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Many people choose to let a financial advisor manage their money because they ultimately believe the advisor will do better investing the money than they would do themselves.
I certainly understand this line of reasoning as I had an advisor managing my money in the early 2000s.
However, what if people just invested in a low-cost ETF that mimics the S&P 500…would that outperform an advisor?
Many advisors continue to invest clients in actively managed mutual funds. Unfortunately, the vast majority of these funds underperform a low-cost ETF or a low-cost index fund over a 10 year period.
Let’s look at a few actively managed mutual funds that students of the course were invested in by their advisors…
MEIIX, AGTHX, VADDX
What you are seeing in the above screenshot is these funds underperforming the SPY over a 5 year period. If you continue to go back in time (back to 2007) the gap widens….
Going back to June of 2007…
SPY up 184%
AGTHX up 113%
VADDX up 77%
MEIIX up 78%
When you extrapolate this into dollars and cents it’s incredibly unfortunate. If these students would have just been invested in the SPY (a low-cost ETF) they would have thousands of more dollars in their portfolios. To make matters worse, they paid on average, a 1.25% yearly fee to their advisor to be stuck in these funds.
I have looked over a lot of portfolios that were managed by financial advisors. I have yet to come across a financial advisor that outperforms low-cost large cap ETFs, such as the SPY, or a low-cost total market index funds, such as SWTSX.
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