other areas that a planner can add value, especially as you near retirement. You may have dealt with an “advisor” in the past that mainly just looked at your investment accounts and then offered you some product that is suitable. But, making a suitable recommendation at the time is not the same as a fiduciary recommendation; there is no mention in suitability of retirement income planning, proactive tax planning, active 401k management, social security planning, etc. Many times, efficiencies can be uncovered that can add tremendous value to your bottom line. Just because the savings does not show up on a monthly statement, doesn’t mean it’s not there. What if an experienced financial planner integrated all the areas of your financial life? Would paying a small percentage of your managed assets be worth it?
At EWM, we have multiple Certified Financial Planner professionals that work together to create a coordinated financial plan for our clients. Our team has experience in retirement planning, investments, taxes, estate planning, insurance and much more. Your life can be complicated but simplifying your finances should not be.
When you break down the cost vs. the value that you could receive, you might just find working with a financial planner could be well worth the cost.
To learn more, please visit our website at www.ewmadvisors.com or contact us today at 810-229-6446 to schedule a no cost, no obligation initial meeting.
Asset Allocation Study
Source: Brinson, Hood & Beebower, Financial Analysts Journal 1986
Brinson, Singer & Beebower, Financial Analysts Journal 1991
Executive Wealth Management, LLC is a registered investment advisor with the securities and exchange commission. Reference to registration does not imply any particular level of qualification or skill. Advisory services offered by investment advisor representatives of Executive Wealth Management. Brokerage products and services offered by Registered Representatives of Private Client Services, LLC member FINRA/SIPC. Executive Wealth Management and Private Client Services are unaffiliated entities. Topics discussed in this article may not be appropriate for all individuals. It is important that you discuss your long-term care options with a qualified professional.