I think a couple of factors have made me become passionate about financial planning and investment advising. The first dates back to graduate school where I learned from people way smarter than I that for the average person the optimal investment strategy is to buy and hold the “market” portfolio. Rather than selecting individual securities or sectors or trying to time the market, a person is better off simply deciding how to allocate their money between stocks, bonds, and cash, and then doing so in a cost effective manner. Now, clearly this surprisingly simple strategy is not for everyone, but I would argue it is appropriate for the majority of us.
The second factor involves my experience both as an expert in several lawsuits involving securities and investment accounts, and my experience as a resource for friends who have asked me to look at their investment portfolios. What I found made me almost embarrassed to say I was part of the finance profession. The products that have been sold to people, the fees that investment advisers are charging to underperform the market, and the economic model whereby investors’ money is earning money for the adviser, made it clear whose interests were truly being served. For the most part, these friends have no idea what their total cost of investing is.
Most investors think paying an additional 1% for active management is no big deal. Think again! Suppose that your investment adviser performed as well as the market and the market earned 7% a year. If you invested $100,000 today, after 30 years you would have nearly $98,000 less in your portfolio than with a passive strategy. Obviously, had you invested 500,000 instead, you would have approximately $489,000 less. That $489,000 could be your beach home instead!
At Aptus, investment advice on how to capture market returns at the lowest cost is only a part of what our fee entails. More important, we provide you comprehensive financial planning advice to help you save, manage risk, invest, and achieve your financial goals.