Financial Advisor, Redefined.
We are a very different type of financial advisor. We know that decades of academic research shows that advisors, mutual fund managers, and stock pickers cannot predict the future or beat the market, and we do not think they should be trying, and incurring high fees, using your money. Instead, across all of your accounts, we invest in extremely low-cost, diversified index funds, relentlessly driving down your expenses. In addition, unlike 77% of advisors, we are not paid by "on the back end" by the funds we put in your accounts. We think you'll like our low fees, our freedom from conflicts of interest, and our active communication style.
We focus on 6 things:
Returns of actively managed mutual funds have underperformed index funds for decades. Surprisingly, passive funds still comprise only 30% of the market! Volumes of research now show that active managers, no matter how hard they work or how smart they are, almost never beat passive index funds over the long term. Today, with thousands of index funds to choose from, there are important selection decisions to be made. Small differences in yearly performance compound into tremendous spreads over time.
Dividends historically have accounted for 42% of investment returns (S&P 500). Yet many actively managed mutual funds pay nowhere near the dividend levels of their index fund peers. This partly is because many of the underlying stocks that pay high dividends are boring, unremarkable companies. Investors making active decisions often overlook the importance of the quarterly dividend payment, a mistake index funds cannot make. Dividends also provide psychological benefit by paying cash every quarter. And they are more stable than commonly thought: since 1960, only in seven years have S&P 500 dividends decreased.
The time to discover what is suitable for you is not during a financial crisis. Or, conversely, at the top of a stock market bubble. I will work with you to learn how much risk you can tolerate, how much stability your job and other income sources provide, and where your comfort zone lies. Knowing your goals and upcoming life events is important. We'll work through scenarios together to try to differentiate how you think you might behave versus how you will act in a financial crisis. Suitability analysis is a critical part of what I deliver: you need to feel comfortable without giving up too much opportunity or taking on too much risk.
#2: Low Costs
Fees matter. Study after study confirms that lowering your investment costs is critical to retirement planning success. 2.5% aggregate annual fees over an investor's lifetime can lead to 70% depletion of savings in retirement. There are many ways I lower costs for you: buying index funds with extremely low fees and bid/ask spreads, reducing trading commissions, optimizing taxes, lowering your accountant's workload, and charging less for my services. If your assets are in my care, I will squeeze out the financial industry's fees the same way I do for my own savings.
Index funds allow incredible tax optimization, as gains can be deferred in time, sometimes for many decades. This allows you to earn capital gains and dividends on the "float," or money that otherwise would have been taxed away by governments. In contrast to my approach, active managers generate taxes constantly with their trading, both within mutual funds and between mutual funds, and these taxes reduce significantly your long term gains. Additionally, there are subtle but non-trivial tax advantages certain index funds deliver that I will make sure you achieve.
The challenge is won or lost based on behavior. Maintaining good investment behavior year after year is difficult. We are social creatures, and we like both the comfort of the flock and the excitement of the casino. But you don't do well as an investor chasing trends, you do well sticking to a model and a plan. This is easier said than done: when markets are surging, it's rational for an investor to believe she or he possesses unusual intelligence, and when they are crashing, a sense of panic sets in that the bottom is a long way down. Having experienced both the dot-com crash (many technology stocks fell 90%+), and the 2008 real estate crash, I know the importance of good investment behavior.
Read more on investor behavior.
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Copyright © One Day in July LLC. All Rights Reserved.
One Day in July offers advisory services in the State of Vermont. One Day In July may accept a limited number of clients in the other 49 states, pursuant to each state's regulatory restrictions. As such, these services are only intended for individuals residing in the United States. No offers may be made or accepted from any resident outside of the 50 states, the District of Columbia, or Puerto Rico.
Investing strategies, such as asset allocation, diversification, or rebalancing, do not assure or guarantee better performance and cannot eliminate the risk of investment losses. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Graphs and content presented on this website are for educational purposes only and do not constitute investment advice or an offer to buy or sell any security over the Internet.