How Much am I Saving by Managing My Own Investments?

[REWahoo]

In a quick look at the referenced comparisons I don't see a clear winner. For example...

The findings from the study

Tower and Zhang looked at equity returns of DFA and Vanguard funds from the end of 1982, when DFA data became available, until August 31, 2009. The findings surprised me.

The DFA equity portfolio has not consistently outperformed the Vanguard equity portfolio. Over the entire life of the DFA equity portfolio, its return is less than that of the Vanguard equity portfolio, even without adding in adviser and transaction fees for the DFA portfolio. However, for the period of the start of the growth stock bubble (end of 1995) through August 31, 2009, DFA, even with an adviser and transaction fee of up to 1%/year, out-returned the Vanguard portfolio.​

Thus, according to the study, the answer is dependent upon which period of time is being studied. Ed Tower noted to me that the DFA portfolio showed less volatility, which is one measure of risk. The question of which is better remains unanswered, especially going forward.

DFA vs. Vanguard - Which is better? - CBS News

 

[travelover]

See? Ya just gotta decide your opinion , then search until you find a supporting source.

What was I thinking?

 

[FinanceDude]

In a quick look at the referenced comparisons I don't see a clear winner. For example...

DFA vs. Vanguard - Which is better? - CBS News

Sounds ambigious to me............

 

[Bestwifeever]

Really? it is that hard to do a Google search? ok, I guess for some people it is...
first the original paper:

http://public.econ.duke.edu/Papers//PDF/Vanguard_Versus_DFA_30 july_2007.pdf

multiple discussions of the paper-

DFA vs. Vanguard

'DFA vs. Vanguard' Depends on Asset Class and Tilt in Question - Seeking Alpha

Evanson Asset Management - DFA vs. Indexes and ETF's

DFA vs. Vanguard - Which is better? - CBS News

Bogleheads • View topic - DFA vs Vanguard 10-year vs. 5 and 3 yr.

Now, see, that wasn't too hard, was it? Always nice and courteous when the person purporting something actually provides some source material rather than expecting readers to back it up when they ask for a source.

 

[FinanceDude]

I use DFA with some of my clients. IMHO, one is not "better" than the other, they are both well run low expense companies.........

 

[Nords]

I'm not interested in managing a portfolio of my own stocks but if I was I would either do some serious studying first or try to figure out what Warren Buffet to hand the $ over to. Do fee advisors in the 1% range actually hand pick and actively manage a selection of individual stocks and bonds? I thought most of them pick a handful of mutual funds and send you on your way, albeit with a checkup every few months to see if things need re-balancing.

From reading various Buffett books that have interviewed the people who actually knew Buffett and invested with him in the 1950s, his original partners were either happy to let young Warren see what he could do-- or they never would have let anybody manage their money but themselves.

there are numerous references with a simple Google search of DFA vs Vanguard.

Yeah, but you're the one making the claim that DFA is better than Vanguard. I think it's considered good discussion-board etiquette to provide a reasonable link for the membership to assess in drawing their own conclusions.

You can find a lot of those claims on the Internet with a simple Google search too, and they're also not as much of a slam-dunk confirmation as you might think.

 

[clifp]

I was just wondering how much money I save by managing my own investments? I understand that investment advisors charge anywhere between .5% and 2.0% annually of your portfolio's total value. This fee needs to be paid even if your portfolio does not increase in value for any given year.

I also understand that you can pay some investment advisors by the hour. But about how many hours on average would someone spend on a typical portfolio and what would the average hourly rate be?

Assume for the sake of discussion that the investment portfolio value is $500,000.

Thank you for your help.

I am not sure if you got your question answered. So 1% on a $500K portfolio is $5,000 year. A CFP (certified financial planner) might charge between $150-$250/hour (We have some on the board.) So that would about 25 hours a year fora fee only planner.

A couch potato portfolio requires reading a couple of books and some of Scott Burns stuff on the internet. So maybe a 5 to 10 hour time investment upfront. The actual annual time to manage a couch potato portfolio certainly can be done by looking at your Vanguard statement spending a hour or less doing math and than another 30 minutes calling them to rebalance so a couple hours a year. Or about $2500/hour.

Realistically I think a retiree should a minimum of 2 hours a quarter reading the monthly or quarterly statement, and the Vanguard/Schwab/Fidelity investing newsletter. Then once a year spend 4-6 hours calculating your net worth, running FIRECalc to see how your portfolio survivability and figuring our your spending and estimating next years income vs spending. Finally making any chances to your AA. Call it 10/hours a year for investing. 10 hours/year = $500

My guess is you can spend 1-2 hours a week profitability learning about investments, money saving tips, better CD rates, new tax or SS strategies etc and hot tips for your hormone account. So 100/hours a year would be $50/hour. Beyond the 100 hours/year I don't think there is any need for someone to manage their money unless you enjoy learning about it (and lately for me pontificating about it).

 

[seraphim]

I'm just delving into my former MIL's accounts. Her adviser charged a 1% fee based on assets (figured on assets or returns?), and got a commission from the funds, which had ERs about 1.5. On $500k worth of assets (and I'm not sure how these fees are calculated), wouldn't that be about $10k? Between 2.5% and inflation, wouldn't you need a 5.5% return just to break even?

 

[Sarah in SC]

Here are some thoughts (from my boss) on why it can be hard to find good folks to manage your money (if that is what you want, rather than DIY):

[FONT=&quot]I have often felt that there are two types of investment managers: 1) those who love investing because it can earn a profit for their investors and 2) those who love investing because it can earn a profit for themselves. Usually, the first type is an extremely poor marketer. They do not know how to sell anything, much less themselves and simply want to spend their time finding great investments. The second type is a great salesman (or saleswoman) whose focus is on what they can do to make money for themselves. [/FONT]

Or the shorthand: if they are calling you instead of you calling them, you probably got yourself one of them-there marketing sharpies!

 

[samclem]

I'm just delving into my former MIL's accounts. Her adviser charged a 1% fee based on assets (figured on assets or returns?), and got a commission from the funds, which had ERs about 1.5. On $500k worth of assets (and I'm not sure how these fees are calculated), wouldn't that be about $10k? Between 2.5% and inflation, wouldn't you need a 5.5% return just to break even?

This is what I'm finding as I go through my FIL's accounts. The advisor charged him 1.5% per year, charged him $9.75 per trade (and there 5-10 trades per month), and had him in various funds with zero to 4% loads and high ERs. Some had a back-end fee, too. That's a lot of drag on a portfolio. My MIL has severed her relationship with the advisor, moved funds to Vanguard, and asked for a pro-rated refund of the advisory fees paid by my FIL for the remainder of the year. I expect we'll have a fight on our hands, which will be a treat.

I also found an old letter from the advisor noting that they were reducing their fees from 2% to 1.5%, but would have to start charging for trades.

 

[EvrClrx311]

About three months ago my daughter said that she didn't want to manage her own investments because she didn't want to have to sit in front of a computer all day keeping track of them. I realized that's what she thought I was doing every day when she saw me reading e-mail, reading E-R.org, writing, blogging, playing Windows Solitaire...

My breakthrough was when I said "What do you do with your iPhone in your hand all day?"

"DD, the reason I don't want to have any friends is because I don't want to have to sit in front of my iPhone all day and track them."

 

[Ed_The_Gypsy]

This should not be construed as an endorsement for Investment advisers and I personally would never hire one, but I understand why others would.

Harken! He was in the business.

Do not give your money to thieves!

Psst! Wellesley! (VWINX)

 

[H2ODude]

As I've read through this thread, especially the posts from folks who've discovered high costs in MIL and FIL accounts, etc, there's another big reason to DIY. If you wash your hands of this business of investing, I think it makes you very susceptible to being taken advantage of. Yes, there are competent and honest advisors out there, but if you don't take an interest in this subject how on earth would you know you have such a person? If money's worth working for and saving (as in not indulging yourself in luxuries or discretionary enjoyments) isn't it worth a few hours a week to get comfortable with what your stuff's doing? The other thing I'd add is that like it or not, as we get older we can lose some of our mental abilities. My DF invited me into his financial world so that he didn't do anything without consulting me his last 10 years. I compare that to my FIL who did all sorts of screwy things, never talking to his very investment competent son, and was taken advantage of by friends and associates investing in all sorts of ill advised products. And he was a lawyer, who unfortunately was progressing through Alzheimers.

I guess my advice is if your serious about FI, you better understand basic investments, AA, staying the course, LBYM, etc., and you'd be wise as you age to develop a good advisor you can trust. That person doesn't need to be a paid advisor, just someone to watch over you who has your best interests at heart.

 

[Nords]

Spouse and I were talking about this the other night.

She and I have been making joint financial decisions for over 25 years, but I've been the guy who actually [-]does the scut work[/-] carries them out. It makes sense because my pension is deposited to my checking account and all the bills are paid out of it.

When she turns age 60 in less than a decade and starts her own honkin' big pension, she's volunteered to take over the bills. Of course by then we'll all have banking chips in our index fingers, and we'll move our money around by swiping on our iPad82s, but I digress.

Spouse will be happy to rebalance the brokerage account if necessary, and that's only needed it once every 2-3 years.

The advantage of her taking over the money is that she can do the banking & bill-paying for far longer than I'll probably remain sentient. When I'm gone, she can add our daughter as a co-trustee on [-]our[/-] her marital bypass trust-- and eventually make our daughter a joint member of the checking account that pays the bills.

That's the current plan, anyway. I'm sure the estate-tax system will change at least three times over the next three decades, so we'll just update the plan. And by the time my spouse is paying the bills, I'm not sure that I'll even care what the plan is.

 

[target2019]

USAA manages in-laws assets now.

Everything said by others is true. Until I convinced them to go fully with USAA (about .75, but not the IRAs), they were subject to all kinds of shady advisor behavior. I have a 12" stack of 5 years data from the 2000-2005 clowns. And what was the benefit to them? AFAIK it was for benefit of advisors, who churned stocks and funds, put them into partnerships, etc.

For last five years, even with the meltdown and smallish fee, they are ahead because the allocation was correct. It is 20/80. Now I could argue about the 20 funds they hold in joint/IRA/IRA, but it matters little given the overall picture. One could pick around the edges of the strategy, but it is essentially sound. So, in their case the .75 gets a lot of questions answered, and keeps children out of most decision-making.

For OP, you can save 1% a year. You can put things on semi-automatic now, and learn many investment subjects that will be handy in Retirement.