Your financial adviser can't help you pretty well describes the reality for most individual investors. That's why it makes sense to share concerns and views with those you know and trust and who either have been, are, or soon will be in the same or similar "investment boat" and in need of a forum for seeking objective direction, advice and knowledge sharing.
The article states that too many investment advisers adopt a goal to "beat the market", even though very few do so. In addition, these advisers don't have time to develop with their clients realistic individual investment goals and so they follow a cookie cutter, one size fits all formula for almost all customers. Finally, advisers spend very little, if any, time counseling their clients individually about their goals and how well the plan is unfolding with respect to being on track or in need of revision.
Investment advisers or brokers don't beat the market over time, because the market is really hard to beat. Thus, the stated goal of the adviser is unrealistic at the outset. And this is especially true if after-tax instead of pre-tax investing results are considered and individuals don't follow a speculatively dangerous borrowing approach whereby they use proceeds from loans to invest alongside their own money. Finally, intermediary fees and expenses of the broker or adviser subtract in a meaningful manner from an account's investment performance as well.
So why then do advisers establish beat the market goals for their clients, why do they not measure results after taxes and why do they look only at results before transaction costs and brokerage fees?
Well, the following answer taken directly from the referenced article makes good sense to me, "The truth of the matter is that the economics of the business do get in the way of adviser's doing right by their clients." That's because out of necessity most advisers are "asset gatherers"as opposed to investment counselors, meaning that they make their money based on how many clients they have and how many assets they have under "management". Individual investment advice and planning simply isn't part of the broker's or money manager's profit or business model. The broker has neither the time nor the expertise to counsel individual customers in a value added and appropriate manner.
Accordingly, as individuals we're better off avoiding or minimizing intermediary expenses to brokers and money managers, and also avoiding unnecessary transaction and taxes resulting from frequent trading within the account. We should, at least for the first ten years or so, adopt a follow the market, dollar cost averaging approach to equity index investing. That view is diametrically opposed to the business interests and business model of many brokers and money managers, but it's also usually the best one for individuals to adopt when investing for the long haul.
What then should we do? Well, one thing we can do is have an open forum for free discussion. And I do mean free. If nobody is selling anything, then at least we can be sure to get somebody's best objective assessment as to what makes sense and what doesn't. In other words, if we've put our money where our mouth is, it doesn't hurt for others to listen, assess and then follow their own path. But that means each of us needs to formulate a PLANNED path about saving, investing, measuring and revising which we intend to follow.
We each and all need an individual investment plan, in other words. It can and will change from time to time as circumstances dictate, but it needs to exist as a clear and ongoing point of reference. Otherwise the old adage of if we don't know where we're going, any road will get us there applies. And that's not a good road for any of us to travel.
To The People Who Haven't Saved Anything Yet is another piece of investing advice which makes the simple but entirely accurate point that it's better late than never when it comes to saving and investing. One very specific part of the commentary is worth highlighting, and that is the inherent benefit in the planning process itself and not the actual plan. Stated another way, the planning process is more important than the plan developed. The planning process becomes an ongoing habit, but the actual plan will undoubtedly be altered over time as our goals and circumstances so dictate.
Of course, prerequisite to any saving and investing approach is spending less than we earn. Assuming we have that habit in place, it's time to formulate goals and timetables, since goals without timetables are nothing more than dreams.
In the end, or from time to time, what amount of accumulated funds do we need to have, by when and how do we intend to accomplish that? By earning, saving, investing and assigning a rate of return assumption to that series of variables, we'll have a plan to follow. That in and of itself is a great start.
Let's not leave where we're going to chance, and let's definitely plan the route we'll take to get there and when we plan to arrive.
Thanks. Bob.
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