Pay broker fees or go Index funds?

[dennis in se pa]

I currently have a broker, but am looking at the numbers. It seems an index fund like VFIAX is a better way to go. Follows the market and much lower fees. Any input is appreciated.
Let me add...
I am approaching 60, so I am conservative in my investments. My broker currently has me in a mix of mutual funds, he does not actively manage stock investments.

[MRM]

Doing any research on this issue demonstrates conclusively that you will do better in a low fee, no load index fund than any fund manager can do over time. Less than one percent of all fund managers beat the S&P 500 over ten years, about 5% beat the S&P over 5.

One of the great scams of the world is people calling themselves financial professionals and telling people they are managing their money for them and then taking a fee based on a percentage of the portfolio. At best, these people are charging to allocate percentages of your portfolio between different managed funds, all of which charge their own management fees. At worst, these people try to convince you to buy specific stocks or try to let them actively trade on your account, picking stocks.

No "financial professional" can pick stocks better than you unless they are the type of person who works for the Warren Buffetts of the world. Those people have access to data the public can only dream of and have the training, education, and IT systems that make it possible to make the most of that information. All other stock broker types do nothing more than "research" stocks by reading what the analysts and newsletters and Money Magazine tout as the latest hotest stocks. They are unable to indepedently evaluate stocks because they have neither the data nor the financial tools to do so. You can read Money, why pay a financial advisor to regurgitate it to you?

Hire a certified financial planner once a year on an hourly basis to review your portfolio and make asset allocation suggestions - not pick stocks. Do not use anyone who charges a commission. Put everything you want in stocks in index funds, unless you have a personal familiarity with some company or another that makes buying it a no brainer.

[74-911]

When I retired 8 years ago I rolled my 401K into an IRA and started moving towards a more conservative mix. Our Co's 401K funds were invested in mainly in American Funds and overall had done well (Morningstar ratings are good and expense ratio is low for managed funds). However, upon close examination it was obvious I had little diversification. For example I had money in six different American Funds but the funds were all Large Value, Large Income, Large Blend, Large Growth, etc. Essentially, the broker who handled our 401K was just a salesman spouting the company line (which sounds perhaps like your broker is).

Since then I have moved over 1/2 my IRA into Vanguard Index or ETF funds and am very happy with them. Over the last 2 years I have also converted as much as I could into a Roth IRA also in Vanguard funds. I currently still have funds in a couple of the American Funds but these fit in with my diversification strategy.

The Vanguard funds are very low cost and I don't have to deal with a broker if I want to change my portfolio, I can do it all on line. I have been able to diversify into REITS, Energy Index funds, small and medium cap Index funds, etc.

I really like the Couch Potato investing philosophy of Scott Burns:
AssetBuilder Inc. - Registered Investment Advisor- Couch Potato Cook Book

The big decision I have now that I am on Medicare (WTF - how did I get this old?)
is when to take SS, now or wait one more year til 66??

Hope this helps. To me, moving to Vanguard (with a lot of research and reading) was a very good move.

[legion]

Read what MRM wrote, then read it again. Then go to bed, and read it again in the morning.

I went to college and became a Finance major to learn the secrets of making money. Instead I learned that most people were peddling BS and charging a boatload for it, and then underperforming the index funds on top of it.

Lipper averages are a joke, and are just used to justify this underperformance by fund managers.

IIRC, the Wall Street Journal used to run a contest every year where top fund managers were pitted against a "dart fund". Yep, they picked a portfolio by tossing darts at stock listings. The dart fund would beat the fund managers more often than not, and the indexes would almost always beat the dart fund.

[Drdogface]

I actually had an advisor tell me more than once that of over 5000 funds only about 12 beat the index funds.

[legion]

Originally Posted by Drdogface

I actually had an advisor tell me more than once that of over 5000 funds only about 12 beat the index funds.

Over what time period? I'd guess 10 years. I don't think anyone has ever done it over 15, 20, 25, or more years...

[Drdogface]

I should have said that this was told to me about 12 years ago. The time period is a good question and I don't recall that it was mentioned. Good call...!

[RWebb]

search OT for the term Vanguard - read pwd72s's posts (essentially MRM's post above) and mine also - then take your choice

may not be simple enuff for you, but...

[Dottore]

Originally Posted by legion

Read what MRM wrote, then read it again. Then go to bed, and read it again in the morning.

fund.

Yes. +1000

[sc_rufctr]

Sorry NO... Stay with your broker.

Although I'm very conservative when it comes to investing and money.

[KFC911]

Some excellent advice in this thread. However, I've discovered over the years, that the more "hands on" I have become in managing my investments (starting around the the age of 40), the better off I've done, and it easily surpasses the performance of the S&P, etc. I no longer invest in index funds, nor "the market" per se, but in individual companies. It's not for everyone, but it sure works for me, and no one cares more about my investments, or will work cheaper than I do .

[74-911]

MRM's advice is absolutely the best path to take. However, if you live out in the sticks good luck with finding a certified financial planner who works on a fee basis... although YMMV.

If you are willing to put in some time and effort, there is a lot of really good information available on the internet about setting up a low cost portfolio, allocation of assets, etc.

Just my .02 cents worth...

[wdfifteen]

MRM's advice is perfect - I hope. It is exactly how I manage my nest egg. Mine costs $800 a visit and I go see her every other year.

[dennis in se pa]

Thanks for all the feedback. It is clear what direction you people believe I shoud go.

[Vintage Racer]

Originally Posted by 74-911

However, if you live out in the sticks good luck with finding a certified financial planner who works on a fee basis...

JMO, I am retired Registered Investment Adviser. I am registered with the SEC as "fee only" (I invested the portfolio based on a percentage of assets: 0.75%) or for an hourly fee ($250/hour).

I also held a "broker" license (Series 7) but never sold anything on commission.

I hold different "certified" designations. I could have called myself a financial planner. What a professional designation shows is that I could pass a series of multiple choice tests and fill out the appropriate paperwork.

I'd suggest finding a planner or money manager that comes very highly recommended. Not just one that has a few degrees on their office wall.

Originally Posted by 74-911

If you are willing to put in some time and effort, there is a lot of really good information available on the internet about setting up a low cost portfolio, allocation of assets, etc.

I agree. Most people can do it themselves. They need to have the time and energy to do some homework.

An investor could have a mix of three or four low-cost bond and equity index funds. Or you can spend a lot more time and invest in individual stocks and bonds.

I usually concentrated on people that didn't have the time or inclination to invest their money. Many doctors, lawyers, and rich widows do not have the time and confidence to manage their money.

[legion]

Originally Posted by KC911

Some excellent advice in this thread. However, I've discovered over the years, that the more "hands on" I have become in managing my investments (starting around the the age of 40), the better off I've done, and it easily surpasses the performance of the S&P, etc. I no longer invest in index funds, nor "the market" per se, but in individual companies. It's not for everyone, but it sure works for me, and no one cares more about my investments, or will work cheaper than I do .

I don't dispute this in the least. No one cares about your money as much as you do.

Most fund managers are swinging for the fence (placing risky bets with other people's money) to make a name for themselves. You are investing exactly in tune with your beliefs and risk tolerance.

I will say this, doing what you are doing is probably more work than most people are willing to put in. Index funds are the best combination of low risk + low fees + low work + high returns IMO.

[RWebb]

Originally Posted by KC911

... I no longer invest in index funds, nor "the market" per se, but in individual companies. It's not for everyone, but it sure works for me, and no one cares more about my investments, or will work cheaper than I do .

I started out that way and it is fine if you are young. You need to reduce risk more as you age, and it will be very hard to do that w/o a large # of stocks - how would you keep up on them all? Hence a fund (a basket of stocks). Add stock funds and bond funds (low cost ones) and use the indiv. stock portfolio as a supercharger (for the good times).

no one will work cheaper than you do , but that is not the correct question -- will the delta in the performance of a group of professionals be greater than the fees they charge --- that is the correct question

and you can find a few xlnt funds at Vanguard & Fidelity both; the expenses are low, and it appears they will beat an index fund - unfortunately, many of them are closed to new investors

the easy way is to get stock & bond index funds from Vanguard; choose the allocation to each; and check it no more than 1x/year

that will do a good job over the long haul

[KFC911]

Originally Posted by legion

.... Index funds are the best combination of low risk + low fees + low work + high returns IMO.

That's an excellent way to put it, and just to be clear, I too agree with everyone else that this is a great strategy. I did it that way for years, but now have the time (and inclination) to be more "hands on" than I was before.