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My Stock Portfolio Is Better Than Your Financial Advisor’s

Chances are that your stock portfolio is run by some financial advisor, planner, or saleswoman masked as one of the prior two.

He or she probably has you in some actively managed, high turnover mutual fund at best or a smattering of individual stocks at worst.

You probably don’t know your own asset allocation. Your investments are likely in a taxable account even though you are not maxing out your tax advantaged accounts.

But don’t worry or stress yourself too much. I was in this exact position just a few months ago.

Now, I can just about guarantee that my portfolio is better than yours. I’ll prove it by showing you everything behind the curtain.

How can I be so sure my stock portfolio is better?

It’s not even a fair fight.

To begin, your stock portfolio is actively managed

This is despite the fact that actively managed accounts underperform passively managed funds 80% of the time. And, there is no way to predict ahead of time which actively managed funds will be in the 20%. Your advisor thinks she is smarter than the rest and can beat the 80%. She can’t.

My stock portfolio is comprised of passively managed index funds that are designed to approximate the market average, not chase waterfalls.

I’ll take an 80% chance versus 20% any day of the week.

Fees are killing you

There’s a saying in Wall Street: “In investing, the goal is for the investor, the advisor, and the brokerage to win. But, two out of three ain’t bad.” Guess who they’re leaving out of this equation?

Your advisor wants to get paid. They get paid based on how actively they manage your investments. Each move is made using their extensive knowledge and training and you must pay for that expertise. Even if it loses 80% of the time…that’s equivalent to hitting below the Mendoza line for all the baseball fans out there.

Most advisors charge an AUM (Accounts Under Management) fee, usually 1%. Doesn’t seem like much. Until you realize that your 8% yield just became 7%. Over an investor’s career, that’s equal to hundreds of thousands of dollars.

stock portfolio investing
Get your stock portfolio out of the fog

Let’s check the math

Say we are saving for retirement. We plan to save $50,000 annually for 30 years. Over the course of our career, average returns are 8%. You invest with your advisor and her 1% AUM and I invest myself.

You:

=FV(7%,30,-50000,0,0) = $4,732,039.32

Me:

=FV(8%,30,-50000,0,0) = $5,664,160.56

Not shelling out that measly 1% each year made me $1 million more wealthy than you.

You are tax inefficient

Are you maxing out your tax advantaged accounts?

If you are not, you should not be investing in a taxable account, which is likely what your broker has you investing in.

I was investing in a taxable account before I even opened a Roth IRA as a trainee. Makes no sense.

In a taxable account, each sell, buy, or any other sort of move gets taxed based on capital gains taxes etc. In tax-advantaged accounts, they are not. There are various other rules for these accounts detailed here.

Bottom line, just like your broker can steal a significant amount of your portfolio over your investing career, so can Uncle Sam. Don’t let him.

In summary, you are paying your advisor out the nose to underperform while also giving slipping some to Uncle Sam for no reason.

That’s why my stock portfolio is better.

Now it’s time for me to put my money where my mouth is

In the coming paragraphs, I’m going to show you my actual complete stock portfolio.

But remember that the whole point of this post isn’t to make you feel bad. Like I said, I’m basing my description of “your stock portfolio” on what mine was just a few months ago.

I changed mine for the better and so can you!

What did I do with my old actively managed advisor funds?

Quickly, an aside for those wondering what I did with my old investments with an advisor in actively managed funds. I had a Voya 457(b) account in a high cost target retirement fund, various actively managed mutual funds in a taxable Charles Schwab account, and my wife had a Charles Schwab IRA in actively managed funds.

When we created our written financial plan and set our retirement goals, we did not include any of these funds. That way we knew we could reach our goals even without these investments. We could do whatever we wanted with them. We decided to use them towards closing costs for our primary residence and as a down payment/closing costs for our first investment property.

I recommend a similar approach. Transferring actively managed funds may cost you a ton in capital gains taxes and fees. It may be wiser to just leave them where they are, let them keep compounding, and start anew. If you typically donate to charity, one way to flush these capital gains is to donate the funds to charity.

Anyway, I digress…

Finally…Here is my complete stock portfolio

Vanguard Roth IRA

  • 100% VTIVX Vangaurd Target Retirement 2045 Fund

I began my financial education at the end of my training. Quickly, I realized that my window to contribute to a Roth IRA was closing as my salary was about to take a big jump. Next thing I did was take as much savings as I knew I wouldn’t need for 20 years and put it into a Roth IRA at Vanguard.

These savings did not total very much so I was limited in what funds I could choose as most had higher minimum contributions. So I chose a Target Retirement Fund. It’s expense ratio is higher than other Vanguard finds but much lower than any actively managed funds.

New York State 529

  • 100% Agressive Portfolio

Before my financial education, my wife and I put any cash gifts for our children in a UGMA savings account with Ally Bank as a college fund… totally misguided. A UGMA account becomes the minor’s own money as soon as they become 18 and they can use it for whatever they want. The Ally “high-yield” savings account also only yielded 2%, way less than inflation.

smart stock portfolio
That feeling when your stock portfolio is on point

We withdrew these funds and put them into separate NYS 529 accounts for each kid. New York has one of the best 529 programs so this was an easy choice. Our kids are both less than 3 years old so we chose the aggressive portfolio option that is 100% stocks but will become near 100% bonds as they reach high school graduation.

New York State Voluntary Defined Contribution Plan

  • 30% TIAA Access S&P 500 Index Fund T1
  • 10% TIAA Access Vanguard Small Cap Value Index T1
  • 35% TIAA Access International Equity Index Fund T1
  • 10% TIAA Access Bond Index T1
  • 10% CREF Inflation-Linked Bond R3
  • 5% TIAA Real Estate

My new employer is a public hospital so I am technically a New York State employee. Thus I could choose between an actively managed pension (defined benefit plan) with a 10 year vesting period or a voluntary defined contribution plan which I could manage passively with a 1 year vesting period. I obviously chose the VDC.

The brokerage options were TIAA, Fidelity, Voya, and AIG. Initially I thought I would chose Fidelity but the options available were higher cost and limited in terms of index funds. Voya and AIG have worse customer service in my opinion and the options had higher expense ratios. TIAA had great index fund options with low expense ratios.

I selected funds available through TIAA according to the asset allocation in my written financial plan. I’ll rebalance once a year. The rest of the time, I’ll sit back and not worry about my stock portfolio knowing that it’s in a great place that I designed based on my risk tolerance. This frees me up to focus on my real estate investing which I use as a wealth accelerant.

Get on the right track

My stock portfolio is not better than yours because I am smarter than you. I’m almost positive that I am not.

But I did commit to learning finances and investing and created a plan to improve my financial well-being and guide me to financial freedom.

You can do the same and these 2 posts will help you do it!

What do you think? Is your stock portfolio actually better than mine? What have you done with old actively managed funds? Could I be investing better? Could you? Leave a comment below!

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    The Prudent Plastic Surgeon

    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected]

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