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Ron

Investment advisor for the folks with a small account

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Interesting article about how Ric Edelman, owner of the largest RIA business, intends to start serving clients with as little as $5K to invest and also expand into the "whale" end of the market.  The comments following the article give interesting insight into how other RIAs view clients, fees, their real job, and other related issues.

https://riabiz.com/a/2012/10/29/ric-edelman-is-looking-to-add-a-1-billion-ria-elephant-even-as-he-unveils-an-online-consumer-strategy-aimed-at-the-chipmunks

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Then there is the simplest, least expensive method around.  Why pay someone 2 or 3 percent of your investment income when you can invest with no fees and extremely low cost.  Your cost is around 0.1% to 0.2%.  That is one tenth to two tenths of one percent.  Or put another way for every $100 of investment income you have, it costs you 10 to 20 cents, not the 2 to 3 dollars managed investments cost.   Put another way if your investments return 6% in a year a managed account would only return you 4%, the is quite a hit.  In the investments method below, if your annual return is 6% you will realize 5.8% to 5.9% in return. 

The investment method:  The Couch Potato.  https://assetbuilder.com/knowledge-center/articles/couch-potato-cookbook

 

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2 hours ago, Al F said:

Put another way if your investments return 6% in a year a managed account would only return you 4%, the is quite a hit.  In the investments method below, if your annual return is 6% you will realize 5.8% to 5.9% in return. 

The key is, you should only pay a fund manager if he can make you as much or more, net of his fees than you could make managing it on your own. The smaller funds usually do not bring in enough to support daily management by a professional. For most people with $5k to invest, I believe you would be better off investing in a highly reputed mutual fund. 

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We pay 1% on some and 1/2% on the rest and we have more money now than we started and we are drawing from our funds for retirement.

You may deem yourself smart enough to manage you investments in this every changing climate.  We prefer a person whose whole job is getting more money for us and let us be retired.

Getting a money manager before we retired was the best thing we did.

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59 minutes ago, Barbaraok said:

We pay far less with Vanguard and have been VERY happy with the results. 

+1   Most "managed" fund managers cannot beat the average return on an Indexed fund.

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1 hour ago, Mark and Dale Bruss said:

You may deem yourself smart enough to manage you investments in this every changing climate.  We prefer a person whose whole job is getting more money for us and let us be retired.

Getting a money manager before we retired was the best thing we did.

That has been our experience also with our fund manager, but I follow the person rather than the company and I have way more than $5k (as was originally mentioned) invested. I have now been on mandatory withdrawals for 4 years and even with that impact, our fund has increased in size each year, which results in a larger required withdrawal each year. It will be interesting to see how far we go before the fund actually begins to get smaller, as is the IRS intention so as to collect income taxes on it. 

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6 hours ago, Al F said:

Then there is the simplest, least expensive method around.  Why pay someone 2 or 3 percent of your investment income when you can invest with no fees and extremely low cost.  Your cost is around 0.1% to 0.2%.  That is one tenth to two tenths of one percent.  Or put another way for every $100 of investment income you have, it costs you 10 to 20 cents, not the 2 to 3 dollars managed investments cost.   Put another way if your investments return 6% in a year a managed account would only return you 4%, the is quite a hit.  In the investments method below, if your annual return is 6% you will realize 5.8% to 5.9% in return. 

The investment method:  The Couch Potato.  https://assetbuilder.com/knowledge-center/articles/couch-potato-cookbook

 

Al, maybe you just inadvertently confused your terminology but the percentages you refer to are percentages of your total investment or Assets Under Management (AUM) and have nothing to do with your investment income (dividends or capital appreciation).  I agree that for nearly all investors they would be way ahead by investing in a few diversified index funds with very low fees.  Do a little research or get some help from a competent advisor to determine the best mix of asset classes for your personal situation and risk tolerance and then just stick with it through all market gyrations.  If you need help coming up with an appropriate plan talk to a licensed professional  with whom you can consult on an hourly-fee basis to get it set up and then go back, if you feel the need, every now and then for further consultation.

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I don't do financial advisors. They all told me not to invest in Tesla. As well here in the forums y'all might remember who said it was a "pump and dump," No one will seriously want an EV. I'd also advise divestiture of Oil and oil related investments as today's news from China is the final nail in the ICE age's coffin (Internal Combustion Engine)

I'll post it on the other thread as it is not on topic.

Edited by RV_

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20 hours ago, Al F said:

The investment method:  The Couch Potato. 

To quote the website in the link, "Asset Builder is a money manager."

To me, getting investment advice from a public forum is pretty risky once you get beyond a few superficial decisions and suggestions. On a forum, one can claim to be anything they wish and publish any result or claim with no risk of readers ever knowing just how creative and fictitious the claimed results actually are. No two of us have quite the same amount to invest, investing skills, or access to facts. If I were to claim to claim some phenomenally great investment success, how would you know if it were true? A hint might be in my lifestyle for those familiar with it as most people who come into wealth make some changes in lifestyle. If, while telling every one of your success in investing you continue to live as you always have seems suspect to me. 

Good investment advice starts with knowing how much you have to invest, how old and healthy you are, and what your goals are. Good investment advice is much like good legal advice, it tends to be worth about what it costs, or perhaps a little bit less.  ;)

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Barbados: you know most readers here have no idea what their yearly return is.  I doubt that those with advisors have any clue ( or most). How can i be sure of that? Every time I ask it here no one will post it except me. This is also true of friends and others. I love it when someone tells me about what a great stock or fund their advisor has them in because it's so easy too check out. I have yet to find a return that is even 50% what they tell me they got. 

Here is my return. Up until last month, 80/20 S/B currently 60/40 S/B. Everything is index funds. 4 different stock index and 2 different bond indexs. Look up the return of indexs and you will find my return. Plug your own numbers in and see how your advisor stacks up. 

But of course very few will do that. 

Fidelity shows me my return for the last 12 months, and quarterly results for over 12 years or so. 

 

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15 hours ago, Ron said:

the percentages you refer to are percentages of your total investment or Assets Under Management (AUM) and have nothing to do with your investment income (dividends or capital appreciation).  

^ This.  No matter how well or poorly one's investments with an "advisor" (most are actually salespeople), they get paid that percentage of the client's holdings.  They aren't really paid based on performance of your funds, but rather how much of your money you agree to let them "play" with.

Let's use 1% AUM fee as an example.

So, bad year, let's say the investments return 1%.  The manager gets your entire net return.  You've made no money.  Worse year, investments lose 2%, the manager gets another 1%, you've lost 50% more than if you'd just done your own investing (in low cost index funds)

Average year (many use 4% to describe "average" for a retirement account), the manager takes 25%, you only get a 3% net.

That deduction AUM fee compounds over the years (it could have stayed in your account, but it didn't).

Then there are the "advisors" who like to churn accounts to keep them confusing/make you think they're actively working on your holdings.  Short term capital gains - you have more income taxes to pay and it can impact your SSI.  These "advisors" don't typically look at/care about tax impact.  Read the fine print - they tell you to consult your tax professional/CPA for that sort of thing.

Even worse are places like Edward Jones, etc. where the sales "advisors" put you in front-load funds.  Up to 5.75% of your investment skimmed right off the top.

www.bogleheads.com is a great place to start.

Edited by mkc

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3 hours ago, Kirk Wood said:

To quote the website in the link, "Asset Builder is a money manager."

To me, getting investment advice from a public forum is pretty risky once you get beyond a few superficial decisions and suggestions. On a forum, one can claim to be anything they wish and publish any result or claim with no risk of readers ever knowing just how creative and fictitious the claimed results actually are. No two of us have quite the same amount to invest, investing skills, or access to facts. If I were to claim to claim some phenomenally great investment success, how would you know if it were true? A hint might be in my lifestyle for those familiar with it as most people who come into wealth make some changes in lifestyle. If, while telling every one of your success in investing you continue to live as you always have seems suspect to me. 

Good investment advice starts with knowing how much you have to invest, how old and healthy you are, and what your goals are. Good investment advice is much like good legal advice, it tends to be worth about what it costs, or perhaps a little bit less.  ;)

While the "Couch Potato" method of investing appears on the Asset Builder website it is not a product they are selling and the Couch Potato has little to do with Asset Builder. 

The Couch Potato is a method of investing at extremely low cost thought up by Scott Burns (now retired) some 20-30 years ago.  The Couch Potato doesn't dictate which specific fund to invest in, just to use broadly recommended allocations, such as 60% bonds/40% stocks, depending on many things pertaining to an individuals needs and assets.  Then taking those investment allocations and selecting low cost index funds to put your money in. 

Instead of criticizing the fact that the Couch Potato appears on a money manager website, people should do a little research and reading about the Couch Potato and decide it the investment method is good for them.  Reading about the Couch Potato really brings home the personal cost of a managed fund and the fact that over a 20-30 year period there is not a single managed fund which has out preformed the Couch Potato in total returns.  Certainly there are managed funds which out preform in selected years, but when you take a 20-40 year period it just doesn't happen.  We must not forget to deduct the fees from the managed funds total returns when making comparisons.  

Also we must remember, the worst thing any investment adviser can have is a customer who takes the simple approach of going to several places (Vanguard, Fidelity and others) and investing for the long term in very low cost index funds.  Even an investment advisor who charges an hourly fee is not going to have any return business from the investor who pays the advisor for a few hours of advice and recommendations and then invests for the long term in low cost index funds. 

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Barbarpaok: i was referring to your post about returns. I wasn't being negative to you, just that few people know what their return is. 

Mark, 8 % is a good return and if you are into safety like I am currently, I expect my return to be similar to yours. 

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7 hours ago, mkc said:

^ This.  No matter how well or poorly one's investments with an "advisor" (most are actually salespeople), they get paid that percentage of the client's holdings.  They aren't really paid based on performance of your funds, but rather how much of your money you agree to let them "play" with.

Let's use 1% AUM fee as an example.

So, bad year, let's say the investments return 1%.  The manager gets your entire net return.  You've made no money.  Worse year, investments lose 2%, the manager gets another 1%, you've lost 50% more than if you'd just done your own investing (in low cost index funds)

Average year (many use 4% to describe "average" for a retirement account), the manager takes 25%, you only get a 3% net.

That deduction AUM fee compounds over the years (it could have stayed in your account, but it didn't).

Then there are the "advisors" who like to churn accounts to keep them confusing/make you think they're actively working on your holdings.  Short term capital gains - you have more income taxes to pay and it can impact your SSI.  These "advisors" don't typically look at/care about tax impact.  Read the fine print - they tell you to consult your tax professional/CPA for that sort of thing.

Even worse are places like Edward Jones, etc. where the sales "advisors" put you in front-load funds.  Up to 5.75% of your investment skimmed right off the top.

www.bogleheads.com is a great place to start.

MKC, good post - exactly the way investors should view the management fees.  

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7 hours ago, TheDuke said:

Barbados: you know most readers here have no idea what their yearly return is.  I doubt that those with advisors have any clue ( or most). How can i be sure of that? Every time I ask it here no one will post it except me. This is also true of friends and others. I love it when someone tells me about what a great stock or fund their advisor has them in because it's so easy too check out. I have yet to find a return that is even 50% what they tell me they got. 

Here is my return. Up until last month, 80/20 S/B currently 60/40 S/B. Everything is index funds. 4 different stock index and 2 different bond indexs. Look up the return of indexs and you will find my return. Plug your own numbers in and see how your advisor stacks up. 

But of course very few will do that. 

Fidelity shows me my return for the last 12 months, and quarterly results for over 12 years or so. 

 

Duke, I agree that many/most investors really don’t know what their returns are.  This morning we had breakfast with a friend that uses an Ameriprise Wealth Manager in Scottsdale, AZ.  I asked how that manager charges for his services and our friend was unable to explain - she just knew she was "very happy with his services and the growth in the portfolio".  My own sister used to speak highly of her financial advisor.  He was such a nice guy – came to meet with her in her home and bought her a steak dinner at least once a year - her investments were increasing in value.  She passed away about 4 years ago - I became the successor trustee of her trust.  Then I got to meet and deal with her advisor and found out he was certainly not doing her any favors - believe me he was making a lot more from my sister's investments than she was.

As MKC said, most of these "advisors" are first and foremost sales/marketing people.  For them it's all about getting more accounts, more AUM, and collecting fees.  The sad fact is that most people who rely on an advisor do so because they don't have the knowledge, aptitude, or confidence to be a self-directed investor.  Advisors find these people an easy "mark" because a good salesman can, by definition, make them feel comfortable, confident, and satisfied without ever quantifying the impact of the fees they charge in relation to bottom line performance of the portfolio.

In Dec. 1988 I started tracking the performance of my investment portfolio in a very detailed and, I believe, very accurate way.  I do this by using Excel and Excel’s built-in IRR function.  I track each asset’s performance separately and then also track the performance of the total portfolio by treating it just like a “mutual fund”.  In 1988 when I started doing this I arbitrarily assigned a value of $1/share.  If I add or remove assets from the portfolio I treat each such action as a “purchase” or “sale” of a certain number of “shares” from the “mutual fund” depending on the “share value” on the date the assets were added or removed.  This also accounts for my management decisions about how much cash to hold vs. how much is invested in equities and the timing of all those decisions.  As a result I can easily track my performance for the past month, 3 months, 6 months, YTD, 1, 3, 5, 10, and 15 years (I also track performance over the past 20 years and ITD but comparable performance of mutual funds is not available) and compare those returns to what I would have made had all the assets been invested in a representative set of index funds.  By representative I mean a set of index funds proportionately representing the classes of investments I have in my portfolio (e.g., large cap, mid cap, small cap, etc.).  By measuring my performance this way I know if I’m making wise use of my time by managing my own investments, heavily invested in individual stocks, vs. what I could be making by simply investing in a few index funds (the only alternative I would consider). 

This probably sounds like a lot of work but once it’s all set up in Excel it’s really not that difficult or time consuming.  So far the results I achieve keep me in the game.  If I take my excess performance (i.e., the IRR of my “mutual fund” less return of the representative funds and multiply that by my “AUM” divided by the hours I spend on this it looks like the best paying job I’ve ever had!  And I enjoy doing it – it keeps my mind active and it’s a “job” that really lends itself to full-time RV’ing, and I don’t have to pay any SS taxes or income taxes etc.  As far as taxes on investment income I have far more control over, and ways of minimizing, the tax burden by investing in individual stocks than if I were invested in funds.  So I know my own management has saved us a lot of money on taxes over what I would have paid if I were invested in funds, but I don’t quantify this and account for it as part of my investment return.

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Ron and Chirakawa, I agree and saw the same thing from the one and last financial advisor I ever did biz with. Just one trade, my Tesla, was advised against by every financial advisor and most kept trying to get me to sell it at $50, $100, $160, $200, $250, $300, $362, and I still have them all and then enough to replace my sell of 20% at 100 to take my investment and a small profit back, but keep the majority of my shares which we added to several times once more at 22.5 and once at $135. Then finally, because we had 999 shares, we bought one share at $300.

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Excerpt:

"Remember all of the declarations at the end of last year?

“The bond bull market is over!”

Turns out, not so much. Despite all of the flippant declarations including from some of the most esteemed participants in the investment world, the 36-year bond bull market remains not only alive and well nearly a year later, but it also appears poised to make its next move to the upside. The lesson? Be careful when declaring the end of a sustained bull market in bonds or any asset class for that matter, including stocks.

https://seekingalpha.com/article/4105715-bull-market?uprof=82&isDirectRoadblock=false

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