There is a reason the SEC does not like it when investment advisors talk about specific investments. It is very easy to compare an apple to an orange, or otherwise promote misleading information about specific investments. In addition, everyone’s situation is different, and you should not be taking investment advice from the internet!!!!
I would like to focus on one common piece of advice I see in the FI community: investing in VTSAX.
I have heard a lot of talk about putting most of your investment dollars into VTSAX and then ignoring it. Having lived through the Great Recession as a fee-only planner and investment advisor, I’m not sure most people can do this.
Let’s say you had a portfolio of $10,000 invested in VTSAX on July 6, 2007 – 269.69 shares (it was trading at $37.08). By February 1, 2008 it was trading at 33.69 so your portfolio was worth $9,085.
Prices only dropped about 10% through September – the September 5, 2008 price was 30.46, or $8,215 portfolio value.
Then things really got crazy.
October 17, 2008: $22.75 per share. $6,135 portfolio value. Ouch. That’s almost a 40% loss in 15 months.
By December 31, 2008 the fund closed at $17.80/share, for a portfolio value of $4,800, or a loss of 52%. Are you still invested? The carnage isn’t over.
February 23, 2009 – closing price $14.75, or a portfolio value of $3,977. Portfolio loss of 61%. Now are you still invested?
Finally, March 9, 2009. Closing price $13.42/share. Portfolio value $3,619. Total “loss” in the period 63.8%. If you had $1M, it has declined to $361,900; even more if you were taking withdrawals. Good luck “going back to work” in 2009, when the unemployment rate was double digits.
The advantage of a good financial advisor is that they were counseling their clients to sit tight, not look at statements, believe in diversification and REBALANCE – sell bonds and buy stocks.
High-quality bond portfolios reduced this portfolio volatility, but there were still significant declines. In addition, woe to those who owned junk bond or many corporate bond funds – some of those had losses of 20% or more!
Having lived that on a daily basis as a financial advisor, I doubt very much that the average person on their way to FI is going to be able to stomach that and persevere all the way through, no matter how much Jim Collins NH they have read. Human behavior is what it is, and makes us all do stupid things.
It is critical to remember that past performance does not predict future results!!! Note that the above analysis does not include dividends, trading fees, taxes etc. – it is a price only analysis. Actual portfolio results would have varied. (Prices from Yahoo Finance).
Of course, today (June 18, 2019) VTSAX is trading at $72.41, so the original $10,000 portfolio of 269.69 shares is now worth $19,528 – if the owner was able to stay the course, and if they haven’t taken any withdrawals or paid any fees. There has been more volatility (ups and downs) since 2009, but 2008-2009 is the worst I have seen in my career. Also, not only were prices down, but stock mutual fund outflows were also rampant. Are you going to be able to resist the masses and stay invested in that environment?
If your advisor was able to talk you out of selling when your investment was, say, $5,000 they would have saved you much more than the difference between that and any recovered price. Those that sold in 2009 often never got back in, and suffered a permanent reduction in both their invested capital and standard of living.
A good financial advisor is worth many multiples of their fee.
Disclosure: The information contained above is for illustrative purposes only. The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
Past performance is not indicative of future results! All price data is from Yahoo Finance VTSAX price history.
Jennifer Climo is a founder and senior advisor for Milestone Financial Planning, LLC, a fee-only financial planning firm. Jen is a CFP(R) practitioner, a CPA and has her Masters in Financial Planning. She has been working with individuals and small businesses since 1991.