Because if you can pick an index fund with low fees, you are already beating most professional stock pickers. Yes, you may find the one or a few active investors who are amazing, but unlike law or medicine, there is a fallback option that is consistently successful in both short and long term compared to most stock picking, even professional. Note that you may all lose if the market goes against you, even active stock folks with lots of "hedges against the downside" and whatnot.

I don't think index funds are what the parent meant by "picking stocks". Going with a fund, even an index fund, is still a form of delegating the low-level work to financial professionals.

Isn't that the point? Professionals can't do it but for engineers it's supposed to be a cakewalk?

Because professional is a somewhat nebulous term when it comes to finance.

I do think that there are some firms, who cater to mostly very wealthy clients, who can consistently beat the market, or at least have a good chance of finding some niche or anomaly every few years for a huge jackpot such that their overall average is higher than the indexes.

The problem is that most of us won't have access to these people.

Instead, our professional is going to be the typical financial planner who has far less of an understanding of math than even the typical CS / engineer grad, and is basically a commissioned sales person who will take 5% off the top, plus another 2% a year - all for basically investing it in the same index funds you can now buy yourself with a Schwab or Vanguard account.

Find a financial planner that charges a flat fee, not a commission. He's not going to be selling you some stupid investment vehicle because he's not getting paid to sell that, he's getting paid to help you. He also is going to devote equal time to you, whether you have just a bit of money or a lot, you are equally entitled to his time as his wealthier customers. The only downside is that his financial incentive is to gain more customers. So he probably isn't going to sell you expensive bonds but he might not be able to devote as much time to your specific needs.

What will stop him from doing both charging you a flat fee and recommending less than optimal products to get an undertable commission. He can take you for a ride before you realize the game.

I think this can work only if we as customer also learn to cross examine his reasoning and ask hard pointed questions.

Ensure that one of the first questions asked is whether or not he has a fiduciary duty to you. If he says yes, then ensure that this is part of your written agreement of services.

Once an advisor is acting as your fiduciary, it's not lawful for them to advise you to do anything but what is in your best interest. Further, they may not have any conflicts of interest. This was supposed to be the case for all US retirement accounts, but the Financial Services Industry fought tooth and nail to defeat the Obama era rule.

How will you prove they deceived you? Moreover they might not be as competent as they sound. By the time you realize the deception, you might have gone bankrupt. Only by learning the basics we can hope to protect ourselves against bad advise.

The fiduciary duty of care solves the problem of advisors having mixed or divided loyalties and motives for clients wondering about why this or that product is being recommended. The simple answer is that the advisor is legally required to act on your behalf — period. If they do not, there's full recourse in the courts.

Competence is a qualitatively different problem and has different solutions. Usually, one would look for past experience, performance, and educational credentials to gauge competence in those they hire.

I do agree that the more educated client, the better. But, personally, I can only have domain expertise in so many areas, and I only have so much time. Outsourcing is a logical strategy.

I'd be willing to give it a try once just to see if they have ideas with which I'm unfamiliar.

How much are these flat fees for an hour or two of their time?

You'll also get help with tax planning. This matters a lot when you have a complex estate.

This comment astounds me. I'm an engineer as well, and while I get the logic that you're presenting here, I can't help but squirm at the thought of someone else managing my money.

In fact, it's something I just do not understand at all. The idea of giving my money to a complete stranger and entrusting them with years of my hard work is nuts to me. If people just read a bit about finance and managed their own money (in ETFs, your pick of Mutual Funds, REITs, Bonds etc) it would avoid so many headaches for people.

My wife and I call this the "faith in experts" argument. We named it because we often find ourselves on opposite sides of it. She believes in experts, I'm more skeptical.

The main thing I've realized is that returns to pure capital just aren't that high. For a typically-sized retirement account (few hundred K), you're much better off going hard on your career if you're in a field where that's rewarded (law, finance, tech, med, etc.)

The one saving grace of your idea is that you'll have made all the mistakes by the time you have real money to manage, so you won't make silly dumb beginner mistakes like buying high and selling low. That's my post hoc justification, anyway ;)

The problem is that most finance "professionals" you and I encounter are salesmen. The only thing they care about is their commission on that high fee mutual fund they just sold you.

It all depends on the size of your problem. For some cases, there is no need of a professional advice other than just holding hands... I bet you could represent yourself in a small court claim, diagnose yourself with some OTC medication (or hitting the pub?) and file your tax with turbotax depending on your tax year.