A Wiser Retirement®

272. Why should I pay a financial advisor to invest in low-cost ETFs?

• Wiser Wealth Management • Episode 272

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Join us on this episode of A Wiser Retirement® Podcast, where we explore why paying a financial advisor to invest in ETFs may be worth the cost, even when providers like Vanguard offer these funds with low fees. Many investors wonder if they can simply do it themselves, but the real value of working with an advisor goes far beyond just selecting investments.

Related Podcast Episodes:
- Ep 213: How do I terminate a relationship with my financial advisor?
- Ep 191: Mutual Funds vs ETFs

Related YouTube Videos:
- What is a fee-only financial advisor?
- Will AI replace financial advisors?
- How to Hire a High-Net-Worth Financial Advisor

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- Schedule a Complimentary Consultation: Discover how we can help you achieve financial freedom.
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This podcast was produced by Wiser Wealth Management. Thanks for listening!

Introduction to ETF Investing

Speaker 1

Your grandparents used to buy mutual funds, but now you can buy ETFs, exchange-traded funds. They trade light stocks in the stock market, but they're very low cost. You can get direct access to indexes that way. Welcome to a Wiser Retirement Podcast. Are you curious why you would ever pay a financial advisor to invest in just low-cost ETFs? I'm Casey Smith. I'm joined today with Andrew Pratt, the King of Data here at Wise Wealth Management. Each week, we bring you practical advice on retirement, investing and planning for your financial future. Don't forget to subscribe to the podcast wherever you're listening. Let's get started. Good morning, Casey. Good morning.

Speaker 1

So I've been excited about this topic. Honestly, in the last 10 years I've never been asked this question directly. I think it's because we're able to show the value of what our firm does, which I don't want to give away. I mean, all of our clients already know what our value is, but I don't want to give away the entire podcast right in the opening here. But let's kind of walk through this because I think it's an important question. I see it on message boards a lot. I'm just dating myself calling it a message board, but if you're looking, at-.

Speaker 1

I understand that If you're looking at Reddit or you're looking at even just Facebook topics around investing people go. Why would you pay somebody one and a half or 1% to invest in ETFs? You can do it yourself, it's really simple. And they have a point, but they're also missing some other points. So let's kind of dive right in, and I want to make sure we bring everybody along with us in this conversation. So let's start by quickly talking about what passive investing is.

Speaker 2

Yeah, I think simply, if you just boil it down, passive investing is just a simplistic way to invest with a long-term mindset and something that's low cost, that will maximize your returns, and this generally just means investing in a index proxy that you know that tracks like a broad universe, whether it's, you know, the US stock market or it can get even to you know, a little bit more granular like a sector, but you know tracking this index risk and return characteristics and not really you know, tactically making moves. You know our short-term trading. Necessarily it's just really matching this index's return to risk profile.

Speaker 1

So there's, like I would say, three key indexes. There's the S&P 1500, which includes the entire US market. Most people would just watch the S&P 500 on their local news right at night, but 1500 covers the entire US. You have the MSCI foreign index, which covers all companies outside the US, and then you'd have the US bond aggregate index, which covers all the bonds here in the United States, which is really the world's bond market. There's other bond markets, but this would be the largest right.

Speaker 1

So, with those three indexes, you can invest in probably over 6,000 companies, Right exactly.

Speaker 2

Yeah, there's countless indexes out there, but there's, you know, a lot that are more prominent. Yeah, the 1500 are. A lot of people do use the Russell 3000 just to capture the total US stock market and then even with XUS or, you know, excluding the United States equity market, there's MSCI ACWI XUS index, but then you can even get even a little bit more cute with that and exclude certain countries or try to exclude certain countries. But generally you can create a very efficient portfolio by investing in these very prominent indexes that capture most of the market share.

Speaker 1

And most of these you can gather through Vanguard. They're low cost, right, and you could buy them, and the idea, well, how they get built is they're really done by market cap. So the larger the company, the bigger weighting it has inside the index. The smaller the company, the smaller the weighting that it has and you would buy it and you would leave it alone. That's what passive investing is. It's an. It's an attractive investment strategy because, quite honestly, it works really well a long time. If you there's a study that comes out every six months called the SPIVA it's all caps, s-p-i-v-a uh index, um, uh report. The SPIVA report comes out and it tells you what these indexes have done versus active managers.

Speaker 2

And every every six months this is my favorite report Every six months it comes out and it is really telling that over the last 20 years that very few active managers are able to beat these indexes Right, and I actually I looked at this recently, I think, you know, just for the SPF a hundred, you know, trying to actively beat that index of the past 10 years, I think it was, like you know, high 80 percentile that managers did not beat that.

Speaker 2

So again, it's just, it's very difficult to beat an index, especially something like the SPF a hundred, because it's very efficient, it captures, you know, you know, like 95% or more of the market and again it's the structure of the index and market capitalization waiting. It's kind of a. You know, we always say it's like a self-healing process because you know they have a certain time periods where they rebalance and reconstitute these indexes and they'll kick out the losers and add winners. And you know that kind of structure has led it to be one of the best performing you know, if not the best performing index over the long run.

Speaker 1

Take the conversation a step further. Your grandparents used to buy mutual funds, but now you can buy ETFs exchange traded funds. They trade light stocks in the stock market, but they're very low cost. You can get direct access to indexes that way and then kind of transitioning us a bit. We also have active strategies where you could also use ETFs to be doing more active management. So let's describe active versus passive.

Speaker 2

Active is more not necessarily hands-on, but more tactical, trying to time the market, trying to beat an index, which again is very hard to do, and because of this these strategies always have higher fees, because they're paying, you know there's more portfolio management involved. There's more, you know, quantitative screens and processes involved in managing these strategies, and I think one thing that I was just sort of contemplating or thinking about is Active always focuses on just the return aspect.

Speaker 2

It doesn't really focus on risk-adjusted return. So it's like we are trying to outperform the S 500 and you know some strategies may do that, but are they taking a lot of extra risk to uh, to be, you know, to beat the S 500. So I think that's one thing that kind of gets lost in the um. You know, trying to assess and understand an active strategy. But yeah, the main goal is trying to outperform an index and you know there's, you know can have a lot of trading and just you know tactical movements in that strategy.

Speaker 1

So let's go back and revisit our question why do we need to pay a financial advisor to invest in low cost ETFs? Well, if the whole comparison is, you have to take away the most, the highest probable vehicle for success, which would be the ETF or the more passive strategy. Right, then I'm not. I'm not sure. I'm not exactly sure what what the question is. You're saying you could do that yourself. It may be, but there's other things that go on, even in managing a passive portfolio.

Speaker 1

Unfortunately, a lot of these things are missed, because there are a lot of advisors out there that will put you in a passive ETF portfolio low cost, looks good. You're paying them one plus percent, one and a half percent, and you never hear from them. Uh, and then nothing happens in the portfolio. It just kind of sits there and stares at you, right, and there there are some portfolios that end up like that uh, because that's the best thing to do, but for a mass majority that's not exactly the case. So let's, let's talk about, uh, just some benefits. Uh, first, first of all, uh, firm models.

Speaker 2

There's two sort of key areas, like the firm model structure and, you know, maybe client portfolio specific. But for model, there's uh you know, as allocation. So we're, yes, you know, most of our models have a high proportion of passive funds. But you know, we, we are doing research and you know a lot of it's rooted based on academic research. Um, for efficient model portfolio construction, um, but it's like, what proportion of us stocks versus international stocks should you have? How many core bond are? You know what is your core bond position? Um, so we're, we're looking at those sort of um, uh, different exposures underneath the hood and and making, um, uh, you know, recommendations based on that. And then just looking at what, where does it make sense to be allocated over the longterm with these different exposures? Um?

Speaker 1

and, for example, if you went to vanguardcom 10 years ago, even today they have a tremendous allocation to foreign stocks. We have historically always been underweighted foreign stock and we seem to get more underweighted every single year. That could be a whole podcast in and of its own, but it derived a very big performance difference between a Vanguard model that you pull free off the website versus what our portfolios have done.

Speaker 2

Right, and and there's, you know, over the course of my career there's been other institutions Vanguard, jp Morgan, um, gmo that have been forecasting low expected returns for us equities versus international equities for a long time. I kind of con, you know, kind of consider is it them just trying to sell their other book of business, to try to get people interested in their other investment products? But a lot of their arguments are based on research. But, again, what we look at is long-term and we have maybe a different view of some of these institutions and it actually has worked out over time to be heavier weighted in US equities versus international equities, Um, but you know, that's one area that we are looking at Um, but we're also, you know, I I'm looking as the investment manager, I'm looking at portfolios and asset the markets daily.

Speaker 2

But we do, we do a formal review at the investment community level once a month and we'll um, you know, address any kind of key areas that we we deem that are necessary to look at and then we'll have constructive debate and um, and then we'll make changes if it makes sense. And again, we have a long-term mindset. We're not trying to time the market, uh, time any kind of noise that's out there. But we will make changes if we think there's a long-term paradigm shift and if we believe it will be additive to the portfolio.

Speaker 1

One of those examples is digital assets.

Speaker 1

Right right, we waited until the ETF had matured a little bit. But adding digital assets to the portfolio, it was an opt-in scenario, because a lot of people just don't understand the asset class yet and you don't want to invest anything you don't understand. But, uh, but that's any. That's the example. New asset class is created first time that's happened. Uh, in what 200 years exactly? So so that that, um, that's something that you, we, can educate ourselves on and then make that recommendation to the client that we, that we add this asset class also, you know, asset location would be another one right, and how we construct portfolios, in that many firms will will do this by looking at each individual portfolio as its own. Where we're appropriate here, we look at all the accounts as one portfolio and therefore, for tax efficiency, we can place certain investments inside IRAs and certain investment inside brokerage accounts or maybe Roths.

Speaker 2

Yeah, and I think this goes out to the client portfolio level. If you have different types of accounts based on a tax treatment standpoint, we'll make it more efficient, allocate, know, allocate more efficiently by tax location and and or it's also called householding the accounts into one global portfolio. That's where all the accounts are viewed and there might be some exceptions, whether it's like a custodial account or five, 20 or you know, account for a minor will be excluded. But you know we'll generally have the accounts and you know, in one global portfolio and we'll allocate based on that. And that's again, as you said, have less tax efficient, you know, investment funds like fixed income or whatever stuff that are paying heavy dividends or whatnot, that will be in the more tax exempt accounts, whereas the growthier, more tax efficient type funds will be in the taxable accounts. And that's again just another kind of sort of high touch way we can manage portfolios.

Speaker 1

Another one. We'll talk about liquidity management for retirement. This is this is huge. I only know of one family here that uses us on our hourly financial planning services. That's retired, who's doing their own cashflow management in retirement. But basically, if you think of it in three buckets, you have your cash, you have your bonds and you have your stock, and what we're trying to do is establish a cash reserve. It's a little unique to each family and we manage the process, but dividends and interest go into the cash bucket. The cash bucket sends out monthly withdrawals as we determine through the planning process, and when the market's up, we take profits, so that's the price increase. We shave off the gains. We put that into the cash bucket. If the market's down like it was in 2022, you don't remove from the cash bucket. You just I'm sorry, you don't sell any stock or bonds. You simply pull down from the cash bucket. So you're protecting your most volatile asset class that you're not selling the most inopportune times.

Speaker 1

So that that's that's worth our management fee, compared to how other people handle it. Uh, and so I I think that that that is another reason why you're you know you're investing in low-cost et. Yes, that's the vehicle that's being used. It benefits you the most, but it's how you're implementing that strategy is why you pay an advisor for that management fee.

Speaker 2

Yeah, and I think just using Wiser's operation department there you know setting up these reoccurring withdrawals and then you know sort of not having to do that yourself.

Speaker 1

It's like a paycheck you just get your paycheck.

Speaker 2

Exactly.

Speaker 1

Plus, you don't spend more than your paycheck. You're probably going to be fine, right.

Speaker 2

And. But you know the trading aspect and everything that stuff that goes again goes on behind the scenes. You're not having to worry about any of that. And then you know we're not trying to get too cute in certain areas, but we are evaluating the cash bucket as well. Whether it's, you know, we use the money market fund for a portion of the liquidity reserve. You know sometimes the money market funds yields have dropped or you know there's been a more attractive product, so we're also evaluating these different types of cash proxy funds as well. So it's stuff that you don't have to worry about necessarily.

Speaker 1

And then that leads to the next big one, which is rebalancing. So you think about 2020, which seems like yesterday, but it was five years ago. Now 20, which seems like yesterday, but it was five years ago now, but we had to believe it. We had a big COVID drop Bonds were going up in value, stocks were going down and twice during the year we took gains out of bonds and re and purchase stock. And then it flipped market rebounded and we'd take gains out of stock and repurchase bonds, which the whole point was to keep most retirement portfolios in that 60-40 range, and we ended up adding 3% to the rate of return. Just to the rebalancing strategy. Haven't really needed a whole lot of rebalancing since, because bonds and stock have now been climbing up. We had stocks and bonds down in 22, so they're all kind of moving together. The last couple of years this year seems to be, or last year, 24 seemed to be a little more normal as far as bonds up, stock down days, so that's a huge difference.

Speaker 1

Advantage to having professional management and and you know, obviously, when you rebalance, is is important too, so you could be mowing the lawn or or hanging out with the grandbabies or whatever.

Speaker 1

And that's the day you should have done it where that's, that's that's our job is to figure out when that rebalancing uh happens. Um, also, tax loss harvesting that's another big one, right, I'd say those are probably two big ones. And when we prepared for this podcast, I was like oh wow, there's like five other things that we actually do to to justify, uh, managing low cost ETFs.

Speaker 2

Yeah, I think you know, as you said, tax loss harvesting is a big area, you know, for taxable accounts, you know we can generate tax credits and then again, which reduces future tax liabilities, and that's something that people just really don't want to spend their time on looking at, analyzing, assessing.

The Value of Financial Advisors

Speaker 2

But, you know, as you said, to rebalance, and the main goal with rebalancing is to maintain your target risk exposure, if you've, you know, if you're a moderate investor and have a moderate risk tolerance, and just say you know, in the past three or four years, outside of 2022, the market's been up 20%. Now, if you just set it, forget it at some of these, maybe bigger institutions, they'll put you in a model and just leave it. Your risk could be very skewed. You could have a high, very high proportion to equities, whereas you would like to have a, you know, a moderate balance. So that's something we're also looking at too. Is you know, when does it make sense to rebalance back to target and just to maintain the client's desired risk exposures in case there is a big market drawdown?

Speaker 4

Are you curious why annuities keep coming up as a potential investment option? People are often told that annuities can effectively mitigate investment risks and help secure their financial future. However, annuities often benefit the salesperson and might not be the best choice for you as a consumer. To learn more about the various types of annuities, the negatives of owning them and better investment alternatives, we have a free ebook on our website just for you To download our ebook. Buyer, beware, why Do they Keep Trying to Sell you that Annuity? Simply click the link in the episode notes or visit wiserinvestorcom slash guides. Now let's get back to the episode.

Speaker 1

The next topic is something I think consistently about. So and we've had a podcast on this what is real financial planning? So at our firm, financial planning is either paid for as a one-time fee or it's included in your assets and our management fee if we're managing assets for you. I had a prospect a few weeks ago and I got kind of excited because it was a pilot. We worked a lot of pilots. Most of the pilots just need one-time flat fee planning and maybe a checkup every couple of years.

Speaker 1

You don't need to be paying an asset manager to manage your 401k. That doesn't make any sense to me. But he had $600,000 he'd saved on his own. It's like, oh wow, this could actually be an assets under management. Uh, pilot, this makes sense. And then started talking to him and and I understand that he wants to, uh, buy a house he doesn't own a house right now and then I suddenly realized, oh well, that money that he has in his brokerage account, which would be a healthy investment, should not be invested at all. That money should be in cash and be ready for a home purchase.

Speaker 1

And then also creating a savings account, because it was, everything was in the brokerage account, and so that's that's not the normal conversation. I just did some really quick questions and basically told him you don't need to have your money invested if the market fell 20, 30%, right. But then the housing market opened up for you, you still would be in this same position, if not worse position, because your capital will be gone for buying the house. You're going to end up paying more on a monthly basis.

Speaker 2

Right Was that? Was that eye opening?

Speaker 1

I think so. He didn't quite, he wasn't quite following. I think he's going to have to think about it for a while. But the point is is that that's in a very basic form. That was just in a 30 minute consultation, but in a very basic form. That's what planning is about. Maybe you don't need to have money invested and someone needs to tell you that and and a fiduciary fee. Only firm is the one's going to do it. It's not going to be someone at a transactional relationship organization, Right.

Speaker 2

And I think just some stories I've heard from the advisor team here is you have these clients that come in with huge credit card balances and they might have some money invested in other brokerage accounts, but the the interest they're paying on their credit cards is far exceeds the return they're getting on their credit cards far exceeds the return they're getting on their investment account.

Speaker 1

That's actually what's happening in America right now. We have the highest credit card debt ever, which it's over a trillion dollars, but we also have the highest savings accounts ever, and when you compare the two, you're like why are you spending 18% in interest and 4%? You get 4% on your savings. There's a lot of people need to do some planning. Those people probably don't end up at a wealth management firm, though they just they need to listen to, like Susie Orman on CNBC.

Speaker 2

Yeah, yeah, but it's something that does come up and it's nice to have or Dave Ramsey. Yeah, some support saying hey or guiding you in the right direction.

Speaker 1

So if you don't have a holistic financial financial plan in place with your advisor that's managing money for you, then there's a problem. If he has not recommended the right property casualty, if he's not reviewed your estate, your will, power of attorney, medical directives or recommended trust, if he hasn't or she hasn't gotten into retirement projections down to this is what you should be getting on an annual basis then I would say that you're with an asset manager. You don't really have a financial advisor, you don't have a financial planner. So that's something to think about, and I do think that in the future there should be a two-tier system. I think you should pay a flat annual fee for planning and the asset management fee should be very small compared to the planning fee. The industry is not and it's just not built for that. Someday, if I retired and sold my firm, I would be penalized if I had that fee schedule, because that's not how the world works right now in our space.

Speaker 1

So those are things to think about.

Speaker 2

So put a pin in this podcast and 10 years from now, when the RA model changes to your vision, then we'll know where it started from.

Speaker 1

Right, exactly, exactly. So also, let's talk about monitoring and time saving. So if you really want to spend your time trying to figure out when to rebalance, when to make changes in the allocation the portfolio, go have at it. I think clients hire us to manage assets because they don't want to spend their time doing that other thing they want to be doing.

Speaker 2

Yeah, and I have some friends that are, I'd say, more investment savvy, who are very in the weeds and trying to trade, know trade. But, you know, do you really want to be doing that, especially as your kids are getting older and getting involved in activities? You know we already mentioned this, but you know, at Wiser or any other RIA, you know you're having professionals look at your investment accounts daily and there's formal reviews at investment committee that are discussing these models. So it's just a peace of mind. It's do you want to spend your time on Sunday night researching stocks or do you want to spend time with your family?

Speaker 1

Yeah, I would say family time is more important. I don't think you're going to be 80 years old. Look back and go, man. I wish I spent more time right trying to figure out my portfolio. Yes, um, market communication obviously we send you send out a great, uh quarterly review of what's happened in the market. It keeps people updated. Uh, it's really not biased toward toward active or passive, it's just the facts. This is, this is what happened, right? Yeah?

Speaker 2

and again I think this is kind of a small side benefit. Obviously you can access communication anywhere, but just to kind of understand our perspective and professionals perspective on what's going on in the marketplace, what changes did happen in the portfolio, if we do make an allocation change, we'll send out a separate communication kind of highlighting the rationale behind that change. So again it's just kind of add a little color to the investment side.

Speaker 1

And I think the final point is I don't know it might be the biggest point, honestly, but when you have a fiduciary partner, your advisor is a fiduciary. I say we spend majority of our time trying to stop behavioral moves.

Speaker 2

Yes.

Speaker 1

We are in a very polarized environment now, where people who are very comfortable in the last couple of years are now uncomfortable because they don't like who the president is or they don't like who the president has surrounded himself with.

Speaker 2

And vice versa too, I mean yes, and when?

Speaker 1

when it was Biden, it was like oh, this is a terrible economy, this is absolutely terrible economy. I'm like you're making more money than you've ever made in time.

Speaker 3

How is?

Speaker 1

this a terrible economy. Um, I, we're going to do a series. We're working on this now. We're going to do a series on behavioral finance. It'll be a two podcast series. It'll come out in a couple of months, but it it? Uh, I really want to shake this down and that people are putting too much emotions into their investing Right, and Vanguard has a great study that shows if you have a financial advisor who's managing your assets, who has full discretion, a fiduciary advisor uh, you typically have a 3% higher rate of return per year because you have a financial advisor managing your assets. It has nothing to do with financial planning, just that's just straight up asset management, which I was kind of questioning.

Speaker 1

But when you but you question that, you from that perspective, you assume that people have the right behavior. Question it from that perspective, you assume if people have the right behavior. So we have clients right now that want to move their portfolio to cash because, oh, the market's at an all-time high. Well, yeah, it is an all-time high. It's also a two-year bull market, which typically they go five years, right, that was some data you sent me last night and so we have a long ways to go to the upside potentially right.

Speaker 1

Also, seven out of 10 years are typically good years for the stock market. You're going to have some bad years. You're going to have some pullbacks. You're going to have 10, 20% pullbacks. Those are healthy. You're going to have some pullbacks. You're going to have 10, 20% pullbacks. Those are healthy. And if it happens during the time when your politicians are in office, you feel less concerned that when it happens when the politician you don't like is in office and there's no correlation.

Speaker 1

So we spend so much of our time trying to appease people to make to make the right decisions with their, with their money, when they are emotionally biased in so many different ways that have nothing to do with the portfolios?

Speaker 2

be there as a reminder. Hey it, you need to just remember your long-term goals. Remember to stay invested. Do not let the short-term politics or noise affect you. Um, you know, I I think we did a podcast on this back in may, but white charts came out with a good study, uh, you know, showing when the which democratic, uh or Republican president was in office, going back to 1950. If you only invested when you know, I think, democrat president was in office, going back to 1950. If you only invested when you know, I think Democrat president was in office, you had an analyze return of like 5%, republican office, like 3%. But if you just stayed invested, it was like I think you know maybe I'm missing the specifics, but it was like 8%.

Speaker 3

Yeah.

Speaker 2

And that you know, just over the 75 years, that greatly I remember the dollar amounts on that.

Speaker 1

If you if you invested $10,000, you had. If you only invested during Republicans, you had 20,.

Speaker 2

If you only invested during like 70, I think 75,000. This morning it was like 400,000 for Democrats and then 3 million just by staying invested Democrats and Republicans.

Speaker 1

Yes, yes, millions of more dollars, more Right.

Speaker 2

And really it's just. I think and we've said this before it might be easy maybe to time a recession and not saying that there's a recession or anything happening, but to pull your money out and go to cash. But it's really hard to get back in and you're making two calls, not one call, so it's just better just to stay invested.

Speaker 1

The problem is that people don't know they have these biases right. I was at a conference one time there were probably 2000 people there and a guy doing a speaking says how many of you here, you here, consider yourselves to be a good driver? And I'd say 98% of the room raised their hands. We're all good drivers. And he's like well, that's impossible because statistically, 60% of you have a drive.

Speaker 2

Have something on your driving record right now.

Speaker 1

Right, so it's, it's, it's. You think that you don't have biases, but you do have biases, and what? I, then another one, we, another one. We fight a lot is uh uh, people have a bias, and a bias in coming to a conclusion too fast. They think one thing, they think another, they don't do any more research.

Speaker 1

And now this is the truth. For example, we have a large segment of our pilot base that we consistently have to talk off the ledge on Roth conversions, have to talk off the ledge on Roth conversions. These guys are already making $600,000 a year, but there's a couple of advisors that are working with these pilots that for some reason, it's in their interest to say you should do a Roth conversion, so you're making 600,000. They're trying to get these guys to commit converting $3 million in the year that they're working. So it'd be like they made $3.6 million, pay the highest tax possible in the United States.

Speaker 1

And there's so many other better ways to be, to be approaching this. For example, you have the 10 years 65 to 75, when you could do Roth conversions. But anyway, the bias here is that you haven't done the full research and people think, oh, the government's in debt, oh, the government needs to do more to, um, uh, has to do more to to pay these, these uh interest on on treasuries in the future, right? So therefore taxes are probably going to be like 60. So therefore I must convert now at 37 because that makes more sense. There's so many other things that they've ignored in their research. What's the effects of ai and productivity right over the last 10 years?

Speaker 1

we're 20 more efficient than we were, you know, 10 years ago yeah so because we become more efficient, we need less workers, we probably make more money, right, there's more taxes to be paid. Therefore you don't have to worry about, or something along like doge comes along. If it's successful, that saves maybe two trillion, right, maybe, uh, just throwing that out there. But so if something like that happens, why would your taxes have to go up? Your taxes could go down, might even get a rebate check right so there's all these different factors that come in.

Speaker 1

But for some reason people have have this bias of drawing these two conclusions and assuming that this is what's going to happen. And now they're going to lose probably another 20% of their portfolio value just in tax. Because they chose to. They chose to convert it because out of fear right, yeah right.

Speaker 1

See where I'm going with that. So so advisors good advisors are going to be paying attention, they're going to be reading and learning uh, about the future and how this can affect our client base and what we need to be aware of yeah, I think it actually comes back to portfolio construction again.

Speaker 2

One thing you know I like being at Wiser is it takes a lot of pressure off my end having the long-term mindset, but it's the correct mindset. And you know, we are positioned in portfolios for that long-term view, that 10-year plus review, and you know again, not to say we're not going to make changes, but we don't want to be reactive to politics or, um, you know, one geopolitical conflict that could, you know, disrupt the marketplace for a month or a couple of weeks. We want to be um, forward thinking and how we construct portfolios and and that's what we're looking at, and that's what we're considering when you know, when we evaluate portfolios and, um, you know, and making changes, yeah I don't want to put you on the spot, but another thing that just came in my mind we keep getting uh emails about warren buffett.

Speaker 1

Yeah, and all this cash that he's been raising. I have not read his letter yet. It came out, I guess over the weekend have you read his letter yet he's holding about 20 cash, which is which is like what, $258 million, right, but he's been raising cash. So that's another email I've been getting is, hey, warren Buffett's raising cash. So maybe he he's a really smart guy. Maybe we should be raising cash again.

Speaker 2

You know we're building these portfolios for the longterm. Warren Buffett, you know, although he's been very successful, he's very has been. We'll make some more tactical moves and when he raises cash and, you know, getting more dry powder to maybe potentially invest, I don't think that necessarily warrants a change on our end.

Speaker 1

I mean well, first of all, it's 20% of his total positions, so you wouldn't be moving your investments to cash. You would be going to an 80 stock, 20 bond portfolio right. If you're really trying to mimic what he was doing, you'd be 80, 20, but but go into the financial planning process.

Speaker 2

I mean we use Monte Colorado simulation, you know that looks at all these different simulations, 10,000 simulations. You know that encounters recessions and volatility and all these you know varying degrees of outcome. That impacts your portfolio. And so these models from a risk, return expectation standpoint, they've been tested so like we wouldn't want to necessarily make a change because one successful investor is making a change, because these, these are how these models are constructed, in an academic mindset that takes into account all these, um, you know, different possible situations so, yeah, another thing someone says like warren buff is not buying the s&p 500 anymore and I have not seen any confirmation of that.

Speaker 1

But it would make sense because the S and P is pretty concentrated in the top seven stocks which he already has positions right Significant positions. So he'd just be making it worse by buying the S and P.

Speaker 2

I think he scaled back on his Apple position, but still I think he has a decent size position there, correct?

Speaker 1

So, yeah, I Again, if you want to mimic him, you're going to be an 80-20 portfolio. You're not going to take all your money to cash, because he has 20% of his money in cash. Also, there's enough cash there. I guess he could buy the top two companies of the S&P with his cash, or something like that. I don't know. Yeah, maybe the bottom line here is, even if the market has a terrible sell-off, you are better off writing it out, buying more through your buying more shares per dollar than you are going to cash and try to time it.

Speaker 2

Yeah, and then going to that point, I mean, and and we're again actively managing, managing the passive portfolios there, we're looking to rebalance, we're looking to taxbalance, we're looking to tax loss harvest for taxable accounts. So we're actually doing things on our end that aren't necessarily broadcasted yes, exactly.

Speaker 1

Um, all right, well, thank you for going through that, I think in. In summary, uh, why do you hire a financial advisor to make to invest in low-cost etfs? Is because, well, you know what. There's a lot of things going on in the scenes that are behind the scenes you don't see through constantly researching new asset classes, the constantly researching do we have the right asset allocation, doing the rebounds and did the tax loss harvesting, monitoring cash withdrawals? Obviously, we just went through a whole segment on behavior, but helping you hold your hand in times of fear, I get fearful about things I don't understand. So I would fully understand my clients to be fearful about something they don't understand, and my job is to be the expert of that, our team's job. And then I think the big thing is financial planning Comp compensation, for that is seems a little strange, uh, probably to an outsider, but it's just how, how?

Speaker 1

our industry works and maybe Wiser is going to be one of the first ones to uh upset the apple cart here in the next year or so, 10 years from now.

Speaker 2

Right. 10 years from now, it'll all be Wiser way.

Speaker 1

There's many compelling reasons why you would hire a financial advisor. You just have to understand what's happening in the background. So thanks for explaining a lot of that to us, andrew. You've got some other podcasts. If you want to download episode 191, mutual funds versus ETFs, that's a good one. If you're had questions about that during this episode, other ones maybe. Maybe you realize your financial advisor is not really working for you. Maybe they're just squeaking out 1% and you only talk to them every now and then and and uh, you don't feel like that. Your, your plan is in, uh, uh, in place then they have a plan.

Speaker 1

Yeah, do you even have a plan? Episode two, 13? How do I terminate a relationship with my financial advisor? That's a good one to listen to. I also have a YouTube channel, a Wiser Retirement. On that channel, we've linked to what is a fee-only advisor, will AI replace financial advisors? And then how to hire a high net worth financial advisor. Those are all there for your viewing enjoyment, as well as this podcast, if you would like. Thanks again for listening. We'll see you guys next week.

Speaker 3

Thanks for listening to a Wiser Retirement Podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review. If you have any questions about anything that was discussed today, head to wiserinvestorcom and reach out.

Speaker 3

This episode was produced by Rachel Dotson. This podcast is strictly for informational purposes only and is not to be considered as investment advice or a solicitation to buy or sell any financial products, securities, digital assets or any other investment vehicles, or a basis to make any financial decisions. Wiser Wealth Management Incorporated is a registered investor advisor with the SEC. The host and or guests may personally own securities, digital assets or other investment vehicles mentioned on this podcast. Neither the host nor guests of the show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients, listeners or similar interests. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, insurance professional and or legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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