The typical financial advisor charges 1.0% to manage a portfolio. That doesn’t sound like a lot, but it can make a significant dent in the value of your savings over time. Let me illustrate.

Research done by Vanguard reveals that, historically, a portfolio invested 70% in stocks and 30% in bonds has produced a 9% average annual return. Of course, this does not mean that such a portfolio will earn 9% going forward – past performance does not guarantee similar results in the future – but let’s use this as an assumption in our illustration.

An investor who is paying an advisor 1.0% is giving back 11% of her 9% return to the advisor in fees. Many advisors use expensive, actively-managed mutual funds in their client portfolios. These funds charge their own management fees – 0.65% on average – that eat up another 7% of the investors’s return. All in, the investor is paying 1.65% in fees and giving up 18% of her return. Ouch.

My clients pay 0.50% in advisory fees and 0.10% – 0.20% in fund fees, for a total of 0.60% – 0.70%. Assuming that same 9% average portfolio return, my clients are giving up only 8% of their returns to fees. Over 25 years, the difference in fees alone would mean my clients’ portfolios is 25% larger than one invested with a higher-priced advisory firm.

Many traditional and higher-priced advisors will assert that they can “beat the market” through “active investing.” By making bets on certain stocks or industry sectors at different times, they will claim to be able to deliver outsized returns. Decades of research have proven that such active investing very seldom yields better returns than simply investing in the market more broadly – as through index funds.

Here’s proof. Over the last 15 years, 92% of actively managed US large company stock funds failed to match the performance of their benchmark S&P 500 index. This is even true for those managing funds that invest in small companies or in the emerging markets, where some argue that there is less transparency and more opportunity for a smart, well-resourced manager to outperform.

But wait – what about the 8-10% of active managers who were able to beat their benchmarks? Unfortunately, there is simply no way to identify the “winners” in advance.

The research findings are even more striking – in favor of passive investing – when fund management fees, sales loads and trading commissions are factored into the analysis.

Adding foreign stocks to a portfolio has several benefits.

First, it helps to reduce risk in the portfolio. Many times, foreign stocks will react differently from U.S. stocks to some external event. For example, when oil prices rise, consumer spending in the U.S. may fall and many U.S. companies’ profits could be adversely affected. Meanwhile, the shares of foreign oil producers in Brazil, Russia and China will likely rise.

Second, developing economies in the so-called “Emerging Markets” have enjoyed higher economic growth rates that those countries in the advanced economies of the U.S., Japan and Europe. This trend is expected to continue. Adding emerging market stocks to a portfolio can enhance its growth.

Third, think about all of the products we have around our homes that are made by foreign companies. That Toyota minivan or BMW sedan in the garage? That Panasonic TV in the living room or Samsung smartphone in our briefcases? Dove soap or Axe body wash in the shower? These are all products made by foreign companies. Examine an iPad from Apple. It’s constructed from components manufactured largely by Chinese, Korean and Japanese companies. If we do not include foreign company stocks in our portfolios, we will fail to capture the fullness of global economic growth.

I listen closely to each client’s investment goals and risk tolerance to build a well-diversified global portfolio of low-cost index funds (ETFs). This may mean that a client with a more aggressive approach to investing has an 80% stock, 20% bond portfolio. In a year where the stock market is performing well and the bond market isn’t, by mid-year that portfolio may actually be 82% in stocks and 18% in bonds. At that point, it is important to rebalance the portfolio, by selling the excess stock position to return it to 80% and using the cash raised to restore the bond position to 20%.

Research by Burton Malkiel, Professor Emeritus of Economics at Princeton, has shown that over time disciplined rebalancing has improved returns slightly and, more importantly, significantly reduced risk in a portfolio.

At McPeake & Company, I rebalance my client portfolios twice annually.

Many “financial advisors” actually work for insurance companies and are in the business of providing the kind of financial advice that promotes the sale of insurance products like whole life policies or annuities that pay handsome commissions to the advisor.

Many more are, from a regulatory perspective, “registered representatives” of a broker-dealer like Morgan-Stanley, Merrill Lynch, Ameriprise or Wells-Fargo. Their employers incentivize them to place their clients in mutual funds that carry hefty sales loads.

It’s vital that investors seek out unbiased investment advice from an advisor who is a “fiduciary” and who must, by law, act in the investor’s best interests.

I am a fiduciary and put my clients’ interests first. I don’t receive commissions on any product I put my clients’ money into. I am paid only by my clients, in fees for financial planning or wealth management services provided.

I work with clients who have $100,000 or more to invest cumulatively across accounts. I charge 0.50% per year to manage portfolios up to $1 million in size, with a reduced fee on amounts over $1 million, according to this fee schedule.

I charge my advisory fees in quarterly installments, in advance, during the first week of a calendar quarter. Fees are taken directly out of the investment portfolios via my custodian Charles Schwab.

TYPES OF ACCOUNTS I CAN MANAGE

I can manage many different types of client accounts, including: