A recent report by Vanguard, called Advisor’s Alpha, had some interesting things to say about the benefits of using financial advisors and how retired folks can benefit from them.
If you read this report, keep in mind this advice about the benefit of using advisors is coming from the company that made online trading and not using advisers possible.
Vanguard was quite clear that long-term numbers indicate an advisor will not necessarily generate higher returns than what you might be able to do with something as simple as an index fund or ETF, but there are three areas where they can be a big help…
1. Behavioral Coaching
The first is behavioral coaching: avoiding bad decision making.
The report said the same thing I have been saying for the past 20 years: the small investor’s biggest enemy is himself. As recently as 2009 the returns from self-managed money wasn’t even beating inflation.
Investment returns for self-managed money is far below that for the pros, not because of the investments they chose, but because of the little guy’s habit of buying when things look rosy and selling at the first sign of a rough spot in the market.
This is one area where Vanguard thinks an advisor can help level the playing field.
For retired folks the two biggest benefits an advisor can offer are an asset-allocation strategy, which Alexander Green has been providing to Oxford Club members for over a decade, and an efficient tax strategy.
2. Asset Allocation
Asset allocation is a critical element of investing success and according to the Vanguard report is responsible for 90% of investment returns. Most investors ignore it completely in favor of the “stock of the month” club. Another behavioral issue!
3. Tax Strategy
On the tax side, an efficient distribution strategy can make all the difference for a retired person.
Vanguard says most retired persons withdraw money from tax-deferred accounts first, which is the least efficient way to do it. A well-thought-out withdrawal plan that takes into consideration all the possible tax implications can significantly increase financial security in retirement.
Saving a few bucks by managing your finances is not the same thing as saving a few cents by pumping your own gas or bagging your own groceries. Investing is a whole world unto itself says Vanguard, and most of us need outside expertise to help make it come together. And that is coming from Vanguard – the online brokerage.
Consider the help a financial advisor can provide in the tax, asset allocation and behavior areas.
Editor’s Note: As Steve mentioned, Alex Green and The Oxford Club have been providing a low-cost alternative to hiring a financial advisor for over 10 years now. Although the advice isn’t personalized, it does provide its members with a basic understanding of things like asset allocation, position sizing, tax strategies and sell strategies.
Further, Alex’s portfolio recommendations have been ranked in the top five in the nation over the past 10 years by the independent Hulbert Financial Digest. And it’s largely due to his quality team of analysts who work around the clock to find the best wealth-generating opportunities in the market.
Take one of their recent finds, for instance. It’s a small biotech company that has discovered a way to effectively “turn off” certain problematic genes. The implications for this are mind-boggling to say the least. Many leading scientists believe this could be our best bet at curing cancer – and possibly even reversing the aging process. Its shares are up over three-fold since November and we are still in the very early stages for this astounding discovery.
To learn more about it, click here.