Skip to main content

Sound Advice: April 24, 2024

WE DO BETTER WHEN YOU DO BETTER!

 One of the more prominent recent TV commercials comes from a well-known Wesst Coast adviser whose spokesperson proudly announces that they do better when their clients do better.  Surprise, surprise, with rare exception that’s the fee arrangement used by the overwhelming majority of firms in this industry. 

Typically, advisory fees are set as a percentage of assets under management.  Although a midpoint would probably be about 1% annually, as assets to be managed reach higher levels, fees are reduced.

Yet, this commercial seems clearly aimed at convincing less knowledgeable investors that by some minor miracle the firm behind it is giving you a better deal.  That’s hardly the case.

Though fee arrangements usually follow a common path, they may reflect the asset allocation if the split varies markedly from the norm.  One example would be accounts that are heavily biased toward fixed income.  For those, the fees would be lower.  Another might be private equity or other atypical asset classes.  Those might be higher.

For people interested in even lower fees, two readily accessible options are do-it-yourself or robo advisors.  The former possibility may appear to be a bit ambitious, but the reality is anything but. The effort requires little more than opening an online account with one of the major brokerage houses, transferring the funds to be invested, setting the asset allocation, and then buying a series of index funds (domestic equity, international equity, domestic fixed income) that will make up the portfolio. 

With all due respect to folks who believe that there’s special magic performed only by professional money managers, the reality is that the returns from a small group of low-cost mutual funds or exchange-traded funds will more than hold their own, if not exceed, those of Wall Street veterans.

Option Two is robo advisors, which are little more than computers that do the investing for you, following paths that will be largely similar to those you would use on your own.  The fees will be higher than those when doing it yourself.  And when the market occasionally hits speed bumps, robos won’t be available to calm you down. 

DIY is the better choice.

 

N. Russell Wayne

Weston, CT

Any questions: please contact me at nrwayne@soundasset.com

203-895-8877

www.soundasset.blogspot.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: February 21, 2024

800-000-0000 That’s 800-000-0000 Again, 800-000-0000 That’s the typical closing for the hard sell commercials that are increasingly polluting media airwaves.   These are the commercials for products or services you rarely need or most definitely should avoid. A substantial number are on behalf of groups of attorneys who would have you believe that you and many others may be entitled to cash compensation for having used or being exposed to some evil item or substance some time in the last few decades.   The pitch always includes a comment that there’s no cost to you unless there is a settlement in your favor. Much of this is rubbish, but when the appeal suggests that there’s nothing to lose, why not take a shot.   And, as you would expect, “advisors” are standing by 24/7 to take your call and help get the process in motion.   What kind of advisor would be available at 3 a.m.? One version of this approach pops up every year between October 15 th and Decemb...
Post a Comment
Read more

Sound Advice: September 21, 2022

The Professional Approach To Stock Selection There are various approaches to stock selection, but the two that predominate are fundamental analysis and technical analysis.  Fundamental analysis is a numbers-based method that evaluates key factors such as income and financial health, including the past, present, and future.  Technical analysis emphasizes movements and formations of stock prices. Fundamental analysis is based on factors that over time have proved to have a meaningful impact on stock price movements.  The optimal picture of corporate profitability is steady growth, both in the past and, prospectively, in the coming years.  Steady growth is rewarded by higher valuations of underlying earning power than those accorded companies with erratic progress. When professionals screen (filter) the data of the broad universe of stocks, they look for companies that move ahead every year, regardless of the prevailing economic conditions.  Although high pas...
Post a Comment
Read more

Sound Advice: July 26, 2023

Is Day Trading a Good Idea? Day trading can be both exciting and potentially profitable, but it also comes with significant risks and challenges. Whether it's a good idea depends on several factors, including your financial situation, risk tolerance, time commitment, and knowledge of the markets. Here are some considerations to keep in mind: Risk and volatility: Day trading involves buying and selling securities within a short time frame, often within the same day. This exposes you to the inherent volatility and risks of the market. Prices can fluctuate rapidly, and unexpected events can have a significant impact on stock prices, making it challenging to consistently make profits. Time commitment: Day trading requires a substantial time commitment. It involves closely monitoring market movements, conducting research, and executing trades. It can be stressful and demanding, as you need to be actively engaged in the market during t...
Post a Comment
Read more