Good investing is a lot like good health/fitness. We all basically know how to get fit and healthy – eat the right foods, workout regularly, etc. We also know how to succeed in investing – diversify, keep your fees low, don’t be too active. But investing can be really hard for the same reason that being healthy is hard – It’s difficult to stay disciplined.
The world of asset management is undergoing a huge sea change. The data clearly shows that more active managers do not beat the market consistently. And prudent asset managers and financial planners know that their clients’s financial goals have nothing to do with beating the market. So there’s a convergence towards building appropriate portfolios instead of chasing unattainable market beating portfolios. This is why Vanguard is winning the asset gathering race. And in this context, the role of the portfolio manager and financial advisor changes.
In this new world of portfolio management a good portfolio manager or financial advisor is nothing more than a glorified personal trainer. They will put together a process and plan for you to follow and every time you reach for the cookie jar they slap your hand. Of course, some portfolio managers still tell you they’re going to turn you into the next Arnold Schwarzenegger by making false promises of “market beating” returns in exchange for high fees, but the data is pretty clear on this – beating the market is really damn hard and most pros fail at it. The same is true for bodybuilding – I don’t care how much you pay for personal training no one is turning you into the next Arnold Schwarzenegger.
The cool thing about today’s financial markets is, unlike the personal trainer space, almost anyone can afford a low fee portfolio manager. Unfortunately, the asset management space is still dominated by people selling you the Arnold Schwarzenegger results and charging you high fees along the way. But this is changing and will only gain momentum. And as it does the role of the portfolio manager in people’s lives will change as well.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.