I’m often asked why I write a newsletter for investors. I’m not a financial advisor (although I once was). I’m not trying to drive business to myself. I don’t have any economic motive.
Here’s what drives me.
The satisfaction of helping you reach your retirement goals and keeping you from becoming a victim of the traditional securities industry.
There is a “tissue of lies” perpetuated by much of the securities industry. That term is defined as “a complex, interwoven series of lies, not a flimsy and unconvincing one.”
That’s what makes it so dangerous.
Lie #1: Investing is complex
There are many reasons to retain an investment advisor, but deciding on an investment portfolio should not be the primary one.
That’s it. One fund. No rebalancing required. As you age, you can switch to a the Retirement or LifeStrategy fund with a more conservative asset allocation.
Lie #2: “Smart Beta” is complex
If you follow the research, and want to tilt your portfolio towards asset classes that, over time, may yield higher expected returns, you’re in the realm of “smart beta” funds. Previously, you needed an advisor to put together complex portfolios with these tilts.
Vanguard now offers a number of “factor based” funds, but it can still be tricky for the DIY investor to assemble an appropriate portfolio using them.
A better option might be Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC). This unique fund has a low cost of only 0.09%. It combines four commonly used factors (value, momentum, quality and low volatility) into one fund.
You can read about the benefits of this fund, including its tax efficiency, here.
For the stock portion of your portfolio, if you are interested in factor- based investing, this fund may be the only one you need.
Of course, you will still need a fund for the fixed income portion of your portfolio. Consider Vanguard’s Short-Term Treasury Fund Investor Shares (VFISX). Many experts believe you should take minimal risk with the bond portion of your portfolio. Its primary purpose should be to mitigate the volatility of the stock market.
With two funds you’ll have as sophisticated a portfolio as those offered by elite advisors.
Lie #3: “Value add” often isn’t
I agree with these views expressed to me by Larry Swedroe, the Director of Research for Buckingham Strategic Wealth:
Sadly what so many investors believe is that the value is in the investment advice, mainly choosing which funds to use. While that can make difference the great value is in planning (integrating a well thought out investment plan into a well thought out estate, tax and risk management plan) and adapting the plan to the persistently changing circumstances that cause the assumptions upon which the plan is based (even time passing, life events like death, divorce, inheritance, change of jobs, etc). Most people have not worked with true wealth advisors so they don’t know where the true value is.
But that’s not what many advisors will tell you.
Here are examples of “value add” that often end up as “value subtracted”. I hear them all the time:
- Picking mispriced stocks
- Timing the market
- Picking fund managers likely to outperform
- Picking alternative investments
- Picking dividend paying stocks
- Picking high yield bonds
These are part of the “tissue of lies.”
Don’t believe it.
Resource of the week
This article explains why investors who can tolerate more risk should do so by allocating more of their portfolio to stocks, rather than taking risk with fixed income.