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Advisors vs DIYers

edited February 2014 in Fund Discussions
I have gone back and forth debating whether i could be doing better with an advisor managing things for me. Have used an hourly guy who used to manage a fund - for occasional reviews a few times a year. I know the majority opinion here is likely to do the due dilligence and research to go it on my own and save the management costs.

Must admit that in allowing a "Mutual Fund Store" guy the opportunity to present a pitch - and give me some nice colorful reports - he presented a compelling argument - in my case anyway - that they could probably be getting me
better ROI than i can expect by continuing the course i've been on with my hourly consultant.

I keep twisting in the wind on this matter and it's frustrating. I think i'd rate my advisor as Fair in my years with him to-date. I'd like to reconfigure things to allow better odds that i can achieve at least something in the 4-6% range for my moderate- conservative portfolio going forward.

I wonder if anyone in this fine group of savvy investors is willing to take a look at my portfolio in specific terms and help me reallocate/rebalance - assuming that i could be doing better than what my advisor has been doing for me.

If there'd be some way to share specifics of my total portfolio i'd really appreciate some input on specific improvements i could make on my own to at least outperform the indexes. Otherwise any suggestions of a trustworthy advisor or firm would be very helpful and appreciated.

Thanks again!

Mike

Comments

  • edited February 2014
    Sharing your portfolio here will attract a lot of responses from some good experts. I would post it and see.

    On the issue of whether to do it yourself or have an advisor, another thought would be to split your portfolio if possible and you run one part. See how that pans out. It sounds like you do pay attention to the markets and have some knowledge of how things work.

    I do all my investing myself even though I do have access to an advisor. If things go well I can pat myself on the back. If things go not so well, I have myself to look at in the mirror and I learn from my mistakes. Educating ones self about financial matters has a lot of benefits.

    Edit: Additionally, my opinion regarding advisors; there are good ones out there but it has to be known that while they might seem to have your best interests in mind, they are also salesmen and they have to have the company's best interests in mind too. A independent advisor is always best.
  • Hi Mike,

    Plainly and simply put, an internet personal advisor is a bad idea.

    I am pleased that the MFO population en masse did not volunteer for this nearly Mission Impossible task. Once again, they demonstrated the wisdom of the crowd by abstaining. I applaud their reluctance.

    The ghost of John Wayne (aka John Chisum) offered some solid generic advice. I’m sure it was not exactly what you were seeking, but it is worth serious consideration. MFOers will proffer outstanding individual mutual fund and ETF tips, but that doesn’t constitute an investment plan.

    Yesterday, I posted an article written by Morgan Housel that listed “77 Reasons You’re Awful at Managing Money”. You might want to access that piece.

    With a few noun substitutions, Chisum hit on several of Housel’s reasons: “47. You don't realize that the guy giving advice on TV doesn't know you, your circumstances, your goals, or your risk tolerance. He doesn't really care about you, either. He just wants to be seen on TV.” And “61. You think paying your financial advisor and other money managers 2% a year seems reasonable, without realizing that it'll probably eat up one-third or more of your long-term returns.”

    Those fees are consistent and, from a compound returns perspective, erode end-wealth since excess returns is a sometimes proposition.

    The fees are particularly ruinous given the mediocre performance record of most money managers. Persistent excess returns (Alpha) is an illusive target, and is so rarely achieved that many folks consider it a myth.

    I do believe that financial advisors serve a useful purpose, but not as stock or mutual fund pickers. They can guide you in assembling a long-range plan, support you in staying the course during hard times, and adjust the plan as circumstances change.

    However, that level of advice demands very personal contact, understanding, attention, and mutual trust. It can not be properly executed over the Internet. Sorry Mike, but it is just a bad idea.

    In another direction, your goal to register a 4 - 6 % average return over any extended timeframe is realistic without resorting to active market timing or active fund management.. The most direct way to satisfy this reasonable target is to lower fund expenses, and to lower or eliminate advisor fees. Once again, see Housel’s comments.

    Over the long haul your most optimistic investment returns goal should be to shoot for market returns using historical averages for whatever asset mix is compatible with your risk profile. Be assured that your risk profile will change over time too.

    If you choose to retain an advisor, don’t pay his fee from your portfolio contributions. Save a little more to cover his costs. A daily visit to Starbucks could be reduced to a twice weekly event. Some research shows that less frequent exposures actually enhance the enjoyment and the end happiness.

    I know this is not the response you wanted, but I suspect it is the response favored, but not explicitly quoted, by many MFO members. Their silence is telling you something. I’m not as smart as most who elected to pass on your request. Regardless, I wish you good luck in resolving your dilemma.

    Best Regards.
  • edited February 2014
    Hi: I second what John and MJG said. And, I don't give specific advice of the nature requested because plain and simple - I'm not qualified to give individual investment advice.

    Take any advice received via electronic media with a (heavy) grain of salt. The radio personality who sounds so financially competent and genuinely concerned for your wellbeing today can disappear into the stratosphere tomorrow should his ratings tumble or he anger a sponsor. David (bless him) could conceivably get "PO"ed by some of our antics and yank the plug. (Sure hope he doesn't:-) Point is, this source of advice always has a transient element to it and should not supplant either a (1) fee-based, reputable and knowledgeable, financial advisor or (2) your own decision making based on the financial education you undertake to acquire. (And MFO is a great place to acquire such an education.) Many fund houses also claim to provide such advice. I'd be leery. One size does not fit all and advice over the phone or internet, no matter how well intended, may not be suitable for your own particular situation.

    As for the 4-6% average return you'd like (with some ups and downs along the way), that should be eminently achievable using conservative funds over the next decade. Just to tease a little - here's three conservative offerings from T. Rowe Price and how they've fared over the past decade. Part of their performance was due to the strong tail-wind bonds in general experienced during that period. That "assist" has probably ended for the foreseeable future. So, it's of some concern. I'm of the opinion, however, that these managers will continue to navigate these waters with their usual exemplary skills and will continue to post nice returns. Clicking the link brings up each fund. One is a conservative bond fund; one a general purpose (multi-sector) income fund; and one a conservative equity fund. Regards

    PRGMX 10 year return: +4.32%
    RPSIX: 10 year return: + 5.95%
    PRWCX: 10 year return: + 8.77%

    The above are for illustration only and not meant to constitute recommendations.
  • Hi folks and I certainly appreciate that requesting such subjective opinion on a general forum, with all due respect to the many wise contributors here - would not necessarily constitute cause to act on any such advice but i guess i should have rephrased to simply ask for general vs. specific thoughts on the holdings relative to my stated moderate-conservative
    risk profile.
    That said, your posts in this thread have been very useful and it's good to hear some positive consensus about the chance that I could assume my own management and achieve at least modest returns of 4-5% or more without having to get too complicated. If anything I feel moved to unravel so many smaller positions of less-than-5% but it's a bit daunting figuring a strategy to do this and i was never good at math, as far as things like cost-basis and tax consequence calculations but i'm sure i could find online tools to help with that.

    Thanks for the encouragement!

    Mike


  • Reply to @hank:

    You noted: "(And MFO is a great place to acquire such an education.)"

    So, mikes425 is pretty much requested to not waste time with chatting about a portfolio within MFO ???

    Let's just pull the plug then.........what is the benefit remaining on a broad basis for any discussion here ?

    I don't live very far from the server location.

    Catch
  • Reply to @MJG:

    You noted: Plainly and simply put, an internet personal advisor is a bad idea.

    I am pleased that the MFO population en masse did not volunteer for this nearly Mission Impossible task. Once again, they demonstrated the wisdom of the crowd by abstaining. I applaud their reluctance.

    >>>So, this site has evolved into an internet personal advisor status, eh?

    >>>The wisdom of a crowd ???

    >>>You applaud a reluctance ???

    How many are you speaking for here, MJG ???

    Did you expect 20 folks to jump in after only a few hours of mikes425 posting and start banging out a "to die for, never fail portfolio"?

    Hell, I'd be surprised if mikes425 would ever want to ask another question here after what I have read for a few of the replies.

    What a welcome for him, eh?

    Why not just unplug the server for this site, if there is no longer any room for chat; if someone has valid questions about their portfolio.

    I find no reason to assume your postings have any greater valid reason than mikes425; and you simply slam the door in his face and then provide your advisor statement(s).

    Self-anointment is still in fashion......

    Well done.

    Catch
  • Howdy mikes425,

    Hopefully, you will have success with your portfolio rework.

    Sincerely,

    Catch
  • mike,

    Correct me if I'm wrong, but you had previously asked about a sort of sprawling bond heavy portfolio and ways to consolidate it? If memory serves your friend/fa had suggested most of these funds and the feedback was sort of negative. If that is the case, I'm sensing some self-doubt about your general plan and the path your friend has put you on.

    This isn't necessarily a bad thing, and I suspect most people here suffer from fund paralysis from time to time. But if this is eating up your time and energy and you aren't any closer to a resolution of your portfolio, you might well be a good candidate for a fee-based adviser to have a look and see. As others have intimated, MFO isn't always the best place for AA advice as many posters are happy with their plans, or happy to let managers do that work for them here. What a lot of posters want is to find funds for Alpha generation within their plans. That doesn't mean you shouldn't ask, but I don't know that anyone is going to do a port review. That being said, there are some advisers here, and they might have a wholly different (and more valid) opinion.

    You can do some quick web-searches to find candidates and have a look at their websites to get a sense of fees and investment philosophy. I feel like that might at least give you a target AA to work with, some structure to stick to, and someone to be a little more dispassionate about what funds to hold, cut or buy. You don't need to stick with the person if you don't want, but it might get you pointed down a good path.

    Just my $.02.

    Good luck
  • I am certainly not going to tell you how to proceed. Truth is some folks really do not want to take the time to do the work necessary on their own. There is nothing wrong with that. Some do not WANT to do it on their own. And some have overall planning and investment issues that are more complex than others. If you decide to pay for advice, by all means work with someone who is NOT paid by commission and who will attest to a fiduciary standard of care. If you need planning and investment guidance, be sure your advisor has a CFP credential. In the end, someone who truly listens to you and who will help you reach your goals can be priceless. Simple changes in tax strategies can save thousands of dollars, and being sure you have all the legal documents you need can save even more. A good planner/advisor will work from a holistic viewpoint, and that can be invaluable.
  • Reply to @mikes425: Let me see the portfolio so I can rip it apart !
    Regards,
    Ted
  • edited February 2014
    Reply to @catch22: Come on Catch! I don't think I requested Mike425 to do anything. As MJG already noted, many here would be happy to rip the portfolio apart if Mike would reveal his hand. That's fine and dandy. Ted has already volunteered.

    However, there was a more subtle underlying message in my reply: If it were my money - especially a whole lot of it - I'd turn to a highly recommended and qualified locally based certified professional and expect him/her to be there day in and day out as needed. He/she would meet with me regularly, maintain the necessary records, perform the accounting, make contacts with various fiduciaries, provide tax guidance and seek legal advice as warranted. None of these necessary adjuncts to financial planning are we set up to do here at MFO.

    Nothing was intended to detract from the board or its members. Matter of fact, I'd suggest Mike425 begin immediately reading at least 10 of Ted's linked articles every day as part of his continuing education. Most are gems that could advance his knowledge and potentially bring him to the point where he'd be comfortable managing his own investments. Regards
  • Hi Mike. I'll throw in my 2 cents. Advice from this web site or any other would be interesting, informative and entertaining, but nothing more than that. Lots of opinions but no-way a financial plan. It would be interesting though to see how your original advisor set up your conservative-moderate portfolio and what the Mutual Fund Store people suggested.

    I'm guessing like everyone here, you want a financial plan in place, one you can sleep with and have trust in. You decided 4-6% returns is sufficient going forward. Not sure how you decided that, but I'll assume you are close to or in retirement. 4-6% wouldn't be an accumulation/growth portfolio for a younger investor unless they already had assets needed.

    The advice you are getting here to work with a fee only, fiduciary advisor is what I agree with. You already have advice from one. Get a second opinion to be more self assured. It has to be a one on one discussion as I believe MJG suggested.

    I've been coming to this site, first Fund Alarm and now MFO for years and like I mentioned above, it is informative and some times very entertaining - lots of personalities. David's commentaries are better than any magazine or news letter you can buy. You can do things yourself, but sometimes it's nice to have the reassurance of a trusted professional. I know that is true for me. I lost my job a few months back and the first thing I did was seek advise.

    Good luck to you Mike!
  • MJG
    edited February 2014
    Reply to @catch22:

    Hi Catch,

    Based on your many questions directed to me, I conclude that you misinterpret my rather generic and innocuous response to Mike’s advisor quagmire. The questions do warrant a reply since they reflect some confusion over my thoughts on the matter.

    My opening statement that searching for “an internet personal advisor is a bad idea” is globally intended. Specifically coupling this generalization to the MFO site is definitely “a bridge too far”.

    I seek, welcome, and often benefit from exchanges that present diverse opinions on any financial topic. Informed alternate assessments lead to more refined analyses and better solutions when the issue is clearly defined with definite goals.

    However, the multifaceted nature of portfolio management make it a horse of a different color. I firmly believe that both the client and his advisor would suffer if the exchanges were constrained to linear Internet communications. This issue has many moving parts and is consequently far more complex.

    I believe that a face-to-face interchange is a more productive approach to capture the nuances of each person’s perspective; distance and writing shortcomings compromise this communication.

    I thought I made that exact point in my original post with the following two paragraphs.

    “I do believe that financial advisors serve a useful purpose, but not as stock or mutual fund pickers. They can guide you in assembling a long-range plan, support you in staying the course during hard times, and adjust the plan as circumstances change.”

    “However, that level of advice demands very personal contact, understanding, attention, and mutual trust. It can not be properly executed over the Internet. Sorry Mike, but it is just a bad idea.”

    Here is a true story that illuminates the need for close-quarters contact.

    When originally assembling its staff, Morningstar recognized the distinction between superior analytical skills and writing communications talent. In these early years Morningstar preferred to hire English majors over Financial graduates. Writing effectiveness was paramount in their worldview at that time. They have modified their policy in that regard as their structure and reach has matured. Many early Morningstar users were not aware of this bias which represents a shortcoming in my view.

    So NO, this site has NOT “evolved into an internet personal advisor status.” And I propose that it would be risky business to do so.

    I do subscribe to the wisdom of the crowd axiom, but only under certain conditions. The opinions must be well informed by qualified people, they must be independently determined, and they must not be under the influence of a strong, dictatorial leader.

    Perhaps applauding “reluctance” is a bit fuzzy description. I feel that giving portfolio advice on the Internet is hazardous business for some of the reasons presented earlier. My singular intent was to salute the forbearance demonstrated by MFOers as they respected the dangers of providing incomplete advisor-like counsel.

    I never claim any special knowledge or forecasting prescience. I fully recognize the limitations of my investment experience and skill set. I am an amateur in this arena. Occasionally I might speculate on this group’s position, but any judgments I make are mine alone. I never attempt to represent it as any MFO membership consensus. Likely, no such consensus even exists. I do prefer to reply to postings quickly since issues tend to get rapidly buried with our active contribution rate. The rapidity of the reply is not a valid measure of its quality.

    Finally, I found none of the replies unfriendly with hidden nasty intentions, my own post included. In the true spirit of this website, we all attempted to be helpful and to suggest plausible options. I surely welcome Mike to the site and hope he will remain an active participant.

    As a concluding observation, I noticed that although you addressed the bulk of your comments to responders, you failed to respond to Mike’s specific questions. That’s too too bad since, given your prior posts as a guide, I suspect you have much to offer on this subject.

    Please stay cool; divergent opinions are positive and attractive attributes of this fine website.

    Best Wishes.
  • Reply to @Ted: Hi Ted, that is generous of you and if you would be kind enough not to rip me up in the process and blame the advisor rather than me( ; )- since it's primarily his work -- i'd be happy to share a rundown of holdings and percentages of each.

    I will add that i appreciate all the input and recommendations posted in this thread thus far - didn't want to invoke any anger or anything... simply questioning how i might do better by potentially consolidating and modifying the existing port - in general terms - but specific pointers about certain funds in particular would be welcome and (disclaimer) not taken as an endorsement or directive but simply opinion.

    Dunno how the best manner would be to list the port details but perhaps can just list them in a separate post either alphabetically or in order of largest to smallest percentage.... Thanks to all!
  • edited February 2014
    Lat month Mike listed his bond funds, 16 in all. I can't imagine any advisor putting a client in that many bond funds and in such inconsequential amounts. Apparently his equity funds are numerous and in small amounts also. Not sure what the answer is for Mike as this forum has its non-diversification proponents but seemingly an equal number of fundaholics. So he will be buffeted by conflicting advice.

    http://www.mutualfundobserver.com/discussions-3/#/discussion/10184/new-here-and-would-love-to-get-2nd-opinion
  • edited February 2014
    Howdy Junk, well thrash me! I did indeed post here about the bond 'side' of my PF and believe it or not i mistakenly thought that post was on the Morningstar forums so i'm sorry for the duplication. Still, i did make a few adjustments to cut down on the ETFs and consolidate a little bit but, yeah, for the most part it's still pretty close and...i guess could be referenced via your link above by anyone who might care to check it out.
    Mind you, if i'm a fundaholic it is only by proxy as the work is a reflection of a former fund manager - and i really didn't design it - just began questioning it after a few years of rather lackluster performance. I'm all for downsizing and consolidating - which is why i started looking for feedback to begin with. The equity funds actually aren't nearly as fractionalized as you suggest - (not gonna dare post those too; ). You really cast doubt on the worthiness of the FA's approach in the questioning of the small bond fund positions which is fascinating to me and maybe a reflection on the fact that the person did manage a rather prominent fund before establishing his advisory firm as a CFP - and perhaps a fund manager would be more inclined to think nothing of having a lot of small positions in a portfolio for diversification. Thanks for posting the link to my first thread ; )
  • Reply to @mikes425: Mike, you pretty much said it all when you said you began questioning a few years of lackluster performance via your bond funds. Many bond funds have had stellar returns the past few years. For instance, in places like junk bonds, since 12/08 it has been the best run ever.

    A good multisector bond fund would serve many of your bond needs. There are few experts in this business, albeit lots would have you believe they are experts.

  • edited February 2014
    mikes425,

    Many times fund managers ( advisors, Fidelity's Freedom funds, etc ) have no added benefit compared against the Total market index.

    You could exchange all those holdings for a couple balanced funds ( PRWCX, VILLX, FPACX, MAPOX, etc ) and be done with it. If you're searching for more diversification then you could add a solid global fund and something from Matthews ( MACSX ) plus one or two multisector bonds funds. Or you could just buy something from Vanguard like the Star fund and go fishing. Take care
  • edited February 2014
    Thanks Swede, seems reasonable enough. I'd love to get it down to that simple of a mix. Have to think about the whole tax-consequence issue taking gains into account and all that - which i could probably just work with my local brokerage branch manager to help me sort all that out and get on the path to simplification. Appreciate your time and others who've chimed in. If i can kinda roadmap which particular smaller-position funds/ETFs i should strategically liquidate or consolidate - based on some kind of ...well.. plan - i'd try my hand at it myself but i'm not as game savvy at this stuff as many others around here.
  • edited February 2014
    Reply to @Junkster: Agree. I can't imagine having 16 bond funds either. An individual could easily "collect" that many (and there are worse sins). But what kind of "advisor" is this?
  • mikes425,

    It is my view that you don't trust your advisor. I know from talking with several advisors about my mother's assets that many should be flipping hamburgers. I have decided on working with her local Schwab branch, saving her all those so-called "wrap fees". Depending on your account value they offer very good planning. I deal with Fidelity myself and find that both companies offer good service and save you tons of money. It is my opinion that you shouldn't being paying for advise if your advisor cannot compete with the basic index. If they're simply following the market around then why not just buy the market at .o7-.o9% ? If you're risk averse and wish to protect on the downside this draws many more questions.

    I would shop around for some help that you trust or learn on your own. Personally, I enjoy managing my own $ but many people may need that middle man.




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  • Hi Swede, interesting you mention the Schwab branch office. I have my account with Schwab. Perhaps i'm seduced by the fact that my current advisor once managed a mutual fund and maybe am jaded by the notion that he might be more judicious or savvy than, say, my local branch manager. However, I have spoken with that local manager and while he may not have as many years experience, he is a CFP and has been helpful in offering his opinions on my portfolio. In our last discussion he proposed that if i entered the Private Client program just with my taxable account (and the fee structure went up from .06 to .08% of AUM per year eff. this year..) - he said he would be willing to just offer his own advice on the rest of my account - that is, the portions in my SEP-IRA, I401K and Roth - for no advisory fee. Of course the taxable account, in my case, constitutes the largest amount - but had i taken him up on the offer before year-end, the .06% fee was pretty low compared to the average of 1% a year.

    I'm thinking of just bringing my stuff back in to him again and revisiting the whole deal because yes, I guess i do feel at least a little more at ease having somebody else to bounce ideas off of and all in all, I've been pretty happy with Schwab, just in terms of their operations and support services...and indeed, many branch managers are 'empowered' to simply discuss a portfolio with a client at no cost, even if the client isn't paying for one of their fee-based advisory services.
  • Every advisor gives different advise. For my needs, I see no reason to cover every inch of the market - That's just me. Many of the better global stock funds only hold 30-50 different investments and have bested the market during this raging bull. Many simply don't have the time to find that right fund for their needs - so they hire someone for help - still, I see no need for 4000 mutual funds. I use the core and explore mindset with investments. It works for me.
  • Mike, you have precipitated a cat fight in the forum and have made members spend a lot of time with you. Before you potentially get too much into a "helpless damsel" syndrome and the highs consequent attention brings, as I have told you earlier, you are over thinking this and will have problems whether you DIY or an advisor because of it.

    It is very difficult NOT to make 4-5% returns over the long term from ANY sensible portfolio, whether with 2 funds or 50 funds. Your earlier responses indicate that you are not likely to be satisfied with such a return even though you indicate that as the goal. There is no DIY portfolio or advisor that can satisfy this schizophrenia. That is what needs to be fixed first.

    I am beginning to suspect that you like the attention here more than the getting a portfolio done for your investment.:-)
  • Reply to @cman: Well that's a somewhat condescending characterization but don't worry about it, I'm not offended. Just to clarify I didn't precipitate anything. How anyone chooses to respond to a question for some feedback is entirely beyond my control so no drama was invoked nor intended on my part. I'm following my instincts and will either stay the course with this FA or discuss things with my local Schwab broker - or both - and as you suggest, should do fine with a modest expectation of about 5% returns even if i leave things just as they are.
    There. I've decided something. Have a great day too!
  • Reply to @cman: pretty rude comment.. Mike didn't precipitate anything and he has no power over how members spend their time or how they interact with each other. That's just silly.

    Mike, you are right. We do have a couple condescending people here. Just ignore it I guess.
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