You may think that a Ramsey Financial Coach would be great at managing their own investments but recently I came to the realization that I am horrible at it. I started managing the investments in my 401K after I found Dave Ramsey in summer of 2017 so I wanted to compare my own performance to how the market did.
I’ll start with 2018, the first full year of me managing it on my own.
Abysmal! You would fire any advisor with these types of returns. So, what happened you are thinking? Glad you asked.
When I first found Dave Ramsey, I knew he recommended 100% stock portfolios. At the time I was using a company called Financial Engines to manage my 401k, an advisor service provided by my company. I saw some of my portfolio in bonds and thought I could do a better job myself.
Also, my company allows you to put 50% of your 401K in Brokeragelink, which basically allows you access to any funds in the open market that can be purchased through Fidelity. This turned out to be really bad for me. There are literally thousands of investment options and I kept making changes when I would get new information or find some shiny new fund I liked. I read articles, played around with Portfolio Visualizer, and joined several Facebook investing groups. I would check the performance every day (do not do this).
At one point I purchased long-term government bonds. Not a fund but actual bonds.
In 2020 when the market crashed in March, I sold everything and went to cash thinking that it would keep spiraling down. Even though I know all the conventional wisdom says to never do this (this is market timing). I did get back into the market in April but I had locked in my losses by then; this explains my poor performance in 2020.
After speaking to an advisor recently, telling him my history, and taking their risk quiz I realized I do not have the personality to be in a 100% stock portfolio. They recommended a 70/30 portfolio. This means 70% in stocks, 30% in bonds. I still felt this was a little too conservative, so we landed on an 80/20 portfolio for me as being the right mix for me.
With my 401K I am going back to Financial Engines (for a small fee) which means they will manage everything for me. They come up with a plan based on my goals and years to retirement. They execute all trades for me monthly. The portfolio will slowly become more conservative as I get closer to retirement. I am locked out; I cannot even go into Fidelity and makes changes. This is perfect for me.
What has this experience taught me?
1. Most folks should not manage it on their own. 2. You would most likely benefit from speaking to an advisor. 3. An advisor will prevent you from making emotional decisions, this is one of their biggest benefits and where most losses occur. 4. Do not look at your investments daily or monthly. Come up with a plan and check it once a year to see how you are doing and rebalance if needed.
Keep in mind if you do hire an advisor, I am not saying just hand everything over to them and close your eyes to it. You should understand what you are invested in and what the plan is. Interview at least three advisors and look for ones with the heart of a teacher. I like Vestory in Bellevue, WA based on their philosophy of recommending index funds. Dave Ramsey has a network of advisors called SmartVestor Pros if you want to find someone who aligns with Dave’s principles (maybe).
Most advisors charge 1-1.5% of your portfolio so if you are just starting out (the wealth accumulation phase) you could come up with a plan on your own to avoid this fee. But it is important to set the investments on autopilot so you are not going in each paycheck and watching the performance or needing to making decisions about which fund to invest in. This is dangerous.
Your best bet is a globally diversified portfolio built with index funds that has a tilt towards small and value. For our Roth IRAs I use M1 Finance. The pies in M1 Finance have this auto-pilot feature built in. A great feature for me if I do not go in and check it every month 😊.
Phew, that was a long one. Thanks for sticking with it. If you would like to know more send me an email or book a consultation today.
Thanks, Malcolm
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