Be Wary of Self-Titled “Experts”
I recently had a conversation that's stuck with me like a never-ending cold. One of my friends showed me her family's recent monthly statement from their financial advisor. This financial advisor works for one of the most respected companies in the industry. That, combined with the fact my friend (and her spouse) don't know a ton about investing, blindly trusted the "expert."
Their advisor was given free rein to "do whatever is best" with their investment account. The advisor, in his infinite wisdom, recommended that he pick out a handful of stocks that he believed would do well. Can you see where this is going?
The statement I was holding clearly stated that their investment portfolio had achieved a -1.4% annual return over the last 36 months. Yes, you read that correctly.....they LOST money over the last three years.
Now, we need something to compare it to. Oh, I know! How about we compare it to a total U.S. stock market index that each of us has access to at the push of a button. These funds contain upwards of 4,000 companies and have very low fees. Examples include FSKAX (Fidelity), VTSAX (Vanguard), and VTI (also Vanguard). Here's what we found. Over the exact same 36-month period, simply holding the total U.S. stock market index would have provided an 8.76% annual return over 36 months.
Let's put that into context. Pretend this family gave the "expert" $100,000 to invest on their behalf. After 36 months, they would have ended up with $95,900 (a $4,100 LOSS). We will also assume this couple clicked a few buttons on their phone and invested another $100,000 into the total U.S. stock market index. After 36 months, they would have ended up with $128,600 (a $28,600 GAIN).
That's a $32,700 difference between the "expert" and a couple that knows nothing about investing. And to top it all off, they are paying the "expert" for the privilege of losing money for them!
I need to land the plane on this rant. Here are my morals of the story:
Don't blindly trust "experts." It's hard to know what to trust and not trust, but I'll give you a hint. Whenever someone claims to know what specific stocks to invest in, they are, by default, not an expert. Real experts know that playing the stock-picking game is a fool's errand. A true expert understands the big picture and believes you deserve better (and safer).
It's so, so, so simple to invest in the stock market.....even if you don't know a lot about investing. The total U.S. stock market index gives you access to practically every company you can buy, all with the click of a button.
Don't review investment returns out of context. If your portfolio receives a 12% annual return over a period of time, but the overall stock market returned 22%, you did terrible. Conversely, if your portfolio lost 5% per year while the overall stock market lost 7% per year, your returns were ironically good. Context matters.
Simple is good, and good is simple. Don't let "experts" lead you astray.
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