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When your quarterly investment statement arrives in the mail, you may be thinking "what have you done for me lately?"
It is a reasonable question. Unfortunately their is much misunderstanding on how to properly make an evaluation to decide if you are getting your money's worth from your investment advisor.
Here's a brief guide:
- Benchmark the performance to one or more indices over the same period. We use the Dow Jones, S&P500 and NASDAQ in our statement and also regularly look at Russell 2000 and various international indices.
- Use the longest time period available. A quarter, a year or even 10 years is not statistically significant due to the high statistical noise in market data. More on that below.
- Understand the fees being paid. The industry has very cleverly hid them, and you must be diligent in uncovering and exposing them. Since they are cleverly hidden - those (like us) that don't hide them may appear to be more costly when the opposite may be true.
So, if even ten years is not enough data for a statistically significant performance - what's an investor to do to make a proper evaluation? The main approach is to use indices that most closely represent your advisor's portfolio. That assumes that your advisor has a consistent strategy that can be tied to an index.
Our quarterly statements include the following to make the evaluation process transparent and easy for our investors:
- Performance vs. Benchmarks over the last quarter so they can see "lately".
- Performance vs. Benchmarks since they joined us since that is most statistically significant data we have for their dollars under our care.
- Performance vs. Benchmarks of our model portfolios going back 15 years so they can see how our investment strategies fare over longer time periods.
- An invoice that shows what they are paying us to the penny.
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What to Do Next
The most important first step is to understand what is most important to you, establish goals that are in alignment. Then choose someone that can bring a team of independent experts together and formulate the advice to make it happen. That said, it is normal to want to jump right into investing. We regularly analyze folk's current investment strategy with nothing expected in return. (We'll analyze other aspects of your strategy if you wish.) We look at: - Overall Performance (vs. benchmarks & our model portfolios)
- Portfolio Design
- Diversification
- Fees & Expenses
Give us a call. 760-804-0910 |
