Let's find out by diving into the ROI - return on investment - of investment management.

When looking at a portfolio and its financial returns, we commonly compare it against the general market as well as the S&P for equity portfolios. One of the most important reasons we manage your portfolio is to have the capability to create excess returns against the current market’s performance.

The average investor actually ends up underperforming the market. According to Morningstar, in the past 10 years (ending in 2016), most U.S. investors in equity funds had a 4.36% return, but the average equity fund actually ended up returning 5.15%. Within the same time period, the S&P 500 index ETP, SPY, had a return of 6.87%. Let’s say that someone invested $100,000 in 2007. That would mean that their balances at the end of 2016 should be:

SPY: $194,338.16

Average diversified equity fund: $165,231.47

Average equity investor in the U.S.: $153,228.91

 

Looking at this, the average investor underperforms by $41,000 for an S&P ETF and by $12,000 for their equity funds. But why does the average investor end up having such lower returns?

 

Individual investors are always given the short end of the stick because of the frictional costs that are put in front of them. Anytime they are moving in their portfolio, they have these costs. Their biggest issue always ends up being themselves. Humans tend to be impatient and not think about the long-term effects of their decisions, especially when it comes to their investments. This ends up leading to them buying high, and in turn selling low.

 

This is why a financial advisor, and their experience, can help you add value to your portfolio.

 

Let's talk about Your Time.

The more assets that you add to your portfolio, the more time you will have to spend viewing your costs, timing, and strategies. Again, a financial advisor gives you the freedom of not spending as much time on your decision-making - they can handle it for you.

 

Here are a few more ways that a financial advisor can help:

 

Asset Allocation:

Two of the most important factors to determine your returns and performance is your portfolio’s diversification and asset allocation. Your financial advisor will look at your situation, risk tolerance, financial objectives, and other factors to then ensure your asset allocation works for your situation. 

Cost-effective Implementation:

This will maximize your net returns by minimizing those frictional costs that we discussed earlier. A financial advisor has the resources to control and evaluate these costs more often than an average investor does. 

Strategic Tax Planning:

It’s very important to have a strategic tax plan for when you start spending your portfolio. This is because there can be tax consequences for taking out money too early or too late depending on your age. At Quraishi Law and Wealth, we specialize in creating a tax plan to ensure that you don’t get stuck paying these taxes because of your spending. We communicate the laws with you and have your plan as a part of your overall investment strategy. 

 

A financial advisor can drastically help when it comes to your investments. At Quraishi Law and Wealth, our advisors are dedicated to creating a long-term plan that you’re comfortable with. To get started, call our office at 870-275-4304 or click the button below to book online now.

 

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Carrie Russom Quraishi, JD, CAPP
Carrie provides personalized estate planning and wealth management services to clients in AR, TX & TN.