Growth vs. Value; “and another thing…”

Another thing that bugs me about the growth versus value distinction is the bad advice that a lot of so-called investment advisers and financial planners give out.

First off, around 85% of financial planners and investment advisers are commissioned-based salespeople. Asking them for advice is like asking a Ford salesman whether you should buy a Ford. You’re not going to get objective advice.

I have no problem with salespeople making a living, but I do have a problem if they don’t disclose how they’re compensated. Here’s a tip: ask any “advisor” how they are compensated and you’ll get a clear picture of whose interests they are serving.

Another problem I have with the advice given out by so-called investment advisers and financial planners is the line that “you need both growth and value investments.” The rationale goes like this: you need to diversify so you will do well regardless of whether growth or value investing is working.

My problem with this “advice” is that mixing most growth and value investments together gives you market returns. And, market returns should not cost you a 5% upfront load plus an annual active management fee of around 1% a year plus an investment advisor fee of 1% a year. Instead, you should just buy an index fund that charges 0.2% a year for market returns.

Want to know why they recommend both growth and value investments instead of an index fund? Because the index fund doesn’t pay a big fat commission for selling their product, and the growth and value mutual funds probably do.

Accepting such advice will help the salesperson make their quota, but it won’t help you reach your goals. Either buy market returns at lowest cost, or find an active manager who can beat the market after all fees.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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