3 Pieces of Investing Advice from AWM

1. There is always a correlation between risk and return - a high expected return always means that there is a greater possibility of a loss.
Generally, when you hear of an investment return that is better than yours it is because that investment is riskier. Never compare your returns in a vacuum.
So, the next time your neighbor is bragging about some great investment return, ask them if they know the amount of risk they are taking. In fact, ask them if the return relative to the risk is efficient.
I often have people show me a "great" return, but when evaluated relative to the risk it is not that great.
An investors return should only be compared to the risk they are taking.

2. Portfolios are commodities. That means most advisers, banks, mutual fund families, brokers who recommend a certain allocation are all very similar. That is because they are all using similar software - "Portfolio optimization" software which allows somebody to enter into a computer the historic risk/return statistics of different stock/bond classes and find what combination gave the best risk/return outcome. Outcomes differ a little based on the data entered, but generally the Principle's 60% stock portfolio is similar to the Merrill Lynch 60% which is similar to the Smith Barney 60% etc.
I have created my own portfolios and my 60% is close to everyone else's.
which leads to point 3.

3. What are you paying? Especially if the adviser is charging you fee's of 1%. Calculate the hourly rate on 1%. If you have a retirement portfolio of $500,000 and some adviser is charging 1% (a common fee),  that is $5,000/year. If that adviser spends 10 hours/year really focusing on your portfolio you are paying $500/hour. Nice. Even nicer when all the academic evidence says that your adviser has almost no chance to outperform an index portfolio over time. If they do outperform whatever benchmark, then they either are lucky or taking more risk than the benchmark.

An adviser should:

1. Know what your investment needs are and what your tolerance for risk is.
2. Help you allocate into a suitable portfolio.
3. Help minimize your costs.
4. Hold your hand and keep you from doing irrational things when the markets are bad.