Once again, the war to cut investment fees has moved the stock market closer to an actual commodity. At this point, slashing fees seems to be an act of desperation from the large investment shops who are still licking their wounds from the market dominator, Vanguard, who has sliced into the collective assets under management of Wall Street.
What price does one place on advice? Is thrice advice better than twice? Is advice worth more than 10 basis points? Chances are, you do need excellent advice, and it is certainly worth more than “free.”
A simple exercise in Cost/Benefit analysis will illustrate what I mean: Let’s assume the going rate for excellent investment and planning advice is 0.5% and use the following as a guideline for what you should be paying (sorry Wall Street, 1% is on life support; golf outings, steak dinners and happy birthday cards are great personal touches but not worth thousands of additional dollars in annual fees):
- If you have a $10,000,000 portfolio, that’s $50,000/year for the advice of an excellent financial advisor who offers comprehensive planning services. These are very talented individuals who help you navigate the how, what, where and when via integration of investment, tax, estate and legal planning, with a sprinkle of concierge services, a heavy slathering of technological efficiency and access to unique investment opportunities.
- If you have a $5,000,000 portfolio, that’s $25,000/year, and you should be seeking a Fiduciary Advisor* with a legal obligation to align his interests with yours.
- For a $1,000,000 portfolio, it’s $5,000/year. You can still get a Fiduciary Advisor who might even integrate a comprehensive financial plan into the 0.5% fee (some will charge an additional planning fee of $500-$2000/year). Hint: the planning fee is easy to negotiate.
- Under $1 million and you’re not considered an important client in the eyes of the wealth management industry. As you grow your wealth, the advice I provide is simple: Save as much as you can and put your money into a free index fund that is diversified globally.
If you have less than $1 million to invest but still want to have the best service and advice, we can help. Open an account at Advice-365 and have access to a team of smart fiduciary advisors. If you have less than 10-15 years in your time horizon, Set a time to speak with me.
Think of risk as your tolerance to lose money, coupled with your understanding that time is the #1 factor to reduce risk of loss and maximize gains probability. In other words, time reduces risk, and volatility simply becomes noise. There are many excuses NOT to invest in the stock market. See the chart, but first get into a meditative state and go back in time to the beginning of the mortgage crisis. Did you lose sleep, panic and sell, or ignore the noise and buy on the dip? Risk is the least understood and most important concept in portfolio management, one which can be controlled. It’s my job to help people understand if their portfolio matches their risk number. Everyone wants to maximize returns with minimal risk, but that is simply not reality. For someone approaching retirement, risk starts to really matter. Set it and forget it is a great strategy when you have lots of time, but as you take distributions from your portfolio, your investments could get crushed because you’re taking income as the market declines, with a greatly reduced probability of a full recovery. That’s scary.
The solution is having a simple risk number, one that allows you to meet your lifetime financial goals if you have the discipline to maintain this risk number. Sounds easy right? It is easy, if your portfolio is aligned with how you personally view risk.
Think of your risk number as a driving speed. If you are driving 85 MPH, you’ll get to your destination quicker, but the risk of an accident or speeding ticket rises in conjunction with your speed. If you go 45 MPH, that’s a much safer speed, but you also don’t want to go 45 MPH in a 65 MPH zone (ie. You are 30 years old and invested too conservatively).
The current stock market will be 11 years into its strong bull market run this coming September. Historically speaking, the market has a -20% or greater decline every ~7.5 years. If you’re being complacent with re-evaluating the current risk/reward structure of your portfolio, history would argue that’s a mistake. Complacency is a symptom of a strong stock market.
No Replies to "Managing Risk and Fees, Not Performance"