How to EASILY Outperform Financial Advisors

It is EASY to outperform financial advisors? Why?

Conventional wisdom is they underperform because of fees, but there is a bigger reason.

They don’t even try to outperform. They try for: “Reasonable return with less risk”.

Financial advisors are mainly salespeople, not financial planners. They are more likely to lose a client because of a 30% 1-year market decline than 10 years of lagging the index. So, they focus on market fluctuations, not your life goals.

This makes them do the “4 performance drags” that typically reduce their returns by at least 3%/year (which is more than their fees):

  1. Bonds – They try to force you to buy bonds even though studies show that over 20-year periods, equities (stocks) are more reliable. Stocks have a lower 20-year standard deviation after inflation than bonds. Stocks have historically provided a reliable 30-year retirement withdrawing 4%/year of your investments, while bonds usually failed.
  2. Home country bias – They invest in Canada because it sounds safer, even though returns have been 1-3%/year lower than global stocks. Canada’s index is not a diversified portfolio. It is a resource & financial sector fund.
  3. Riding the brake – Many ways to invest too conservatively for you to have the future that you want.
  4. One-idea investing – Like dividend investing. It sounds good, even though it is a brain fart.

This post is about performance. How to get the maximum reliable long-term return. It is not about risk-adjusted returns. It’s about getting a high enough return to achieve your life goals in your Financial Plan.

You should invest within your risk tolerance to avoid panic selling at a low. But if you invest more conservatively, it’s important to understand how the lower long-term return will affect your Financial Plan.

Financial advisors all do a “risk tolerance questionnaire” so you don’t invest too aggressively. Few do financial planning, so you don’t invest too conservatively to achieve your life goals.

It is EASY to outperform financial advisors because they are short-term thinkers, not long-term total return investors.

Just get the return of the global or US equity index and you outperform most financial advisors. You could use one broad index ETF or invest with top fund managers that outperform.

We invest for “above index returns” with an elite portfolio manager that finds the world’s best investors that all have 15 to 30-year track records beating the index after all fees. Most fund managers lag, but just like any field, there are some amazing people that outperform. We try to beat the global equity index after all fees, including ours, so that our fee-for-service financial planning advice is purely value-added.

We are confident our portfolio manager should match or beat the index over time. 100% of my personal investments are with the same portfolio manager and same All Star Managers as our clients.

Don’t invest for: “Reasonable return with less risk”. Invest for maximum reliable long-term total returns.

Details in a full post on this topic on my blog 

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Ed Rempel has helped thousands of Canadians become financially secure. He is a fee-for-service financial planner, tax  accountant, expert in many tax & investment strategies, and a popular and passionate blogger.

Ed has a unique understanding of how to be successful financially based on extensive real-life experience, having written nearly 1,000 comprehensive personal financial plans.

The “Planning with Ed” experience is about your life, not just money. Your Financial Plan is the GPS for your life.

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1 Comment

  1. Dave on May 17, 2024 at 7:03 AM

    I really liked this post. It got straight to the crux of the matter. While it’s still a sales pitch in the end, it is an excellently crafted one that I can truly admire. The point about “Reasonable return with less risk” was something I’ve never really considered from the angle provided in this post. I appreciate that.

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