Should I use index funds or hire a financial advisor?
Index funds for most people. A low-cost three-fund portfolio (US stocks, international stocks, bonds) charges 0.03–0.10% in fees and has outperformed 90% of professional fund managers over 15+ years. A financial advisor (typically 1% AUM fee) is worth it only for complex situations: large inheritance, business exit, multi-state taxes, or estate planning.
Formula
Fee impact: $500k × 1% fee × 30 years = ~$316k lost to fees vs. 0.05% index fund (at 7% return).
Example
DIY: $500k in VTI (0.03%) for 30 years at 7% → $3.76M. With advisor (1% fee): $500k at 6% effective → $2.87M. Difference: $890k. Advisor must generate >1% alpha annually to break even.
How it works in detail
The math is devastating for active management: a 1% annual fee on $500k over 30 years at 7% returns costs $316,000 in lost compounding vs. a 0.05% index fund. That's 63% of an additional portfolio's growth consumed by fees. Vanguard, Fidelity, and Schwab offer target-date funds or three-fund portfolios for <0.10%. However, an advisor earns their fee in specific scenarios: tax-loss harvesting on large portfolios, Roth conversion optimization, asset location strategy, behavioral coaching (preventing panic selling), and complex estate planning. A fee-only fiduciary advisor (flat fee, no commissions) is the only type to consider.
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How much do I need to retire?
Multiply your annual spending by 25. If you spend $60,000/year, you need $1,500,000. This is the 4% rule from the Trinity Study (1998) — withdraw 4% annually with a 95%+ historical success rate over 30 years.
How much should I contribute to my 401(k)?
At minimum, contribute enough to get your full employer match (free money — typically 3–6% of salary). Ideally, contribute 15–20% of gross income to retirement accounts total (401k + IRA). The 2024 401(k) limit is $23,500 ($31,000 if you're 50+).
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