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5 Awesome Reasons You DON'T NEED A Financial Advisor - YouTube
Channel: Tae Kim - Financial Tortoise
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many people are still under the
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impression that they need to hire a
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financial advisor in order to get their
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finances on track however this is not
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always true hi my name is tay from
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financial tortoise financial advisors
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are often expensive and can be confusing
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especially if you're not sure what they
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do for your money that's why i'm going
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to break down for you five reasons why
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you don't need a financial advisor let's
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get started
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number one most financial advisors can't
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beat the market most people pay to
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deliver higher returns and the stock
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market as a whole can't do it when we
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talk about the stock market we're most
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often referring to what is known as the
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standard and pors 500 or simply the s p
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500 the s p 500 is an index of 500
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largest companies on the american stock
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market it includes major companies such
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as apple google coca-cola mcdonald's
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including hundreds of other large to
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small companies since 1980 the s p 500
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has delivered an annual average of over
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seven percent so in order to beat the
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market a financial advisor would need to
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design a portfolio that surpasses this
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number this is not easy the financial
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advisor must be skilled at selecting the
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right investments diversifying and
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keeping up with the market trends very
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few financial advisors have the skill
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and knowledge necessary to beat an index
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fund according to a 2020 spiva report
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over a 15-year period nearly 90 percent
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of actively managed investment funds
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failed to beat the market the majority
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of these actively managed funds had
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either poor performance and high fees or
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average performance and low fees but
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only about 1 out of every 10 performed
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well on both ends so to reiterate the
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reason why you don't need a financial
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advisor they're expensive and don't
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necessarily produce better returns
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moving on to the second reason why you
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don't need a financial advisor you pay
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even when financial advisors lose money
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the second reason why you don't need a
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traditional financial advisor is because
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even if they manage to lose your money
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which majority of them do as i stated
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earlier you'll still end up paying for
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their expensive service financial
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advisors make money by charging you a
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percentage of the amount they manage for
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you typically ranging from one to two
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percent for example let's say that you
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have a financial advisor managing your
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100 million dollar portfolio and he or
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she charges you one percent for managing
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it and let's say your portfolio lost 15
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percent this year 15 million dollars
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what is outrageous in this scenario is
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that while you lost 15 million dollars
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you would still need to pay your
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financial advisor the one percent
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management fee a million dollars for
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losing you 15 million dollars your
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advisor strategy didn't work out well at
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all yet he or she still makes money off
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of you while you lose this leads us into
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our third reason why you don't need a
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traditional financial advisor rather
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than paying for an expensive financial
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advisor who may not be able to
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outperform the market based on your
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goals and risk tolerance you can invest
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in low-cost index funds instead which
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will save you time and money number
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three investing in low-cost index funds
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will make you more money first of all
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what is an index fund an index fund is a
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mutual fund that tracks the performance
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of an established financial benchmark
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such as s p 500 or dow jones industrial
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average index funds are passively
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managed which means they don't engage in
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any type of market timing and they
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simply buy and hold all securities
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including the financial benchmark being
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followed by the index fund in essence
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you can bypass the intricacies of stock
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selection that are outside your scope or
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knowledge by buying a share of every
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public company in the market through an
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index fund most research shows that
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investing index fund can lead to higher
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returns with lower risk over time
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compared to actively managed funds since
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1990 index funds have outperformed the
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majority of actively managed u.s stock
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mutual funds on a total cumulative basis
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with lower volatility and less risk
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according to spiva scorecards index
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funds also offer protection against the
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risk that you'll lose money because
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they're a diversified portfolio meaning
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that your investments will be spread out
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across varying sectors and industries to
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help balance out any potential losses in
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one area or another over time what's
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more and this is my favorite index fund
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fees tend to be much less expensive than
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what many financial advisors charge for
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their services i currently hold majority
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of my own investments in an index fund
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called vtsax a vanguard's total stock
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market index fund and it charges an
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expense ratio of only zero point zero
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four percent compared to actively
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managed funds of zero point five percent
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to one percent this is 25 times less the
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combination of this lower cost and
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higher returns is why it makes sense not
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to hire someone as an advisor but
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instead invest on your own through low
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cost index funds number four no one
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cares more about your money than you you
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care about your money more than anyone
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else does and it's up to you to make
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sure that everything is working as
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efficiently as possible in order for you
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to be successful over time this was a
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harsh lesson i learned in my 20s i've
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made every possible money mistakes you
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can think of i've leased a car without
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calculating the true cost i've carried
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credit card balance i've allowed
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financial advisors to invest my money in
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investments i didn't understand i took
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out unnecessary student loans i
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essentially allowed consumer marketing
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financial advisors and big banks to take
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advantage of my naiveness and
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essentially make my money decisions for
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me it wasn't until i was at the brink of
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financial catastrophe in my late 20s
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that i started to pay serious attention
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to money i started to read every book i
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could get my hands on related to
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personal finance it took me a while but
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eventually i learned what made sense for
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me and began developing the personal
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financial knowledge necessary to make
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solid financial decisions without the
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need of an advisor or a bank steering me
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in one direction or another so take
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responsibility for your own financial
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situation instead of trusting that
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others have your best interests at heart
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number five you can learn to manage your
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own money i used to think that people
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who knew how money worked were just
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naturally smart they could spew out
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financial jargons like hedge funds
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leverage stocks bonds etc and i would
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have no idea what they were talking
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about it was only years later i realized
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that they also didn't have any idea
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about what they're talking about either
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financial knowledge isn't a talent it's
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an acquired skill and you can develop
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those skills there are plenty of
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resources out there to teach us how
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money works books blogs youtube videos
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like the one you're watching right now
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let me share with you a few of my
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favorite personal finance books that got
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me started dave ramsey is a total money
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makeover a great book on debt pay down
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and money mindset overall this book got
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my wife and i kick-started on the
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journey to paying down our 105 000
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of combined student loans jill collins
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the simple path to wealth the best
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investing book i've ever read he
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distills the principle of investing down
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to the simplest form possible that even
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i could understand it ramit sethis i
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will teach you to be rich a corny title
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but a great book for professional
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millennials he lays out some great
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frameworks and systems for managing your
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money the key is to get started and not
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be intimidated if you have the
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willingness to watch this video and grow
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yourself you definitely have the ability
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to develop a strong financial knowledge
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so you can start managing your own money
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thank you guys for watching if you found
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value from this video please hit the
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like button and subscribe to the channel
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so that you don't miss out on any of my
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other upcoming videos
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[Music]
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you
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