In this week’s episode of Retire in Texas, Darryl Lyons, CEO and Co-Founder of PAX Financial Group, dives into the real value that financial advisors bring to the table – beyond just investment returns. Drawing insights from the latest Vanguard, Morningstar, and Michael Kitces studies, Darryl unpacks how advisors help clients navigate investment strategies, manage emotions, and create long-term financial sustainability.
Key highlights of the episode include:
• How financial advisors add measurable value beyond their fees, as confirmed by industry research.
• The importance of collaboration between advisors and clients to maximize returns and long-term financial stability.
• The dangers of chasing investment trends and why a slow, steady approach often wins the race.
• Why strategic rebalancing and tax-efficient investing can lead to better financial outcomes.
• How a well-structured portfolio – including core investments and satellite strategies – can balance risk and opportunity.
A strong advisor-client relationship isn’t just about numbers, it’s about making informed, disciplined financial choices that align with your future goals. Whether it’s avoiding costly mistakes, reducing tax burdens, or ensuring a lasting legacy, the right financial strategy can make all the difference.
For more insights and to connect with a PAX Financial Group advisor, visit http://www.PAXFinancialGroup.com.
If you found this episode valuable, share it with someone who could benefit!
Transcript:
Hey, this is Darryl Lyons, CEO and Co-Founder of PAX Financial Group. And you’re listening to Retire in Texas. This information is general in nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information and be sure to visit PAXFinancialGroup.com.
Click on the connect with us button and a financial advisor will have a 15-minute conversation with you. They have the heart of a teacher. You won’t feel pressure at all because we just want to see if it’s a good fit and see if we can help and see if it’s mutually beneficial. Because in my opinion, mutually profitable relationships endure in business.
And so, we just want to make sure long term it works. All right, so here we go. I’m going to unpack a little bit of this Vanguard study. They’ve done it for 25 years. Excuse me. I’m getting ahead of myself because also, Morningstar did a study and Michael Kitces did a study, who’s kind of a nerd in the industry.
It’s a good study, and it is a confirmation bias. Admittedly, because it’s confirming whether or not in a quantitative manner do in fact, financial advisors, what we do, bring value beyond their fee. And so of course, I’m going to take the data and I’m just going to appreciate it regardless. Right. There’s this bias that exists, but the cerebral part of me will not let me just accept it unless it makes sense.
So, I read these studies all the time because I genuinely, the worst thing anybody wants to do is charge somebody for something and not bring value. Like, that’s I mean, that’s just, to me, it’s the epitome of stealing. And so, this study just confirms what I’ve experienced over the years, that sometimes it’s hard to quantify the value that financial advisors have brought to the lives of our community.
I know it happens all the time, but to see a study that confirms it is awesome to me. So do I want to sit here for the next 5 or 10 or 15 minutes and brag to, no, what I’d like to do is take elements of this study and help you understand how you can cooperate and collaborate with your advisor so that you can maximize the relationship, because the returns and the enhanced value is for you, where the value doesn’t manifest is when the clients are absent, when they don’t show up, when they don’t engage, when they don’t follow through, when there’s ego or lack of trust.
And that happens on the advisor side too. Pray to God it never happens at PAX. But if the advisors playing golf, if they’re not proactive, if not thinking deeply about money or you, there’s many of them out there that are just really, really good salesmen, much better than me. But if I can, over the next 15 minutes, share with you how if you can collaborate with your advisor, then the realization of these returns that Vanguard discusses can and very likely will happen.
So, the Vanguard study has seven elements within it. I’m going to discuss, for brevity’s sake, five, and I, of course, wanted to give you my personal opinion. So, this is not straight. I’m not just reading off the Vanguard study. You can do that on your own.
You know, in 1679, there’s this French physicist, Denis Papin. He invented a new way to cook. He created an airtight cooker that leveraged steam to raise the boiling point of water. His invention? Yes. The pressure cooker made cooking much faster using heat and high pressure. May be good for cooking, but it’s not the recipe for investing.
And as much as I would love to believe I had one client tell me I wanted you to be the next Warren Buffett, I promise you, there’s days that I think I can, you can ask my kids because all my stock picks go to my kids. I’m not. Nobody really is. I mean, there might be a few out there, but I think this is your life at stake and your future life.
And so, me placing bets or anybody placing bets is just, it’s just not worth it. And that means chasing returns. So, I’ll put this in the show notes. But there’s this thing called the Callan chart of periodic tables, and it shows the best ingredient. So, when you have this recipe of investing and then you have the different ingredients and they get really granular with ingredients, but it shows the best performing ingredients or what we would call asset classes each and every year.
It’s a great research tool. And so last year, the best place to invest, if you had just shifted all your chips on the table onto large cap investing, you would have made over 20%, well over 20% and 2023 if you just shifted into a large cap, you made well over 20% as well. 2022, your best bet would have been cash.
2021 was large cap. 2020 was small cap before that large and then cash and then emerging markets and then small cap and then large cap and then real estate was the best in 2014. And then before that it was small cap. And then 2012 was real estate. Before that was bonds and then small cap.
2019 was emerging markets. Before that was bonds and then emerging markets and then real estate and emerging markets. My point into all of that is the ingredients often change. And what happens with the majority of us is we get this FOMO big time. And so, we look at like, man, I’m missing out. And then we switch. We like switch money lanes, and then we totally mess things up.
And so, staying on this cooking theme, and a good advisor will help you think about investments more like a crock pot than a microwave. And sometimes that just means that you have to be okay saying, okay, I missed out. In 20, I’m looking at numbers here, and I don’t like to do a lot of numbers in this podcast, but for this one I have to.
So, in 2007, if you put $10,000, in the market and just, you know, just let it go, like go on a desert island you would have made, if you would put it all in the stock market, you would have been up 391%. So that’s pretty good. And in just like a bond fund, you’d been up only 7%.
But if you split the difference in, say, I just don’t know, 50% stocks, 50% bonds, you would have been up 209%. And yes, you could have sat there and a man I could have made more. But I think the good investors are just, they accept that now the way we kind of like hedge ourselves a little bit, the way we think about investing.
And I think a lot of advisors think about it this way. Not everyone is. We do this core satellite. So, the majority of the we call the core, that’s the majority. That’s a big chunk of money, the core that’s going to be built with a lot of evidence using, modern portfolio theory that really continues to prove itself to be true.
Not perfect, but pretty good. And then we kind of satellite that with, ideas, thoughts, themes. And that could be like private equity, private debt, growth stocks. And so, it’s those satellites that we get an opportunity to get a little bit more aggressive and, but not too much, where you mess up your whole future self.
A good advisor relationship will keep that core portfolio in place and then satellite it along the way. Now the second area is investments selection, and namely the value there from Vanguard is in selecting low-cost funds in the large cap stock space, it’s best to get the lowest cost possible. But in the bonds, there’s some really interesting research out there that says getting the lowest cost is not always the best, because some managers actually in the bond space bring value by negotiating prices, by understanding where in the bond market to be at what times, kind of anticipating changes.
There actually is plenty of research out there that substantiates that it’s okay to pay for a little bit more. A good advisor will know when it’s good to pay a little bit more when it’s not. And then, invest accordingly. Faith-based funds are a little bit more expensive, but they’ve come down. So good advisor that wants to participate in that market space with you.
They’ll find the lower cost faith-based funds and then the international funds. You just have to navigate that, too. You want to be lowest cost, but you also want to have the best net rate of return. A good advisor will kind of help make those decisions with you. Because those costs are controllable. Many times we want lowest cost, but we just have to be we have to use discernment on when and where, like the Kiplinger’s magazines, if you were to pick one up at the airport, they’re all going to say get the lowest cost.
But the evidence shows that there’s some spaces in the investment universe that that’s not always true. So, the third area I want to talk about, that a good advisor can help you is rebalancing. This kind of goes into the same idea before is kind of FOMO that chasing returns the hot stuff, but this is actually not chasing the hot investment.
This is actually moving into the market, and out of the market completely. And this happened. It’s happened to some of my clients before they’ve done that. I have an incredible story that’s beyond the scope of this podcast. About one time a client did that in 2008, and she did it to herself. She permanently lost half $1 million permanently never coming back.
And she did it to herself. And despite the advice I gave her. But there’s this research that keeps coming out. This one’s from Fidelity, and it talks about how if you just miss the best days of the market. And I was like, I’ve seen this research over time, and I’m always like, I don’t know, that seems kind of weird.
But here’s what it is. If you had invested $10,000 from 1980 to 2022 so that, you know, it’s a big chunk of time, $10,000 went on a desert island and came back. It’d be worth over a million. But if you miss the best, I’ll use this here, the best 50 days. The best 50 days.
It’d be worth $76,000. Just the best 50 days. Now, I think there’s a recent example of this that really rings true to me in during Covid, in March, there were two days, two days in March that if you were freaking out and you started to mess with your money, you called your advisor, hey, get me out, oh, nevermind.
I changed my mind. That kind of stuff. Two days, the 13th of March, and the 24th of March. Both of those days were up 9% each. And if you’re just messing with your money when chaos is going on, then forget about it. You miss those returns, so a good advisor will help you stay in the game. The fourth thing that Vanguard talked about was tax efficient strategies.
I’m saying, you know, if you work with your CPA, the CPA is often, and we work with a lot of good CPAs. CPA is going to say, you know, this here is how you reduce your taxable income, you know, go buy a truck or put money in a traditional IRA. That’s cool. But a financial advisor in coordination with the CPA is not going to be focused on this year’s reduction of income.
They’re going to be focused on reducing your lifetime taxable income. And so some of that means converting traditional IRAs into Roths or thinking about charitable contributions, donor advised funds. So, a good advisor will map that out for you. And just optimize your net taxable income long term, which there’s some implications to not planning out, like down the road.
Some of you guys already know this. If you make too much money, then you’re going to have a surcharge on Medicare. And so those frustrating things with good planning can be mitigated to a certain degree. The last one I’ll talk about is family will and legacy planning. You’ve heard me say many times before, is that inheritance is what you leave to somebody.
But a legacy is what you leave in someone. I’m going to talk about the inheritance. There’s a lot to talk about constructing the legal and will documents around that. But, what a good advisor does, and I know all the PAX advisors do this, is they look at the probability of not outliving your income. So, then they assign a score.
So, in this example I’m actually looking at in front of me today, this person has a 96% chance of not outliving their income, a 96% chance of not outliving their income, which is good. So, what the advisor can do is say, hey, you mentioned you want to leave money for the kids. What if we take you’ve got, 50% of your money in stocks, 50% bonds.
That’s, you know, your comfort level and risk. And we’re going to stick with that plan. But, hey, I have an idea. What if we took 50,000? I’ll just use 50,000. 50,000 and pulled that out of your portfolio and see if you can still make it. You pull it out of the portfolio, and they move from 96 to 94.
You’re like, wow, not much of a difference. What do you do with that 50,000? You put it under your mattress. What are you doing? No. That gives us a kind of an opportunity to invest in one of those satellites I was telling you about and be more aggressive. And if you’re more aggressive, then you have a better chance of rates at a higher rate of return.
And of course, leaving a bigger inheritance. And, if you can structure things in such a way that they have a purpose down the road, you can tolerate a little bit more ups and downs because you’re like, that’s my inheritance money, I know what that is for that, and we’ve already stress tested. I’m not going to outlive my money, but it’s hard to do those things if you’re just, relying on gut because, you know, I’m from, you know, Texas and I see our old German friends and family, you know, we’re tight.
I guess I put myself, I have a little German in me, but you’re always saying I can’t spend anything because I can’t, you know, give anything away because I’m going to outlive my income. And so doing this analysis gives you total freedom to start tinkering with your money in such a way that it’s thoughtful and orderly.
And if you take it one step further, a good advisor will say, hey, can we take that money from a traditional the 50,000 from a traditional and convert that to a Roth, and then that inheritance is completely tax free. So, some really cool, like, little planning ideas that can be done. And if it’s done, and of course it can’t be done like in one meeting.
In fact, sometimes our first meetings with clients are just very, very basic and a lot of times we don’t even wow the client because it’s overwhelming all the things that can and could be done. And so, I think for a client, and I speak for PAX because I know us, but I’m hoping other advisors think about this deeply.
We want to be able to create an atmosphere and a way for you, for anybody to say, man, I see the value. Like, there is no doubt they bring a ton of value. That’s like what we long for, because there’s many times and frankly, there will be seasons where it’s kind of a stale relationship, not a lot going on in the market.
It’s not a lot going on in tax planning. You’re busy with your life. We get that. There are seasons where, you know, we’re still going to do the work in the background in terms of managing money, but there are seasons 1 or 2 years where things are, you know, humming along. But we think over a year, maybe a five-year time period that we would love for us to not have to show you a study, hey, we’re doing a good job, but rather you’re like, yes, I see it.
That happens when there’s like this collective, cohesive relationship that’s humming along and just communication. And so hopefully you can talk with your advisor, if you’re a PAX client. That’s great. But talk to your advisor about this study.
The Vanguard study. Like I said, I’ll put it in the show notes. And just make sure you get on point, because I think long term, you can save a lot of money, maybe even make a lot of money. And obviously it’s not the money that’s the goal, but the things that the money will do, and that could be a legacy or that could be, you know, lifestyle.
So just depends on what you want. I hope that’s helpful today. Like I said, I’ll put it in the show notes. It’s a lot to digest. Very good studies. Been out about around 25 years and plenty of other tangential studies for Morningstar and Kitces just to reinforce it. And that’s all I have to say about that.
Thanks, guys, for listening. You guys have a great day. And remember, you think different when you think long term.
Resources:
Putting a value on your value: Quantifying Vanguard Advisor’s Alpha
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