It is unlikely that anyone can beat the market. So, it makes sense to avoid paying extra fees for active management that doesn’t provide any extra return.
Can the same be said for hiring a personal investment advisor? Is the expense of having someone help you build the right portfolio justified? The answer depends on a few factors:
How high are the fees being charged? Anyone with an annual of over 1.5% is charging too much.
What kind of investing strategy do they use? Are they are timing the market, picking stocks, or use actively managed mutual funds? Why pay someone to do something that has proven ineffective and/or to manage money being sent to other money managers?
Do they use no-load, low fee investment vehicles? Are they creating well allocated portfolios based on your needs and risk profile? Are they committed to guiding you through the markets frightening gyrations and maintained needed discipline? Is rebalancing automatic and enforced? Will they create a well planned strategy for living off our your investments in the future?
It seems that those who hire the right personal investment advisor might make more money than they pay in fees, according to a recent study by Vanguard. The study found that advisors who implement what vanguard calls “best practices” can add up to 3% to your returns.
Read the Vanguard White Paper