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To be clear, asset mangers are told to add worth by simply rebalancing and preventing you from doing stupid things like panicking and selling low. If someone thinks they can do this on their own then there's no need for an asset manager who saps 1% per year.
The rebalancing is only a small portion of the value add.
Quote:
Although the exact amount may vary depending on client circumstances and implementation, an advisor can add value by:
Being an effective behavioral coach. Helping clients maintain a long-term perspective and a disciplined approach is arguably one of the most important elements of financial advice. (Potential value add: up to 1.5%.)
Applying an asset location strategy. The allocation of assets between taxable and tax-advantaged accounts is one tool an advisor can employ that can add value each year. (Potential value add: from up to 0.75%.)
Employing cost-effective investments. This critical component of every advisor's tool kit is based on simple math: Gross return less costs equals net return. (Potential value add: up to 0.45%.)
Maintaining the proper allocation through rebalancing. Over time, as its investments produce various returns, a portfolio will likely drift from its target allocation. An advisor can add value by ensuring the portfolio's risk/return characteristics stay consistent with a client's preferences. (Potential value add: up to 0.35%.)
Implementing a spending strategy. As the retiree population grows, an advisor can help clients make important decisions about how to spend from their portfolios. (Potential value add: up to 0.7%.)
Those who go it alone don't know what they don't know so their mistakes are unknown
If one has the discipline to actually stick to a strategy consistently (or go on a computer program), they can have statistical measures of success. Why shouldn't we count that? I realize a lot of people don't have the stomach or the discipline and will panic-sell, but for those of us that really don't, how can such statistics not be useful? And can you really say one cannot know about one's own discipline and stomach - if a big downturn has been passed without the investor panic-selling?
I was driving home from work one evening in 1980 and there was an ad on the radio for Wall Street Week with Louis Rukeyser on TV. It sounded interesting so we watched it and became regulars watching every Friday night. When we sold our house and made a nice profit we started buying stocks. My wife and I were lucky enough to get hired by a discount brokerage firm in 1993 and both wound up getting our Series
7, 8 and 63 licenses. We both retired last year so my job now is to make our investments last for the next 30 years or so. I sometimes wonder what our path would have been like if I had not heard that radio ad.
Probably the most important thing I have learned over the years is to stick to the plan and to ignore the noise.
If one has the discipline to actually stick to a strategy consistently (or go on a computer program), they can have statistical measures of success. Why shouldn't we count that? I realize a lot of people don't have the stomach or the discipline and will panic-sell, but for those of us that really don't, how can such statistics not be useful? And can you really say one cannot know about one's own discipline and stomach - if a big downturn has been passed without the investor panic-selling?
Could you do it? Sure it's possible but to blanket tell everyone they don't need an advisor or that they are a waste of money is simply not an accurate reflection of reality
a good advisor is involved in so much more than allocations. in fact the advisor i went to see does not even get involved with managing money himself. he has folks that do nothing but decide allocations and manage accounts.
he meets with clients and puts together a total financial plan using his team including the right insurances , the right legal paper work , social security tax planning , retirement tax planning ,college planning , wills , trusts ,etc.
i can tell you i am so sorry i didn't see him decades ago . my tax structure now that i am retiring could have been a whole lot better and just what i would have saved in one year in taxes doing things better would have paid for years of financial advice.
but we think we know it all but in reality we don't know what we don't know and so we shoot ourselves in the foot because we think because we can slap a bunch of index funds together we are financially savvy.
to that i say BULL! It is the things you don't know that will un-do alot of what you did on the accumulation side.
the less you have the more important it is to get things right.
especially once ss comes in to play. i have seen folks in the 15% tax bracked throw money away because they didn't plan their withdrawals right and lost 2x the money to taxes because the effect of getting your ss taxed can be a marginal tax increase of almost 2x on amounts over a certain threshold.
take 1k more than you should have and the tax on that extra 1k can be 47% even though your tax bracket runs 1/2 that.
that is because you owe the normal tax on that money plus that money increases the percentage of ss that gets taxed and the 2 togther make for some crazy amounts owed as tax.
a good advisor is aware of this stuff and can help you accelerate withdrawals so you go back to your normal bracket by exceeding the thresholds or by delaying certain withdrawals and batching them together.
in fact i think it was ncole who made a statement that lower income folks do not have to worry about ss being taxed and nothing can be farther from the truth.
it is those who are at levels where their ss is taxed from 0- 50% and from 50- 85% of what you get that are in the most danger . those are pretty moderate incomes and start at 32k ..
it is exactly that 15% and 25% tax bracket who don't have enough taxable income to clear the 85% threshold and as a result someone in the 25% tax bracket can see a marginal tax rate of 47.50% on just taking 1k to much out in a year .
someone in the 15% bracket can see a 27% marginal tax rate on income taken over a certain level if they are not careful.
it is those folks who need the most guidance.
no one here that i see is skilled enough to not only anticipate that fact but even be aware of it . i don't care how good you think you are , you will pee money away on taxes that are going to cost you dearly without a good advisor.
ironically it will be those that slap those wonderful index portfolio's together that will likely be those to undo a good part of what they saved by bad tax mistakes , simply because they think that because they are smart enough to index they are smart enough not to have to seek advice and know it all. .
AND YES , I INCLUDE MYSELF IN THAT GROUP. never thought i needed advice , that is until i did and it was to late in the game.
Last edited by mathjak107; 03-19-2015 at 03:47 AM..
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