Thinking of Departing the Formation [Moving to a financial advisor]

[LadyGeek]

I've posted, or thought I posted, two lengthy replies, rather different. I've contacted admin.

Let me see if this one posts. Perhaps I am being timed out.

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[H20SnoSki]

Thank you. I'll respond but type it out first.

[TheDogFather]

Fisher’s marketing package had some OK general wisdom.

I’ve ditched it now but recall that they stated that low cost diversified index funds is a good investment approach. Their argument in favor of having them manage the portfolio was that even if you make an appropriate allocation too many individual investors react badly to market fluctuations and destroy returns.

I have no interest in using them but was a little surprised that they were pretty upfront. Maybe I received a marketing package written for people who self-manage.

[vnatale]

I've posted, or thought I posted, two lengthy replies, rather different. I've contacted admin.

Let me see if this one posts. Perhaps I am being timed out.

Oh, glad to see that you are still here.

You may have fallen victim to the flaw in this forum wherein it tells you after you attempt to post that someone else has added something. If you don't notice that warning then what you thought you'd posted here does not get posted.

Has got me a number of times here in spite of trying to be careful about it.

When I pointed it out in another forum the administrator changed things so that was no longer a problem. Other people were also getting tricked by that notice.

[H20SnoSki]

Thank you for all the advice. I will probably take the “soldierly” advice Penumbra Inc
A number of others have also provided very good framing information, and some philosophical advice.

Many of the other posts are too data-free and/or sarcastic for me, so I will depart the forum. It’s interesting that some individuals feel so strongly about questions that they have to label people as trolls, look back through their posting history, and generally be nasty.

A few questions were about motivations and timing. “Not good enough?” yes. I moved from VT, to VTI and now towards XLK. Looking for better, based on advice. Perhaps there be dragons there. But one thing I never accepted in trying to get to Bogleland is why VT and some bonds is the holy grail. IF we are in for the long term. That's my failing. But having been burned by bonds and pretty much every country and region in the world over a couple of decades, I know look at investing in them as wishful thinking that could only be rational if I think I'm going to time a big withdrawal with a couple of magical years when they outperform. Or even perform.

Philosophically, I would not provide a dollar to the small firm advisors I know. Having tracked pundits from the major firms for several years, I also know they missed most of the major moves in that time not just in the 500 but geographically, by sector, and by nation. A few have not. Can I get that kind of advice? Maybe not without having $5m minimum, and maybe not at that point. But that is the kind of info I was looking for.

That most analysts got big movements wrong doesn’t convince me NO ONE is good enough, for a number of reasons. One is that I know enough individuals for whom I have great respect who use advisors and appreciate them. Some of these are of wealth, some are highly accomplished economists, some are self-made captains. All are serious people. But they feel they need advice. (Buffet, Munger, and probably Bogle, Johnson and others didn’t believe in not trying to outperform, by the way. They may believe in putting it in SPY for their heirs, however). Another is that the tenor of many posts suggest that it is as though Vanguard, Fidelity, Grantham and everyone else is regularly committing fraud in their wealth management organizations by making recommendations that can’t possibly beat the market. I doubt it.

The question is whether one can find good advice and whether it is too costly. It may be. (I have some constraints I won’t go in to that tie me to some costs, so whatever I would pay and advisor would not be 100% more than what I’m paying now. And to address other q’s, over the years I’ve had bad experiences with PAS type services).

I was looking for analysis and thank those who provided some. But too much for my taste is based on average returns of the average investor and against indices. Several extrapolate wildly from Sharpe, Calnan, a Fidelity “study,” SPIVA (perhaps not the most objective) and other presentations of data. Many believe all advisory firms lie – and apparently that GIPS is irrelevant – but you don’t present data. You may be right in your assumptions but I would prefer to see harder data and analysis.

Again, thank you for the thoughtful input. I enjoyed many of the various boards although I was not a major poster.

[Billy C]

That most analysts got big movements wrong doesn’t convince me NO ONE is good enough, for a number of reasons. One is that I know enough individuals for whom I have great respect who use advisors and appreciate them. Some of these are of wealth, some are highly accomplished economists, some are self-made captains. All are serious people. But they feel they need advice. (Buffet, Munger, and probably Bogle, Johnson and others didn’t believe in not trying to outperform, by the way. They may believe in putting it in SPY for their heirs, however). Another is that the tenor of many posts suggest that it is as though Vanguard, Fidelity, Grantham and everyone else is regularly committing fraud in their wealth management organizations by making recommendations that can’t possibly beat the market. I doubt it.

I’m pretty sure Bogle believed that trying to outperform the market was a fool’s errand. He advocated trying to capture as close to 100% of the market’s return as possible, knowing that over the long-term even this is nearly impossible due to expenses, which is why he created the world’s first low-cost index funds.

[Tdubs]

Many of the other posts are too data-free and/or sarcastic for me, so I will depart the forum. It’s interesting that some individuals feel so strongly about questions that they have to label people as trolls, look back through their posting history, and generally be nasty.

I think you are right about the tone at times, but don't take it personally. Most anonymous forums like this are natural habitats for snark and sarcasm. I think BH moderators do a remarkable job keeping that under control and contributors on point.

[beyou]

That most analysts got big movements wrong doesn’t convince me NO ONE is good enough, for a number of reasons.

If you already know that "most analysts" get it wrong, what data do you think others can provide for the edge cases that you are sure exist out there ?

Looking for a referral to a specific advisor ? Few here would have such a referral give the spirit of this forum is to help each other as DIY investors. Some do use advisors, but usually for behavioral reasons, such as discipline, lack of self-confidence or interest, not because they can identify the edge case managers who can beat the market.

[azphx1972]

A few questions were about motivations and timing. “Not good enough?” yes. I moved from VT, to VTI and now towards XLK. Looking for better, based on advice. Perhaps there be dragons there. But one thing I never accepted in trying to get to Bogleland is why VT and some bonds is the holy grail. IF we are in for the long term. That's my failing. But having been burned by bonds and pretty much every country and region in the world over a couple of decades, I know look at investing in them as wishful thinking that could only be rational if I think I'm going to time a big withdrawal with a couple of magical years when they outperform. Or even perform.

No one says that you need bonds if you have enough equities/cash to weather market downturns and can stomach the volatility. I don't have much in my own portfolio and survived the dot com crash, great recession, and 2020 downturn just fine without making panicking moves. Moving from VT to VTI and then XLK indicates that you're pursuing returns, and if you believe that you can find someone smarter than the market then good luck to you. That's not the Bogleheads philosophy, but you're certainly free to try a different approach. Many have tried and failed, but who knows, you might be an exception. Just be prepared to work longer if it doesn't work out.

[nonnie]

Gosh, who would have imagined that a post with "Thinking of Departing the Formation" in the title would get sarcastic or snarky remarks? /S

[WhitePuma]

What does the term “fiduciary” mean to you?

Do you think it means they care about you?

Do you think it means they will outperform?

In my book, it’s about as worthless as the term “all natural” on a food product. Or “fruit” on a Starbucks fruit drink:

[gavinsiu]

It's not entirely clear why you want to find a FA on your first post. There are a lot of good reason to get an FA. You want someone to explain stuff to you. You want someone to help you plan strategy or construct a risk adjusted portfolio. However, it appears that the reason you want is to maximize your market return and even beat the market. In my opinion, this is not a good reason to get a FA.

One reason is that you are unlikely to pick that the FA who will beat the market. In Bernstein's book he indicated that there are very few fund manager who beat the market consistenly over the years. I believe in the book he listed 4. Unfortunately, of the 4, only one of them, Buffet, is still available for investing. It's sort of like showing up at a draft and expect to pick out Stephen Curry when he is a relatively unknown. You won't know that person is great until later.

The problem is that a lot of these out performance are due to their investment being in style. Some of them have even fairly long streaks. Bill miller beat the market consistently for 15 years or so but afterwards, he trailed the market. His 3 bad year erased most of his outperformance. If you invested the early 90's to now, you would have been great for 15 years, and then not so great and would have end up with less money today than in the S&P500.

Active managers also sowed the seeds of their own destruction. As their fame grows, asset will flow in. The asset inflow means they become bloated and be unable to manuver and find enough investment. The return will slow, just as they become famous and you buy in. Even Buffet's margin against S&P500 has narrowed.

In my opinion, the reason funds like Berkshire Hathaway have higher than S&P 500 return is because they are actually risker. It's no secret that Berkshire Hathaway runs a concentrated portfolio. If some of his stock tank, your portfolio will tank a lot harder than the S&P 500.

Once you pick the FA, you may start having to second guess your decision. One reason I pick index investment is for its more predictability and redundancy. Let's say you have an active manager and he/she is beating the market, great! Now what if they trail the market, is this a short term blip or a long term decline? I won't be able to tell. At least when my fund falls, I know it's because the market has crashed.

My argument is that finding a decent FA that can beat the market is not going to be successful. The market return is good enough. I don't want to sit around wondering if my manager has become a has-been. You have 1.5 mil, so you have done well. You can probably afford Berkshire Hathaway, and it would be a better choice than some of the other crazier funds like Ark, I personally would not invest in Berkshire Hathaway. Warren Buffet is old, Charles Munger is older, and I am not convince their team will continue his outperformance.

[tibbitts]

Not sure there's any reason to continue replying since the OP has left the forum.

[coachd50]

I don’t understand the recent trend of posters making posts like this, and then seemingly getting their feelings hurt when their thoughts are rejected.

This is a forum dedicated to certain investment principles- the most fundamental being low cost broad based index funds are going to outperform active management once fees are considered.

Another fundamental ideal is that “bogelheads” are pursuing “enough”. The objective isn’t to reach a level of investment success such that one would be considered a titan of personal finance. Quite the opposite- It is to have investing occupy a very small percentage of ones life, so that the individual can focus on other things they deem far more important.

Any posts/poster trying to argue otherwise, and being upset by the replies given is akin to walking into a Popeye’s Restaurant and being upset that you will not be served a Big Mac.

[meowcat]

If the SPIVA report isn't good, hard data, then I don't know what is. What kind of data is it you're looking for? Evidence? I highly advise that you read the Power of Passive Investing, by Rick Ferri. The book is filled from cover to cover with factual evidence and data. The SPIVA report is very powerful data, to be sure, and one might see some managers outperform over the long term. Here's the thing, though. How are you going to find that one manager twenty or thirty years in advance. You can only see the returns twenty or thirty years later. No one ever said passive investing was the best investing strategy out there for everyone. You should know, and understand, however, it does bring the best odds of success in a long term portfolio.
We also know that bonds are not in our portfolio to make money. Sure, they *can* make money, but that's not their primary purpose.

[H20SnoSki]

@gavinsiu, re: "why," it is because if I can do well I should be able to find someone who spends 60, not my 30 hours per week for 1% who can do better (and as I've mentioned I have fees). Steph Curry, or a young Peter Lynch, you might say, but I think it is a little more realistic. Now, the problem is finding them and I may not have the bandwidth for that search, as it is getting tiresome.

BRK has been a helpful anchor (along with a few other similar funds that have consistently outperformed the 500 over fifteen years). It is part of the plan going forward. It does become riskier when the successors take over and, my guess, break up the company. I'll probably take some of that risk. Then again, I bought GE and Meta based on leadership and attitude changes, respectfully.

Bernstein is excellent, of course. Some of the info is dated, but the principles continue. I may be looking for the needle in the haystack. I don't believe in averages, though. I also believe the world economy is changing at a rapid rate, from logistics to blocs to AI and (less likely) crypto. Perhaps the wisdom of the total market is best here, but I incline towards individual expertise.

[Billy C]

It sounds like your mind is made up, and that’s fine since it’s your money. But you may want to read Chapter 4 of Bogle’s Little Book entitled, “How Most Investors Turn a Winner’s Game into a Loser’s Game”. You said you need data and there’s a lot in that chapter.

Remember, in investing you get precisely what you don’t pay for.

Best of luck to you!

[southernlucky]

Hi op. If you want to try and outperform why not use an actively managed balanced fund like Vanguard's Wellington (VWELX) or Fidelity's Balanced (FBALX)? You would pay a slightly higher ER than for a passively managed balanced index fund but much less than for the FA but still have a team of investment professionals going to work every day trying to beat the market for you. With the annual savings you could then hire a tax accountant or other specialist when needed. That might be a good compromise to consider. Best wishes and good luck in whatever you decide!

[vnatale]

It's not entirely clear why you want to find a FA on your first post. There are a lot of good reason to get an FA. You want someone to explain stuff to you. You want someone to help you plan strategy or construct a risk adjusted portfolio. However, it appears that the reason you want is to maximize your market return and even beat the market. In my opinion, this is not a good reason to get a FA.

One reason is that you are unlikely to pick that the FA who will beat the market. In Bernstein's book he indicated that there are very few fund manager who beat the market consistenly over the years. I believe in the book he listed 4. Unfortunately, of the 4, only one of them, Buffet, is still available for investing. It's sort of like showing up at a draft and expect to pick out Stephen Curry when he is a relatively unknown. You won't know that person is great until later.

The problem is that a lot of these out performance are due to their investment being in style. Some of them have even fairly long streaks. Bill miller beat the market consistently for 15 years or so but afterwards, he trailed the market. His 3 bad year erased most of his outperformance. If you invested the early 90's to now, you would have been great for 15 years, and then not so great and would have end up with less money today than in the S&P500.

Active managers also sowed the seeds of their own destruction. As their fame grows, asset will flow in. The asset inflow means they become bloated and be unable to manuver and find enough investment. The return will slow, just as they become famous and you buy in. Even Buffet's margin against S&P500 has narrowed.

In my opinion, the reason funds like Berkshire Hathaway have higher than S&P 500 return is because they are actually risker. It's no secret that Berkshire Hathaway runs a concentrated portfolio. If some of his stock tank, your portfolio will tank a lot harder than the S&P 500.

Once you pick the FA, you may start having to second guess your decision. One reason I pick index investment is for its more predictability and redundancy. Let's say you have an active manager and he/she is beating the market, great! Now what if they trail the market, is this a short term blip or a long term decline? I won't be able to tell. At least when my fund falls, I know it's because the market has crashed.

My argument is that finding a decent FA that can beat the market is not going to be successful. The market return is good enough. I don't want to sit around wondering if my manager has become a has-been. You have 1.5 mil, so you have done well. You can probably afford Berkshire Hathaway, and it would be a better choice than some of the other crazier funds like Ark, I personally would not invest in Berkshire Hathaway. Warren Buffet is old, Charles Munger is older, and I am not convince their team will continue his outperformance.

Excellent. Comprehensive. Persuasive.

[vnatale]

Hi op. If you want to try and outperform why not use an actively managed balanced fund like Vanguard's Wellington (VWELX) or Fidelity's Balanced (FBALX)? You would pay a slightly higher ER than for a passively managed balanced index fund but much less than for the FA but still have a team of investment professionals going to work every day trying to beat the market for you. With the annual savings you could then hire a tax accountant or other specialist when needed. That might be a good compromise to consider. Best wishes and good luck in whatever you decide!

Good advice.

[gavinsiu]

@gavinsiu, re: "why," it is because if I can do well I should be able to find someone who spends 60, not my 30 hours per week for 1% who can do better (and as I've mentioned I have fees). Steph Curry, or a young Peter Lynch, you might say, but I think it is a little more realistic. Now, the problem is finding them and I may not have the bandwidth for that search, as it is getting tiresome.

BRK has been a helpful anchor (along with a few other similar funds that have consistently outperformed the 500 over fifteen years). It is part of the plan going forward. It does become riskier when the successors take over and, my guess, break up the company. I'll probably take some of that risk. Then again, I bought GE and Meta based on leadership and attitude changes, respectfully.

Bernstein is excellent, of course. Some of the info is dated, but the principles continue. I may be looking for the needle in the haystack. I don't believe in averages, though. I also believe the world economy is changing at a rapid rate, from logistics to blocs to AI and (less likely) crypto. Perhaps the wisdom of the total market is best here, but I incline towards individual expertise.

The sad reality is that 1% of $1.5 Million is only $15,000. A manager is not going to work 30-60 hours on your behalf. The reality is that the manager has a bunch of other clients. My mom's manager supposedly managed about $4 billion. I am pretty sure he is not entirely focused on serving her. In fact, I am pretty sure the advisor would fire her as a client if she takes up 30 hours of their time. You simply don't have enough asset for a sole personal advisor.

I feel that you have a deep need to beat the market for some reason. Statistically, my feeling is that you will fail to do so, but I also feel that you are just uncomfortable with the buy and hold approach. Your search for a market beating manager is likely to become a needle in a hay stack. As I mentioned before, it is not that there are no manager who can beat the market, but that your chance of finding one is going to be pretty low. You are more likely to find out that looks to have great potential but then flame out. There is no data you can collect to determine the worth of a manager ahead of time.

As for technology changing the world, the world is changing, but it may not ber to your benefits. However, even if it did, it is not so easy to take advantage of. Take internet as example, Around 2000 there were tons of stocks that were internet related and network related. There is no denying that internet and network were important, but most of the internet stock failed and disappeared. Many failed because they don't really make any products, but even companies that made important products like Cisco crash hard over the decades because its importance was overstated.

It is my feeling that you will still want to pursue this individual star finding track. You have $1.5 Million, I don't know how old you are or what your expenses is like but you are likely to be ok even if you return is somewhat belong average. I just want you to be careful. A number of my relative ran a concentrated portfolio of sure-fire stocks but due to the concentration, they end up being wiped out, had to work until they couldn't, and now live on SS and a small pension.

[vnatale]

A number of my relative ran a concentrated portfolio of sure-fire stocks but due to the concentration, they end up being wiped out, had to work until they couldn't, and now live on SS and a small pension.

Sad tale to underscore how being satisfied with the averages can be far better in the long run.

[tibbitts]

The sad reality is that 1% of $1.5 Million is only $15,000. A manager is not going to work 30-60 hours on your behalf. The reality is that the manager has a bunch of other clients. My mom's manager supposedly managed about $4 billion. I am pretty sure he is not entirely focused on serving her. In fact, I am pretty sure the advisor would fire her as a client if she takes up 30 hours of their time. You simply don't have enough asset for a sole personal advisor.

I feel that you have a deep need to beat the market for some reason. Statistically, my feeling is that you will fail to do so, but I also feel that you are just uncomfortable with the buy and hold approach. Your search for a market beating manager is likely to become a needle in a hay stack. As I mentioned before, it is not that there are no manager who can beat the market, but that your chance of finding one is going to be pretty low. You are more likely to find out that looks to have great potential but then flame out. There is no data you can collect to determine the worth of a manager ahead of time.

As for technology changing the world, the world is changing, but it may not ber to your benefits. However, even if it did, it is not so easy to take advantage of. Take internet as example, Around 2000 there were tons of stocks that were internet related and network related. There is no denying that internet and network were important, but most of the internet stock failed and disappeared. Many failed because they don't really make any products, but even companies that made important products like Cisco crash hard over the decades because its importance was overstated.

It is my feeling that you will still want to pursue this individual star finding track. You have $1.5 Million, I don't know how old you are or what your expenses is like but you are likely to be ok even if you return is somewhat belong average. I just want you to be careful. A number of my relative ran a concentrated portfolio of sure-fire stocks but due to the concentration, they end up being wiped out, had to work until they couldn't, and now live on SS and a small pension.

Apparently the OP has returned, but now I'm not sure if the objective is to find an adviser or the next superstar fund manager... or maybe the idea is to find an adviser to find the next superstar fund manager. What's interesting is that apparently the OP is already working 30hrs a week at investing, which - perhaps unless you count hours posting on this forum - is probably far more than any of the non-professionals here spend monitoring or managing investments.

[gavinsiu]

A number of my relative ran a concentrated portfolio of sure-fire stocks but due to the concentration, they end up being wiped out, had to work until they couldn't, and now live on SS and a small pension.

Sad tale to underscore how being satisfied with the averages can be far better in the long run.

Actually I don't think they were invested in beating the market, but thought that it was safe to be concentrated on a small number of safe stocks. A lot of safe stock are not truly safe. There are a lot of companies that were around for decades that are no longer with us. Despite being more concentrated than before, investing in the S&P500 is still more diversified than a few stocks. In order to beat the market, you have to take above market risk. This may or may not pan out.

The other danger is the advisors themselves. It took me ages to find an advisor that I could trust for my mom. The main criteria being that they are trustworthy. This is why I don't use one myself and only set one up for my mom in case I died suddenly. There is a danger of getting a good investment story about how a certain technology like Bitcoin will change the world, but like most things in life will turned out to be too good to be true.

[vnatale]

The other danger is the advisors themselves. It took me ages to find an advisor that I could trust for my mom. The main criteria being that they are trustworthy. This is why I don't use one myself and only set one up for my mom in case I died suddenly. There is a danger of getting a good investment story about how a certain technology like Bitcoin will change the world, but like most things in life will turned out to be too good to be true.

I found one advisor that I'd love to recommend to a business owner. I 100% trust the advisor in all ways. But I do not like his 1% AUM fee.

I believe that to be excessive for large investment amounts, particularly since most of the work is done the first year. I tried to get him to do an hourly fee but he said that had not worked out for him in the past.

[gavinsiu]

I found one advisor that I'd love to recommend to a business owner. I 100% trust the advisor in all ways. But I do not like his 1% AUM fee.

I believe that to be excessive for large investment amounts, particularly since most of the work is done the first year. I tried to get him to do an hourly fee but he said that had not worked out for him in the past.

I think the ANUM probabaly works out better for the advisor. A certain percentage will call a lot, some will probably never call. Most likely customers don't call as much as charge, so it works out better for the advisor. My mom falls in the almost never call, there is only interaction only a handful of times over the past 24 years. She is also paying about 0.27% anum, so I am not complaining too much.

Many advisor has a sliding scale where if you have more and more asset, the percentage drops. Usually there is a min amount so if you have a small portfolio you end up paying more than 1%.

[Audiophile]

There are good reasons to seek financial advise. Assuming alpha will exceed fees is not one of them.

Nearing retirement, I blinked in 2008/09 and made some emotional-based investing moves that I hadn’t done in the decades before. Because of this and nearing retirement, my trust in my abilities was shaken.

Thus, before retirement 13-years ago, we interviewed several fee-based financial advisors. My expectation was that via market timing, they may be better able to provide better returns than I could, even at the percentage rates they were charging. That exercise, along with copious amounts of reading and research led me to discard the fee-based financial planner/advisor notion.

I decided to go it alone, because I recognized that there was a reason why there are advisors on every talk radio station and 100’s to 1,000’s in major cities. All of them are touting what they can do. But I realized that when billion-dollar managers can't consistently beat the market, why would I believe a street corner Joe could do so?

I must admit however, that when we were within months of cutting our corporate umbilical cords, we did hire a flat-fee based (index fund fan) advisor, who was a retired bank manager. He and our local Fidelity advisor provided the hand holding advice we sought prior to entering retirement.

Since then, without paying anyone, but with advice and help here and there and from our local Fidelity advisor (especially when rolling-over funds), we have done well in retirement, using index funds and Bogleheads principles.

However, I am glad we went down the fee-based financial advisor rabbit hole. More importantly while down there, I’m happy I found the light switch, at about the same time I found the Bogleheads forum – cheers to all of the Bogleheads contributors.

[NYCaviator]

I should be able to find someone who spends 60, not my 30 hours per week for 1% who can do better (and as I've mentioned I have fees).
....
I don't believe in averages, though. I also believe the world economy is changing at a rapid rate, from logistics to blocs to AI and (less likely) crypto.
....
Perhaps the wisdom of the total market is best here, but I incline towards individual expertise.

1. You aren't going to get anywhere close to the personal attention that you seem to want with only $1.5m in assets. The minimum threshold for most AUM arrangements is $1m, and that's just to get in the door with an outfit who will put you into a cookie cutter portfolio and check in with you once a quarter (if you're lucky). If you want someone to actively manage your portfolio to your exact specifications, and hold your hand, you're going to need at least high 7 to 8 figures.

2. During the dot com bubble, people were saying the same thing about tech stocks that you're saying about logistics and blocs and AI. I'm not saying you can't get lucky and buy a unicorn and get rich, but I don't think you're going to find an advisor that will consistently help you find those. And if you do, they aren't going to be dealing with low 7 figure portfolios.

[H20SnoSki]

Thank you for the excellent advice. And persuasive stories. And reading suggestions.

FBALX hasn't outperformed but I get your point (and have been in FBALX).

I overlooked the point about what my 15k will get me in the way of attention.

UNCLE.

[Caleb4387]

Talk to Dave Scamsey, he is always claiming his funds outperform the market.

[Dottie57]

I've been convinced by this forum and its muses and have moved towards Bogleheadedness over the past three years.

I find I'm still too interested in moving things around, though,

Given the second statement contradicts, and trumps, the first statement, the first statement is false and you are therefore, just looking for permission to perform the action in the second statement.

Permission granted, it's your money, you are free to give it to whomever you choose.

A otne fund portfolio would do that.
I don’t interpret the OP’s statement as contradictory at all.

They’re saying they want to be a Boglehead but their behavioral tendency to tinker prevents them from being one. So they want to give their money to someone to manage to save them from themselves.

[southernlucky]

Op, you can screen for high performing mutual funds at www.portfoliovisualizer.com or www.Morningstar.com. Look at TRowe Price Capital Appreciation PWRCX. That has been pretty impressive with a fair chunk of bonds but higher ER but still less than a FA by half.

[random_walker_77]

How do you know that a high-performing mutual fund won't suffer reversion to the mean? So many high performers end up underperforming (search term: "top quartile persistence")

It's dangerous to rely on past performance to identify future stars.

[dogagility]

Now, the problem is finding them...

I'll probably take some of that risk.

I may be looking for the needle in the haystack. I don't believe in averages, though. I also believe the world economy is changing at a rapid rate, from logistics to blocs to AI and (less likely) crypto. Perhaps the wisdom of the total market is best here, but I incline towards individual expertise.

You have about a 10% chance of outperforming the "average" investor by choosing this path.

Best of luck to you; you will need it.

[goblue100]

Now, the problem is finding them...

I'll probably take some of that risk.

I may be looking for the needle in the haystack. I don't believe in averages, though. I also believe the world economy is changing at a rapid rate, from logistics to blocs to AI and (less likely) crypto. Perhaps the wisdom of the total market is best here, but I incline towards individual expertise.

You have about a 10% chance of outperforming the "average" investor by choosing this path.

Best of luck to you; you will need it.

I once read an interesting article on why you should try to be an average investor, that by being "average" year after year you end up in the top 10% of all investors. This article is not the one, but is the closest I could find:
https://seekingalpha.com/article/123328 ... e-investor

Average connotes mediocrity. Other synonyms include: ordinary, common, so-so, run-of-the-mill, and regular. Few engaged, self-directed investors strive to be average. They all aspire to beat the averages and excel. Many consider themselves to be above average and will deny the possibility that they might actually not belong in that category. However, I strive to only be average. What I don't want to be is the median investor.

So I am satisfied with my mediocrity, content with the knowledge that I am outperforming the majority of investors by merely striving to be average.

[gavinsiu]

I often wonder about this probably because I am not good at stats. Assuming that the index return average return, one would assume that half the managers will beat the index while the other half does not. However after 15 years or so, the number of managers who beat the S&P500 drops to about 10%. Maybe someone can explain the math of this .

While I am not sure why this is the case, I do know that there appears to be no easy way of identifying the manager who will win out. In the 90's I have use Morningstar to figure out the which fund will do well, but it rarely worked out. The manager would often jump ship or get replaced. Asset often balloon causing the fund to decline.

In the late 90's, I decided to switch to index passive because.
* I am bad at identifying which fund manager will be successful.
* I am tire of managers jumping ship.
* I want a fund that can keep growing without losing its edge. Many funds seems to be successful when small, but decline when it becomes popular.
* I just don't have enough money to hire someone good.

Indexing becomes the logical choice and I can't say it worked out pretty well, even though being average is really unamerican.

[Outer Marker]

Philosophically, I would not provide a dollar to the small firm advisors I know. Having tracked pundits from the major firms for several years, I also know they missed most of the major moves in that time not just in the 500 but geographically, by sector, and by nation. A few have not. Can I get that kind of advice? Maybe not without having $5m minimum, and maybe not at that point. But that is the kind of info I was looking for.

Warren Buffett runs a pretty successful active fund called Berkshire Hathaway. If you want someone to advise you on allocation, I'd pick him. Of course, Buffett himself recommends the S&P over his firm. You could go 45%BRK, 45%S&P, and 10% Cash/CD/Short Treasuries.

[Tdubs]

I often wonder about this probably because I am not good at stats. Assuming that the index return average return, one would assume that half the managers will beat the index while the other half does not. However after 15 years or so, the number of managers who beat the S&P500 drops to about 10%. Maybe someone can explain the math of this .

Fees

[gavinsiu]

I often wonder about this probably because I am not good at stats. Assuming that the index return average return, one would assume that half the managers will beat the index while the other half does not. However after 15 years or so, the number of managers who beat the S&P500 drops to about 10%. Maybe someone can explain the math of this .

Fees

It's more likely a combination of
* Fees
* Higher transaction cost.
* Inability to deal with asset bloat.
* Manager turnover.
* As Bernstein poined out, some of the fund's return are inflated because they start out as incubator funds that allow vendors to erase the track record of losers.

I was wondering if there are studies on the reasoning behiind the underperformance.

[Fallible]

@gavinsiu, re: "why," it is because if I can do well I should be able to find someone who spends 60, not my 30 hours per week for 1% who can do better (and as I've mentioned I have fees). Steph Curry, or a young Peter Lynch, you might say, but I think it is a little more realistic. Now, the problem is finding them and I may not have the bandwidth for that search, as it is getting tiresome.
...
Bernstein is excellent, of course. Some of the info is dated, but the principles continue. I may be looking for the needle in the haystack. I don't believe in averages, though. I also believe the world economy is changing at a rapid rate, from logistics to blocs to AI and (less likely) crypto. Perhaps the wisdom of the total market is best here, but I incline towards individual expertise.

Something for all investors to always remember: Investing is about the future, the unknowable future, about uncertainty on top of the inherent uncertainty in life overall. That's ultimately what's behind the "wisdom of the total market," behind simple, low-cost indexing, which is largely behind the "individual expertise" of Jack Bogle.

[vnatale]

I often wonder about this probably because I am not good at stats. Assuming that the index return average return, one would assume that half the managers will beat the index while the other half does not. However after 15 years or so, the number of managers who beat the S&P500 drops to about 10%. Maybe someone can explain the math of this .

Because a lot of it was due to luck.

If they had a 50% chance of being better than average then half are better than average in year one.

For year two the chances are now 25% (50% X 50%).

For year three the chances are now 12.5% (50% X 50% X 50%).

Obviously, my percentages assumptions do not work out to year 15 but it's something like that. A substantial of their outperformance is due to plain luck.

[Tdubs]

I often wonder about this probably because I am not good at stats. Assuming that the index return average return, one would assume that half the managers will beat the index while the other half does not. However after 15 years or so, the number of managers who beat the S&P500 drops to about 10%. Maybe someone can explain the math of this .

Fees

It's more likely a combination of
* Fees
* Higher transaction cost.
* Inability to deal with asset bloat.
* Manager turnover.
* As Bernstein poined out, some of the fund's return are inflated because they start out as incubator funds that allow vendors to erase the track record of losers.

I was wondering if there are studies on the reasoning behiind the underperformance.

Fees are the best predictor of performance.

If you already had an answer, why did you ask?

[gavinsiu]

Fees are the best predictor of performance.

If you already had an answer, why did you ask?

While I am aware of the different factors, I have not seen a study that study the magnitude of each factor. For the 10% that outperformed, what did they do right?

[vnatale]

Fees are the best predictor of performance.

If you already had an answer, why did you ask?

While I am aware of the different factors, I have not seen a study that study the magnitude of each factor. For the 10% that outperformed, what did they do right?

Again, they had a certain amount of luck on their side. How much is impossible to tell.

[gavinsiu]

Again, they had a certain amount of luck on their side. How much is impossible to tell.

After 15 years, I would think it may be more than luck.

[Deighve]

I often wonder about this probably because I am not good at stats. Assuming that the index return average return, one would assume that half the managers will beat the index while the other half does not. However after 15 years or so, the number of managers who beat the S&P500 drops to about 10%. Maybe someone can explain the math of this .

While I am not sure why this is the case, I do know that there appears to be no easy way of identifying the manager who will win out. In the 90's I have use Morningstar to figure out the which fund will do well, but it rarely worked out. The manager would often jump ship or get replaced. Asset often balloon causing the fund to decline.

In the late 90's, I decided to switch to index passive because.
* I am bad at identifying which fund manager will be successful.
* I am tire of managers jumping ship.
* I want a fund that can keep growing without losing its edge. Many funds seems to be successful when small, but decline when it becomes popular.
* I just don't have enough money to hire someone good.

Indexing becomes the logical choice and I can't say it worked out pretty well, even though being average is really unamerican.

It is because the mean performance is greater than the median. A small number of super performers bring the average of the market up. If you don’t own everything you miss them.

[vnatale]

Again, they had a certain amount of luck on their side. How much is impossible to tell.

After 15 years, I would think it may be more than luck.

For some of the 10% more than luck. For some of the 10% all luck.

[Normchad]

Again, they had a certain amount of luck on their side. How much is impossible to tell.

After 15 years, I would think it may be more than luck.

For some of the 10% more than luck. For some of the 10% all luck.

If you try flipping coins, it really hard to get heads 15 times in a row.

If you find a willing group of 10,000 people to try, a few of them will do it. Then we’ll declare them to be “the gifted coin flippers”.

It’s that sort of thing…..

[meowcat]

Again, they had a certain amount of luck on their side. How much is impossible to tell.

After 15 years, I would think it may be more than luck.

For some of the 10% more than luck. For some of the 10% all luck.

If you try flipping coins, it really hard to get heads 15 times in a row.

If you find a willing group of 10,000 people to try, a few of them will do it. Then we’ll declare them to be “the gifted coin flippers”.

It’s that sort of thing…..

This is it, exactly. The 50% that beat the market 1st year, did so simply by chance. That's why roughly 50% of year one winners don't remain winners in year two. Going on to year three, again, roughly 50% of the winners in year two will drop off the year three list. These are very rough numbers, of course but this is what's really happening. It's exactly like the coin flip analogy. If you flip heads 10 times in a row, there was no skill involved, it was simply by chance. We call it luck. If you're investing term is for life, like me, you simply cannot find a manager that will outperform beyond his fees for that period of time, it's just not going to happen.

[random_walker_77]

Again, they had a certain amount of luck on their side. How much is impossible to tell.

After 15 years, I would think it may be more than luck.

For some of the 10% more than luck. For some of the 10% all luck.

If you try flipping coins, it really hard to get heads 15 times in a row.

If you find a willing group of 10,000 people to try, a few of them will do it. Then we’ll declare them to be “the gifted coin flippers”.

It’s that sort of thing…..

This is it, exactly. The 50% that beat the market 1st year, did so simply by chance. That's why roughly 50% of year one winners don't remain winners in year two. Going on to year three, again, roughly 50% of the winners in year two will drop off the year three list. These are very rough numbers, of course but this is what's really happening. It's exactly like the coin flip analogy. If you flip heads 10 times in a row, there was no skill involved, it was simply by chance. We call it luck. If you're investing term is for life, like me, you simply cannot find a manager that will outperform beyond his fees for that period of time, it's just not going to happen.

Yes, top funds stay as top funds at roughly the rate predicted by chance. Bottom funds tend to be shutdown. Meanwhile, new funds are being formed all the time. As a result, survivorship bias is not a negligible thing here