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A widespread myth in investing is that you need a financial advisor to succeed, especially with a flood of ads from the financial services industry.
The truth is that self-managed investors often outperform those who use advisors.
They also avoid high advisory fees that cut into their returns.
I've personally never hired any financial advisor.
Since inception, I've professionally managed my own capital, and my personal and my companies' returns outpaced those of an advisor.
Beating the market isn't the primary job of a financial advisor.
Instead, they are more like coaches and counselors. They help you set financial goals and stick to them.
They keep you from making emotional decisions in tough times.
However, you must decide if this guidance is worth paying an annual fee of 1% or more of your portfolio.
Check this chart out. It is considered a portfolio that grows only 4% annually. Also, keep in mind it doesn't consider recurring investments.
I'm talking about fees costing you millions over decades, considering compounding.
Financial advisors' fees are not based on the returns they deliver but rather on the total assets under their management.
This means you'll still get a bill for their services even if they lose the money you entrusted them with.
This creates unnecessary risk and cost and reduces the incentive for advisors to outperform the market truly.
Keeping your money in their care is what matters most to them.
This fee structure must better motivate advisors to beat the market.
After all, they get paid regardless of whether they make you money.
Many advisors play it safe with highly diversified, index-tracking portfolios because strict SEC rules on their investment advice create this.
This means they won't be able to outpace the broader market, which is every investor's goal.
So, there are two main paths for you:
In both cases, compounding will work its magic over the long term.
After fees, a cheap index fund will beat the average active fund. Studies show it.
Index funds track the market. Active managers struggle to pick winning stocks.
There's a more powerful strategy for individual investors, but it requires some market expertise (or the right sources).
Select a concentrated portfolio of high-quality assets carefully.
Then, patiently wait for opportunities to buy them at reasonable prices.
Some of the world's most successful investors, like Warren Buffett, embrace this approach.
You must be selective about which assets you own.
Focus on quality rather than diversification. Have patience (and guts) to bear market fluctuations.
Buying shares of a high-quality, undervalued asset puts you in a better position than most Wall Street guys.
If you can hold that investment for 10, 20, or 30 years, you stand to benefit.
In my case, I'm currently diversifying between:
This long-term, owner-oriented mindset distinguishes the ultra-wealthy from the financial advisors and average investors.
If you analyze the most successful investors from the past and today, they all follow this same formula.
Also, any investor can develop it if they put in the time and effort.
It requires a shift from the short-term thinking that dominates the financial industry, but the payoff in portfolio growth can be substantial.
So, before hiring a financial advisor, ask yourself:
Am I willing to pay high fees for only "average" market returns?
Or would I be better off taking control of my investments and employing the tactics used by the ultra-wealthy to grow their fortunes?
The choice is yours. What will you decide?
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