I’m not a big fan of financial advisers. Their job is to sell you financial products, not to look out for your own best interests. I learned that the hard way, after sending most of what I made in my early 20s to one. He doubled my money in a year or two, but erased the gain and then some just as quickly. So I had motivation to learn how to invest without a financial adviser.
There’s a pretty easy formula you can use to outperform 90-95% of financial advisers.
Open an IRA account with a company like Vanguard or Fidelity, or use your employer’s 401(K) plan.
Set up a mix of mutual funds.
(1) An S&P 500 Index fund
(2) A Wilshire 5000 or Wilshire 4500 index fund
(3) A bond fund
(4) An international fund
(5) An emerging markets fund
Between 1 and 2, you’ll have virtually the entire U.S. stock market covered. You need a bond fund for diversity, and the international/emerging markets funds will give you some aggressiveness.
What about your percentage? Start with about 40 percent in the S&P 500 fund and 20 percent in the Wilshire fund. Split the remainder between the international, emerging markets, and bond fund.
The older you are, the more you need in bond funds. The younger you are, the more you need in emerging markets. I’ve seen some advice that says if you’re 40, keep 40% of your holdings in bonds. I think I like half your age better, but I might think differently if I was 60 and if bonds were performing right now. If you’re risk averse, skip the emerging markets and possibly the international funds.
Set up the account to automatically pull from your checking account every pay period. You can’t time the market; buying as frequently as practical helps even out those ebbs and flows in the market.
You also want to set the account to automatically re-balance. Decide what you want your holdings to be, and have your account adjust to that on a quarterly basis. This forces you to buy low and sell high, and keeps your holdings from growing too conservative or too aggressive over time.
This kind of setup makes you do basically what the market does, while taking advantage of the ebbs and flows between stocks and bonds, small and large companies, and domestic and foreign companies. A good financial adviser can outperform this some of the time, but he’ll charge fees. And if the adviser doesn’t outperform the market, you still owe the fees.
The majority of the time, you’re better off when that money goes toward buying more stocks and bonds.
I am agree with you. thanks 😉