How did my advisor do?
 

A little background on me: I turned 24 in June. I am a part-time Police Officer. I am graduating from college in December with a BA in Economics. I am very disciplined with saving money. I used to trade/invest in individual stocks, but I did terrible. I also used to trade Foreign Exchange. I never really got much other of either because I basically made every mistake in the book.

Anyways,

I recently got a new financial advisor, and it's free to talk to her because it is through my bank that I am a member of.

About a year ago, I opened an account with American Funds with another advisor - a guy I met in the police academy. He hooked me up with:

EuroPacific Growth Fund 33%
The Growth Fund of America 33%
New World Fund 33%

Those 3 have done very well for me in a 1 year period.

I also had opened a Roth IRA with Fidelity back in 2004 and that has done very well for me over the past 3 years. I held two ETFs that did well, obviously through the great run of the stock market.

Now, I talk to this advisor and she suggests I liquidate my Roth IRA and transfer all of the funds to a Roth IRA with American Funds. She also wanted me to add more money to my mutual fund account.

Now, in my mutual fund account I have:

American Balanced Fund 25%
American High-Income Trust 25%
Capital World Growth and Income Fund 25%
Europacific Growth Fund 10%
The Growth Fund of America 10%
New World Fund 10%
(Those are just rough estimates) The 10% is from what I had before, and the 25% is what I added.

As soon as my Fidelity IRA is liquidated, I will have a Roth IRA that consists of:

Capital World Growth and Income Fund
The Growth Fund of America
The Investment Company of America
New World Fund

I'm assuming there will be 25% in each.

Re: How did my advisor do?
 

It's great you're saving and investing.

I'm a little confused by your funds though. They have high expense ratios and seem to be tilted toward growth. Your asset allocation doesn't seem very balanced to me.

And why would you leave Fidelity, which has some great spartan index funds?

Re: How did my advisor do?
 

You are being screwed. Read more here. Go with no-load index funds. Don't sell them again for the rest of your life until you need to and profit hugely.

Re: How did my advisor do?
 

I am a passive investor as is clear from my relatively few posts here. Even so I think that among loaded funds there are far worse choices than American Funds. Your asset allocation doesn't look bad at a glance.

Please understand that your advisor is a salesperson who gives advice as an auxiliary part of their business. They want you to move your money from Fidelity simply because they don't get paid if you don't bring the money over. It rarely has anything to do with your best interests. Given your past experiences and what sounds like a tendency towards market timing and pooer experiences with self-directed investment I think this relationship may be costly, but you can also succeed using American funds over a sufficiently long time period.

Re: How did my advisor do?
 

Basically, the reason why she wanted me to get away from the ETFs was because they track an index. She wanted me to get away from that and get into mutual funds that are managed by people. She showed me the histories of the funds and they outperformed the majority of the time.

Also, she wanted me to go with the front load because the expenses would actually be less over the long run. If I remember right, she said something about how they take the expense out once and then I don't have to pay it ever again? I can't remember.

I'm not so sure how much of a "salesperson" she is trying to be because my mom works at the bank also. Whether that means anything, I don't know.

My original advisor from the police academy said he loved the American Funds and dealt primarily with him. He said they have done well for him for the years that he has been using them.

Re: How did my advisor do?
 

The deal with funds is that there are a lot that have done well in the past 3-5 or even 10 years. However that doesn't mean that they're going to continue to do so. There reason that people on here don't like funds very much is since they are actively managed you are paying someone (one way or another) to handle your money. Even if they only take out 0.5% per year they have to then beat the market but more than that to show a profit for you.

Re: How did my advisor do?
 

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She wanted me to get away from that and get into mutual funds that result in the people who pay her getting paid. She showed me some pretty charts and waved her hands a lot, I think I may have even caught a glimpse of a nipple


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I'd go back in and mace her.

J

Re: How did my advisor do?
 

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She wanted me to get away from that and get into mutual funds that result in the people who pay her getting paid. She showed me some pretty charts and waved her hands a lot, I think I may have even caught a glimpse of a nipple


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I'd go back in and mace her.

J

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She is definitely not someone I'd be checking out.

In any case, what would you guys have suggested as the best course?

Re: How did my advisor do?
 

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You are being screwed. Read more here. Go with no-load index funds. Don't sell them again for the rest of your life until you need to and profit hugely.

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He's being screwed? He should read more here from poker players that bought an issue of Money at Safeway last week and now think they know more than certified financial advisors?

He should dump the good performance those advisors have given him so far in favor of the mediocre performance turned in by index funds?

OP, it sounds like your financial professionals have done well by you.

Re: How did my advisor do?
 

well...IBD saids dont over diversify..make a few wise investments and watch them like a hawk. cut your losses quick..ride your winners...blah blah blah

I would get a copy of morningstar and see each mutual funds ranking then question her.

Re: How did my advisor do?
 

Stick with your index funds you are getting screwed and she wants to get paid. I'd wager $50,000 that I know more than this broad.

Re: How did my advisor do?
 

This advisor sounds like a salesperson, and not someone with your best interests in mind.

A common tactic that salespeople use is promoting funds that have done well in the past. There are two problems here. The first is survivorship bias. The only funds around today that you can invest in are the ones that have been successful and haven't been shut down. This can make it look like a family of funds is outperforming. For instance, if you look at five funds and see that they've all beaten the market over the last five years, it seems natural to assume they are outperformers. However natural though, you can't draw that judgement. The fund family may have been adding new funds every year, and only keeping the ones that outperform. While you see the five outperformers, you don't see the five funds that failed and shut down. The second problem with identifying outperformance is that salespeople imply that this outperformance will continue. Unfortunately for the fund's investors, outperformance does not persist (or if it does, only a little as a result of momentum effects). Historically, funds that did really well over a period of 10 years still didn't fare any better than the average fund.

Front loads are essentially commissions. This is why salespeople push front-loaded funds so heavily. The extra fees only hurt your returns, but they line the pockets of the seller. If your advisor had your best interests in mind, she wouldn't be pushing loaded funds. They do not outperform index funds, and they don't make the fund cheaper in the long run.

There are two surefire ways to help control your return. Asset allocation and costs. You should construct a portfolio of index funds to achieve your desired asset allocation. You should also try your hardest to reduce commissions, fees, loads, expenses, etc. Fees are the only certain component of your returns, and they are negative. 1% may not seem like much, but the power of compounding can turn a 1% expense ratio into thousands of lost dollars.

Re: How did my advisor do?
 

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The deal with funds is that there are a lot that have done well in the past 3-5 or even 10 years. However that doesn't mean that they're going to continue to do so. There reason that people on here don't like funds very much is since they are actively managed you are paying someone (one way or another) to handle your money. Even if they only take out 0.5% per year they have to then beat the market but more than that to show a profit for you.

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However, there are dozens of funds/managers that have shown such ability over decades, and passive long-only index funds which are 100% long stocks are not necessarily the solution for every investor, and less tax-efficient than the best active funds in some cases.

But they are the cheapest.

Re: How did my advisor do?
 

Which funds/managers are these? I'm certainly not saying you're wrong. I'm legitimately interested.

Also, ETFs seem to be pretty tax efficient from what I understand as you just pay the 15% capital gains taxes after you sell (I'm a beginner in this area as well so I could be wrong, I'm just interested in people explaining why/how).

Re: How did my advisor do?
 

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You are being screwed. Read more here. Go with no-load index funds. Don't sell them again for the rest of your life until you need to and profit hugely.

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He's being screwed? He should read more here from poker players that bought an issue of Money at Safeway last week and now think they know more than certified financial advisors?

He should dump the good performance those advisors have given him so far in favor of the mediocre performance turned in by index funds?

OP, it sounds like your financial professionals have done well by you.

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I hope this is a level. I can't think of even one reason to consider any load funds. There are plenty of no-load funds with no fee to any salesperson that have great managers and identical performance to load funds... except for the fact that you save a bunch of money up front.

Yes, he should read more here, but more importantly, he should grab an intro book or two on investing (Investing for Dummies works, as does A Random Walk on Wall Street), and then judge for himself. It's definitely more beneficial than listening to the advice of someone who has an incentive to offer certain products just because that person gets paid for every product sold.

Cliff's notes: Index funds are probably the best answer over the long term. Load funds are *definitely* not the way to go.

Re: How did my advisor do?
 

I have traded/invested in stocks before. Everything I know about the stock market I basically taught myself. I never really knew how to evaluate mutual funds as I always assumed the only way you could really do it was to look at the past performance along with the fund's objective.

So my question is, how do you evaluate mutual funds?

Secondly, ETFs track indices. Doesn't that then conclude that your selections track the indices and have no management behind them? If the market does well, the ETF does well, and vice versa. On the other hand, as my advisor had noted, mutual funds are managed by the managers and therefore are able to control the ups and downs of the market to an extent.

Can someone lead me in the right direction?

I have read several investing books, including Random Walk, but it has been so long. Maybe I should pull it out and read it again.

Re: How did my advisor do?
 

Most financial advisors should be fired. They do not have your best interests in mind.

Re: How did my advisor do?
 

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On the other hand, as my advisor had noted, mutual funds are managed by the managers and therefore are able to charge you for the opportunity to put your money somewhere where it is entirely possible it will perform worse than the overall market indices available for purchase at a very low cost, and in the long term probably reducing your return by at least the charged expense ratio.

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Read books. 2, 3, 4 books. Spend a month thinking, re-reading, posting (other places, like diehards.org), and calling customer support lines / visiting websites of mutual funds and banks to make sure they offer the services you want (money transfers, good APY on savings accounts, wide selection of index funds)...Then you will be able to be your own investment advisor, in the categories of equities, bonds, and cash savings.

i recently mentioned wanting to talk to a pro, and my girlfriend said I'd probably piss them off because i'd just argue with everything they told me. i won't have an idea of whether or not that is good or bad until i'm at least 59.5, and i won't know for sure till i breathe my last.

Re: How did my advisor do?
 

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Secondly, ETFs track indices. Doesn't that then conclude that your selections track the indices and have no management behind them? If the market does well, the ETF does well, and vice versa. On the other hand, as my advisor had noted, mutual funds are managed by the managers and therefore are able to control the ups and downs of the market to an extent.

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Bust out random walk again.. it, along with a few other investing books, argues that on average ETFs outperform mutual funds - because of the higher expense ratios. On average, mutual fund managers don't contribute any returns above an index, they can't beat the market! This is because the market is fairly efficient. And as for beating the market's ups and downs, Random Walk shows pretty convincingly that right before the biggest crashes, money managers have most of their money in equities. Right before many booms, money managers have a much larger portion in bonds and cash. They're not really good at timing the market. Not really an advantage over an ETF/index fund. This is because much of Wall Street adheres to a herd mentality, and is a function of money managers being evaluated quarter-to-quarter.

I don't believe the market is as efficient as the author believes... there are definitely people that can beat the market over a long period of time. But the gist I take away is this: unless you're good at spotting those skilled, successful money managers, your best bet is to stick your money in an index fund. It'll perform just as well as if you picked a mutual fund stock picking wise - only your account will fare better due to smaller fees.

So whenever I advise someone to invest, I point them toward ETFs. Vanguard offers a great selection of ETFs with very low expense ratios.

My personal investing philosophy is split between investing in ETFs and hand picking stocks myself... but that's because as a business owner and intelligent consumer, I can spot companies that the market hasn't evaluated efficiently yet. I don't peg myself to be a good enough judge of character to determine the great money managers, so I stay away from mutual funds.

Re: How did my advisor do?
 

Oh yeah.. further advice. If you really want financial help, you should seek help from someone with no conflicts of interest. Someone who gets paid every time they sell you something has a pretty obvious conflict of interest. Every book I've read has recommended financial advisors that charge by the hour, rather than by commissions. As with everything else in life, you get what you pay for.

Re: How did my advisor do?
 

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Oh yeah.. further advice. If you really want financial help, you should seek help from someone with no conflicts of interest. Someone who gets paid every time they sell you something has a pretty obvious conflict of interest. Every book I've read has recommended financial advisors that charge by the hour, rather than by commissions. As with everything else in life, you get what you pay for.

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Very true.