80%-90% Of Financial Planners Don’t Even Beat the S&P 500, So Are They Worth Their Fee?

We’re tired of hearing that the smartest way to invest in stocks is to buy an index or mutual find. Studies show that between 80-90% of financial planners do not even beat the S&P 500 Index. Meanwhile they push their clients to invest in mutual funds hidden with fees, which on top of their high commissions dilute your returns. The odds are that, if you just follow the advice found in a credible basic investing book, you will probably do no worse than your financial planner and perhaps even better. One caveat, however:  Although financial planners may not make you more, the better ones can do a better job of minimizing your losses in bear markets. That’s because they can spot trends before the average investor and can be better at implementing strategies to protect you in down markets. Looking at performance during bear markets, is perhaps a better indicator of a financial planner’s qualifications.

We’re in no way discrediting financial planners, like anything in life the top ones are worth every penny however the average financial planner might not be worth the extra fees nor are they giving you the best advice on what to invest in. We’ll concede that financial planners are they to help the majority of retail investors who simply don’t or won’t take the time to educate themselves about investing. They’re probably better served to outsource their financial planning. However, there is a growing niche of investors who are taking control of their own investment strategies. These are folks who use the tools that are readily available these days. These are folks who are willing to invest the time to educate themselves on investing and also capable of disciplining themselves when it comes to investment decisions. These are folks who follow resources like MarketWatch, TheStreet.com, Barron’s, Stocks On Wall Street, etc.

MarketWatch’s recent article offers similar perspective, “Are Financial Advisors Worth Their Fee.” Quoted in the article:

“An investor who pays a financial adviser to pick mutual funds either misses the point of planning or has a bad adviser. In fact, Blanchett said that the thing that surprised him the most about the research was the value of annual meetings, where clients and advisers tweak strategies, particularly as the consumers is entering or in retirement; both advisors and clients tend to focus on market results more than the benefits they get from having that sit-down.”

How can you beat the S&P 500?  We’re a believer that astute investments in the global market are a better way to beat the S&P 500. What makes it hard for old school money managers at large investment firms to beat the S&P 500 is that in-depth analysis of promising global stocks is often lacking, even at the major Wall Street firms.  The majority of global stocks that interest us do not show up on the lists of researched stocks at many large investment houses.  Most huge investment firms do not provide much coverage of small and micro cap stocks.  It’s only after some of these stocks appreciate 50-100% that big firms finally start to initiate coverage. And, even then, the analysis is sometimes still lacking depth or meaningful analysis.

It can be time consuming, but it’s certainly not too difficult to do your own research.  Those who follow Stocks On Wall Street know that we’re a believer in the long-term growth of Asian and other select emerging market economies.  In addition to the usual economic indicators, we’ve also honed our perspective to include an analysis of how the political and legislative environments will potentially affect the growth prospects of companies and countries.

Granted, taking charge of your own investments, especially in global and emerging markets, is not for the fainthearted.  Don’t fool yourself about the risks.  But, remember, the risk is not just on the down side.  We, for one, remain a believer in the long-term economic global growth story relative to the U.S. economy and our almost insurmountable debt.  That doesn’t mean we would shun U.S. investments.  It simply means we will continue to skew our investment perspective toward global and emerging markets, which we believe will deliver greater returns over the long haul.

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Filed Under: FeaturedInvestment Advice | Top Stock Picks | Forex (FX) | Exchange Traded Funds (ETFs)Online BrokerStock Market TodayStock Trades

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