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Originally Posted by NemesisX
My dad hit $15M in liquid net worth this year after 37 years of working/investing. He's 61 and 95% of his money is in Vanguard funds with extremely low expense ratios that track the S&P500. He's well aware that for his age and intended retirement (he wants to retire by 77) his portfolio is extremely aggressive given that it's mostly equities. Income trajectory was $40k to begin, $160k mid 90s, $300k early 2000s, $500k 2010-2015, and recently $800k-$900k the last couple of years. Expenses are around $150,000/year which is why he can afford to be aggressive.
In the late 2000s he tried his hand at a financial advisor by letting an advisor manage $500k of his total portfolio. He chose that amount because it was the minimum amount required to optimize the fee schedule for this brokerage firm. He figured he could always mirror what the advisor was doing with the rest of his money if she ended up doing something special. Over the course of 7 years she failed miserably compared to the S&P500.
She purchased mostly mutual funds from American funds for which she received extra compensation for "selling" their product. Then she stuck to mostly blue chip stocks that are readily listed on their website for free.
The cost to do this? 2% of assets under management. There would have been an additional 2% fee for reinvestment of dividends if the portfolio had been less than $500k.
American Funds have expense ratios around 1% and front loads of around 5.75%. That's in addition to Edward Jone's fees listed above, I think, but don't quote me on that.
Bottom line is firms/financial advisors has zero value if they're not beating the S&P500. The firm needs to beat the market by a certain amount just to break even with their fees and then provide additional value above that.
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Quote:
Originally Posted by NemesisX
Bottom line is firms/financial advisors has zero value if they're not beating the S&P500. The firm needs to beat the market by a certain amount just to break even with their fees and then provide additional value above that.
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Managing portfolios is a little more complicated than beating S&P.
If you want to have a chance at beating the S&P you need to invest in alternatives (hedge funds, private equity). Just for reference with most known firms you need around 50M to make a diversified custom PE/HF portfolio.
You can tell your dad to read about tax managed equity as it can be beneficial for him.