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Do you need a financial advisor?

Do you need a financial advisor? Market graph.
Do you need a financial advisor to invest successfully?

Do you need a financial advisor to invest your money successfully? The people in the industry certainly want you to believe that you do. Of course, that’s how they make their money – they are not in a position to give you an unbiased opinion. I, however, firmly believe they are no more than unnecessary middlemen, at best. More often, they are directly counterproductive to making money investing (I will show you how later). The financial advisors are more than happy to place themselves in the middle and take some of your money, without really offering much except for a facade of expertise.

I say facade because they are too unreliable at their job – beating the average market return. Don’t let the fancy jargon they use trick you into thinking they know what they are doing; they don’t. They might even be smart people, but not that smart.

How do I know? I have outlined the reasoning below. Once you have read through it once, you won’t be fooled by them again. The logic is quite simple to follow; most people have just not spent the time to inform themselves. In 15 minutes or so, you’ll be happy that you did!

Setting a baseline – The Market Average

When you invest your money, the goal is to earn as much return as possible. Now, you might be thinking that you have no idea how to accomplish this. The financial markets are complex and hard to navigate, so I don’t blame you for feeling a bit lost. In fact, people who are confident their abilities to pick “the winners” are likely in a worse position than you. Sure, they may have got lucky once or twice in the past, but they are not telling you about their failures. More likely than not, they have or will make costly mistakes that tarnish their overall average returns.

Financial advisors supposedly have the skills to invest your money in a manner that beats what you can achieve on your own. Confidence can get you a long way and they use theirs to deceive you into thinking your money would be better off in their hands. Yet, this is not the truth.

Let me explain.

First, we need a baseline of what level of return you could achieve on your own. “I don’t know that I could get any positive return through investing on my own,” you might think. Here’s why you are wrong: Anyone can earn average market returns by investing in an index fund, such as the S&P 500*.

If I’m going to pay someone to invest for me, they better get better returns than I can by investing in an index fund. If they cannot do that for me, why would I pay them?

Can financial advisors beat the market average?

So, can your financial advisor consistently beat the market average?

It is highly unlikely that they can. Most of the US stock market trading is done by people who are at least as qualified as your financial advisor. In fact, the bigger firms have far more resources dedicated to this pursuit and should, therefore, be expected to do better than individuals with limited capacity. Even, in a level playing field, only half of the people investing can ever be above average. To make matters worse, there is almost no correlation between the performance one year and the next. This means that the financial advisor with the best returns this year may very well have the worst returns next year.

What if they do beat the average consistently?

As a matter of fact, even if your advisor beats the market every year, they may not make you more money than if you invested in the S&P. That seems odd, right?

This is, of course, due to the fees they charge, which can be as high as 2.5%. How does this affect your return?

Let’s say you invest $100,000 and the average market return that year is 9%. Your financial advisor, however, boasts 10% returns. How much would your investment be worth through each investment strategy?

Index fund:

($100,000 * 109%) = $109,000

Financial advisor:

($100,000 * 110%) = $110,000
Fees = ($110,000 * 2%) (2,200)
$107,800

As you can see, once the fee is factored in, the financial advisor still earns you less money than the market average. The after-fee return above for the financial advisor is actually 7.8% instead of 10%.

With this in mind, financial advisors don’t just have to beat the market average to be beneficial to you; they have to beat it by a lot, and very few do that consistently**.

Conclusion

Financial advisors that are worth what they charge are few and far between. To make matters worse, there is no way of telling if you found one that is, until after the fact, making it a gamble. In most cases, financial advisors are actually hurting your returns by taking a sizeable chunk of your money in fees every year.

Let me be clear, I don’t hate the people who decide to be financial advisors. I know some who are nice people and I have heard of several more. But it’s a bit like paying for a friend at that point. If that is what you are after, a financial advisor might be the thing for you. But from a financial standpoint: Do you need a financial advisor?

No, you do not need a financial advisor.


Notes

* The S&P 500 tracks the performance of the 500 largest listed companies in the US and is, therefore, a good proxy for the US stock market.

** Remember that financial advisors still charge you fees when you have had a bad year and lost money. As such, the fees are consistently impairing your ability to capitalize on the effects of compounding, which is key to good growth over time.

Categories
Recipes

Custard

This custard recipe is super simple and quick to make. Great for eating on its own or to be used in Skoleboller or other baked goods.

Homemade custard, Kai Hesthammer.

Custard

I mainly use custard for Skoleboller (Norwegian Coconut Custard buns), but this recipe yields versatile custard for any use. It's even good on its own!
Prep Time 10 mins
Cook Time 10 mins
Cooldown time 1 hr
Total Time 1 hr 20 mins
Course Dessert
Cuisine Norwegian
Servings 24 skoleboller
Calories 108 kcal

Ingredients
  

  • 2 cups Whipping cream (33%)
  • 3 tsp Vanilla (or 1 beanstalk)
  • 4 Egg yolks
  • 1 cup Sugar
  • 3 ⅓ tbsp Cornstarch

Instructions
 

  • Put the vanilla (whole bean or extract) in the cream and heat. Once it boils, take the pot off the stove and remove the vanilla bean (if applicable).
  • Whisk together the egg yolks, sugar, and cornstarch in a separate bowl.
  • Gradually whisk the cream into the egg mix to get a smooth mixture.
  • Pour the mixture back into the pot and heat while stirring regularly. Important: Do not bring to a boil, as this will cause the mixture to separate.
  • The cream thickens as it heats up, so you want to aim for somewhere right under the boiling point.
  • Once the consistency of the custard cream is thick enough, remove it from the heat and pour it into a separate bowl and let cool down. If you are refrigerating overnight, cover the bowl with plastic wrap to prevent milk skin from forming.
Keyword Desserts, Sweet
Categories
Recipes

Skoleboller (Coconut Custard Buns)

Skoleboller, aka. coconut-custard buns, are a delicious treat that it not too sweet.

Best described in English as coconut-custard buns, Skoleboller are easy to make and are the perfect treat for people who don’t like things that are too sweet. In typical Norwegian fashion, the cardamom gives these buns a distinct and delicious taste!

Note: Remember that you need to make the custard ahead of time, to allow it to cool down. I prefer making it the day before I make the buns. If you have the custard, you can skip to the Skoleboller recipe.

Custard

(Makes enough for a double recipe of buns).

Homemade custard, Kai Hesthammer.

Custard

I mainly use custard for Skoleboller (Norwegian Coconut Custard buns), but this recipe yields versatile custard for any use. It's even good on its own!
Prep Time 10 mins
Cook Time 10 mins
Cooldown time 1 hr
Total Time 1 hr 20 mins
Course Dessert
Cuisine Norwegian
Servings 24 skoleboller
Calories 108 kcal

Ingredients
  

  • 2 cups Whipping cream (33%)
  • 3 tsp Vanilla (or 1 beanstalk)
  • 4 Egg yolks
  • 1 cup Sugar
  • 3 ⅓ tbsp Cornstarch

Instructions
 

  • Put the vanilla (whole bean or extract) in the cream and heat. Once it boils, take the pot off the stove and remove the vanilla bean (if applicable).
  • Whisk together the egg yolks, sugar, and cornstarch in a separate bowl.
  • Gradually whisk the cream into the egg mix to get a smooth mixture.
  • Pour the mixture back into the pot and heat while stirring regularly. Important: Do not bring to a boil, as this will cause the mixture to separate.
  • The cream thickens as it heats up, so you want to aim for somewhere right under the boiling point.
  • Once the consistency of the custard cream is thick enough, remove it from the heat and pour it into a separate bowl and let cool down. If you are refrigerating overnight, cover the bowl with plastic wrap to prevent milk skin from forming.
Keyword Desserts, Sweet

Skoleboller (Coconut Custard Buns)

Skoleboller or Norwegian Coconut Custard buns.

Skoleboller (Norwegian Coconut Custard Buns)

My childhood favorite that always brings me back to childl-like enjoyment!
Prep Time 2 hrs
Cook Time 20 mins
Resting Time 40 mins
Total Time 3 hrs
Course Dessert
Cuisine Norwegian
Servings 12 – 24 bus
Calories 370 kcal

Ingredients
  

Single Recipe

  • ½ cup Butter
  • 1 ½ cups Whole milk
  • 2 tbsp Dry yeast
  • ½ tsp Baking powder
  • ½ tsp Cardamom
  • ½ tsp Salt
  • cup Sugar
  • 4 cups Flour
  • as you see fit Custard (see recipe)
  • 1 Egg (for egg wash and icing)
  • as needed Icing sugar (for icing)
  • as needed Shredded coconut (for icing)

Double Recipe

  • 1 cup Butter
  • 3 cups Whole milk
  • 4 tbsp Dry yeast
  • 1 tsp Baking powder
  • 1 tsp Cardamom
  • 1 tsp Salt
  • cup Sugar
  • 8 cups Flour
  • as you see fit Custard (see recipe)
  • 1 Egg (for egg wash and icing)
  • as needed Icing sugar (for icing)
  • as needed Shredded coconut (for icing)

Instructions
 

  • Melt butter in a pot, then add milk and heat until lukewarm.
  • Remove the liquid from the heat and whisk the yeast in.
  • In another bowl, mix remaining dry ingredients except for 1 cup of flour (2 cups for a double recipe).
  • Add wet to dry, a little at a time. Make sure to stir out any lumps that form before adding more liquid.
  • Add as much of the remaining flour as necessary, until the firm but still a little sticky.
  • Cover the dough and let it rise for 30 minutes.
    Skoleboller risen dough by Kai Hesthammer.
  • Roll the dough into a log and divide it into 12 pieces (24 for a double recipe). Roll each piece into a round bun – getting rid of any cracks – and flatten into thick “mini pizzas.” Cover the buns and let them rise for 15 minutes.
    Shape the Skolebolle dough into mini "pizzas."
  • Make a divot in the center of the bun for the custard. I like to use a 10 tbsp measuring glass (diameter of 2 1/8 inch), but any narrow glass with a similar diameter would do the trick.
    Tip: Wet the outside of the glass down between making each divot, as this prevents the dough from sticking to it.
    Making the divot in Skoleboller for the custard.
  • Put as much custard as you want in each divot. I typically put enough to almost fill the divot, as the custard will spill out during the baking if you use too much.
    Put custard in the divot, but not too much.
  • Whip the egg (saving some egg white for the icing) and brush onto the buns.
  • Bake the buns for 9 minutes at 437 °F (225 °C) and let them cool down on a cooling rack.
    Skoleboller on the cooling rack after baking.
  • Apply the icing, then dip the iced bun in the shredded coconut to cover the top of the bun.
    Dipping the iced Skolebolle in shredded coconut.
  • Enjoy!
    Skoleboller or Norwegian Coconut Custard buns.

Notes

The preparation time is based on a double recipe and includes icing the buns.
Keyword Buns, Desserts, Sweet

Final Touches

Mix a little bit of egg white with icing sugar to make a thick icing, then spread it on the top half of the bun.

Note: If the icing is runny it will not hold the coconut as well.

Put coconut on a plate and place the icing covered buns face down in the coconut. Move the buns around in order to cover all the icing with coconut.

Enjoy the deliciousness have just made!