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Columns: Boomer Bucks
Barbara Mlotek Whelehan   Expert: Barbara Mlotek Whelehan
Boomer Bucks
You can save thousands of dollars cutting out the middle man
Boomer Bucks

There's no mystery in building portfolio
 

Many people believe investing is an activity shrouded in mystery, requiring intricate knowledge of arcane financial matters, plus a lot of luck. Some become so intimidated at the prospect of investing -- even in mutual funds -- that they hire outside help.

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Early this month the Investment Company Institute came out with a survey, "Mutual fund investors rely on professional advice," that underscores the apparent enigma of fund selection. Its revelation: Roughly half of shareholders with mutual funds outside of the workplace have relied on professional advisers for assistance in purchasing funds.

Too bad for them.

Let's get something straight. The ICI's stated mission is to advance the interests of investment firms, and investment firms are primarily interested in getting assets. Financial advisers play a key role in attracting assets. So the survey is a back massage for financial advisers. It's also a blatant effort to reinforce the idea that the average person is helpless without an adviser's assistance.

Don't hire help; help yourself:
You can do better, too.
A compelling example.
How to set up your portfolio.
A sampling of funds to use.

Don't get me wrong. Financial advisers offer valuable services for those who need help with financial planning or managing assets in retirement or complex tax or estate planning issues -- as the ICI survey states. But help with selecting funds? You don't need to pay an adviser to help you find funds. In fact, studies show it could be detrimental to do so.

One study that I wrote about last December revealed that between 1996 and 2002, the weighted-average returns for equity funds sold by advisers to individuals were 2.9 percent per year on average, while do-it-yourself investors earned 6.6 percent per year with funds they bought on their own. That's a huge margin of superiority over the so-called experts.

You can do better, too
John C. Bogle, founder of Vanguard Group and author of several investing books, makes the point that financial "helpers" are like vampires that suck the lifeblood from fund returns. He doesn't use that particular imagery, but that's what he means.

"Yes, after the costs of financial intermediation -- all those brokerage commissions, portfolio transaction costs and fund operating expenses; all those investment management fees; all those advertising dollars and all those marketing schemes; and all those legal costs and custodial fees that we pay, day after day and year after year -- beating the market is inevitably a game for losers," he says in his latest mini-tome, "The Little Book of Common Sense Investing."

Financial croupiers, he calls these intermediaries.

"Indeed, when we add the costs of ... self-help investment books into the equation, it becomes even more of a loser's game."

Next: "Which pile of money would you rather have?"
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