I get versions of this question all the time so I thought I?d formally address it.
Q.
I?m trying to decide whether I can or desire to go on my own and create a balanced index portfolio and stick to it or enlist the help of [a reasonable low cost advisor] to aid in the process. I just don?t know if the value is there to hire advice when funds are so accessible and the process doesn?t seem too complicated.? What do you think?
A.
I obviously believe it is a reasonable option to manage your own investments, since I do it on my own.? It certainly helps if you have an interest in it. In fact, as the typical financial planning tasks go (financial planning, estate planning, asset protection, tax preparation, insurance etc), I think investment management is without a doubt the easiest to do on your own.? There are really only 3 components to it, none of which I personally find to be very difficult.? First you develop a reasonable, low-cost, diversified plan that includes saving enough money in a tax-efficient way.? Second, you maintain the plan, directing new contributions as needed and rebalancing periodically. Last, you avoid doing stupid things, like selling out after the market plunges, chasing hot stocks, or trying to time the market.
Most physicians and similar professionals find they don?t have the time, the interest, the (admittedly low level of) expertise, or the emotional fortitude required to do these three tasks. That?s okay.? If they hire someone good that just means they earn 0.5-1% per year less than they would if they could do it on their own.? This can be made up for by saving a little more or working a little longer before retiring, neither of which many doctors find difficult.? For example, if you needed $2 Million to retire, were saving $50K per year, and could make 5% a year without an adviser or 4% a year with an adviser, using the adviser would mean you?d need to either work 2 years longer or save an extra $7000 per year.? One other benefit of doing it on your own is that due to the lower expenses you can actually take less risk and end up with the same outcome.
The worst possible thing you can do, however, is to try to do it yourself, then fail spectacularly after a couple of decades.? This is usually due to an inability to control investor behavior.? Now, using an adviser doesn?t always prevent this (in fact several docs I know who sold out in 2008 had advisers, some of which tried to prevent this behavior and some of which encouraged it), but on average a solid adviser provides the most value here.
If you think you?d like to try it on your own, I encourage you to give it a try early in your career.? It?s much easier to make mistakes (or just lose money due to market fluctuations) when you?re dealing with a 4 or 5 figure portfolio than when you?ve got hundreds of thousands to lose.? In my experience, it gets much easier as time goes on.? I looked at my portfolio daily when I was first starting out, but after passing through a couple of bull markets and one big bear, now I only look when I need to add new money (in fact as I write this the stock market is having its worst day of the year so far).? Reading sites like this one or the Bogleheads forum and reading a good investment book or two a year will help you accomplish the necessary tasks and develop the habits and investor behavior necessary to be successful over the long run.
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