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I have a large (on the order of several year's worth of pay) amount of money currently invested in a few mutual funds that collectively match my suggested asset mix (based on risk tolerance and timeline to retire). But I'm not nearly a finance professional and I don't particularly want to put in the "off time" work to become one when I already have a demanding career.

Is simply investing in a few "major" mutual funds good enough? Is it worth the cost (at least 1%/year) to hire a professional investment manager, or will they just put my money in a few funds like I'm doing now? If not now, then when (as my amount invested grows) will I need to hire a professional?

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3 Answers

up vote 6 down vote accepted

I don't know what you mean by 'major'. Do you mean the fund company is a Fidelity or Vanguard, or that the fund is broad, as in an s&P fund?

The problem starts with a question of what your goals are. If you already know the recommended mix for your age/risk, as you stated, you should consider minimizing the expenses, and staying DIY. I am further along, and with 12 year's income saved, a 1% hit would be 12% of a year's pay, I'd be working 1-1/2 months to pay the planner?

In effect, you are betting that a planner will beat whatever metric you consider valid by at least that 1% fee, else you can just do it yourself and be that far ahead of the game.

I've accepted the fact that I won't beat the average (as measured by the S&P) over time, but I'll beat the average investor. By staying in low cost funds (my 401(k) S&P fund charges .05% annual expense) I'll be ahead of the investors paying planner fees, and mutual fund fees on top of that. You don't need to be a CFP to manage your money, but it would help you understand the absurdity of the system.

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Don't invest in regular mutual funds. They are a rip-off. And, most investment professionals will not do much to help your financial future.

Here's the advice:

  1. You will have to make the time and effort investment to become educated. You don't have to day-trade or spend hours each day. But you are the only person who will care about your money. You can't outsource it like some kind of housework.
  2. Use low cost index funds instead of mutual funds. Vanguard is an outstanding resource. You can call and ask questions and they will be happy to explain everything to you.
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Lifecycle funds might be a suitable fit for you. Lifecycle funds (aka "target date funds") are a mutual fund that invests your money in other mutual funds based on how much time is left until you need the money-- they follow a "glide-path" of reducing stock holdings in favor of bonds over time to reduce volatility of your final return as you near retirement.

The ones I've looked at don't charge a fee of their own for this, but they do direct your portfolio to actively managed funds. That said, the ones I've seen have an "acquired" expense ratio of less than what you're proposing you'd pay a professional.

FWIW, my current plan is to invest in a binary portfolio of cheap mutual funds that track S&P500 and AGG and rebalance regularly. This is easy enough that I don't see the point of adding in a 1 percent commission.

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