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by Maz Jadallah

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  • We’re not really seeing the results we want from our hedge fund allocations, we’re going to focus on accessing active managers through cheaper vehicles.
  • We’re not really seeing the results we want with our active manager allocations, we’re going to focus on accessing risk premia passively.
  • We’re not really seeing the results we want with our financial advisor and the passive portfolio they’ve constructed for us, we’re going to focus on reducing our investment costs and simplifying our life by using robo-advisors.
  • We’re not really sure exactly what the difference is between one robo-advisor and the next or how they’ll make allocation decisions over time or how we’ll measure their performance but we’re paying really low fees and it feels good.

What’s the common pattern? In each case, the investor recognizes their short coming but instead of fixing it, they try and avoid it.  Here’s some food for thought.

  • You have no business being in hedge funds if you are not confident you can make effective manager selection decisions.
  • You have no business being in active mutual funds if you are not confident you can make effective manager selection decisions.
  • You have no business hiring a financial advisor for a fee if you are not confident you can make effective advisor selection decisions.
  • You have no business hiring a robo-advisor if you are not confident that you understand the differences between them (and there is a great deal of difference) and HOW TO MEASURE THIER AND YOUR PERFORMANCE.

Performance matters. Fees matter. Downside protection matters. Behavioral risk (yours and ours) matters. Tax efficiency matters. You should seek to understand all aspects of these questions for any advisor you hire or any investment product you buy no matter how expensive or how cheap.

Like everything in life – when it comes to making investment decisions, paying a lot doesn’t mean you’re getting great quality and paying a little doesn’t mean you’re getting a deal. Focus on understanding the value which can often be found by balancing between quality and price.

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