In reply to: I recently let my financial planner go. posted by Jellyfinger
And can be loaded with fees?
really?
It's that sort of analysis that can lead to problems, NavyJoe
I'm not offering a perspective on how people should invest their money. I was simply offering an explanation as to why some scoff at actively managed mutual funds.
to truly understand and evaluate money management, IMO, one really needs to start with a basic understanding of alpha and beta relative to the benchmark(s).
basically, you might be below the S/P but taking on 50% of the risk and generating 200% of the expected return (as an example). That might be the better situation for the investor, depending on their risk profile, time horizon, etc.
Must be a rough market out there.
Considering the ridiculous fees charged for active management it's a no brainer to avoid like the plague.
A good financial advisor charges for his advice and doesn't make his money by earning scalps from the product he pushes.
Mutual funds have a limited role to play for most individuals. For example, there are some mutual funds that are sector specific that give you exposure that is hard to get through individual securities and impossible to get through a passive / cost efficient index fund. That said, if you have such a strong view about a category you should be running your own money. I would stay away from advisors who were doing things like buying defense sector mutual funds, etc.
I'm a FORMER Goldman Sachs wealth manager. I'm not registered or in the business any longer. I would listen to jt on this stuff but as he said he's busy.
If it were me I would want to find an advisor that I paid for advice and service. I would want him to be product agnostic and not have his compensation tied to what he's selling me. I would be hesitant to pay a % of assets because the work required doesn't vary much from $5 million to $10 million, but most advisors charge double for the latter because they take a % of AUM.
As jt said, there's a lot to look for here. For me, using exclusively mutual funds is a sign to look elsewhere.
Uses a variety of techniques, including mutual funds, ETFs, specific stocks, etc...all tailored to the individual’s risk level.
If your threshold for advice is 100% product agnostic, then what would you expect from an advisor? To me, it seems like an unattainable bar to clear.
I do not have a dog in this hunt....I’m an IT guy who enjoys doing his own investing/personal finance, but these type of absolute statements come across as unhelpful.
confusion.
"Managed money" is probably the better term to use and it can encompass all kinds of things, including mutual funds, ETF's, etc.
I would say that a reasonable fee would be about 1% and that there might be other expenses tacked on there in the neighborhood of about .5%. Honestly, if people are going to pay any fees for this stuff they should be looking at things differently than just comparing to the S/P.
to maintain a 1:1 correlation with the S/P 500.
they might think that they do, but in reality studies will show the opposite. In fact, in a period of time between 1987 and 2017, the average mutual fund was up about 8% whereas the average investor was actually up 1%. Why is that? It's because people cannot handle that sort of correlation and when the index went down, they went "active" and jumped out of their investments ("flight to cash") and then when things had calmed down and they were confident again, they jumped back into the passive strategy ("buy high").
Look, I work pretty closely at times with Janus, Vanguard, Fidelity, etc and I am all too familiar with the active vs. passive arguments. The reality is that every investor needs to find their spot, invest, and then follow their own proper benchmarks and allocation adjustments (on their own or with an advisor). Just looking at one index is lazy and misleading.
My intent was never to tell someone how to invest their money. I recognize that some people may not be able to deal with being correlated to the market; I also get that some folks may not want their fund correlated to the market whatsoever (or want to track a different index, commodity, etc.)
they've allowed this thinking of index funds and comparing everything to the S/P to go overboard and it's become silly.