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Why You Don’t Need a Financial Advisor

Phil Town
Phil Town

One of the most commonly held misconceptions in investing is the idea that you must work with a financial advisor in order to make good investments.

Perhaps this myth has persisted for so long thanks to persistent marketing on behalf of financial advisory firms.

However, the reality is that investors who manage their own money are often able to perform better than those who work with a financial advisor and without fees eating into their returns.

If you’re still on the fence about whether or not you need a financial advisor to be a successful investor, consider these points.

1. Financial Advisors Don’t Try to Beat the Market

Beating the market isn’t a financial advisor’s job. 

Instead, financial advisors serve more as a coach and counselors, helping you set financial goals, talking you through the tough times, and persuading you not to make emotion-based decisions.

You must decide for yourself if this coaching service is worth paying 1% of your portfolio for every year.

2. They Charge You Regardless of Whether or Not They Make You Money

The fees that financial advisors charge are not based on the returns they deliver but on how much money you invest.

This means that you’ll still get a bill for their services even if they lose the money you entrust them with.

Not only does this system add extra, unnecessary risk and expenses to your investment strategy, it also leaves little incentive for a financial advisor to try to outperform the market. Keeping your money under her management is her sole concern.

While they will earn more if they are able to grow your wealth, at the end of the day, they get paid regardless.

3. Putting Your Money in the S&P 500 Will Make You More Money

Simply putting all of your money into the S&P 500 index ETF, SPY, and forgetting about it will almost always yield higher returns than paying a financial advisor for advice.

The S&P 500 beats most financial advisor portfolios most of the time.

How is that possible?

The answer lies in the highly restricted investing strategy financial advisors must follow… and the percentage-based fees that financial advisors charge.

Financial Advisors must pass a Series 65 exam to be licensed by the SEC. This exam is based on the Efficient Market Hypothesis – that no one can beat the market in the long run.

Your advisor can get into trouble for recommending any strategy that the SEC would consider high risk… and they consider ‘high risk’ pretty much every strategy that Warren Buffett has taught us. Recommending that you buy a carefully selected, small number of stocks is a great way for your financial advisor to lose his license. So they don’t.

In addition, your financial advisor must outperform the S&P 500 by the amount of his fee. Given that your advisor will massively diversify your portfolio, once you subtract the fee they charge, your returns almost always end up being less than they would have been if you had put your money into an index ETF.

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4. You Can Make Better Returns by Choosing Individual Companies and Investing for the Long-Term

Putting your money into the S&P 500 may be a more rewarding option than hiring a financial advisor. However, according to some of the world’s best investors, there is still an even better option.

Since you are not under the control of the SEC and have no license to lose by implementing Warren Buffett’s strategies, you can carefully choose a small number of individual companies and buy them when they are deeply discounted by a normal fluctuation of the market prices.  

Choosing high-quality individual companies and waiting until they go on sale to purchase them is by far the most effective investment strategy available.  

This strategy is responsible for creating more millionaires and billionaires than any other investing strategy.

Learn How to Invest

Financial advisors – handicapped by their fees and the onerous SEC regulations – may not be able to beat the market, but individual investors who manage their own money certainly can.

Buffett recently remarked that if he only had to manage $1 million, he’d be making 50% a year in this market.  

So long as you are willing to put the time and work into choosing great companies and have the patience to wait until the market puts these companies on sale, you might not make Buffett-level returns, but you can achieve double-digit returns that outpace the market year after year – no financial advisor required.

How much does your financial advisor charge you? Are they getting you good returns? Ditch the advisor and learn to invest on your own by buying great businesses at attractive prices. Learn more about investing by attending my Transformational Investing Webinar.