To be honest, my relationship is largely hate, but there is some love. Last year, I wrote a post called Do I Need A Financial Advisor. And while, for me, the answer to the question is a resounding NO!, in the post, I talk about 2 situations where it might make sense to have an advisor.
Both reasons have to do with patience and temperament. The best way to derail our financial plan is to make rash decisions, or to worry about every blip in the market. Delegating these decisions to a financial advisor, or even a robo-advisor, can help with this.
And while I can see some instances where a financial advisor makes sense, in most cases, I think we can do better on our own.
My Mom’s Story
In the tradition of Put Your Money Where Your Mouth Is, where I put real money behind my confidence in the S&P 500, let’s look at my mom’s story with her financial advisor.
In 2020, my mom was beginning her journey with Alzheimers so I started helping with her finances. As I’ve mentioned in many posts, my family, and my mom in particular, are savers. Still, I was somewhat surprised to see that my mom had amassed over $400,000 in mutual funds with money that she’d saved over the course of her teaching career. Quite impressive.
And I do remember my mom joking with me about her advisor. It seemed like every few weeks, she’d get a pile of mutual fund prospectuses in the mail as her advisor was realigning her portfolio.
She wasn’t kidding. She owned shares of 45 different mutual funds.
Her Portfolio
In the spirit of transparency, I will show you each mutual fund, the number of shares owned and $ amount she owned when I started helping in 2020.
The first thing I did was simplify. I moved her into an S&P 500 index fund and got her out of some expensive funds that didn’t seem necessary.
In the sheet below, I added a row up top to show the S&P 500 for comparison. It’s up 100.95% since 10/6/2020. Not bad.
For each fund, you can see the date I sold, the fund, the number of shares I sold, the share price on the sell date, and the amount of the proceeds.
For kicks, I used the stock function to get today’s (10/9/2025) price for each fund and I calculated a hypo market value, which assumes I’d kept the shares. At today’s share price, what would they be worth had I not sold.
And then I calculate the change in dollars and percent.
The rows are sorted by change %. You’ll notice that not one fund beat the S&P 500. And 13 of them have lost money over the last 5 years.
| Trade Date | Symbol | Security Description | Shares | Share Price | Amount ($) | Today’s Share Price | Today’s Hypo MV | Hypo Change | Change % |
| 10/06/2020 | ^GSPC | S&P 500 | $3,360.97 | $6,753.72 | $0.00 | 100.95% | |||
| 10/20/2020 | SPHQ | INVESCO EXCHANGE TRADED FD TR S&P500 QU | -108.000 | $39.47 | $4,262.66 | $73.86 | $7,976.88 | $3,714.22 | 87.13% |
| 10/20/2020 | QUAL | ISHARES TR MSCI USA QLT FCT | -34.000 | $106.45 | $3,619.23 | $196.69 | $6,687.46 | $3,068.23 | 84.78% |
| 10/20/2020 | IJR | ISHARES CORE S&P SMALL-CAP E | -36.000 | $75.74 | $2,726.71 | $119.32 | $4,295.52 | $1,568.81 | 57.53% |
| 10/19/2020 | OAKIX | OAKMARK INTL INVESTOR CL | -576.912 | $20.59 | $11,878.62 | $32.08 | $18,507.34 | $6,628.72 | 55.80% |
| 10/20/2020 | TSWIX | TRANSAMERICA INTL EQUITY CL I | -991.261 | $16.89 | $16,742.40 | $25.49 | $25,267.24 | $8,524.84 | 50.92% |
| 10/20/2020 | FBCVX | FIDELITY BLUE CHIP VALUE | -324.675 | $17.54 | $5,694.80 | $24.89 | $8,081.16 | $2,386.36 | 41.90% |
| 10/19/2020 | AEMGX | ACADIAN EMERGING MARKETS PORT INVSTR | -248.121 | $20.08 | $4,982.27 | $28.39 | $7,044.16 | $2,061.89 | 41.38% |
| 10/19/2020 | COFRX | COLUMBIA CONTRARIAN CORE FUND CL I2 | -27.033 | $29.97 | $810.18 | $42.20 | $1,140.79 | $330.61 | 40.81% |
| 10/19/2020 | FOSFX | FIDELITY OVERSEAS | -162.155 | $54.12 | $8,775.83 | $76.15 | $12,348.10 | $3,572.27 | 40.71% |
| 10/19/2020 | DFCEX | DFA EMERGING MRKTS CORE EQU PORTF | -413.819 | $20.67 | $8,553.64 | $28.86 | $11,942.82 | $3,389.18 | 39.62% |
| 10/06/2020 | FILFX | STRATEGIC ADVISERS INTERNATIONAL FUND | -686.664 | $10.81 | $7,422.84 | $14.51 | $9,963.49 | $2,540.65 | 34.23% |
| 10/19/2020 | FVDFX | FIDELITY VALUE DISCOVERY | -930.162 | $28.44 | $26,453.81 | $37.80 | $35,160.12 | $8,706.31 | 32.91% |
| 10/06/2020 | FSAMX | STRATEGIC ADVISERS EMERGING MARKETS | -278.970 | $11.33 | $3,160.73 | $14.43 | $4,025.54 | $864.81 | 27.36% |
| 10/20/2020 | JVAIX | JPMORGAN VALUE ADV FD CLASS L | -285.405 | $31.69 | $9,044.48 | $40.05 | $11,430.47 | $2,385.99 | 26.38% |
| 10/20/2020 | TAMVX | T ROWE PRICE MID CAP VALUE ADV CLASS | -167.019 | $26.73 | $4,464.42 | $33.26 | $5,555.05 | $1,090.63 | 24.43% |
| 10/20/2020 | WCMRX | WCM FOCUSED INTL GROWTH FUND INVESTOR | -262.529 | $22.26 | $5,843.90 | $27.59 | $7,243.18 | $1,399.28 | 23.94% |
| 10/20/2020 | IEMG | ISHARES INC CORE MSCI EMERGING MKTS ETF | -65.000 | $54.79 | $3,560.95 | $67.23 | $4,369.95 | $809.00 | 22.72% |
| 10/19/2020 | FEMKX | FIDELITY EMERGING MARKETS | -197.384 | $40.81 | $8,055.24 | $49.44 | $9,758.66 | $1,703.42 | 21.15% |
| 10/19/2020 | FDIVX | FIDELITY DIVERSIFIED INTERNATIONAL | -373.741 | $43.73 | $16,343.69 | $52.54 | $19,636.35 | $3,292.66 | 20.15% |
| 10/06/2020 | AQMNX | AQR MANAGED FUTURES FUND CL N | -180.375 | $7.92 | $1,428.57 | $9.39 | $1,693.72 | $265.15 | 18.56% |
| 10/20/2020 | IYR | ISHARES U S REAL ESTATE ETF | -18.000 | $81.15 | $1,460.66 | $95.31 | $1,715.58 | $254.92 | 17.45% |
| 10/19/2020 | CVMAX | CALVERT EMERGING MARKETS EQUITY CL A | -397.490 | $19.12 | $7,600.01 | $22.42 | $8,911.73 | $1,311.72 | 17.26% |
| 10/06/2020 | CSRSX | COHEN & STEERS REALTY SHARES | -11.690 | $58.68 | $685.97 | $66.83 | $781.24 | $95.27 | 13.89% |
| 10/20/2020 | VNQ | VANGUARD REAL ESTATE ETF | -15.000 | $80.37 | $1,205.52 | $89.76 | $1,346.40 | $140.88 | 11.69% |
| 10/19/2020 | AEPFX | AMERICAN EUROPACIFIC GROWTH FUND CL F2 | -240.181 | $59.48 | $14,285.97 | $65.73 | $15,787.10 | $1,501.13 | 10.51% |
| 10/20/2020 | FSCOX | FIDELITY INTL SMALL CAP OPP FUND | -101.944 | $22.00 | $2,242.77 | $23.92 | $2,438.50 | $195.73 | 8.73% |
| 10/19/2020 | CEMVX | CAUSEWAY EMERGING MRKTS FD INV CL | -374.002 | $13.42 | $5,019.11 | $14.53 | $5,434.25 | $415.14 | 8.27% |
| 10/06/2020 | FSCFX | STRATEGIC ADVISERS SMALL-MID CAP FD | -250.938 | $13.95 | $3,500.59 | $14.58 | $3,658.68 | $158.09 | 4.52% |
| 10/19/2020 | AEMSX | ABERDEEN EMERGING MRKTS FD INSTL SV CL | -414.746 | $16.89 | $7,005.06 | $17.42 | $7,224.88 | $219.82 | 3.14% |
| 10/06/2020 | FCSAX | STRATEGIC ADVISERS CORE FUND | -638.727 | $20.40 | $13,030.03 | $20.85 | $13,317.46 | $287.43 | 2.21% |
| 10/06/2020 | EAGMX | EATON VANCE GLOBAL MACRO ABSLTE RT CL A | -239.735 | $8.67 | $2,078.50 | $8.78 | $2,104.87 | $26.37 | 1.27% |
| 10/06/2020 | FVSAX | STRATEGIC ADVISERS VALUE FUND | -216.055 | $17.17 | $3,709.66 | $17.33 | $3,744.23 | $34.57 | 0.93% |
| 10/06/2020 | FAUDX | STRATEGIC ADVISERS SHORT DURATION FUND | -4,093.337 | $10.15 | $41,547.37 | $10.03 | $41,056.17 | -$491.20 | -1.18% |
| 10/06/2020 | FPIOX | STRATEGIC ADVISERS INCOME OPPORTUNITIES | -301.422 | $9.21 | $2,776.10 | $9.02 | $2,718.83 | -$57.27 | -2.06% |
| 10/19/2020 | PRFHX | T ROWE PRICE TAX FREE HIGH YIELD | -958.270 | $11.93 | $11,432.16 | $11.03 | $10,569.72 | -$862.44 | -7.54% |
| 10/20/2020 | MFIAX | MFS MUNICIPAL INCOME CLASS A | -2,585.773 | $8.88 | $22,961.66 | $8.15 | $21,074.05 | -$1,887.61 | -8.22% |
| 10/19/2020 | MMHAX | MAINSTAY MACKAY HIGH YIELD MUNI BD CL A | -671.690 | $12.74 | $8,557.33 | $11.68 | $7,845.34 | -$711.99 | -8.32% |
| 10/06/2020 | FSGFX | STRATEGIC ADVISERS GROWTH FUND | -171.687 | $23.33 | $4,005.46 | $21.38 | $3,670.67 | -$334.79 | -8.36% |
| 10/19/2020 | MGIAX | MFS INTERNATIONAL INTRINSIC VALUE CL A | -197.567 | $50.26 | $9,929.72 | $45.96 | $9,080.18 | -$849.54 | -8.56% |
| 10/20/2020 | WMFDX | WELLS FARGO MUNI BOND FD-ADMIN CL | -665.612 | $10.60 | $7,055.49 | $9.68 | $6,443.12 | -$612.37 | -8.68% |
| 10/19/2020 | MDNLX | BLACKROCK NATIONAL MUNI FUND CL A | -315.133 | $11.12 | $3,504.28 | $9.95 | $3,135.57 | -$368.71 | -10.52% |
| 10/19/2020 | MTBAX | MAINSTAY MACKAY TAX FREE BOND CL A | -1,624.070 | $10.43 | $16,939.05 | $9.29 | $15,087.61 | -$1,851.44 | -10.93% |
| 10/06/2020 | DLTNX | DOUBLELINE TOTAL RT BOND FD CL N | -487.333 | $10.72 | $5,224.21 | $8.93 | $4,351.88 | -$872.33 | -16.70% |
| 10/06/2020 | FPCIX | STRATEGIC ADVISERS CORE INCOME FUND | -6,545.998 | $11.37 | $74,428.00 | $9.30 | $60,877.78 | -$13,550.22 | -18.21% |
| 10/20/2020 | VSEAX | JPMORGAN SMALL CAP EQUITY CLASS A | -95.660 | $51.16 | $4,893.97 | $40.31 | $3,856.05 | -$1,037.92 | -21.21% |
| $428,903.62 | $468,359.90 | $39,456.28 | 9.20% |
Results
Had I left things as they were and stuck with my mom’s financial advisor’s recommendations, her $428k would have grown to $468k – almost $40k gain, which is 9.2%. That’s nothing to sneeze at, right?
Let the sneezing begin.
Had we moved all of the money to an S&P 500 fund, she would have gained 100.95% instead of 9.2%. 100,95% of $428k is roughly $428k. She’d have $856k today, instead of the $468k had she stuck with her advisor’s choices.
It Get’s Worse
I’m sure her advisor was a delightful woman, but advisors don’t tend to do charity work. Her advisor charged a reasonable 0.5% annual fee for managing my mom’s investments.
Advisor fees tend to be 1%-2% of assets so that’s why I say this is reasonable. It’s also better to be charged as a % of assets rather than having the advisor paid on fund commissions because that incentivizes the advisor to trade more so they can keep making more commissions.
But, that 0.5% of the $428k is $2,140. Per year.
Over 5 years, that comes to $10,700 so we need to reduce my mom’s earnings to account for those fees. That brings her earnings to $29k or about 6.7%.
Some Disclaimers
In defense of the advisor, $174k, or 40% of the assets were in bond funds. Those bond funds pay interest, so my mom likely would have earned about $8,000-$10,000 each year in interest which would boost her returns.
Also, it is not fair to compare the return of the bond funds to the returns of the S&P 500.
But even in the most generous case, where we take out the fees and we account for dividends, my mom earns about $80k or 18%, whereas if she just put her whole portfolio in an S&P 500 fund, she would have doubled her money.
Wrap Up
First off, I have tremendous respect for my mom’s advisor and for the firm for which the advisor works. I worked at that firm for years. I knew many advisors there and I helped build the systems that analyze and recommend the portfolios. I can say with 100% confidence that these folks are all trying to do what’s best for their customers.
So what gives?
An S&P 500 fund kicked their butts. On every single one of the 45 picks. Not one beat it.
ps. this is why I am so excited about nice low-cost S&P 500 funds.
But, in my opinion, there are a couple of reasons why this performance is so poor.
First off, 5 years is a very short window. It’s a good enough stretch for me to recognize that this is may not be a winning strategy, but no one knows what 10 years or 20 years will bring.
That said, I do think most advisors and investment firms are a little bit too excited about diversification.
Diversification Example
Here’s an example of where I think this goes south.
Just about every advisor I’ve ever met or read has been adamant that we all need some emerging markets exposure in our portfolio. The reason is simple. The US is a developed nation. Imagine buying shares of Standard Oil in the early days of our country. We’d have made a fortune.
But our country has developed. We’ve built roads, bridges train tracks, offices…you name it. We can barely pack anything else in.
But look at Zimbabwe. Think of all the building and development that needs to happen. What a huge opportunity. Standard Oil all over again.
It sounds right, but that story has just not played out as we’d expected. Look at the iShares emerging markets index ETF v. the iShares S&P 500 ETF over the last 10 years or so.
The idea is a good one. And there have been some big gains over short periods of time for emerging markets. And more importantly, some emerging markets companies have soared. But it hasn’t proven to be a solid sustained investment. So far.
S&P 500
I’ve written my love letter to the S&P 500 here, so I won’t repeat myself, but a couple of key points.
- The S&P 500 consists of the 500 largest US based publicly traded companies. Caterpillar, a nice US company and part of the S&P 500 will benefit from building roads and bridges in emerging countries. So will Apple. These countries will buy more iPhones when the towers are built. And for that matter, T-Mobile will probably do well, and American Tower, the US based cell phone tower REIT will do OK too. And emerging markets will likely use Uber Eats to order from McDonals and Starbucks. That’s at least 7 members of the S&P 500 that will benefit from new development in emerging markets. And most of the other 493 will benefit as well.
- US based companies are regulated by the SEC. There are a lot of shenanigans going on in unregulated markets. As an investor, this spells trouble. Not only are these companies far away – we don’t read much about them in the news here in the good old US of A. But we also don’t know if we can believe what they put in their prospectus and their company financial reports. Who’s making sure they’re being honest?
And the big point. The S&P 500 has gained 10% per year on average with dividends reinvested for over 100 years. Yes, there have been down years, but that’s a track record of success that I want in on.
Back to the Wrap Up
So, I don’t think advisors are bad or malicious, I just feel like they’ve got some core foundational beliefs that don’t align with investor’s best interests. I could tell you many stories like the emerging markets one, and most advisors are pretty good at making their case, but in the end, the proof is in the pudding. The S&P 500 tends to kick their ass.
Demand Performance
So here’s the call to action.
In my post on Financial Advisors, I recognized how retaining an advisor was a good move for my friend Rich.
But we must demand performance.
I wrote a somewhat angry post about the S&P 500 returning over 20% in each of the last 2 years and how if each of our equity portfolios hadn’t matched that, we need to make some changes. Read it here.
It does make me angry when folks are losing return because they’re chasing exotic investments (or their advisor is) that lag the S&P 500.
Look at your equity portfolio. Compare its performance to the S&P 500 over long periods. 5 years, 10 years, 20 years. It’s easy to find the information. The stock function in excel will return the price on a given date.
Create the spreadsheet I made for my mom – that’s why I included it. List all your equity holdings, and see how they compare to the S&P 500.
It Matters
In my mom’s example, making the change put an extra $400,000 in her pocket over 5 years.
If you think you might like to have an additional $400,000, $100,000, or even $1,000,000, take a look at your investment returns and demand better.