I am severely biased on this topic but recent research shows that “retirees who work with financial planners can get more mileage from their retirement portfolios – approximately 1.82% higher returns during retirement.” Even though that is true, on average, investment returns are the least important value we advisers provide to our clients!
In an excellent summary of the issue in Advisor Perspective, Bob Veres opines,
“Jim Cramer, Suze Orman and other so-called investment pundits and gurus are constantly telling consumers that they can do a great job of managing their portfolios on their own. Why pay a fee for professional asset management when you can turn on the TV and get Cramer’s stock-picking expertise for free?“
Veres goes on to quantify the huge value that holistic advisers (as opposed to product pushers masquerading as “planners” or celebrity “advisers” peddling financial porn) generate for their clients, ranging from annualized 4-8% better long term performance. Yes. 4-8%! On the other hand, the average investor costs himself 2% per year versus unmanaged indexes. Granted, exceptions abound. But if you’re “average” why not employ a planner? Most of us pay for ourselves many many times over. Here’s how, according to Veres:
- We keep you from chasing the next hot stock or fund just before it tanks.
- We make sure you stick with your asset allocation by employing at least twice yearly rebalancing
- We help define and implement diversification on many levels. Veres only discusses investment diversification but it is also important to have health, interest rate and inflation diversification, to name a few other risks in addition to volatility.
- We consider and prepare for taxation. The types and timing of assets acquired and income taken must be framed in your unique current and expected tax picture.
- On average, we compel you to not only save more but smarter (usually with tax advantages).
The best reason to avoid Cramer’s Action Alerts and use a real adviser, who is held to a fiduciary standard like yours truly? Veres continues,
“Mark Hulbert has compared the overall performance of Cramer’s Action Alerts with the Wilshire 5000 index for the calendar years 2009, 2010 and 2011. (You can find the chart here). Hulbert found that over the three-year period, Cramer’s recommendations would have delivered an investment performance of roughly 9.9% a year – and this did not account for trading costs or tax obligations that accumulate when you’re buying and selling 10 or 11 times a day. During the same time period, the Wilshire 5,000 [unmanaged] index delivered an average annual return of 14.9%.”
Yes, I’m more boring than Jim Cramer. But I’ll bet you’ll be better off in the long run. Even the short run!