Comments on: From the Archives: Why invest your own money?

By: Ryan

Ryan — Tue, 13 Jul 2010 22:28:23 +0000

Great post.
Anyone who looks into it can find that indices have outperformed activley managed funds over pretty much every time period. Take a look at this article http://ezinearticles.com/?Mutual-Fund-Investing,-Ending-the-Passive-Index-Versus-Actively-Managed-Fund-Debate&id=4369686 which compares the investments held within a activley managed mutual fund vs. the same companies index fund and it becomes pretty clear why.
I think it is good use of money to pay someone (a reasonalble amount) to help manage your finances, and bad use of money to pay for someone to manage your investments.

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By: Michael James

Michael James — Fri, 09 Jul 2010 20:35:10 +0000

@Rob: Ordinarily I try to ignore such things, but in this case it seemed to interfere with picking up your intended meaning.

By: Rob

Rob — Fri, 09 Jul 2010 20:33:17 +0000

Sorry Michael, that last post was quickly typed on the tiny blackberry keyboard – looking back at it, it is a mess – my apologies

By: Sean

Sean — Fri, 09 Jul 2010 18:08:54 +0000

Why would someone pay for “advice” You can always look it up free in a book at the library or on the internet?

By: Canadian Capitalist

Canadian Capitalist — Fri, 09 Jul 2010 14:22:59 +0000

@ldk: If you have a 6 or 7 year track record with the investment manager, you might want to compare the asset class returns with the benchmark. 6 or 7 years is still a short time frame and the investment manager might show skill in stock selection but still underperform due to luck but it is a starting point for your investigation.

By: Canadian Capitalist

Canadian Capitalist — Fri, 09 Jul 2010 14:20:16 +0000

@Rob: Actually, I should have said “improve the odds” instead of “putting the odds in your favour”. Yes, you can improve the odds by weeding out managers who don’t satisfy criteria common to out performing managers. I don’t know if that still puts the odds in your favour in the sense that chances of outperformance over the long-term are better than a coin toss. I’d like to see studies if they exist on this.

@Idk: I am a DIY because our financial affairs are very simple. I don’t ever see paying for investment advice but when our financial affairs get complicated with estate planning issues etc. I wouldn’t mind paying a very good financial advisor on a per-hour basis. These advisors are not very common but they do exist.

However, I would be amiss if I didn’t point out that DIY investing isn’t easy. It is very hard to stick to a well-thought out investment process when (a) markets are in crash-and-burn mode or (b) everyone and their brother-in-law is making money in some asset class. This is an especially acute problem when you have a portfolio of significant size relative to your annual income. For instance, say your portfolio is worth 5x your annual income. If you have a 60-40 stock/bond split and stocks lose 1/3 of their value, your portfolio has “lost” 2x your annual income. Not many investors will maintain equanimity in the face of such a decline. Investors who have trouble sticking to their investment policy might be better off hiring a competent financial advisor. Unfortunately though, it isn’t very easy finding a good advisor.

@Patrick: Preet works for a index fund company. I don’t think that colours his opinion (he was pro indexing even earlier) but I wanted to set the record straight.

By: ldk

ldk — Fri, 09 Jul 2010 13:20:29 +0000

@Michael James and GSP: Thanks for the input and the food for thought.

We became mutual fund refugees 6 or 7 years ago and now we have a bit of a hodge-podge system…we manage some of our own money, (ETFs through a discount brokerage and GICs in our TFSAs) but the bulk of our assets(both registered and non) are still under management (primarily individual stocks) with an advisor that we pay a % of AUM. (NOT the guy who spent years selling us crap mutual funds.) His fees are one of our biggest expenses–we are trying to determine if it is money well spent or not.

By: Patrick

Patrick — Fri, 09 Jul 2010 12:05:31 +0000

@Preet: Your comment here demonstrates why I trust your blog so much. Here’s a guy in the business of running mutual fund, telling us why passive investing is a good idea.