Do You Need a Valet to Park Your Car? No, but…

…it is helpful sometimes.

Nate Hoskin with Hoskin Capital shared a brilliant analogy in his interview comparing valets to advisors. During the segment where Nate shares his hot take, he dives into how not everyone needs a financial advisor and the 1% fee most advisors charge on assets managed doesn’t really align with that mentality.

Nate opens it up with most people can park their own car. That’s true. Except for the person at the grocery store that takes up 2 spots with their F-150. So really 99% of people can park their own cars. While we can park our own cars we still have the option to have someone else do it and we’ve got to pay them for it (valet). Normally it’s to save time (you have to drive around for a spot) or you’re not really sure where to park (knowledge). Either way the valet takes a fee for a service at that moment. They don’t charge you for the next month on all the cars you own for the parking you might do. It stops right there the day you use them to park your car.

Advisors should be valets in that they help guide when the time arises, before, and after. The best part is it should be for a flat fee instead of a percentage of assets under management since 94% of advisors DON’T beat the S&P500 (where you can just invest in an ETF).

Source NYU Stern and Investopedia

The difference in a portfolio with a fee

With only 6% of advisors beating the market, you’re basically playing the lottery on if you’re going to find that one advisor to help you beat the market. It also doesn’t share how much you beat the market by less your fee to the advisor. So let’s say your advisor gets you to 11% returns (average S&P 500 return since inception is 10.13%) but has a 1% fee (the norm). You’re back to under the market average. NICE!

This doesn’t even take into account that NO ONE can accurately time the market and the market does have some historical trends (although they might be broken when our world population finally stagnates).

Forbes did some mathing for us and shows a difference of $1.5 million dollars (on a $4.3 million dollar portfolio) using a 1% fee advisor. This isn’t taking into account the fees for the funds themselves (expense ratio). A more realistic evalutation is on a $1 million dollar portfolio at retirement showing just how much you lose with a 1% fee.

Where do you go? What do you do?

There are a lot of different ways to create passive income and see returns in the market. I personally believe in using low cost ETFs (I use Vanguard) like VYM, VNQ, VOO, and using a wealth advisor for an hourly fee like Frankly Finances. I also have a Roth and Traditional IRA with Vanguard that has a very low cost.

– There’s not much you can do with Retirement account fees with your employer, but they are good tax advantaged accounts. Do some research on a low cost addition to your retirement portfolio like an IRA.

– Find a fee based wealth advisor. They typically do a free consult and portfolio review with the client before bringing you on. This is a good strategy check on where you’re at.

– Do a little research on your own too. Spend the time now to save future you some stress.

 You’ve got a lot of options. Make sure you do your research and aren’t stealing money from future you for absolutely no reason.

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