• Matt Davis

Why the King of Index Funds Thinks You Need an Advisor

I think that one of the best ways to make good decisions is to limit the amount of information you receive to a few good sources. While loading up on as much information as possible may seem prudent, I have found that bad data is a much bigger detriment to decision making than no data at all. However, even in a narrowed field of respected voices, it is important to remember where the information is coming from. Much like a butcher is typically always going to recommend meat for dinner, even a respectable insurance company will most likely recommend some type of insurance. But when a quality butcher recommends a vegetable for dinner, I have found that is something worth listening to.

The Vanguard Group has built an impeccable reputation in the investment community. Founded by John Bogle in 1975, he is credited with creating the first index fund available to retail investors and a renewed focus on fees. Vanguard’s popularity has soared in recent years crossing $3 trillion in AUM in 2015 which makes them the largest money manager in the world. Their tight messaging on low-cost indexing has resonated during a decade of significant market volatility. Imagine my surprise when reviewing some of their white papers on portfolio construction, I came across a series of papers they had published recommending to hire an advisor even with their fee conscious mindset.

In Vanguard’s research, they have found that even their own investors have historically underperformed the market for a myriad of reasons. From poor tax decisions, struggles with rebalancing, and often poor behavior, many of their fund holders significantly lagged in performance. Their conclusion in their white paper was that a good advisor could add about 3% annually in net returns, not through outperformance, but through managing their client’s wealth efficiently. Below is the breakdown of their findings:

Obviously, it is in our own best interest to highlight research that shows what we do adds value to our clients' lives but I do feel like it is worth pointing out from time to time. Investment management is an important part of what we do but is frankly a small and inconsistent part of the overall wealth management experience. A good advisor is a man or woman who dives deep into your lives to understand your situation and then carefully craft, implement, and monitor a plan to make sure your life goals are being safeguarded. This comes in many forms, including all of the ways listed by Vanguard in Figure 1.

If you want to see Vanguard’s research feel free to review their material directly on their website. You can find a simplified brochure they provide here while we've also included a detailed white paper on the topic here.

If you have any question on how to make sure you are getting the most from your savings, please never hesitate to reach out as we are always happy to guide you through whatever questions you may have.

#TheVanguardGroup #advisor

DISCLOSURE Information on this website and others should be used at your own risk. Past performance does not guarantee future results. Securities investments involve risk; returns in such investments vary and may involve gain or loss. The materials and content herein are not a substitute for obtaining professional tax, personal financial planning, or other relevant financial advice from a qualified person or firm. For full disclosure click on the disclosure link at the bottom.

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