In a comment to my recent post, one interesting response I got, was that with a larger portfolio, you might not want to take the risk of managing your own money. Leave it to the experts, the argument went, who are better qualified and have your best interests at heart. I would partly agree: there are absolutely qualified people who help (SteadyHand comes to mind), the problem is, how do you distinguish them from salespeople who are just out to make money off your hard earned cash?
This is effectively an argument, at its heart, that you should trust experts, because well, they’re experts. I’ve spent enough time around experts of various sorts to in general say, that they’re just people like you and I who are completely fallible, subject to biases and yes, conflicts of interest.
So what’s a guy (or gal) to do?
Even if, in the end, you don’t want to manage your own money, by understanding how things work in the general, you’ll know whether the expert’s advice actually makes sense. I had an investment plan created by our lovely Canadian green bank a couple of years ago, after having managed my own investments for quite a while. The plan looked good on paper, including tons of information which actually made it confusing, but the plan increased my fund holding from four low cost index funds to fifteen high cost mutual funds. It all sounded very impressive, and were I not self-educating on personal finance, I might have gone along with it. The problem? The fees were upwards of two percent. Meaning, to keep up with the market, their fancy portfolio would have to outperform by on average, 2 percent. Highly unlikely. One of the key elements to successful long term investing is keeping costs down.
Find a Fee Based Advisor
If you don’t understand how an advisor is being paid, ask. Some of the best advisors charge a flat fee for their advice. Yes, we are talking hundreds of dollars here. However, by paying them for advice in this way, they aren’t necessarily compensated by commission on the funds they suggest, avoiding that specific conflict of interest.
Don’t Buy the Argument from Fear
Oh you can’t conceivably figure all this out. There are really smart people who spend years learning the market! Why bother? The answer to this is simple: you can get the average market return. The really smart people who manage things like hedge funds? They’re trying to *beat* the market. You absolutely should not be doing that.
About ten years ago, I met with a snazzy sounding insurance/investment firm. They put together client portfolios, bundling investments and insurance. The crux of their argument went as follows:
“Sydney, what part of your body could you not do without?”
At first, I thought, what the hell? What that specific insurance broker was doing, was making an argument to emotion, or fear, in the hopes of selling insurance. Sure, I might one day lose a hand. How high was that probability though, really? Needless to say, following that, as a rule, I tend not to trust insurance brokers where investments are concerned. In making commission on selling insurance, they were driven to sell specific insurance products, which in my early 20’s, I definitely didn’t need.
By educating yourself, finding an advisor who has your best interests at heart, and not falling to fear based arguments, can you be more likely to be a successful investor. To me, success means retiring comfortably. Avoiding that old age cat food meal is what it’s about. I once thought I wasn’t capable of repairing my own bike. Who knew, that once you spent the time to figure it out, it wasn’t really all that daunting?
You don’t need to manage your own investments to follow a logical investment strategy. Sure the do-it-yourself approach of buying and selling mutual index funds, or index ETFs may not be for everyone. I would argue however, that buying mutual funds, based on a set plan, is pretty simple. ETF’s less so. There are absolutely other options, like robo-advisors (see WealthSimple) that will do it for you, once you create a risk profile. The costs will be higher, when compared with a do-it-yourself approach, but that’s the price you pay for convenience. There’s also Tangerine, although with a market expense ratio of 1.07%, they are definitely not cheap. They’re probably at the higher end of what I’d pay.