question: I have two retirement accounts managed by large brokerage firms, and they underperformed the S&P 500 and other indexes in 2023. We also have accounts that we manage ourselves, and these have outperformed the major indexes. I’m paying a sizable fee to have my account managed, but after two years I don’t think it’s worth it. Based on the latest reviews, we feel you can better manage and grow your account on your own. Am I seeing things the right way?
answer: It may be better to do it yourself, but let’s take a closer look at how to determine that. First, comparing account performance is a good way to benchmark, but you should always compare apples-to-apples. “If you’re comparing a managed account contract with a moderate 60/40 allocation to an account with 100% stocks, the performance won’t be close, but that’s not necessarily the broker’s fault,” says the certified financial planner. James Daniel of the advisory firm. (Looking for a new financial advisor? This free tool connects you with advisors who fit your needs.)
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Additionally, consider your stock holdings and take a longer-term view than just one year. “2023 was the year global stock markets rose, and you’ll find that a notable percentage of that rise was concentrated in seven giant US tech stocks. S&P 500 in an account you manage. If you own an index fund and your broker manages two retirement accounts as balanced accounts, you can bet that by 2023 they would have performed worse than the two accounts you manage. ,” says Jim, a certified financial planner and Mr. Hemphill of TGS Financial.
On the other hand, Balanced Accounts significantly outperformed the S&P 500 in 2022, when the market fell and tech stocks fell the most. The bottom line is that one-year trends simply don’t provide enough stable data to evaluate the S&P 500. It shows the performance of any investment strategy,” says Hemphill.
Another thing to consider is that your financial advisor does not manage every investment account you own and may take this into account when choosing where to invest. . “The advisor may have constructed the overall portfolio allocation taking unmanaged accounts into account, even though the advisor does not manage the unmanaged accounts. If the advisor had seen it invested, the advisor may have invested the managed account more conservatively, which may have resulted in lower returns,” says Sagevest Wealth Management’s Certified Financial Advisor. Planner Dan Serra says:
Another possibility is that because you didn’t rebalance, your portfolio kept winning. “This may place portfolios holding overvalued stocks at even greater risk of market declines. Clients are less likely to see portfolio managers sell winners as part of a rebalance. ,” Serra said.
That said, David Morris, certified financial planner at Worthwhile Wealth Council, points out: Similarly, the fees may seem unfair to you, but that’s also the advisor’s problem. ” (Looking for a new financial advisor? This free tool connects you with advisors who fit your needs.)
In fact, it may be helpful to consider the direct value proposition of hiring an advisor, he says. “Consumers would be wise to ask themselves who is being paid, by whom, and for what purpose. Does this approach measure risk/return performance? Are you taking just as much risk? Still, each investor will have a range of different preferences regarding both these important factors and the trade-offs between them,” says Morris.
It’s also important for clients to make sure their advisor understands the objective of adjusting target allocations across all accounts and managing risk, Serra said.
There’s nothing wrong with choosing the DIY route, it can be cheaper and better, but make sure you have a solid asset allocation. [the rough rule of thumb is generally a percentage of stocks that equals 100 or 110 minus your age with the remainder in fixed-income securities]. Also, make sure the amount of risk you take to achieve above-average returns matches your comfort level, say the pros.
“Winning the market rarely works, but it’s perfectly fine to want to be in control of your own accounts. To help with this, one book to add to your list is Vanguard’s late John C. – Bogle’s The Little Book of Common Sense Investing. When managing your own accounts, be aware of how they affect taxes, contribution limits for specific accounts, and income limits for accounts such as Roth IRAs. Just be sure to pay attention,” says Bry Conn, Investment Advisor Principal and Specialist at Childfree Wealth.
If at any time you decide you need help, seek professional guidance from a fee-based, advice-only Certified Financial Planner without relinquishing control of your account. “We have met with several advisors who have provided information on how to invest their entire portfolio and have provided advice that best models a smart long-term strategy, is broadly diversified, and has Choose an advisor with low costs and costs,” says Hemphill. (Looking for a new financial advisor? This free tool connects you with advisors who fit your needs.)
Have a problem with your financial advisor or are you looking for a new advisor? Email your questions or concerns to picks@marketwatch.com.
