How do the index funds do when the market slides backward?
They track the market so they slide backwards.
But investment advisors aren't infallible. They will sometimes get you into investments that don't perform as well as the market, or even tank spectacularly. No one has a crystal ball. At least index funds won't charge you fees which rob you of compound growth over time, nor churn your portfolio to create commissions for the broker.
This is the entire point of the passive index vs active management debate: fees + churn erode your portfolio.
Doesn't matter if your portfolio is professionally managed or not, whether it's a fund manager picking a basket of stocks or an investment advisor advising you of which stocks or options for you to invest in: they've got to generate returns that match the market *and* more to make back the fees you're paying.
And the longer the investing horizon, the more chances your advisor will pick the wrong stock or take you out of the market in an effort to hedge against those economic downturns you just brought up, making you miss those all-important days when the market rallies against capitulation.
78% of the stock market's best days occurred during a bear market. Active management when the market slides backwards tend to miss these important days. Missing the market's top ten best days over the last 30 years would have resulted in a 50% loss of portfolio value. Compare this to the S&P index, which lost 38% in 2008, but by 2013 had made back all its money and continued on to hit new highs. Not just 2008, but the DotCom bust of the early 2000s and the stock market crash of 1929. All times when the market slid backwards. And still the stock market continues to hit new highs as time marches on.
Time in the market vs Timing the market.
And my guy also gets me into deals I wouldn't necessarily get into. You're not getting late-stage or pre-IPO stuff, you're not buying options contracts, futures or playing with derivatives. Again, I think you might be talking about a different investment professional. 95% of the so-called Professionals have no financial education outside of a $1500 Canadian Securities Course followed by a $1500 Certified Financial Planner course. Those guys work in bank branches and small offices in your community. Wealth managers work in small teams, they manage portfolios with more diverse investments and they get to know their clients personally.
The golf instructor at your local goat track is a pro, so is Tiger Woods. Both sport the title Golf Pro - a few strokes a game makes a big difference in to the purse.
No, I'm actually talking about a fund manager, not the guy sitting in one of the Big Six's branch locations hawking his bank's mutual funds for a commission cheque. A fund manager creates a basket of stocks and the company he works for lists them on the stock exchange as a mutual fund. He is paid to re-balance the allocation of stocks inside that fund. When S&P lists the index vs active list, they are measuring the index performance against these fund managers. These are guys like Peter Lynch at Fidelity (the guy that wrote the book "One Up On Wall Street) and Warren Buffet at Berkshire Hathaway. Two guys in that tiny minority who *were* able to beat the market over the long run.
These guys picked stocks and packaged them up in mutual funds. Kinda like your guy advises you about which stocks (or derivatives or options) to get in or out of in a personalized portfolio or fund.
One question: if your investment advisor is that good at picking stocks and generating good advice, why does he need *your* fees to pay for his mortgage and put food on his table?
