DR Podcast 314: How To Leave Your Expensive Investment Advisor

In this podcast, Rob takes a deep dive into what you get when you pay high advisory fees. Most of the time, you’re paying for an actively managed fund that’s highly diversified across maybe 20-30 funds. In contrast, Vanguard or similar index funds put your money in 3 or 4 mutual funds.

But don’t stop there. Rob compares the Fidelity Freedom 2050 target retirement fund with the similar Vanguard 2050 retirement fund. The Fidelity one has 25 funds, and the Vanguard one has only fund, which is probably why Fidelity charges 75 basis points and the Vanguard one charges only 15.

But when you dig down into the holdings of these funds, you’ll discover that in terms of holdings, allocation, and geographic dispersion, both funds are pretty similar. And guess what? The Fidelity fund is actually slightly more volatile than the Vanguard one!

Rob points out that actively managed funds often outperform index funds in a down market, but when you choose your fund, you need to think about performance in both up and down markets, across 30 or 40 years. He highlights a great psychological issue, which is that when an index fund is down, it’s nobody’s fault. It’s just because the market is down. But when an actively managed fund is down, you’re going to wonder if someone made a mistake somewhere. You’ll question if you’re getting what you’re paying for.

Rob ends with three questions to ask yourself before you leave an expensive managed investment fund:

  • Is my advisor’s strategy truly adding value to my portfolio?
  • Am I comfortable having all my money in just three or four funds?
  • How will I handle it when my portfolio underperforms?

Topics: Podcast

One Response to “DR Podcast 314: How To Leave Your Expensive Investment Advisor”

  1. How can I fix a mistake from a broker who put me into loaded funds. The funds have a backend fund and I do not use the financial advisor any more. I quit paying the advisor or adding to these funds and just left them wth reinvestments.

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