Author and behavioral economist Dan Ariely says investment advisors ask the wrong questions and generally aren’t worth the high fees that they charge. The two questions that advisors ask, he says, are: How much of your current salary will you need in retirement? and What is your risk attitude on a seven-point scale?
“From my perspective, these are remarkably useless questions,” he writes. “An advisor will optimize your portfolio based on the answers to these two questions. For this service, the advisor typically will take one percent of assets under management – and he will get this every year!” Ariely continues. “Not to be offensive, but I think that a simple algorithm can do this, and probably with fewer errors. Moving money around from stocks to bonds or vice versa is just not something for which we should pay one percent of assets under management.”
See also our 10 signs of a bad investment advisor.
SEC records destroyed
The web continues to buzz over this story in Rolling Stone about the Securities and Exchange Commission’s practice of disposing of all the files related to preliminary investigations that didn’t grow into full-fledged ones. “Two [matters under inquiry] involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.”
Revisiting muni bonds
Remember at the beginning of the year when the sky was supposed to fall in the municipal bond market? The defaults never developed. This Morningstar article sums up the history and offers perspective on the value of muni bonds in a portfolio.
Is “buy and hold” dead?
The editor of The Wall Street Journal’s Smart Money section says that era of buy and hold, born in the 1950s, is dead. So what’s the new conventional wisdom? Based on his description, it’s more like buy and tweak. But he doesn’t suggest, as we have, that the tweaking should be part of a system of regular rebalancing.
Here’s our post on rebalancing.
The September effect
Happy Labor Day from the Wealthfront blog. And if you’re worried about the so-called September effect, take a moment to read this quiet common sense by Mark Hulbert.
Enjoy the time off before the tests of September begin!
About the author(s)
Journalist Elizabeth MacBride is Wealthfront's editor. Her work has appeared in Crain's New York, Advertising Age, the Washington Post and the Christian Science Monitor, among other publications. View all posts by Elizabeth MacBride