Are those all no-load funds? If not, then the fund charges an upfront load, which is an immediate haircut to your investment, which means that your fund has to do just that much better to beat a Target Date fund from Vanguard or Fidelity.
(and part/all of that load can turn into a commission rebated back to the FA).
Then that becomes your benchmark. Does your FA’s investments, net of fees, beat a Target-Date fund, or a simple Two Fund portfolio (age-20 in Total Bonds, with the other 80% in Total Stock) .
"They do not charge again to buy/sell/trade. No commissions. "
“Are those all no-load funds?”
Even if they aren’t charging and even if they appear to be no load, there are often 12b-1 fees and other “marketing” type fees that funds charge shareholders in their investment management fees and pay out to investment advisors. It’s not transparent to the investor unless you wade through the prospectus and Statement of Additional Information on each fund you own. Most people don’t do that.
Remember that services includes some potentially expensive ones that require highly skilled and paid people to do, such as medical care, education, legal services, architecture, many types of engineering, etc…
I worked at Vanguard in the mid-80s. I had zero clue about mutual funds prior to that. We’ve always done no-loads at Vanguard, and no financial advisor. Most of our assets are in DH’s 401k with the govt, which has really low expense ratios. We may not be hitting blockbuster stocks, but we sleep well.
Interesting. Homeowners are becoming more cautious about borrowing against their home equity despite being bombarded with offers from banks, and the banks are not happy.
We are happy with our FA. We also keep a pretty large portion in a company sponsored 401k. FA gives me advice on how to possibly adjust the percentages in various investments within the 401k. Currently 401k is in 3 funds and asset allocation is 59% large cap stock and 41% small cap stock. Our portfolio growth in the last few years has been more than our annual salaries. Saying we built up a good retirement amount and the investments are doing well. We do have a ‘risk’ number with our FA which directs some of our investment choices and the analysis on what do we want to do as we make slight fine tuning on our decisions.
My dad had real estate. That was something he was able to do/manage.
A close family member works as an analyst at a hedge fund, with the tech sector being their specific area of expertise. Their advice is to invest exclusively in index funds, which is exactly what they do with their personal and retirement accounts.
“Their advice is to invest exclusively in index funds, which is exactly what they do with their personal and retirement accounts.”
Not sure how it works with hedge funds per se but many investment pros will stick w/ index/mutual funds for their personal investing as it is much easier and a cleaner way to stay clear of any insider trading, conflicts of interest, and the necessary pre-clearing of trading through the compliance department.
I helped people start a couple of hedge funds and could see how much effort and energy went into investment decisions. I did not and do not have the time to make those decisions. Moreover, I was taking meaningful risk in professional income. So, it seemed wise to keep my portfolio outside of the hedge fund in uncomplicated things.
I don’t have an interest in a hedge fund management company at this point, but my professional life is very busy. My consulting firm takes success fees on some engagements that can be quite large. So there is potentially significant volatility in that income. So, I probably look to take less risk on the investment side. Which might suggest just index funds or something like that.
On whether to have an FA. With a fair degree of work, one can certainly manage investments on one’s own by following the Bogleheads or similar advice.
I worked in investment banking/private equity and am certainly capable. Yet, I have two FA’s. Why? I don’t really have the time to manage my finances myself at this point in my life. In addition to the consulting firm, I am also helping a new tech startup get off the ground. I am the equivalent of an active chairman. We’re hiring. We will be raising venture capital and I will likely play a role. I need someone to ensure that my financial plan makes sense, that I have the right kinds of insurance in place, etc. The primary FA is a fee-only FA. A fixed fee per year regardless of assets. The second one is a legacy. I was with them first and they have done three things – 1) exceptional service in moving money from account to account or helping my kids etc., 2)n they handle things for my two small companies, and 3) I have been able to make modest investments in some top tier PE funds (e.g., Carlyle or Blackstone) with smaller slices (for which they charge a fee) than one might normally be able to do. Those investments have done very well. But, they charge a percentage of assets and I will likely move my 401k (which has some meaningful assets in it) to the fee-only advisor to reduce overall fees.
Another reason to have an FA is if I predecease my wife, who is a very creative artist but is not financially savvy. She would need help figuring out what to do if I were not here. The fee-only FA I chose was female – she is very good but I also thought she would be better at explaining stuff to my wife, which is about 75% true.
On real estate, I guess we have four properties – our house, an art studio on a building lot next to our house, another studio that we currently rent out as an apartment, and an apartment that we rent out. They take occasionally work but have appreciated in value quite a bit. If we choose to move into the city, we might swap one of those for a bigger unit in the same area as a living space. We have mortgages on the house and the two rental units, but all are small. I’m guessing these are 20% of our net worth. We don’t technically own but will in some form 1/2 or 1/3 of a Canadian vacation house. I will get help from my FA to make sure we pick the right ownership structure for our interest. i wouldn’t hesitate to invest in a non-residential REIT if if made sense. We may also buy another property. I think of rental real estate as mostly like a fixed income investment that can appreciate in value over time.
I’ve been wondering if it’s such a good idea to hang onto these condo’s we have in the Seattle area. I know the market has been really hot, but they would each probably net about 300K after selling costs and taxes. The condos are each bringing in about $900-$1,000 monthly (which is highly taxed). So it seems to me that our return from that money is about 3-4%, and that is before the taxes that we pay annually on it, so significantly lower than that.
I have always liked real estate, and liked that it was diversification of our portfolio. However, that seems a fairly low return, especially since some years the crap hits the fan and we have a massive water leak, costing us a boatload. And some years the rent checks just keep rolling in, and other years we’re fixing this and that, and the calls just don’t stop coming.
I don’t know. Is it worth it, or isn’t it? I don’t think I’d sell a condo that our long term tenants are in, because I like them and I’d feel bad. But a new tenant whose contract is up, or when someone gives notice? Maybe.
@doschicos - yes, compliance would be an issue if they wished to actively trade stocks, but their point is that beating the index funds is a fools errand.
@busdriver11 - Given the strength of this market I’d unload the condos and either do a 1031 exchange into a choice parcel of land or pay the capital gain tax.
As to why anyone would buy bonds in an environment of rising interest rates, well. there’s no rational explanation.
As for REIT’s, at least from my perspective as a long time real estate investor, I don’t see any reason why they should be a necessary part of anyone’s portfolio.