Dear Helaine: I keep reading from multiple sources that the best advice for investing is to invest in low-cost index funds, like with Vanguard, rather than trying to buy and sell individual shares of stock. But I've been using a financial adviser with a major brokerage for years who is doing just that with the $130,000 I have in my IRA. It's diversified, and it's doing fine but not stellar.
Should I sell all those individual shares of stock and roll this IRA into a low-cost index fund? Is it a bad idea to let my financial adviser know this is what I want to do? I'm not sure if I need her cooperation to withdraw the funds and roll them over. For background, I'm in my 30s and have a long way to retirement. -- Want To Do Better
Dear Want To Do Better: We need to start with some education. First, you do not roll over an IRA. That's what you do with a 401(k) you want to put in an IRA. If you want to sell holdings in an IRA, you do not need to withdraw the funds. You can, and most certainly should, do so within the IRA.
If what I think you mean is that you want to move the IRA to another brokerage or mutual fund firm like Vanguard, you can do that, too. It's called a transfer, and it is something you do not need your adviser's permission to undertake. You can fill out a form on the website of the firm you want to move the funds to, and believe me, they make those very easy to find on their websites. It's quite possible your current firm will not sign off on the move until you fill out a form with them as well. That's easy enough to do, and again, it most certainly doesn't require the consent of your current adviser. Got all that?
Now let me get to the meat of your letter. The studies show very few people -- less than 1 percent -- possess the ability to beat the markets year in and year out. That doesn't just mean me or you. It also includes financial professionals like your financial adviser.
Moreover, I don't think individual stocks are for you. Based on the questions you asked me, I don't think you have the financial knowledge to engage in stock trading, or to permit someone to do it on your behalf. There's no shame in that; you don't need to be a financial expert. But it does point to the fact that, as you suspect, you would be much better off with a combination of a total stock index market fund and a bond fund, or even a target date fund for retirement consisting of underlying investments in index funds. So what are you waiting for?
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