Do You Really Need a Financial Adviser?

The other week while I was walking my dog I asked a woman I sort of know if she was into the stock market. She said that she wasn’t and that she just puts her money into mutual funds. “Then you are in the stock market,” I said.

It made me realize that many if not most people are okay with the idea of having money in the stock market, they’re just not comfortable with managing their own money. Having it managed professionally gives them comfort.

That guy or gal at your bank signing you up into one of their mutual funds is not an expert in the financial markets. If they were so much smarter than you in the markets they would be sitting on a beach instead of their crumby office. They’re salespeople. They get a commission and their company gets a 1-2% cut from your whole investment every year, win or lose. Easy money. In return you might make money but most of all you get the comfort of believing you’re doing what’s right.

Going through my bank’s list of mutual funds I found that the one with the highest 10 year return and lowest fee was a S&P 500 Index fund. They won’t ever push this fund though because it’s not very actively managed if at all since it just follows an index. In order to justify their 1-2% fee they have to make it seem like they’re doing something even if it means actively losing your money. 1% doesn’t sound like much but it really adds up.

I suggested to this woman that a low cost S&P 500 ETF would probably have much lower fees and a better return and that she should check the annual returns of her current mutual fund and compare.

“Nope, no, I don’t want to deal with it. I don’t know anything about that stuff,” she said. This is why financial advisers even exist. When people see their mutual fund tank or languish they don’t want to blame themselves and be confused on what to do.

The truth is you don’t have to know anything. You start a trading account and periodically put money into a Vanguard or Spyder ETF. It’s easier than online shopping.

 

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