Although I'm a DIY investor and encourage people to figure out how to invest themselves, there's absolutely a place for hiring a financial advisor or investment manager to manage your money, or at least a portion of it.
Back in 2015, I did some consulting for a fintech startup called Motif Investing down in San Mateo. I remember talking with a person in marketing about what she liked to invest in.
Instead of telling me about various stocks or index funds, she told me she had been accumulating cash for the past six years. At 33 years old, roughly 70% of her portfolio was in cash because she didn't know what to invest in!
I was surprised to hear her portfolio composition. She was working for an online brokerage that created various thematic portfolios (motifs) for their users. The investment ideas were endless and the cost to invest was extremely low for the time. Yet she still was stuck, unsure what to do with most of her capital.
A financial advisor would have definitely helped her given the S&P 500 and real estate did very well since 2012. Being a penny wise and a pound foolish is not the way to build wealth.
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Why You May Want To Hire A Financial Advisor Or Investment Manager
The biggest pushback against hiring a financial advisor or investment manager is the cost. In a world where everybody wants something for free, paying for advice or portfolio management can feel abnormal.
However, there may come a point where paying for financial help might be the best thing you can do for your financial future. Here are some reasons why you should hire a financial advisor or investment manager.
1) You don't know where to start.
The hardest part of doing a lot of things is starting. When it comes to investing, the sheer number of investment options can be overwhelming. Therefore, some people simply tend to hoard cash. Cash is familiar and easy. Cash also doesn't lose absolute value.
However, if you end up holding the majority of your portfolio in cash during a bull market for years, you end up missing out on a lot of gains.
A financial advisor or investment manager helps create a financial action plan for you. They will help set up a risk-appropriate investment portfolio for a fee. Although nobody likes to pay a fee, paying a fee when you have no idea what you're doing is much better than missing out on returns over time.
You can always drop your financial advisor after several years once you've gotten comfortably enough to manage your own money.
2) You are too busy to stay on top of your investments.
Imagine having to work from home with two kids out of school for the last 18 months. You're barely keeping your head above water. You'd love to review your investments and put more cash flow to work. But you simply don't have time.
As a result, you aren't conducting any tax-loss harvesting. You aren't rebalancing your portfolio to a target allocation every quarter either. Further, you've let your cash pile up as well.
People hire others to mow their lawn, clean their house and cut their hair. There's no shame in hiring a financial advisor to stay on top of your investments. For those of you who invest in active funds or private funds, hiring a financial advisor can provide more guidance.
With so much to do, a financial advisor can help reduce your mental load so you can focus on the things that matter the most.
3) Money stresses you out more than the average person.
There's something to be said about farming out your investments to an investment manager so you don't have to think about your money as much. During volatile times, it may be more comforting to know someone is watching out for your money.
For example, if your DIY portfolio was down big during March 2020, you probably blamed yourself. Your stress may have spilled over to your partner and children. It's easier to get moody when you're losing years of savings quickly.
However, if you had money with a robo-advisor, you could have blamed it instead. Blaming someone else often feels better than admitting fault, even if the outcome is the same. It's just human nature to give ourselves credit for our successes and blame others for our failures.
Psychologically, compartmentalizing your money with a money manager may give you more peace of mind to focus on your main way of making money. I've been investing our family's money for 20+ years and it can sometimes feel like a stressful full time job.
4) To protect yourself from yourself.
One of the benefits of having a financial advisor is that you better insulate yourself from bad financial moves. It is much easier to hit the sell button during a financial meltdown when you are managing your own money.
The ease of panic selling is partly the reason why I prefer investing in real estate. The difficulty in quickly selling real estate saved me from selling a home right before the housing market took off in 2012. The illiquidity of real estate forces owners to be longer-term investor, which is generally a good thing for returns.
If your money is with a financial advisor, then you would have to contact your financial advisor and then panic sell. During this time, your financial advisor might convince you not to walk off the ledge. You might also calm down on your own.
The harder it is to trade, the less you will trade. But if you've always got a jar full of freshly baked cookies in your kitchen, you won't be able to help yourself. In general, trading in and out of positions is a suboptimal financial move. Check out Fundrise, my favorite private real estate platform that offers diversified funds to help you diversify and reduce volatility.
5) You have too much money at stake not to get your investments right.
Let's say you have $5 million in investable capital. You accumulated your $5 million as an early startup employee for a visual design company. Your expertise is design not in investing.
With so much capital at stake, you don't want to mess up your returns. The difference between a 5% return and a 10% return is $250,000. Therefore, you decide to hire a financial advisor for a fixed fee to tell you how to invest.
Even though the fee cost $3,000, you are still much better off than had you kept all your capital in cash and Treasury bonds in a bull market.
Or maybe your financial advisor advises you not to angel invest $50,000 in a particular startup that ends up going out of business three years later. Having a voice of reason when every investment pitch sounds fabulous can be very helpful.
Once you get to generational wealth level of money, or the ideal net worth amount for retirement, you've got more at stake. As a result, hiring a financial advisor may be more impactful.
6) You're interested in learning about portfolio construction to eventually DIY.
Let's say you have a modest $50,000 in investable capital. You're 26 years old and just starting off on your long investing journey. The easiest way for you to boost your wealth is to focus on your career. At the same time, you are very interested in learning how to be a DIY investor.
One way to learn how to be a DIY investor is by investing your money with a wealth manager like Empower. They offer a variety of investment solutions from complete beginners to seasoned investors. Some of their features include:
- Low-cost investing portfolios built and managed based on your priorities
- A personalized investing plan and strategy
- Smart Weighting indexing
- Account choices, including joint accounts, IRAs, and trusts
- Automatic features like portfolio rebalancing, dividend reinvestment, and auto-adjust
- Advanced tax-saving strategies like tax-loss harvesting and asset location
- Comprehensive financial planning
After three years you might decide you've learned enough about portfolio construction to just create your own portfolio. During this three-year period, hopefully, your portfolio will have gained in value as well.
There's no better way to learn than getting the initial help of a coach. Once you've learned the fundamentals of investing, you can take the reins yourself. Definitely check out the free tools in the Empower Personal Dashboard to take better control of your money.
7) You want to gain access to special deal flow.
I randomly met the founder of ICONIQ Capital on the tennis court the other day. ICONIQ Capital manages around $70 billion for the likes of Mark Zuckerberg, Jack Dorsey, and a bunch of other very wealthy people.
Paying an asset management fee on big money means big money for the money management firm. However, what's unique about ICONIQ Capital is that it not only manages money, it also invests in venture capital, private equity, and real estate. It also has its own funds.
Given the size of ICONIQ Capital and its exclusive clientele, it has access to deal flow that isn't available to the average person. For example, some of its early investments include Zoom, Airbnb, DocuSign, and SnowFlake. A 0.5% fee on $1 billion is $5 million. But if the firm can return 20% in one year, that's $200 million.
Therefore, paying a management fee to access exclusive deal flow can be very worth it. If you hire a financial advisor, ask what type of deal flow they have. A common benefit may be getting IPO or investing shares in a company your financial advisor is taking public. Or, your money manager might have access to secondary shares.
Traditionally, firms such as Goldman Sachs, Morgan Stanley, and JP Morgan have some of the best deal flow. However, the space is extremely competitive and the league tables are changing all the time.
Luckily, there are now high-quality open-ended venture capital funds to invest in. Not only can you see what the fund is holding before you make an investment, the investment minimum is also much lower as well.
8) You're Constantly Unsure About How To Invest
Recently, I had over $520,000 in equity structured notes come due. As a result, I had to figure out how to reinvest the proceeds, save the money, or spend the money. This was a relatively cumbersome and stressful experience.
If you invest with a robo-advisor or financial advisor, they can help take that stress away by reinvesting the proceeds for you. Once the responsibility of investing specific sums of money is off your shoulders, you don't worry about it as much. You already made the choice to hire help.
Given I don't have a financial advisor, I decide to invest half the proceeds in the S&P 500 and sit on the other half. At least this way, I invested inline with my uncertainty.
9) A Financial Advisor Provides Continuity Of A Financial Plan
As your wealth grows and financial situation becomes more complex, having a long-term financial advisor provides valuable continuity. Over the years, you can build a strong relationship based on trust, which becomes crucial when seeking guidance from someone outside your family.
A trusted advisor will understand your family’s goals and plans, offering deeper insight into handling events like a parental death or changes in business structure. Some advisors even serve as estate trustees, helping manage financial decisions in the event of a client’s passing.
If you haven’t already, consider getting an affordable term life insurance policy through Policygenius. It’s a step that brings peace of mind, knowing your dependents are financially protected if something unexpected happens. My wife and I both secured 20-year term life insurance policies during the pandemic to ensure our 4- and 7-year-old are taken care of. Our coverage is enough to pay off all our debt, so our kids won’t need to sell any assets.
Financial Advisors Fill An Important Need
A financial advisor isn't going to solve all of your investment problems. Financial advisors are human too, which makes them susceptible to mistakes and the usual emotions of fear and greed.
However, I think it's worth it to pay a financial advisor or sign up with a digital wealth advisor to help you get started. It's also good to pay a financial advisor to help you stay on track.
If the alternative is not doing anything with your cash, then hiring a financial advisor or paying an asset management fee is the preferred choice.
Part of the reason why digital wealth advisors have flourished over the past 10 years is because there is a huge need for lower-cost financial advice. And some people will always want someone to talk to, which is why the hybrid model of using algorithms and advisors has also done so well.
A Cap On Advisor Fees
Personally, I find it extremely difficult to pay an ongoing 1% financial advisor fee once your portfolio crosses over $500,000. 1% of $500,000 is $5,000, every year, as long as you let the financial advisor manage your money. For $5,000, you can easily learn all there is to know about investing your money.
Now imagine if you had $5 million or $10 million in investable assets. Paying $50,000 – $100,000 a year in financial advisor fees seems egregious. It's as egregious as still paying a 6% selling commission on a multi-million dollar house.
Thankfully, the management fee percentage declines the more assets you have managed.
I know it's not good for the money management business, but capping fees or introducing a scaled flat fee is good for the consumer. And I'm always going to advocate for the consumer on Financial Samurai.
Lower Rates Of Returns Should Also Mean Lower Fees
Further, if the expected return for various asset classes in the future is lower, a 1% advisor fee is even more painful. As a result, advisory fees are coming down, just like real estate commission fees.
In the past, I've been mocked for recommending a lower safe withdrawal rate in retirement. This is despite my logical arguments and the fact that I'm trying to live the retirement life and not just pontificate about it. When you don't have stable income anymore, you will face hard-to-quantify psychological money challenges as well.
So if you don't believe in my reasonings for being more cautious about your withdrawal rate in retirement, perhaps you might want to listen to Vanguard.
Below is the 10-year median forecast of U.S. stocks, bonds, and inflation by the Vanguard Capital Markets Model® (VCMM). If your blended portfolio of stocks and bonds returns 3% and you have to pay a 1% fee, that's a net return of 2%.
Let's hope Vanguard is wrong about its forecasts. However, if they are right, following the Financial Samurai Safe Withdrawal Formula = 10-year yield X 80% for the first several years of retirement is prudent.
Make Sure Your Financial Advisor Is Properly Servicing You
As with any service, make sure you are getting your money's worth every year. Maybe you want to ask your financial professional to do a quarterly investment checkup. Or maybe your financial advisor has free tickets to NFL or NBA games.
Thanks to a tremendous bull market since 2009, it's hard for financial advisors and investment managers to do wrong. Most financial advisor clients should have benefited more than the fees they have paid. Let's just hope the same happens during bad times as well!
It is really during the bad times when financial advisors and investment managers can really prove their worth. Don't underestimate the value of someone being there for you when things go to hell.
With the Fed embarking on a multi-year interest rate cut cycle, expect to see increased volatility ahead. The economy is clearly slowing down, which means the Fed is trying to stimulate borrowing and spending to prop up demand. Is the Fed behind the curve? Only time will find out.
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A year after leaving finance, I had two free consultations with an Empower financial advisor that revealed a major blind spot. I had 52% of my portfolio sitting in cash, thinking I needed to invest like a conservative 65-year-old. The advisor reminded me that at 35, I still had many financial opportunities ahead. Within three months, I invested 80% of that cash and used the rest for a down payment on a fixer-upper—both decisions have boosted my net worth by an additional $1+ million.
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I am planning to retire soon at 50. Have no need to draw from my IRA with is 7-figures. Can easily live off brokerage account. Withdrawing dividends only (never touching principal) would give me alot of play money though, even though I would get hit with a 10% early withdraw penalty. The questions is, do I really care about the penalty when its basically free money anyway, and not even needed to live off of?
Why withdraw and pay a penalty when you can easily live off your taxable portfolio dividends?
Personally, I enjoy managing my own investments because it keeps me busy throughout the day. However, I understand why some people prefer having a financial advisor or investment manager. The firms I’ve contacted were only focused on traditional investments, with no exposure to more exotic opportunities.
I prefer to diversify across five very different markets, which left most financial advisors I met completely lost. As a result, many traders and real estate investors reach out to me for advice. Some markets are resilient, even in downturns, and consistently outperform—though these opportunities are generally reserved for those ‘in the know,’ so I keep them discreet.
Sam, a benefit of a financial advisor rarely highlighted is financial plan continuity. We’ve had a steadfast relationship with our advisor, and they understand our family plans and goals. What is it worth to ensure the family financial plan weathers a parental death and regroups with the remaining stakeholders? What % of an advisor’s fee can be assumed to be an insurance premium to ensure financial plan continuity?
Great point and benefit to highlight. Thanks for sharing, as life can and will get complicated over time.
Nice post Sam. I hired an advisor and a CPA a couple years ago and while the fees are a constant thought in the back of my head, I am glad I did it. My situation is somewhat complicated as I have access to mega-backdoor Roth, DCP, and have purchased 2 vacation homes (one international) that double as STRs. They have helped with projections and logistics on both home purchases.
Could I do it all competently myself? Maybe, but now I don’t have to worry about it. I have reduced my stress level, and can take the time that I gained and focus on family, career, fitness, and meditation. I do get some access to private deals with them, although that is not a big part of the allure. The peace of mind that it’s being done right has been worth it.
Good writeup, Sam, and solid arguments for while highlighting some of the potential drawbacks. Fees are only a problem in the absence of value. I am about to join the money management industry with a well-known firm and appreciate what is possible for people who really need the help.
Good luck on your new job! Correct on fees being a problem in the absence of value. Which is why anybody who hires a money manager or advisor needs to regularly review whether the value they are receiving is worth the cost. And if not, to change.
I’ve noticed the older and busier life gets, the more I’m willing to pay a fee for people to do things for me. I haven’t hired a house cleaner or a gardener yet, but I’m toying with a once a quarter expense to help out.
this is a post I honestly could say did not see coming from a personal finance blogger like you and myself (aspiring lol) but this is good, I work in the industry and agree with all the points above; however I might add a few things
Agree. There’s a reason for coaching across all sectors. It helps people stay focused and accountable.
Financial advisors are such a useful starting point for those who have no idea where to begin or just prefer not to have to deal with investing. Depending on how things go, they can be phased out over time. Even though there are some fees involved, I think it’s worth it to get help from an FA and actually put your money to work versus not do anything at all and just sit on cash. We’ve seen how much inflation can hurt our purchasing power. And a savings account alone isn’t going to be able to stay ahead of inflation over time.
I’m happy with my Empower financial professional in that he looks out for my money so I don’t have to worry about it. We had a nice consultation initially and it was good to go through some blindspots as well as some financial goals I had by certain dates. Running through various scenarios on returns and portfolios helped me optimize my finances.
I’m an artist who doesn’t follow the markets or have interest in investing. So using an advisor is of big help to me.
I would venture to say that 90% of the population could simply contribute regularly to a target retirement age fund through Fidelity, Vanguard, etc and be just fine. And as an upside they won’t be paying an advisor who may or may not do the same thing.
True. It’s like 90% of the American population could work out every day and eat right and be OK. Unfortunately, a lot of people don’t because they don’t know where to start or have the discipline to keep going.
There is a reason why there are coaches, trainers, advisors, etc. If you don’t have the knowledge or will power to do it yourself, best you hire one or else potentially fall very far behind.
In my experience it’s very rare for a person to be sitting on a pile of un-invested cash. People that don’t know what to do with their money usually squander it.
Unless it’s gifted, accumulating wealth (or cash) takes time, patience, and discipline. It doesn’t happen by accident and those that accomplish this tend to be educated. And hiring a competent advisor, for those that choose to use one, also requires a degree of education given the possibility of getting bad advice and/or paying excessive fees. It’s simply irresponsible to trust your finances to a third party without educating yourself on what they’re doing. And if you’re overwhelmed by managing your personal finances how will you know that you’ve hired a capable advisor?
One can control investment costs and risk. One cannot control returns. Cost? Index funds like: s&p 500, total US market, total world. Risk? Ratio of equities to conservative investments like bonds and cash so one doesn’t do something stupid during market turmoil. So what are you paying an advisor for? No one knows. Stand up and accept the burden of being; part of that is not paying for investment advice or guidance that one can do himself. This is probably sufficient guidance for 99% of investors.
Sure. But not everybody knows what they are doing.
I would say that most people are not educated about investing and personal finances.
I worked with a woman at a fintech company who had 70% of her portfolio in cash for the past five years because she didn’t know what to do. It was shocking. I would much rather have a financial advisor help me get started and keep me on the path than do nothing.
I would argue that anyone who is reading your website is capable of going to Schwab, Fidelity or Vanguard and opening a brokerage account, IRA, ROTH IRA or all three. It’s as easy as opening a checking account. From there, Costs. Index funds are the lowest cost funds going. subcategory to cost is diversification. S&P500 Index, Total US Market Index or Total World Market index. Each one of those aforementioned companies have something in these categories to offer. Now Risk. How much conservative investments like bonds and cash. It’s a simple ratio, 70/30 or 60/40 equities to conservative. Shoulder enough risk to make sure you are getting the benefits of equities and not too much risk that when market turmoil comes, and it surely will, you don’t sell and run for safety; locking in losses. Anyone who is reading this website is capable of this. Why pay someone who will only beat the market some of time, and even then barely and charge you 2% for the privilege of not keeping up with those who simply index.
And don’t believe your friend, brother-in-law or whoever else is pumping the latest investment “thing.” They are not making out like bandits. If they were, why would they share the information with you. Simplicity is the pathway. Anyone can do it. Stand up straight, shoulders back, eyes forward, now get it done. You can do it.
The subscribers of the Financial Samurai newsletter and post email, yes. But 75%+ of the traffic comes to read my site are not regular readers. They come from search engines or media mentions looking for different answers to different problems. Having someone who knows what they are doing helps.
I think there might be a misconception about financial advisors from the movies? They are not pumping specific investment ideas as opposed to structuring a portfolio based on goals and risk tolerance.
I found that the older and wealthier I get, the happier I am to outsource such responsibilities to reduce my mental load and be able to focus more on doing the things that I want.
At the end of the day, people are free to do whatever they want. They should make their decisions after reading as many perspectives as possible.
Wow. Investing a mental load? Unbelievable. I would have thought your mental callouses would be developed by now. At a minimum, financial advisors charge you cash money for something that one can do himself; And they charge you a lot. And they WILL NOT beat the market over time. At worst they push you into investments that won’t be good for the investor but good for the advisor. Either way the investor loses.
Yeah, when your net worth gets complicated with multiple types of investments, managing your family money can be a full-time job.
That’s one of the reasons why you see very wealthy people have family offices, where they have a team of people managing their money.
You’re lucky you can manage all your money comfortably yourself. And you should feel free to continue to do so and not let me or anybody else tell you otherwise.
How complicated is your net worth and what is your net worth range? Are you retired as well with children? It would be nice to understand where you’re coming from.
I would say that once people get to a $1 million net worth, they start considering getting some financial help. And most people with over a $20 million net worth have some type of investment manager or financial advisor that manages a portion of their net worth.
Then again, once you have about $250,000 in investable assets, That’s when you can start really gaining momentum.
Matt above is probably UNLUCKY, because he is not rich enough to have a large enough net worth and investment portfolio to consider getting financial help. to him, it’s unfathomable that wealthy people have family offices or investment managers at Goldman Sachs, Morgan Stanley, Empower, or wherever.
The more strong opinion people have without considering that everybody is different, the more I question their level of intelligence and wealth.
Is being invested with MMF considered cash? Big portion of our household net worth is invested in MMF.
Advisors are fine. I think the reasons to do it are all “intangibles” though. If “beating the market averages” year to year is your goal, forget about it. They will underperform. However, if you want to do it to free up your time, reduce anxiety (watching investments constantly), and protect yourself during market corrections, then it is worthwhile.
I agree. As you get older, especially if you have kids and parents to care for, your mental load and responsibly gets IMMENSE. All this pressure to do things can really make for a difficult life. At this point, you become more than willing to pay a financial advisor to offload some of the money management responsibility.
At times, I do feel like managing my family’s finances feels like a stressful full-time job.
It’s kind of like paying for life insurance premiums after having multiple kids. The value becomes much more worth it.
Exactly, I got to a certain point in life where the juice of possibly chasing another 1-3% ROI was not worth the squeeze – and often failed if I was active investing.
I used to get really frustrated the money with my advisors was not able to keep up with the S&P returns. not horrible just consistently 1-2 percent below. However, I am now thinking of moving most all my money there. The fee of 0.75% is reasonable. It has still grown nicely and as I move into my 60s and wealth has been created, I just want to focus on other things and more wealth preservation. Plus, they are able to advise me on retirement/tax strategies, planning, etc.
P.S. I’m still a control freak and keep 20% of my wealth or so with Vanguard – but no time required. Money market and VTI, and SPY funds.
So, my folks are on this whole “adulting” kick, talking non-stop about hiring a financial advisor to handle their 401k rollover. They swear it’s like entering a financial wizard’s realm, and suddenly they’re throwing terms like “diversification” and “retirement planning” at me. It all makes sense though because you said that hiring a financial counselor may be more beneficial if you reach the generational wealth level of money, also known as the optimal net worth number for retirement.
I appreciate you mentioning the benefits of employing a financial counselor. As you pointed out, it can be useful to have a voice of reason when every investment offer seems amazing. I’ll be sure to tell my aunt about this as she’s been looking to invest some of her money. She might benefit from having a financial investment consultation with a pro. I’ll definitely look into specialists who could help her.
It’s good to know that they can create an action plan. My brother was telling me last night about how he wants to make sure that he does everything financially correct for his work, and he was wondering if hiring a professional would be a good idea. I’ll make sure to pass this information along to him so that he can know the benefits of hiring financial help.
I like the idea of having a financial advisor, someone I could discuss ideas with, but I was burned twice when I was first starting out in my 20s. My money kept getting placed in poorly managed mutual funds that I’m pretty sure only benefitted the advisor. It seemed like every year they transferred my money to new funds because the other ones closed. I was told at one annual review that I had a pretty good year making 4%. I mentioned to my advisor that the market did 10% that year and he just said yes that is correct. I then asked for all my money to be moved into index which turns out they didn’t offer. I moved my money to Vanguard and began teaching myself investing, even getting an MBA in the process. I’m not sure I could ever go back to an advisor.
Definitely doesn’t sound like a good financial advisor! Glad you move the money out.
Advisors can be a great choice or a poor choice. However, it boils down to are you a DYI, an automated investor (i.e., Target funds), or handholding investor (professional management). While there are obviously other reasons for advisors (access to special investments and etc), most people fall into these buckets. If you can comfortably manage your portfolio or are fine with being hands-off and not having someone to talk to DYI and target funds are fine. However, risk tolerance is crucial or you will likely find yourself panicking during market turbulence and making irrational decisions. Even with an advisor, this behavior will not go away, but you will have someone to talk with. Choose what makes you comfortable and don’t ding others for their choice is all I can say!
Sam,
Curious….why no international exposure in your portfolio?
I have small explore. I’ve felt that the U.S. would have the greatest innovators, hence heavily overweight.
But I’m buying Chinese internet stocks now. They’ve been crushed.
So if Vanguard predicts such low returns for the future, I’m wondering if we’re we better off staying in growth stocks and ETFs for a longer time (assuming the greater risk of course)?
I’ll discuss more about Vanguard’s expected future returns in an upcoming post. But yes, look out and beware. We could easily see a correction.
Personally, I’m saving up cash and looking for real estate opportunities. I can easily earn a 4% cap rate (stock forecast). Add on potential real estate price appreciation, and real estate is my favorite asset class.
Personally, I expect that mushrooming automation will continue to increase capital based earnings as a percentage of earned income, with the necessary concomitant decrease in wage-based earnings, for the rest of the decade.
This indicates to me that growth investments will, on average, prosper greatly, but by the end of the decade, the folks solely dependent on wage-based earnings will be in rough shape, thus decreasing demand and greatly reducing growth in the markets.
While the folks who were well and heavily invested will have done fine, they will suddenly find themselves in an environment where there are too many investment dollars chasing too few good investments.
I hope I’m wrong, but I think that might hinge on some incredibly smart politicians figuring out and taking effective action (in other words, a fairy tale) or upon some technological breakthrough (either unexpected, or arriving decades early) greatly changing the investment environment.
As for real estate? It has no saving grace that I can see. During the Great Depression, landlords were bulldozing their rental properties to avoid paying taxes on them.
I’ve spent over 40 years managing my own money and planning FOR retirement but I am realizing that it may now make sense to get some help managing my money AFTER retirement.
Like others who have commented, it is going to get much more difficult to keep and pass on our money to the next generation because of all of the talk around taxes and soaking the wealthy.
I never dreamed that managing and preserving our money may actually be more difficult than accumulating it.
I agree that the 5-6 % brokerage fee to sell a house seems too much.
What do you think is the right solution to this issue? It reminds me of the days of $30 per trade commissions for stocks for the individual investor. There are some discount brokerages such as Redfin, but I don’t know think they have gained enough traction to disrupt the status quo of the traditional brokerage model. I’m up for brainstorming and working together on something if you ever wanted to explore a new brokerage model!
I do like Redfin and am a shareholder. The solution is to go on strike and never sell until commission rates come down to more reasonable levels.
The great irony of high commission costs is that it makes it harder to sell, which is enabled homeowners to get wealthier.
In business as in life, you don’t get what you deserve. You get what you negotiate.
If that makes you uncomfortable or you’re not good at it, then be prepared to make less $$ and pay more for everything. There’s a reason that all the people at the top of business are low on the agreeable personality spectrum.
I wonder from time to time if I should have a wealth manager when I’m set to retire. I am trending towards $10 million in retirement savings when I decide to call it quits and I will definitely need the help to learn how to cash out my various investments in a tax-friendly way. I always see the standard 4% withdrawal rate everywhere but no real advice on exact strategies to sell your stocks. Even if I wanted to cash some out now of my brokerage account, I really don’t know the best way to do it.
Everything you need to know is available on the web for free, if you go looking for it. Learning enough, without any guidance, will probably require about an hour a day for 2 or 3 months. One of your goals should be knowing how to file your own taxes, regardless of whether you do it yourself or not.
I assume you are somewhat clever and know how to use simple spreadsheets.
You will never find a wealth manager who cares as much about your investment as you do (or charges you a lower percentage for managing it) than yourself.
If you start getting in to multiple tens of millions, that might be when you need professional assistance, and I don’t mean the friendly and glib man in your local Edmond Smith’s Financial Services Incorporated office.
Liked the article again Dogen. You are hitting some home runs here. Can’t believe the financial acumen and common sense of of your “amature” commenters. Absolutely stellar.
But aren’t those kind of expensive NFL tickets you alluded to? :) Maybe one of those startup ticket finding services would leave you more money positive? :)
Each tax season we have wished for some kind of check list or concept helper to go through to help our feeble brains decide on the difference between a tax loss harvesting “gain” and simply stupid “buying high and selling low” loss.
We don’t have the cognitive capacity to do it. Maybe because it involves too many unknowns. We probably wouldn’t trust an algorithm helper and it’s forced assumptions anyway. Back when we were sitting in front of our Commodore 64’s there was a premonitory phrase which the young people might not remember. “Garbage in, garbage out.”
So maybe try to examine the built in assumptions of your algorithm before you decide to trust it with your hard earned. Make awfully sure the assumptions and future casting in the algorithm actually fit you and your life situation. Take some time also to think about what “is” actually “you”. We like the Yogi Berra quote. “The future ain’t what it used to be”.
We like the assertion that you may need an advisor when you are starting out. But the essential corollary to that is you definitely need a person wiser than you to help you sort things out when you are starting to think about ending up. About how to get the majority of that wealth to those grandchildren and those charities when you are done using it.
Makes us cry (yes, tears down the side of our faces) when we hear politicians talk about helping American families out of one side of their mouth while simultaneously saying let’s eliminate the step up in cost basis as those same families try to pass on investment gains they have scrimped their entire lives for. (Ya’ Joe, talkin’ to you.)
Okay, we’ll get off our pity soap box and enjoy the rest off our day rv boondocking here in the Rockies. :) (Hoping the sun shines enough to solitary solar panel charge our dinky self-rigged AGM batteries) :)
Pre-COVID, Citibank Wealth Management invited us for steak dinners, SF Giants games, and even a date night cooking class. It was nice to feel loved!
Wow! We can feel the “love” from here. :)
Had a question. I am 39y/o. Currently I have 620k in 401k. Invested in schwab s&p all 401k contribution goes to this fund. 200k saved for down payment. 50k in stock account buying individual stocks (down 1% on year). Question is as I continue to save 30% of income monthly where should this money go?
A great question for a financial advisor! I know Personal Capital, the leading hybrid digital wealth advisor, is doing free portfolio consultations. You’d have to link up your accounts and the schedule a call online or in the app.
I did one consultation myself a long time ago and I thought it helpful to see where my portfolio was too heavy versus their recommended models for my age.
Having a second set of eyes review your portfolio is always helpful, especially if that’s what the person does all day and sees other portfolios from people of similar age and circumstance.
I will assume most of you here did not inherit a large sum of money from your parents when you first start out on your own.
Your first sizeable sum of money is earned from laborious careers. And yes, even if you have a PHD and is working for others, it is a laborious career.
Your employer has an excellent business model and is taking a calculated risk by add you to the payroll. Thus, it is totally acceptable for your employer to get the first cut of profit before giving the paycheck for the compensation of your time and effort. Note that in bad time, your employer will carry your weight!
Now once you have accumulated many paychecks and become an employer yourself. Your company hires a “Financial Advisor” who takes NO RISK, yet get the first cut REGARDLESS if he/she performs or not!
This business model will fail soon or later!
A famous Chinese historical figure once said “I rather failed myself than let the world fails me”.
Funny, this just popped up on Yahoo’s front page. ICONIQ Capital co-founder buys $20 million Malibu beachfront home.
Good to be a wealth manager with lots of asses under management!
https://www.yahoo.com/lifestyle/mark-zuckerberg-money-manager-drops-013933105.html