Why I Fired My Financial Advisor
Like most busy young professionals, I convinced myself that I had little time to worry about my finances. My young adult mind argued that my energies were better spent building my career, pumping up my salary. So I outsourced it. I asked a few questions, leaned on a family friend that I trusted, and hired a financial advisor.
The advisor was kind, knowledgeable, and seem to understand the ebb and flow of the market.
Fast forward fifteen years, I found the financial independence community. I delved deep into blogs and podcasts, and started to understand that there was such thing as simplicity in investing. I learned about the lazy portfolio and the benefits there in. It was amazing how little work it took to become proficient.
I went a step further, I ran to the library and found the ten most referenced financial books in the blogs that I was following. I read. For months. Book after book. Just to be sure that I wasn’t oversimplifying.
So I went back to my advisor and asked for him to chart my returns over the last decade. They looked something like this:
Overall returns 9%
AUM Fee: 1%
Average expense ratio for mutual funds: 0.75%
Stock to mutual fund balance 50/50
All things being equal, these were not horrible returns. My money had grown nicely over the years, I might have left everything as is, but I had a control experiment. MY wife’s 401K.
Ten years ago my wife allocated her 401K based on a simple decision tree provided by her company. She then left it completely alone for 10 years.
Overall returns: 10%
AUM Fee: 0%
Average Expense ration: 0.30%
Stock to mutual fund ration: 0/100
Ding! Ding! Ding! We have a winner! I fired my advisor and moved everything to Vanguard and managed it myself.
Have I made a few mistakes? Definitely! But overall, I understand my money and investments better than ever. In fact, there were a few finer points that my advisor completely missed.
1)He thinks an expense ratio of 0.50 percent is cheap
2)He had me contribute to a non deductible traditional IRA but had no idea about Back Door Roth conversions.
3)He told me he always tries to hold some of the investments that he suggests to his clients. I wonder what he does with the rest? Maybe Vanguard index funds?
This is not to put down financial advisors. I think mine actually treated me fairly well, and allowed me to outsource something that was causing distress. I now know that distress was a sign that I should have dug in deeper, not backed off. I had to do hours of research and studying to figure it out. You may not.
This is yet another resource in bringing everyone up to speed with minimal cost and time commitment.