Your Investment Portfolio – Why You Don’t Need A Financial Planner
by Alexander Green, Chief Investment Strategist
Friday, February 15, 2008: Issue #764
If you need bypass surgery, you should find the most qualified surgeon available. If you’re getting sued, you should hire the best defense attorney in town. Likewise, some people argue that if you’re planning to live well in retirement, you should hire the most expensive financial advisor you can find to manage your investment portfolio.
I’m not one of those people.
My basic premise was this. If you’re an investor who is seeking long-term capital gains, it’s crazy to pay a lot of money for a high-priced financial advisor who gives you an economic outlook and short-term market forecast with all sorts of commission-based solutions attached.
Nor do investors generally need a “personal investment plan” based on their individual circumstances…
Your Investment Portfolio Should Have Only One Objective
A long-term growth investment portfolio has one objective – to keep you from outliving your money. It should give satisfactory returns for a 25-year-old just beginning an investment plan, as well as a 65-year-old whose retirement may realistically live three decades or more… before he goes to that big retirement home in the sky.
Last week I was a speaker at the World Money Show at the Gaylord Palms in Orlando. (Over 14,000 people registered to attend.) And while I spoke on everything from momentum investing to insider buying, I got the biggest response from a talk I gave Wednesday afternoon called “The Gone Fishin’ Portfolio: Get Wise, Get Wealthy… and Get On With Your Life,” about how you can effectively manage your long-term investment portfolio yourself.
As the fund manager John Templeton once said, “For all long-term investors, there is only one objective – maximum total return after taxes.”
Of course, some financial advisors are taking generic advice and selling it as customized plans. For that reason, whenever I hear an investment advisor tell a client that he is drawing up a long-term growth portfolio based on that client’s “unique profile,” I’m invariably reminded of the comedian who tells his audience, “Never forget that you’re special… just like everyone else.”
I don’t want to tar all advisors with the same brush. Some actually give good investment advice at a reasonable cost. But, as my buddy Scott Whitmore at Morgan Stanley is fond of saying, “It’s 97% of investment advisors that give the other 3% of us a bad name.”
Part of the problem, too, is that investment advisors have a lot of overly burdensome regulatory requirements. Brokers and other investment advisors are supposed to “know their customers.” That means they have to ask a lot of nosy questions about your financial circumstances. But that doesn’t mean you need to pay for a customized solution.
And, quite frankly, this is generally true for income-oriented investors, as well as growth-oriented ones.
Keeping An Eye On Your Investment Portfolio
If you want to make sure your investment portfolio doesn’t kick the bucket before you do, look at expected asset returns, not your personal circumstances.
Need proof? Jim Otar is a certified financial planner, independent advisor and the author of “High Expectations and False Dreams: One Hundred Years of Stock Market History Applied to Retirement Planning.”
In June 2002, he wrote a column on “Client Strategies” for Financial Planning, a journal for investment professionals. He says that, “The optimum asset allocation for an income portfolio has nothing to do with your client’s risk tolerance, his investment knowledge or many other countless questions that your clients are forced to answer during your initial interview. Other than fulfilling the regulatory requirements, the ritual of risk assessment has no significance to the optimum asset mix.”
In short, if your goal is long-term growth – and you want to minimize the time you spend fooling with your investments – you can get satisfactory returns by doing the same thing the country’s top institutional investors are doing: asset allocating, rebalancing and keeping a sharp eye on expenses and taxes.
The right asset mix is the key. Not fancy advice with high fees attached.
Good investing,
Alex
Today’s Investment U Crib Sheet
- What’s the right mix of assets?Below, please find the Asset Allocation Model that Alex recommends for maximum long-term results:
- Proper asset allocation – holding a combination of non-correlated assets – will determine much of your long-term success. But there are three more “rules” that can improve your total return: proper position sizing, following a strict sell discipline, and keeping your costs to a minimum. To be sure, successful investing isn’t just about picking the right stocks. It’s just as important to know how much to buy, how to keep as much of your profits as possible… and knowing precisely when to sell.
- Combined, these Four Pillars of Wealth will increase your overall return far more than some financial advisor’s “needs analysis” quiz.
Any investment contains risk. Please see our disclaimer.
9 Responses to “Your Investment Portfolio – Why You Don’t Need A Financial Planner”
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Alexander Green is the Chief Investment Strategist of Investment U. A Wall Street veteran, he has more than 20 years of experience as a research analyst, investment advisor, financial writer and portfolio manager.
It is unfortunate that most educational facilities do not graduate students who do not understand what a mutual fund is, or a money market fund. The noload universe will happily charge a hefty fee for answering these simple questions or any others. If the fees are too high maybe something should be done to reduce the interference of the government with what you describe as meaningless questions. I have been a planner for more than 40 years and do not believe I have overcharged people. I stay in contact with them long after there are any sources of income for me. I have seldom charged a fee even though I have been licensed for that for many years. I do not accept the idea that I am in a special 3%, the percentage is much higher than that!
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I am wondering what kind of returns the “Gone Fishing Portfolio has generated over the the last 1 year, 5 year and 10 year periods?
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i am 52 and i am searching for long term income.i was planing on retireing at 55 but still have not found the right investment portfolio to accomplish this goal. any and all advise is appreciated. thanks steve
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financial advisor
Most people are too trusting and too guick to abolve their advisors of inadequacy and even serious avoidable losses.
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I agree that you don’t need an investment advisor if you are willing and able to do the research necessary to build and monitor your own portfolio. It would also be helpful if you have access to various products not normally offered through discount brokers. Everyone knows how to change the oil in their car but few people want to do the work necessary to do the job. If you really want the most from your investment advisor keep in touch and make sure you communicate what you like or don’t like about your account. You also need to make them aware of all your various investments. Also keep in mind that you need to pay a management fee to have a truely managed account. Investment advisors do well when their clients do well. Even the best can’t make money in broad based bear markets unless they short stocks or recommend inverse ETF’s. Unfortunately these strategies are not usually acceptable for conservative investors.
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The best investment plan is to preserve money by timing savings using a Nasdaq 100 day moving average trigger with tax shelted funds over a long period of time! The biological mind is limited in considering all the variables with traditional investing methods such as you suggest.
Global warming events are influencing investments already. Therefore electronic data based decision making is necessary! Even George Sores understands this by getting out of the investment advising business! Whenever there are commissions involved, there is a conflict of interest.
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kind of offended by your buddy from morgan about the 97 to 3..also in case you have not been watching,…growth has not worked in the last 10 to 15 years….and your picks are not that stellar..you guys are money whores also…just get people signed up for newsletters and try to sell them more and more crap
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I love reading everything that you write. I have never read so much from one man that has so much “Common Sense”. You are very fortunate to be blessed with such a gift. Keep sharing as it helps enlighten us all. Thanks. Glenn
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Alex
I could not agree more with this column. This is a major “bullseye”, without the bull.
Thanks
Ralph
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