Is it worth it to pay 5% to my broker? Small-timer here

[Pennglock]

Is it worth it to pay 5% to my broker?

The answer is no. I mean this in the least offensive way possible, but paying that kind of money to a broker is for suckers. Perhaps if you were getting tax/legal/trust kind of services, but that is not what Edward Jones is all about. On top of that 5% I imagine he's steering you toward funds with a load and high ex spense ratios? All these fees are going to eat away your returns, man.

Is he even giving you portfolio advice, or just executing your trades? If he is providing advice, what exactly is this guy's strategy for your portfolio? Im guessing it doesnt get much beyond x% small cap, y% international, z% fixed income, and switching up sectors based on whatever analysts' advice Edward Jones executive team decides to follow this quarter. You can easily replicate whatever portfolio strategy theyre folling yourself. Even if he's optimizing the portfolio in a more specific way based on your risk tolerance, you can probably do the same with a $50 piece of software, or maybe even a with free online battery of questions somewhere.

The thing to keep in mind for actively managed investments, as it relates to fees, is that you want to be paying for Alpha, the portion of the returns are not correlated with the movement of the market as a whole- in otherwords the skill of the fund manager. Compare the fund fees to the actual amount of excess return youre deriving from alpha and see if youre earning a returns on investment from the alpha. In the world of stock-picking, I personally dont thing alpha really exists. Nevermind the issue that you'll rarely have a large enough sample size to even identify alpha from past performance.

Blah blah blah. Follow these guys' advice and buy some ETF's from Vanguard. If you start getting into serious amounts of money, bring on board a full service wealth management firm with CPAs and attornies.

 

[pinchi22]

NO: In a word, no. And I say this as an insider: I briefly worked for a full-service broker called Lehman post grad school. Brokers know a lot about selling and churning, nothing about long-term investing.

YES: Get informed (Bernstein´s The Four Pillars of Investing is a good start), sign up with Vanguard, buy a diversified mutual fund or ETF, add funds when you can, rebalance once a year, and don´t second guess.

 

[Viktri]

Originally Posted by SirWilliam

I like my broker at Goldman Sachs...I think he is worth it...I talk to him almost every day.

As a test to see if he actually know his stuff you could ask him to explain the Capital Asset Pricing Model and then tell him you want to see how his performance compares to the market based on the level of risk he took...and then if he is any good he will explain way the CAPM is useless.

Except it wouldn't help you because you wouldn't be able to evaluate his response.

 

[vinouspleasure]

Originally Posted by SirWilliam

I like my broker at Goldman Sachs...I think he is worth it...I talk to him almost every day. As a test to see if he actually know his stuff you could ask him to explain the Capital Asset Pricing Model and then tell him you want to see how his performance compares to the market based on the level of risk he took...and then if he is any good he will explain way the CAPM is useless.
IMO a deep understanding of the capm does not mean much since every fund manager and portfolio manager at every large asset mgr knows this and still can't beat the index

 

[SirWilliam]

Originally Posted by vinouspleasure

IMO a deep understanding of the capm does not mean much since every fund manager and portfolio manager at every large asset mgr knows this and still can't beat the index

Yes the CAPM model is pretty useless but if they understand why it is useless I feel as thought they are more likely to understand risk...the people that got us in this financial mess did not understand risk or were too lazy to do the calculations.

Believe me most people do not understand risk. Being an accountant I have met CFOs that could not even calculate the present value of bond...the people at the top just delegate to people beneath them and they do all the work.

 

[surfnbank]

I'd switch there are probably better funds with a much smaller fee out there. I like TD Ameritrade but that's just me.