When considering how much is too much to pay for investment advice, or for someone to manage an investment portfolio for that matter, investors today seemingly have it pretty good.
In the not-so-distant past, paying a money manager upwards of 3-4% for such services was commonplace, and any sort of diversification or money management experience was widely regarded as being well worth the money spent for annual returns which would (hopefully) match or exceed those of the broader market.With the advent of exchange traded funds (ETFs) do it yourself investors everywhere (rightfully) began transferring money out of mutual funds or actively managed accounts toward the lower-fee, exchange-tracking investments which many investment gurus such as Warren Buffett have vouched for in the best interest of passive investors everywhere.
After all, actively managing a portfolio (solo or otherwise) is a lot of work; picking and choosing stocks one believes to be superior to others, or engaging in complex trading strategies to take advantage of market inefficiencies, is a time-consuming process filled with hurdles and pitfalls along the way.
Trusting one’s money to someone with experience and enjoying the benefits of diversification and growth, therefore, are value added services with costs associated.
While a significant amount of literature exists to show that on average, over the long-term actively managed funds may do no better than the broader market on average, it is also true that choosing an above-average manager can yield better-than average results over time (even considering a corresponding management fee).
With a range of lower-fee options now available for investors seeking an actively-managed option, spending the time to pick a money manager may be the best use of an investor’s time.Invest wisely, my friends.