The Little Book of Common Sense Investing, Updated and Revised

Chapter TwelveSeeking Advice to Select Funds?

Look Before You Leap.

THE EVIDENCE PRESENTED IN Chapters 10 and 11 teaches two lessons: (1) Selecting winning equity funds over the long term offers all the potential success of finding a needle in a haystack. (2) Selecting winning funds based on their performance over relatively short-term periods in the past is all too likely to lead, if not to disaster, at least to disappointment.

So why not abandon these “do-it-yourself” approaches, and rely on professional advice? Pick a financial consultant (the designation usually given to the stockbrokers of Wall Street, and indeed brokers everywhere); or a registered investment adviser (RIA, the designation usually applied to nonbrokers, who often—but not always—work on a “fee-only” basis rather than on a commission basis); or even an insurance agent offering investment “products” such as variable annuities. (Beware!)

Registered investment advisers (RIAs) can play a vital role in providing investors with assistance.

In this chapter, I’ll attempt to answer the question about the value of investment consultants. You’ll note that I’m skeptical of the ability of advisers as a group to help you select equity funds that can produce superior returns for your portfolio. (Some do. Most do not.)

Professional investment advisers are best at providing other valuable services, including asset allocation guidance, information on tax considerations, and advice on how much to save while you work and ...