Millionaire Expat by Andrew Hallam

Author:Andrew Hallam
Language: eng
Format: epub
ISBN: 9781119411901
Publisher: Wiley
Published: 2017-12-24T00:00:00+00:00

The Advisor Shouldn't Be Compensated by Commissions

Advisors charging commissions contend with a conflict of interest. Instead of providing the best products for clients, they may climb into bed with firms that satisfy their own needs.

The Advisor Shouldn't Purchase Individual Stocks for Your Portfolio

Some advisors shun actively managed mutual funds, but claim they can pick individual stocks to beat the market. Don't fall for that. Most stock pickers underperform indexes over time. Remember, 70 percent of actively managed corporate pensions underperform the market.1 I'm not talking about the offshore donkeys sold by firms like Generali and Friends Provident. Instead, I'm talking about stallions: corporate pensions unavailable to retail investors, charging razor‐thin costs to firms like General Electric. If they can't beat the market, how can your high‐cost retail broker?

Not only do stock‐picking brokers underperform, but most fail to adequately diversify. Larry Swedroe, CBS MoneyWatch columnist and coauthor of Think, Act, and Invest like Warren Buffett, suggests that investors require at least 50 individual large‐cap American stocks just to provide enough US large‐cap diversification.2 That doesn't include mid‐size or small companies. According to Vanguard, its total US stock market index contains more than 3,600 stocks, including large, medium‐sized, and small company stocks (known as large‐cap, mid‐cap, and small‐cap).

Full diversification, of course, isn't just limited to stocks of different sizes. It also includes international exposure. Unless your broker is going to add hundreds of foreign stocks, you won't receive a broad representation of the global markets. And because your advisor can't predict the movements of hundreds of different stocks from multiple countries, you're better off with indexes.

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