One of the most commonly held misconceptions in investing is the idea that you must work with a financial advisor in order to be successful.
Perhaps this myth has persisted for so long thanks to persistent marketing on behalf of financial advisory firms.
However, the reality is that investors who manage their own money are often able to perform just as well or better than those who work with a financial advisor and without any high fees eating into their returns.
If you’re still on the fence about whether or not you actually need a financial advisor to be a successful investor, consider these points.
1. Financial Advisors Rarely Beat the Market
Large-cap fund managers – people who could be considered the most elite of the elite when it comes to financial advisors – are outpaced by the S&P 500 a staggering 92.2% of the time.
Even Fran Kinniry, the head of portfolio construction for Vanguard Investment Strategy Group, once admitted in an interview with U.S. News and World Report that beating the market was, “Really hard to do” for financial advisors.
Instead of helping you actually beat the market, financial advisors serve more as a coach and counselor, talking you through the tough times and persuading you not to make emotion-based decisions.
However, you have to decide for yourself if this service is really worth paying for.
2. They Charge You Regardless of Whether or Not They Make You Money
The fees that financial advisors charge are not based on the returns they deliver but rather are based on how much money you invest.
This means that even if they end up losing the money that you entrust them with, you’re still going to get a bill for their services.
Not only does this system add extra, unnecessary risk and expenses to your investment strategy, it also leaves little incentive for a financial advisor to perform well.
While they will earn more if they are able to grow your wealth, at the end of the day, they get paid regardless.
3. Putting Your Money in the S&P 500 Will Make You More Money
Simply putting all of your money into the S&P 500 and forgetting about it will almost always yield higher returns than entrusting your money with a financial advisor.
As already mentioned, the S&P 500 beats large-cap mutual funds 92.2% of the time.
How is it, though, that the S&P 500 is able to beat money managed by financial advisors so frequently?
The answer lies in the high, percentage-based fees that financial advisors and fund managers charge.
Overall, a financial advisor may be able to perform better than the S&P 500.
However, once you subtract the fees that they charge, your returns almost always end up being less than they would have been if you had put your money into an index.
4. You Can Make Better Returns by Choosing Individual Companies and Investing for the Long-Term
Putting your money into the S&P 500 may be a more rewarding option than entrusting it with a financial advisor, however, there is an even better option still.
By carefully choosing individual companies, you can perform the same role that a financial advisor does yourself without being restricted by any of the requirements they have to meet and without having to pay any of their fees.
Choosing high-quality individual companies and waiting until they go on sale to purchase them is by far the most effective investment strategy available.
Best of all, unlike financial advisors who are required to invest their clients’ money into the market right away, choosing individual companies yourself allows you the freedom to keep parts of your money in cash until the opportunity to buy a quality company at an attractive price arises.
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Financial advisors – hindered by their high fees and their requirement to always have all of their money in the market – may not be able to beat the market, but individual investors who manage their own money certainly can.
So long as you are willing to put the time and work into choosing great companies, have the patience to wait until the market puts these companies on sale, and have the resolve to keep your money in the market over the long-term come what may, you can achieve double-digit returns that outpace the market year after year – no financial advisor required.
How much does your financial advisor charge you? Are they getting you good returns? Ditch the advisor and learn to invest on your own by buying great businesses at attractive prices. Learn more about investing by attending my Transformational Investing Webinar.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.