I’m a Self-Made Millionaire: Here’s Why I’m Forgoing a Financial Advisor
Written by
G. Brian Davis
Edited by
Levi Leidy
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Human investment advisors can cost a small fortune — and not even deliver on returns.
“Last year, I hired a financial advisor to manage most of my money so I could take a hands-off approach and focus on my business,” explained Andrew Helling, real estate investor and founder of HellingHomes.com. “While I selected an ‘aggressive’ portfolio strategy, he ended up investing the entire portfolio in bonds, earning me a 5% return last year versus the S&P’s roughly 25% return. Shocked at my low returns, I asked the advisor why he put the entire portfolio into bonds and he replied that he was scared of losing me money. I now manage my own portfolio.”
Helling’s story isn’t uncommon. When you hand over control of your money to another person, you have to trust that they actually know what they’re doing — and that they’ll listen to your directions.
Increasingly, self-made millionaires feel confident that they can manage their own money better than a stranger. Here’s why.
Availability of Cheap-but-Effective ETFs
Once upon a time, if you wanted to invest in a fund that owned many stocks, you had to buy a mutual fund. Most of them weren’t cheap either, often with annual fees over 1%. Some required a high minimum investment to boot.
Over the last two decades however, exchange-traded funds (ETFs) have exploded in popularity. These funds trade in real time like stocks, and most are passively managed to simply own the same stocks as an index or a weighted sector of the market. Because they don’t require active oversight by a fund manager, they carry a fraction of the cost of mutual funds: often 0.03% to 0.10% each year.
In fact, you could literally invest in a single ETF for broad, diversified exposure to the entire U.S. stock market. Check out the Vanguard Total Stock Market ETF (VTI) or Schwab U.S. Broad Market ETF (SCHB) as examples.
Ease of Access to Investment Accounts
Before the Internet came along, you couldn’t just log into a DIY investment brokerage account. You had to have a broker, who you picked up the phone and called in order to make transactions.
In other words, the entire system revolved around investment bankers as middlemen.
Those days have long since passed. Today, you can log in, buy shares of an index fund and log out in under a minute. All without ever talking to an investment banker or investment advisor.
Ben Reynolds of SureDividend.com put it like this: “I prefer a simplified financial life. If I don’t fully understand an investment or financial strategy, I don’t believe it’s a wise place for me to put funds. Further, every financial product has a cost. A financial advisor and mutual funds could easily cost ‘just 1% a year’; that’s $10,000 every year on a $1 million account, which for most would be one of their highest individual expenses.
“As in most areas of life, simplification and understanding go a long way when it comes to personal finance.”
Rise of Robo-Advisors
Still want some investment advice, but don’t want to pay a human advisor 1% of your balance every year? Try a robo-advisor.
Some charge nothing at all, others cost 0.25% to 0.75% each year. They not only choose your investments (typically a diverse basket of ETFs and bonds), but they can also rebalance your account regularly, and pull tax maneuvers on your behalf such as tax-loss harvesting.
Robo-advisors can also automate your savings, pulling money from your checking account at regular intervals (such as every payday). Investors refer to this steady, consistent investment in the market as dollar-cost averaging.
Control
Many self-made millionaires know a thing or two about money and investing.
Even among his paper investments, Andrew Helling goes more advanced than the average investor. They “consist of a mix of LEAPS and stocks on which I sell covered calls.”
If that sounded like a foreign language, LEAPS are long-term equity anticipation securities, options contracts lasting longer than one year. Read more about options trading and covered calls if you’re curious.
But mostly, Helling invests in real estate.
Real Estate and Alternative Assets
Industrialist Andrew Carnegie once said: “Ninety percent of all millionaires become so through owning real estate.” Whether it’s a literal fact or not, the broader truth remains: Real estate is a favorite investment among the wealthy for good reason.
Real estate earns both cash flow and appreciation. It comes with enormous tax benefits and protects against inflation. You can leverage other people’s money to buy it and pay them back in yesterday’s dollars.
Self-made millionaires and those who aspire to join them have many options to invest in real estate nowadays. These include real estate investment trusts (REITs), direct property ownership, private equity real estate (such as syndications) or more recently, real estate crowdfunding investments. Consider starting with REITs or small-dollar crowdfunding investments, then stepping up the ladder to real estate syndications and notes, and only after that consider the more difficult path of buying investment properties directly.
Final Thoughts
Human investment advisors will never become entirely obsolete.
At their best, human advisors can introduce you to new investments or investing strategies that you didn’t already know. They can also talk you off the ledge during a market crash, preventing you from buying high and selling low.
As we move deeper into the age of AI, however, expect to see more hybrid model approaches. Semi-intelligent algorithms can already pick investments for you just as well as humans. But when you want or need a human touch, an advisor can talk you through changes to your investment strategy and prevent you from making hasty decisions.
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