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There has been talk recently of how crucial it is for investors to either trust their money to an advisor or put it in actively managed mutual funds. Critics point to the recent stock market plummet and the increasing complexity in financial instruments as reasons to utilize hired help. However, that’s simply not accurate.
Granted, it can be very advantageous to discuss your specific financial situation with an advisor. You can find plenty who will work with you on an hourly basis. Taking a few hours to discuss your financial situation and goals could be helpful. However, you most likely will not require a full-time advisor to whom you will consistently hand over money.
There are also those who would argue that the only way to outperform the market repeatedly is to invest through actively managed funds, but the numbers prove otherwise. There is no manager who will time and again outperform the relative benchmark, particularly when the higher management fees are factored into the results.
I’m well aware of an exception like Bill Miller who outperformed the S&P 500 for 15 consecutive years. However, that is extremely rare and the likelihood of investing your money with such a manager is next to none. Put simply, the vast majority of managers underperform their benchmarks.
As far as the increased complexity of financial instruments, that’s even more reason to simplify your investment portfolio. There is a plethora of new vehicles through which to invest. One option is a target-date retirement fund. These funds automatically adjust and rebalance their holdings as you approach your retirement date. They will also rebalance as one type of investment outperforms another to ensure you remain properly invested based on your scenario and risk level.
