I've always heard this is the way to go, but moving my money from being actively managed (via financial planning / wealth manager) to a handful of index funds (via myself) feels foreign and uncomfortable.

That said, the research and selection process seems fairly simple, and if the S&P500 benchmarks better than my activly managed returns (to date), is there a good reason NOT to make the move?

Can't you just get your adviser to get you into some investments that are passively managed with an index exposure you prefer? Why would you need to step out on your own to achieve that?

I assumed I would still incur some level of fees if I switched to index funds..... Not accurate?

Of course there will still be fees, albeit much lower than actively managed funds. Much has been written lately about the inability of active funds to significantly outperform indexes (if at all) and how their higher fees eat up significant returns over a lifetime of investing.

For example

I am in the process of pulling money out of a private wealth manager as we speak. His bank has my two mortgages so I has been hesitant to pull money out as feel beholden to let them net out their risk, although I am not contractually obligated to do so.

It seems that managers these days cannot justify their fees as well as they use to. If pressed they will say something about how they help prevent their retail customers from succumbing to market fluctuations. It is cheaper to just forget the password to a Charles Schwab / Vanguard account.

fourth deck said:

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Why would you pay someone to manage a portfolio of passive funds?

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I read it as fund exposure was a portion of a larger service being provided.

I guess I'd also clarify that while index funds are passively managed, not all passively managed funds just track an index. There are other strategies employed via "passive" management.

fourth deck said:

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Why would you pay someone to manage a portfolio of passive funds?

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Are you implying that you should pay someone to put you in active funds? If you're paying an adviser to actively manage your portfolio, why would you want them to use an expensive vehicle to express their view on a specific asset class or style?

Unless your mortgages are non-conforming, you can rest easy, they likely sold them to Fannie and Freddie within 90 days of funding.

I've been mostly in passive funds for all our savings outside my 401k (our company plan only has a few options unfortunately). Have been very happy with it. Rebalance 2x per year as necessary, and other than that don't think about them. Since they are tax deferred accounts there is really nothing to think about other than initial asset allocation. I divided mostly even between US/International, Large Cap/Small Cap, and stray towards Value over Growth funds. Other than that just a bit in REIT and emerging markets.

No, was using the OP's case. I wouldn't pay someone to manage a portfolio of actively managed funds either.

I use a roboadvisor for close to account minimums and then copy the etf strategy in my other accounts. It's easy and allows me to get some advice at a small price.

TriAg2010 said:

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I'm a believer in market efficiency. I don't believe anyone can achieve better-than-market returns over the long run without some kind of private advantage, like insider information. That's 99.9% of us. The only thing I can control are my costs, which I should drive to a close to zero as possible. My personal portfolio is entirely low-cost, no-load index funds and ETFs. I've been very happy with that decision.

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Passive funds are the best for most people. Not 99.9% though. Market efficiency is not a static thing, and strong form is simply not true. For large cap stocks, fairly true, but not always. For small caps? Much less so. For people who think technical patterns are their savior? Absolutely, they are losing out by not going to passive funds. But there is a reason Warren Buffet did so well in his early career (and it wasn't because he had a ton of extra information). Now, well Warren makes money just by talking about a stock, but it wasn't always that way.

As more and more people move towards passive funds, the more and more control large activist investors will have in a stock. For example, if literally everyone was in a passive fund, no volume would be traded and stocks would stagnate. It's a sliding scale until that point.

I did pretty well investing in smaller companies in industries I really know, above and beyond the fees I charged (albeit only for 4 years). That being said, I am now heavily restricted from what I can invest in, so I stick to all passive and like most others, do just fine. I don't see us tipping the scales too far in the passive direction anytime soon.

To the OP: Just use passive funds, and don't pay an advisor to do so. All of this is independent of tax considerations, which can affect things.

What advice? Tax harvesting?

They are conforming.

"As more and more people move towards passive funds, the more and more control large activist investors will have in a stock. For example, if literally everyone was in a passive fund, no volume would be traded and stocks would stagnate. It's a sliding scale until that point."

Retail investors don't move the market as much as you think. Pensions, family offices, sovereign funds and endowments have enough money to push the markets towards efficiency without retail efforts.

Buffett made a lot of money with more "information". Perhaps not all of his alpha... The mosaic rule is ambiguous.

Just overall macro economics and how to be allocated and weighted. For example, last quarter I pushed more weight into international over domestics and the return was closer to 6% than 3%. It's not foolproof, but cheaper advice that works for me in an executive summary manner where I can mimic Company 401k, cash accounts, etc.

AgBank said:

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"As more and more people move towards passive funds, the more and more control large activist investors will have in a stock. For example, if literally everyone was in a passive fund, no volume would be traded and stocks would stagnate. It's a sliding scale until that point."

Retail investors don't move the market as much as you think. Pensions, family offices, sovereign funds and endowments have enough money to push the markets towards efficiency without retail efforts.

Buffett made a lot of money with more "information". Perhaps not all of his alpha... The mosaic rule is ambiguous.

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Oh, I'm not just talking about retail investors. How many pensions and other institutional money are now investing in passive funds or mimicking a passive fund? Many are and the trend will continue.

My only point is that there is a theoretical balance point where the scales will tip and the expected return from the active money managers will actually be higher than the passive funds. I don't think we will be there anytime soon though.

I'm a 100% indexer.

It's going to be very interesting to watch what happens to "passive" investing when the market turns. The "we're all indexers now" and "passive is ruining investing" arguments will vanish overnight because there will be a mass selloff along with every other type of investment. We'll find out real quick how many are serious about long term indexing.

Buck Compton said:

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Oh, I'm not just talking about retail investors. How many pensions and other institutional money are now investing in passive funds or mimicking a passive fund? Many are and the trend will continue.

My only point is that there is a theoretical balance point where the scales will tip and the expected return from the active money managers will actually be higher than the passive funds. I don't think we will be there anytime soon though.

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I agree completely. Sorry for nitpicking your nomenclature.

As a side point, I don't think there is any reason for a retail investor be in an active fund at this point. Your likely to get a B-investment team that is often a closet indexer, and who wants to pay for that. Personally I don't care to belong to be part of any club that would have me as a member.

Buck Compton said:

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My only point is that there is a theoretical balance point where the scales will tip and the expected return from the active money managers will actually be higher than the passive funds. I don't think we will be there anytime soon though.

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Wouldn't the active managers only be making money (above market average) off other people who are actively trading? So the net best of all active managed is always market average less fees charged?

I could see how more passive investing in the market might theoretically drive down average returns of the market, but not how more passive investing leads to actively managed funds as a whole make better returns than the passive funds.

Then there's no way they portfolio'd the loans. They retain the servicing, especially for their PWM clients, but the obligation has been sold to a GSE and the bank collected a fee for the sale.

As you indicated originally, there's no contractual obligation to stay, but the notion of needing to keep your investments or deposits with them to offset your loan on their balance sheet or boost your customer profitability/standing with them just doesn't apply.

A lot of those huge investors (insurance, funds, etc) who largely drive pricing have class/industry allocation targets and hold equities for a certain amount of time. They can't necessarily act as quickly or speculate like an individual investor; their advantages lie elsewhere, so there is room for the small, well - informed investor to make money on information.

The other side of it is that smaller companies are literally too small for them to invest in. To make a purchase that is worth the fund's time, they would have to basically buy the whole company. Last, the big money may be managed by investment professionals, but they don't have the kind of ground level industry expertise that individual investors can have. Both of those create niches for well - informed individuals to make money by applying better information faster.

Give this a listen:

http://freakonomics.com/podcast/stupidest-money/

Never fail to hear from the "I'll do it myself" crowd several years into any bull market! Truth is, few folks accumulate enough wealth to need any advisor, much less a good one. It's fairly easy to distinguish. Wealth management is growing, not shrinking, so don't believe for a second that everyone feels equipped to handle investments and planning.

Stagecoach said:

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Wealth management is growing, not shrinking, so don't believe for a second that everyone feels equipped to handle investments and planning.

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Off site storage for people's junk is also growing. That doesn't mean it's a good thing to own so much junk you need to purchase extra storage space to put it all.

nactownag said:

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It's not just the investments that financial planners provide. You all understand that right?

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I certainly understand that's not the only thing a good financial planner provides. And I'll pay for professional advice. I just am not willing to pay a percent of assets for thatl advice.

nactownag said:

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It's not just the investments that financial planners provide. You all understand that right?

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Educate us. What are some other things financial planners provide?

aggiebq03+ said:

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Stagecoach said:

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Wealth management is growing, not shrinking, so don't believe for a second that everyone feels equipped to handle investments and planning.

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Off site storage for people's junk is also growing. That doesn't mean it's a good thing to own so much junk you need to purchase extra storage space to put it all.

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This may be the least sensible rebuttal I've read on this board.