Alpha alfalfa: The value of having a financial advisor
Endowus Insights

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Alpha alfalfa: The value of having a financial advisor

Oct 2021
Mar 2018

We are surrounded by noise all the time. Noise that makes us do stupid things, and noise that distracts us from doing intelligent things.

The idea of a financial advisor seems archaic in a world where online brokerage costs can be next to nothing and market data is freely available. Interestingly, Vanguard (one of the low-cost and DIY investing pioneers) did a study and found that there is significant value in having a good financial advisor take care of things like:

  • Cost-effective implementation: choosing lower cost products for your portfolio
  • Rebalancing: adjusting your asset allocation when your portfolio drifts from its target
  • Behavioural coaching: preventing you from making poor investment decisions. Left to our own devices, many of us will unwittingly buy high and sell low

Pick a good financial advisor, and expect "about 3%" in extra net returns per year. That is A LOT: An annualised return boost from 7% to 10% on a $100,000 investment means you are over $280,000 richer after 20 years.

Read more: Vanguard Advisor's Alpha and Behavioural Alpha: The true power of financial advice (Barrons)

Don't underestimate the value of good financial advice. It will help you stick to your investment plan through up or down markets. These benefits are more evident during periods of market volatility (unlike now), and concentrated during times of investor fear and greed, which will undoubtedly take the world for a spin sometime in the future.

However, a strong word of caution: choose your financial advisor wisely. 1 out of 12 of financial advisors in the US has been censured for misconduct.

Read more: The startling percentage of financial advisors with misconduct records (Harvard Business School)

Luckily for us, the form in which good financial advice can be delivered is evolving with the times. We at Endowus think it should be cheaper, more transparent, and more accessible, which means more alpha for you. Here's our solution.

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