If it wasn’t clear enough from the last post, when it comes to investing costs kill. They kill your returns and ultimately your financial goals. Using index funds and index ETFs is the most effective way to reduce this cost because they remove a huge layer of costly advice (the mutual fund manager) and give you as close as you can get to returns that match the major stock market indexes – this at a 90% discount to those actively managed funds your adviser recommends.

Step two is to fire your financial adviser. Why pay someone to buy you index funds when you can save another 90% by doing it yourself? That’s like paying a mechanic to change your oil except he just kicks back with a beer while you figure it out and then do all the work. No – once you fire your adviser you will have taken another huge step toward eliminating that $3 million in costs on your $100k account.
But this is where most folks balk. It’s scary going it alone. They need someone to hold their hand but in reality this is much easier than learning how to change your own oil. Once you learn how to manage your own investments wisely you’ll never even consider going back to the dealer for service. All you need are the right products at the right brokerage firm, a little knowledge about asset allocation and then a couple of safeguards to prevent you from dropping the car while you’re still underneath it.
In fact, this is probably your financial adviser’s last line of defense: pay me to protect you from yourself! And it works. People are afraid of making mistakes and every broker and financial adviser knows that fear is the most powerful of all human motivators. In fact, it’s how they get most of their clients. It should help to know, though, that in my experience individual investors are more cautious and conservative with their own money than professionals are. After all, who cares about your financial well-being more than you do?
Becoming your own adviser is empowering. I believe you’ll find that when you do it right you will have much more confidence and far less anxiety about the markets and your portfolio. I’ll get into the details of how you’re going to do this in tomorrow’s post.

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