managed portfolio vs self managed

[snowball]

Asking for opinions about managing your own portfolio or paying the fees to have fund manager. I have pension and 401. Want to transfer 401 from employer to try different funds. I am not stock savvy, know very little about investing, but feel like a lot of knowledge is not necessary if investing in mutual funds or index funds because your money just sits there. Has anyone managed their own retirement savings or do most pay to have a fund manager.

 

[REWahoo]

Snowball, if you read some of the threads in the "FIRE and Money" forum you'll soon find this forum is predominately DIY investors. Many (most) of us feel it is a total waste of money to pay someone to manage our investments as the costs rarely offset the benefits - assuming there actually are any benefits.

 

[sengsational]

Welcome to the forum. You will find that, in general, people on this board will say that it would be very difficult for an advisor to better some basic investment choices enough to cover the advisor fee. Thus, very few here use an advisor.

If you had an advisor that would prevent you from bailing-out in rough times (selling at the bottom) that would be about the only time an advisor might be an advantage.

As to the level of difficulty, it's only difficult if you want it that way. Many people here have one or two good funds and do as well as anybody (many, much better since they're not tinkering with it).

 

[Rothman]

Snowball, most on this site believe in the bogleheads philosophy of low cost index funds. Once you start down a path of low-cost index funds the value of fund picking is eliminated and hence the major perceived value of advisor. The only remaining decision is asset allocation which can easily be managed by yourself. There are lots of studies to show the superior performance of low-cost index funds and optimal asset allocation. Best wishes in your investing future.


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[travelover]

Using a pay for services only adviser might make sense to put together a portfolio that you can rebalance yourself yearly, but paying a percentage of your portfolio year after year is a waste of money. Or just put your cash into a Vanguard Target fund.

 

[frayne]

As the others have said most of us are DIYers. It doesn't take much knowledge but it does take financial discipline, in the form of staying the course and looking long term.

 

[2B]

Welcome to the forum.

I recommend you read Andrew Hallam's Millionaire Teacher. That tells you everything you need to know to manage your own money. If you feel obligated to read another book, go for William Bernstein's Investors' Manifesto. It's more detailed but pretty muck says the same thing.

The vast majority here are primarily in indexed, no-load mutual funds. Some use Vanguard mutual funds. Some like ETFs. Everyone watches fees and other expenses.

People that have money managers are all encouraged to be a DIYer.

 

[Mulligan]

As the others have said most of us are DIYers. It doesn't take much knowledge but it does take financial discipline, in the form of staying the course and looking long term.

Your post reminded me of my favorite quote now, that someone here has posted and attributed to Mike Tyson. "Everyone has a plan, until they get punched in the mouth."


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[FireBug]

Snowball, may I also add to what above posters have said. Take your time. Use this forum to your benefit. Spend some time each day with it... read it in a relaxed environment. Visit threads that have nothing to do with hard financial side of things. Get to know the mindset of a 'typical' poster.


Search the site for keywords that you stumble upon and you gravitate towards (rebalance, actively managed, etc.). I promise you, the information will come.
I know the average person can mange their own finances as easily as they manage their daily lives. I tend to view FA's as though they are car salesmen. To be sure there are good ones, but typically what they want to sell you is undercoating. And when you sign the contract you got's yer "destination fee's, yer advertising fee's, origination fee's, etc.).


Keep Reading, Oh, and I 'second" that Millionaire Teacher book. You may find it in the beginning to be a little (well, duh, common sense) but the author really does a great job of explaining principles in a down to earth way.

 

[frayne]

Firebug, great advice. Not to derail or hijack the post but it would be interesting to define the "typical" poster on this forum. Do you mind if I start a thread along those lines ? It may just help those coming into the forum or the first timers to get a feel about who we are or aren't.

 

[audreyh1]

Asking for opinions about managing your own portfolio or paying the fees to have fund manager. I have pension and 401. Want to transfer 401 from employer to try different funds. I am not stock savvy, know very little about investing, but feel like a lot of knowledge is not necessary if investing in mutual funds or index funds because your money just sits there. Has anyone managed their own retirement savings or do most pay to have a fund manager.

The thing about managing in on your own is this: You can do something very simple, low-cost, and relatively safe to begin with. And then as you have time to study the options, come up with something you think would be even better and gradually move to that. You'll be way ahead of turning it over to someone who charges high fees for dubious results.

Something simple would be selecting a target retirement fund from a low-cost company like Vanguard, and averaging into that. And then when you feel like you have a much better idea, you can gradually change to something else.

 

[TimSF]

As others have suggested, the answer may depend on how you as an investor will react when the next stock market correction comes down the pike. Will you panic and sell or stay the course? Many of the members here are war-tested veterans who weathered the 2008 and 2001 downturns and know themselves.

When I had a large amount to invest a couple years, I was not sure about my own investment psychology or how I would handle market volatility. So, here's what I did. I took one-half of the lump sum and placed it in funds that I control, mostly low-cost Vanguard funds. One-quarter I deposited into a Fidelity managed account, on which I pay a 1% fee. The remaining quarter I placed in an online savings account, so over time I could make adjustments among these three buckets.

Having a portion of my net worth under another's management gave me the extra confidence I needed to be in the market. It was probably worth the fee, for a time. Now, two years later - when I know and trust myself better as an investor -- would I do that again? No. I will eventually pull the managed out and into low-cost funds. But it was helpful to me psychologically at the time.

 

[FireBug]

Do you mind if I start a thread along those lines ? It may just help those coming into the forum or the first timers to get a feel about who we are or aren't.

good idea

 

[pb4uski]

If you decide to self manage and want easy, you can just buy a target date fund with the target asset allocation that you want. Or buy the underlying 3 or 4 funds in the same proportions.

Before you transfer from your 401k to an IRA, does your 401k offer a "stable value" fund, and if so, what is it paying? A good stable value fund might be a good reason to stay with the 401k since you can't get a stable value fund in an IRA.

 

[Walt34]

Welcome to the forum.

I recommend you read Andrew Hallam's Millionaire Teacher. That tells you everything you need to know to manage your own money. If you feel obligated to read another book, go for William Bernstein's Investors' Manifesto. It's more detailed but pretty muck says the same thing.

What he said.

I'd also add a book or three on the mental/emotional side of managing investments. It's pretty easy to stay the course when everything is going up. Doing it when everything is going down is much, much, more difficult.

Therefore, after you read The Millionaire Teacher and/or Investor's Manifesto, I'd also suggest Your Money & Your Brain, Predictably Irrational, and Thinking, Fast And Slow. The last one is a fairly thick book and was written by Daniel Kehaneman, the only psychologist to earn a Nobel in economics. You may not want get that deep into it but I found it fascinating.

Reading about the mental/emotional issues should help keep you from overreacting when the market inevitably has a downturn.

 

[Travelwanted]

I read Bogleheads Guide to Investing. Easy to read and full of great guidance.

I'm saving $$$$. Great ROI on that purchase!

 

[ERD50]

The retail FA versus DIY has been discussed many times here, but I'll present an angle on it that I don't recall seeing discussed in detail before:

In most aspects of our life, there are clear pros/cons to hiring a professional for something versus DIY. If you need a transmission rebuilt, or a room addition, you really need considerable experience (or need to learn quick), and be willing to put forth some significant effort if you plan to DIY.

For someone who has not spent much time looking into DIY investing (the typical person I think, more busy with family and career and other stuff that is more fun), I think it's reasonable for them to assume that the 'pro' is way ahead of the DIY investor.

But the reality is different. Something simple for the DIY investor (like a Couch Potato portfolio) is very likely to outperform a 'pro', and probably actually takes less time than sitting with the 'pro' and listening to all the explanations about how they are going to do this and that (and the time spent opening the birthday card each year). How can this be?

Well, once you understand what investing really means, you realize that to consistently outperform a simple portfolio, a 'pro' would need to be able to predict the future, and they can't. And every serious study I've ever seen on this backs it up.

An auto mechanic or a carpenter don't need to predict the future, they apply their skills and experience to the job, and charge you accordingly. And those skills and experience obviously make the job go faster than a first time DIY'er - you get something for your money. But the retail FA will charge 1% or more (typically high fee/ER products), and likely under-perform the DIY investor.


-ERD50

 

[Walt34]

But the reality is different. Something simple for the DIY investor (like a Couch Potato portfolio) is very likely to outperform a 'pro', and probably actually takes less time than sitting with the 'pro' and listening to all the explanations about how they are going to do this and that (and the time spent opening the birthday card each year). How can this be?

Well, once you understand what investing really means, you realize that to consistently outperform a simple portfolio, a 'pro' would need to be able to predict the future, and they can't. And every serious study I've ever seen on this backs it up.

An auto mechanic or a carpenter don't need to predict the future, they apply their skills and experience to the job, and charge you accordingly. And those skills and experience obviously make the job go faster than a first time DIY'er - you get something for your money. But the retail FA will charge 1% or more (typically high fee/ER products), and likely under-perform the DIY investor.

Very well and succinctly put.

 

[nash031]

In most aspects of our life, there are clear pros/cons to hiring a professional for something versus DIY. If you need a transmission rebuilt, or a room addition, you really need considerable experience (or need to learn quick), and be willing to put forth some significant effort if you plan to DIY.

This is a great post, and I will add something to what ERD50 posted above...

Taking the time learn to DIY with investing not only pays financial dividends in the form of saving you a 1% fee (or whatever) year over year, it is a skill that you will use repeatedly for the remainder of your life.

In the metaphor ERD used, it'd be akin to changing your oil. That can be a useful skill you will use repeatedly each year which can save you money. (The obvious difference is that paying a FA is significantly more expensive than Jiffy Lube, and some of us will pay the $20-30 two or three times a year to get that done.) Learning to rebuild a transmission is something the individual will probably do once, ever, if that. Thus, hiring a professional pays dividends in time spent as well as expertise. Unless rebuilding transmissions is your "thing".

IMO, learning to manage your own finances from budgeting to investing is one of the most valuable skills an adult can obtain, and it's not terribly difficult, either. Certainly not so difficult that you need to pay someone thousands or tens of thousands of dollars every year to do it on your behalf.

 

[RetireAge50]

I have never hired a Financial Advisor but I cannot say I do it myself as most of my investments are with mutual funds which charge fees. Some are index funds with the lowest fees, some like Wellington are managed at low fees, and some in my 401k have higher fees.

I am not totally convinced that index investing is superior to funds with active management. For example the actively managed funds in my 401k have done much better than any index fund I own. But this is likely due to taking more risk, luck, or just the period I have been in the market (only 25 years).

I would never pay a 3rd party a fee to simply put my money into a fund in which I could have directly invested. I seek the opinion of others (as in people here on this forum) but the decisions I make are my own and are free.

 

[FireBug]

Ok Snowball..your first day1 post. So far 20 responses and what do you have?
What I see is,

· A Welcome and encouragement
· A varied response all stating a DIY approach is not only possible but actually beneficial to your financial health (with examples/analogies)
· Resource recommendations (books)
· Keywords to research (Actively managed vs passive funds, couch-potato investing, target funds). Now search for those in this forum, and/or Google them.

The point here is that you don’t have to be a ‘rocket surgeon’ to do this. It may actually be fun if you agreed to a little experiment. Leave this thread, come back to it in say 2 -3 weeks and let us know what you’ve learned. Not from a financial test perspective, but rather from an attitude viewpoint. It would be fun to see if you saw what we are recommending we ‘know’ you can do.

 

[snowball]

Thank you very much. All this is really great and encouraging. You all seem so well informed and experienced with investing. Is so nice that you share this w me. Very much appreciate it. I retired in Jan, one year earlier than I planned so have to act quick w 401. Worked for USPS and the 401 is mostly in stocks.

 

[braumeister]

You all seem so well informed
We do give that impression, don't we?
and experienced with investing.
For most of us, it's the only game in town so not much choice about learning the rules of the game.

And sharing what we know (or think we know) is what this forum is all about.

 

[Ronstar]

I have about 4% of my portfolio and DW has 100% of hers with a FA at 1% fee on total assets. I like and trust the FA, but my portfolio gets more attention by running it myself. I read Bogleheads Guide to Investing and generally use the 3 fund portfolio. I normally beat the returns of my FA, but returns have been about the same since I adjusted my AA to a more conservative allocation.

My advice would be to study and read as much as possible on retirement investing. If you feel comfortable handling it yourself, then do so. Otherwise, choose a FA that best suits your needs and go with a managed portfolio.

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[OrcasIslandBound]

We have a portfolio that is within 2 years of allowing us to retire early. We've used individual stocks, index stock and bond funds, reits, managed mutual funds. We've made our own decisions about asset allocations, all without any FA. We've never paid fees like a 1% fee for advice, but did pay for 1.5 hours of advice about 2 years ago. We were out something like $450 and felt 100% ripped off. The advisor didn't even know anything about Obamacare subsidies at the time and didn't tell us one thing that we didn't already know about investing.

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