{"id":1326,"date":"2011-09-02T08:52:11","date_gmt":"2011-09-02T15:52:11","guid":{"rendered":"\/blog\/?p=1326"},"modified":"2022-01-11T17:12:48","modified_gmt":"2022-01-12T01:12:48","slug":"friday-reads-famed-behavioral-economist-dan-ariely-takes-swipe-investment-advisors","status":"publish","type":"post","link":"https:\/\/www.wealthfront.com/blog\/friday-reads-famed-behavioral-economist-dan-ariely-takes-swipe-investment-advisors\/","title":{"rendered":"Friday Reads: Famed Behavioral Economist Dan Ariely Takes A Swipe At Advisors"},"content":{"rendered":"

Author and behavioral economist Dan Ariely<\/a> says investment advisors ask the wrong questions and generally aren\u2019t worth the high fees that they charge<\/a>. The two questions that advisors ask, he says, are: How much of your current salary will you need in retirement? <\/em>and What is your risk attitude on a seven-point scale?<\/em><\/p>\n

\u201cFrom my perspective, these are remarkably useless questions,\u201d he writes. \u201cAn advisor will optimize<\/em> your portfolio based on the answers to these two questions. For this service, the advisor typically will take one percent of assets under management \u2013 and he will get this every year!\u201d Ariely continues. \u201cNot to be offensive, but I think that a simple algorithm can do this, and probably with fewer errors. Moving money around from stocks to bonds or vice versa is just not something for which we should pay one percent of assets under management.\u201d<\/p>\n

See also our 10 signs of a bad investment advisor<\/a>.<\/p>\n

SEC records destroyed<\/strong><\/p>\n

The web continues to buzz over this story<\/a> in Rolling Stone<\/em> about the Securities and Exchange Commission\u2019s practice of disposing of all the files related to preliminary investigations that didn\u2019t grow into full-fledged ones. \u201cTwo [matters under inquiry] involving con artist Bernie Madoff<\/a> vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.\u201d<\/p>\n

Revisiting muni bonds<\/strong><\/p>\n

Remember at the beginning of the year when the sky was supposed to fall in the municipal bond market? The defaults never developed. This Morningstar article<\/a> sums up the history and offers perspective on the value of muni bonds in a portfolio.<\/p>\n

Is \u201cbuy and hold\u201d dead?<\/strong><\/p>\n

The editor of The Wall Street Journal\u2019s<\/em> Smart Money<\/em> section says that era of buy and hold, born in the 1950s, is dead<\/a>. So what\u2019s the new conventional wisdom? Based on his description, it\u2019s more like buy and tweak. But he doesn\u2019t suggest, as we have, that the tweaking should be part of a system of regular rebalancing.<\/p>\n

Here\u2019s our post on rebalancing<\/a>.<\/p>\n

The September effect<\/strong><\/p>\n

Happy Labor Day from the Wealthfront blog. And if you\u2019re worried about the so-called September effect, take a moment to read this quiet common sense<\/a> by Mark Hulbert.<\/p>\n

Enjoy the time off before the tests of September begin!<\/p>\n","protected":false},"excerpt":{"rendered":"

Author and behavioral economist Dan Ariely says investment advisors ask the wrong questions and generally aren\u2019t worth the high fees that they charge. 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