Indexed Portfolio - Boglehead opinions

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply

Excluding the costs of the index funds themselves, what is a reasonable annual cost (as a % of assets) for an adviser to charge for a $250K portfolio?

Less than 0.5%
18
62%
Moret than 0.5% but less than 1.0%
8
28%
More than 1.0% but less than 1.5%
3
10%
More than 1.5% but less than 2.0%
0
No votes
More than 1.5% but less than 2.0%
0
No votes
 
Total votes: 29

Topic Author
Allan Roth
Posts: 466
Joined: Thu Sep 11, 2008 12:47 pm

Indexed Portfolio - Boglehead opinions

Post by Allan Roth »

I'm working on a column on the costs of indexing and would like your opinion:

Thanks.
User avatar
Boglenaut
Posts: 3509
Joined: Mon Mar 23, 2009 7:41 pm

Re: Indexed Portfolio - Boglehead opinions

Post by Boglenaut »

Allan Roth wrote:I'm working on a column on the costs of indexing and would like your opinion:

Thanks.
I didn't vote.

Advisers should be paid by the hour.
Alex Frakt
Founder
Posts: 11589
Joined: Fri Feb 23, 2007 12:06 pm
Location: Chicago
Contact:

Post by Alex Frakt »

What services does the hypothetical adviser provide for the client? I also think you might be skewing the responses by using such a small portfolio, Considering the work and overhead that goes with professional money management, 500k is a more reasonable minimum for an adviser to take on someone on an AUM fee basis. I'd be concerned that anyone taking it on for less is going to find a way make up their costs somehow - to the investor's detriment. Someone with a 250k portfolio is better off paying for advice on an hourly basis.
User avatar
White Coat Investor
Posts: 17413
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Post by White Coat Investor »

Alex Frakt wrote:What services does the hypothetical adviser provide for the client?
Exactly the right question.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Topic Author
Allan Roth
Posts: 466
Joined: Thu Sep 11, 2008 12:47 pm

Re: Indexed Portfolio - Boglehead opinions

Post by Allan Roth »

Boglenaut wrote:
Allan Roth wrote:I'm working on a column on the costs of indexing and would like your opinion:

Thanks.
I didn't vote.

Advisers should be paid by the hour.
I am very biased here, as an hourly adviser, but I completely agree. Nonetheless, even hourly can create some bad incentives such as claiming to need to rebalance too often, creating complex index portfolios, etc.
User avatar
ruralavalon
Posts: 26353
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Post by ruralavalon »

Is the advisor just providing a plan, does he/she manage the account, or both? It makes a great deal of difference what the advisor's function is.

IMO a planner should generally charge by the hour or by the project. The portfolio manager might be better compensated on a percentage basis, but I have no real opinion on that.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
slick_dealer_05
Posts: 420
Joined: Tue Jul 24, 2007 8:16 pm

Re: Indexed Portfolio - Boglehead opinions

Post by slick_dealer_05 »

Allan Roth wrote:I'm working on a column on the costs of indexing and would like your opinion:
Thanks.
If you are working on a column, you can mention that the best financial advice can be found on the bogleheads forum free of cost

Seriously...for just a 250K portfolio, there is no need of any advisor
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Post by Triple digit golfer »

Just something to consider: You're asking that question at a website where the biggest proponents of low-cost investing hang out! :)

I bet if you asked it at other forums people would give you more votes in the higher costs.

I voted 0.5% - 1.0%. I think $2,500 is very reasonable for a $250k portfolio if you can't or don't want to manage it on your own. By using index funds, it's a piece of cake. If using active funds, I'd say even higher costs would be reasonable because you have to keep up on what those fund managers are currently investing in.

As a Boglehead, I use index funds and do it on my own, spending just minutes a few times a year rebalancing.
User avatar
Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Hiring a financial advisor

Post by Taylor Larimore »

slick_dealer_05 wrote:
Allan Roth wrote:I'm working on a column on the costs of indexing and would like your opinion:
Thanks.
If you are working on a column, you can mention that the best financial advice can be found on the bogleheads forum free of cost

Seriously...for just a 250K portfolio, there is no need of any advisor
In general, this may be true, but there are many investors, regardless of portfolio size, who can benefit from the services of a low-cost competent advisor. I'll list a few of the reasons one might engage the services of a financial advisor:

* Lack of time.

* Lack of knowledge and unwilling to take the time to learn.

* Investor's subject to emotion and impulsive behavior.

* Investor has made mistakes that need correcting.

* Investors with special needs (a trust for a handicap child for example).

* Investors that travel or live abroad.

* Investors with small but complicated portfolios needing fund selection and portfolio tax advice.

* An advisor can distinguish between good and bad advice from friends, media, and yes, the Boglehead forum.

I'm sure professional advisors can give more reasons, but I doubt if "portfolio size" should be the primary criteria for hiring an advisor.
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
tetractys
Posts: 6249
Joined: Sat Mar 17, 2007 3:30 pm
Location: Along the Salish Sea

Re: Indexed Portfolio - Boglehead opinions

Post by tetractys »

Allan Roth wrote:I'm working on a column on the costs of indexing and would like your opinion:
From what I've seen, fee only advisers are pretty open with their costs. Why not ask a few of them what's involved? -- Tet
User avatar
Tall Grass
Posts: 1205
Joined: Mon Jul 07, 2008 8:11 pm
Location: Kansas

Post by Tall Grass »

By the hour or none at all...
"A wise man should have money in his head, but not in his heart." - Jonathan Swift
Post Reply