When does Professional Guidance Pay Off?

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When does Professional Guidance Pay Off?

Postby CWRadio » Thu Jun 27, 2013 1:11 pm

I have been with my adviser since December 2012. My portfolio is 40% equities (US, international, Global Real Estate and emerging market index funds) 56% fixed income( US, TIPS, and international) and the rest (4%)in commodity and gold mutual fund/ ETF (total of 14 Vanguard, ETFs and DFA funds).
I get a statement each month and it tells me how well I have done compared to 40/60 Balanced Strategy.
My portfolio is always below the benchmark fund. Compared to VSCGX Vanguard Life Strategy Conservative growth 1.71% YTD and VTENX Vanguard Target Retirement 2010 Fund 1.66% YTD, my portfolio is 0.67% YTD.
I have discussed the performance of my portfolio but my adviser said "stay the course"
My question: What do I do? Stay with my current adviser and stay the course or do something else? Thanks
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Re: When does Professional Guidance Pays Off?

Postby Jim180 » Thu Jun 27, 2013 2:12 pm

I think you may have a few things in your portfolio that are not in the benchmarks you mentioned. You may also be more heavily weighted in some areas than the benchmarks. Some of the holdings you mentioned were gold. Yes, I know it's only 4% but it does drag you down a little. You mention TIPS. The Vanguard Target 2010 Fund has a position in the Short-term TIPS fund. Do you have the longer term TIPS? The longer term ones have done worse. Those are just two things that jump out at me. You need to look at the exact breakdown of the benchmarks and compare it to what you have.
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Re: When does Professional Guidance Pays Off?

Postby CWRadio » Thu Jun 27, 2013 2:58 pm

Thanks Jim180
Answer to your question:
I have both TIPS.
DFA inflation TIPS DIPSX (about about 8%) and Vanguard VTIP (about 9%) 17% of fixed income. Thanks



Jim180 wrote:I think you may have a few things in your portfolio that are not in the benchmarks you mentioned. You may also be more heavily weighted in some areas than the benchmarks. Some of the holdings you mentioned were gold. Yes, I know it's only 4% but it does drag you down a little. You mention TIPS. The Vanguard Target 2010 Fund has a position in the Short-term TIPS fund. Do you have the longer term TIPS? The longer term ones have done worse. Those are just two things that jump out at me. You need to look at the exact breakdown of the benchmarks and compare it to what you have.
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Re: When does Professional Guidance Pays Off?

Postby dbr » Thu Jun 27, 2013 3:40 pm

cwradio wrote:I have been with my adviser since December 2012. My portfolio is 40% equities (US, international, Global Real Estate and emerging market index funds) 56% fixed income( US, TIPS, and international) and the rest (4%)in commodity and gold mutual fund/ ETF (total of 14 Vanguard, ETFs and DFA funds).
I get a statement each month and it tells me how well I have done compared to 40/60 Balanced Strategy.
My portfolio is always below the benchmark fund. Compared to VSCGX Vanguard Life Strategy Conservative growth 1.71% YTD and VTENX Vanguard Target Retirement 2010 Fund 1.66% YTD, my portfolio is 0.67% YTD.
I have discussed the performance of my portfolio but my adviser said "stay the course"
My question: What do I do? Stay with my current adviser and stay the course or do something else? Thanks


If those two funds embody your objectives why don't you open up an account at Vanguard and buy one or the other? Has your advisor explained what he expects to accomplish with the fund investments you have that would be different from the baseline?

Homework question: How different do you think your investments might be compared to those baselines simply as a consequence of observing the natural variability of different investments over a very, very short period of time.

Obvious question: What are you paying your advisor and what are the funds costing you in management fees compared to the benchmarks and how much of the difference is accounted for by that?
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Re: When does Professional Guidance Pays Off?

Postby Jim180 » Thu Jun 27, 2013 7:16 pm

I did some math and can say now with certainty that it is your gold ETF that caused your underperformance. Gold has been down about -25% YTD.
25% of your 4% holding= 1% So your gold ETF has taken about 1% off your portfolio. The numbers you gave show that you are underperforming by guess what? 1%! So if you want to match those two Vanguard funds you would have to sell your gold ETF.
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Re: When does Professional Guidance Pays Off?

Postby livesoft » Thu Jun 27, 2013 8:08 pm

Jim180 wrote:I did some math and can say now with certainty that it is your gold ETF that caused your underperformance. Gold has been down about -25% YTD.
25% of your 4% holding= 1% So your gold ETF has taken about 1% off your portfolio. The numbers you gave show that you are underperforming by guess what? 1%! So if you want to match those two Vanguard funds you would have to sell your gold ETF.

But the advisor should have informed of that instead of saying "stay the course". :)
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: When does Professional Guidance Pays Off?

Postby pkcrafter » Thu Jun 27, 2013 8:37 pm

Jim is probably correct, GLD is down -28% YTD and commodities are down -10%, but to be fair, your portfolio is built to reduce downside losses. That's when commodities will show a positive return and probably gold as well. The TIPs are there to guard against inflation. Comparing to LS conservative isn't valid since the objectives are clearly different. Your portfolio would look better in a drawdown. Hate to mention this, but your returns are probably before the 1% fee is taken; however, a 1% fee can be well worth it for some.

To respond directly to your question: "When does Professional Guidance Pay Off?" It pays off when it keeps you from making mental mistakes.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: When does Professional Guidance Pays Off?

Postby Retread » Thu Jun 27, 2013 9:36 pm

Do you really think you can judge your advisor after a seven-month relationship?
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Re: When does Professional Guidance Pays Off?

Postby Scooter57 » Fri Jun 28, 2013 12:11 pm

You are heavy in fixed income, and fixed income has been tanking through this period, too. And of course, since you are paying an advisor fee you have to deduct that from your returns, plus the expense ratios of the funds the advisors put you into.

My experience with paid advisors (far too much, as I was POA for my parents whose resources were invested by advisors) was that they didn't explain anything about why they had various things in the portfolio nor did they pay any attention to what I told them about our tolerance for risk. They'd nod and agree and then do whatever they pleased, which in our case involved chasing yield by going for low quality and mixing in a dash of whatever was fashionable.

After 13 years the assets they managed barely covered their fee. I suppose I should be grateful that we had most of the original investment left (they didn't sell heavily in 2008) but we would have done just as well in CDs and a lot better in Vanguard index funds. As a matter of fact my parents had retained one big chunk of money in a Vanguard index fund and it way outperformed the money they had put with the advisors.
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Re: When does Professional Guidance Pays Off?

Postby Meg77 » Fri Jun 28, 2013 1:12 pm

Professional guidance pays off when the client is unwilling or unable to understand and manage their own financial portfolio. Many people fall into this category, especially as they age. Some advisors can also pay off when they act as coaches to either encourage you to budget and save more, or discourage you from making impulsive investment moves. However most advisors don't fall into that second category.

In your case if your ultimate objective it to match the index, and assuming you are mentally sound and computer literate, then you should just fire your advisor and invest in 2 index funds. But if your objective is to have a professional to consult and help you shape your investment strategy and also monitor and rebalance your asset allocation over time, and further (ultimately) structure an income stream out of your investments to last through retirement, then keep him and accept the drag on your returns that paying him will cause.

What you SHOULDN'T do is judge your advisor based on your return compared to the benchmark. It's not his job to beat the benchmark.
"An investment in knowledge pays the best interest." - Benjamin Franklin
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Re: When does Professional Guidance Pays Off?

Postby Beat The Street » Fri Jun 28, 2013 9:14 pm

Being an advisor is a very tough job, but not for the reasons many would think. It is not too hard to gauge someone's risk tolerance and come up with an appropriate allocation of index funds, but it is EXTREMELY difficult to get people to stay the course. Most do not understand how markets work and think that since they are paying you a fee their account should never decline in value. I had a lady call and complain once because her account was down $5 (no joke). Most of the customers I come across agree we should try and sell high and buy low by rebalancing but then they beg me to do the exact opposite :oops: .

Would people do better by avoiding an advisor fee? No way, unless you are a boglehead. Most people have never heard of Mr. Bogle unfortunately.
“Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have—or don’t have—in their portfolio.” -Taleb
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Re: When does Professional Guidance Pays Off?

Postby dbr » Fri Jun 28, 2013 10:33 pm

Beat The Street wrote:Being an advisor is a very tough job, but not for the reasons many would think. It is not too hard to gauge someone's risk tolerance and come up with an appropriate allocation of index funds, but it is EXTREMELY difficult to get people to stay the course. Most do not understand how markets work and think that since they are paying you a fee their account should never decline in value. I had a lady call and complain once because her account was down $5 (no joke). Most of the customers I come across agree we should try and sell high and buy low by rebalancing but then they beg me to do the exact opposite :oops: .

Would people do better by avoiding an advisor fee? No way, unless you are a boglehead. Most people have never heard of Mr. Bogle unfortunately.


Apparently you misgauged the risk tolerance of your investors, as they had none, and you invested them in portfolios that had more than zero volatility. Well, I am just poking you a little here :happy , but I wonder if what you really mean is that you came up with allocations that met their need and ability to take risk but solving the willingness problem just couldn't be done. All of the Boglehead propaganda in the world can't solve that problem either. We see it on this forum every day.
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