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Who does your investing?


Kirk W

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Reading the threads on this and other forums over the years has lead me to wonder how many of our contributors in the forums actively manage their invested funds and to what degree? Before I retired I did has some discretionary funds which I used to buy stocks directly through a broker, making my own decisions on what to buy or sell and when. But my primary savings was into an IRA as soon as those were created and then to the 401k when that became available. My employer had a matching program for funds voluntarily contributed to the 401k and that was a major incentive for it. Our 401k & IRA's were both "self directed" in that they had a wide range of choices for investments but all were into funds and not individual stocks. Today we have most of our funds in a self directed IRA but we also have most management functions done for us by our broker.

 

When on the road I found that it was more work than I wanted to stay on top of things all of the time and so pretty much stayed with the process of investing in mutual funds rather than direct stock purchases. As the years have gone by our broker has done very well for us and so has been given more control as I don't care to spend my time following the markets as would be needed if I were to do things myself. Do most of you use a funds manager, or do you use a financial manager of some type?

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Until I quit work I was the primary manager of our 401K funds. I had company funds in Fidelity (the 401K) and I was allowed to actively manage that and place any trades into any of the Fidelity funds, as often as I wanted. I ACTIVELY managed that portfolio. And always beat the market - sometimes significantly.

 

During that time we also had funds in Merrill Lynch with a financial manager - the same one we have today. I have been using him for almost 25 years. Those funds are split up many ways - from an actively managed portfolio to longer term income investments. There are a split of individual stocks that pay good dividends and have growth potential to mutual funds of many varieties. There is an actively managed portion and a pretty much static portion. I pay a percentage for the actively managed portion - which I am happy to pay, since they almost always beat the market (including deducting my fees). Every year I compare the performance to a "shadow fund" I run in Vanguard and the ML-managed funds always (except one year) beat them. I've been very happy with our investment manager - but you have to find the right person. I've had several before the one we have now - in other companies, and they were more out to churn things and make money than to "manage wealth"....as they like to say. So you do have to evaluate performance carefully and decide if the fees are worth it to you. We also have investments outside the market which we manage more directly, although they tend to be more self directed. It is hard to stay on top of things unless you treat it as a "job".

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We use an independent fund manager. I'm not going to do brain surgery on myself, so I use a professional in the Investing world. He is paid based on our portfolio. My overall funds go down, his fee goes down. Our funds gain in value,he makes more money. We have been with him for 25 years, about twice a year we sit down with him in person and review our needs and goals. He is very good at communicating with us before changes are made or shortly after. Most of ours are now in Mutual Funds.

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All of our investments are self directed as far as fund selection and the two stocks that I own directly. My 401(k) money is invested in index funds, except for the portion I have in the "Stable Value" fund. That fund is run by a consortium of money managers. Our IRA's and taxable investments are self directed, in either actively managed funds or the two stocks that I own.

 

I don't put a whole lot of time in managing the portfolio anymore, since I'm retired and no longer contribute to the investments. But I did spend a great deal of time when I selected the funds to make sure they met my long term needs. I check them annually to ensure that they are still consistent with their original investment strategy and still meet my needs.

 

Don

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Me.

Has worked out very well,

 

I do one stock, and all the rest has been Property, funds and fund matching thrift savings, which, in 1997, when we started fulltiming at age 45, fully retired, we rolled over into a 401K with USAA using four USAA funds. https://www.usaa.com/inet/imco_mutualfund/ImMorningstarFunds?akredirect=true We can change our mix of four funds with the market, as some are better in recessions like the one we maxed out and the ones I put in as investments without the annual contribution limitations as I was buying in 2007/8/9 when all crashed price-wise. They have done well.

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It has always been me. You should have enough background in investing to spot frauds. They will come our way sooner or later and if you fail to detect them....it could cost you lots of money.

 

Just a couple of comments. I have a economics background and FINALLY got my investment going on the right track when I decided to apply my economics background to my investing. I did pick up a securities license along the way.

 

In the end, this is my advice. Invest in individual stocks ONLY in companies that you have special expertise. Take 5-10% in your financial net worth and invest that using your "expertise". That way you will have a great way to compare yourself to more conventional investments. Regression to the mean is a important concept that EVERYBODY that invests in individual stocks needs to understand. For most people individual stocks are a very tough way to make money. Not only do you have to be right about the future, but the market must also agree with you after you make you investment. I was right on several investments....unfortunately the options expired after Wall Street came to the same conclusion.

 

IF given a choice between a "smart" broker and someone that totally understands the US tax code, pick the latter. You will make more money putting your investments in the proper financial instruments as defined by the IRS. Because of regression to the mean......in the end the choice between a Roth IRA or a Conventional IRA will have the more impact on your financial decisions than the investment inside the IRA.

 

A small business on the side....is a real economic advantage. It lets you track the economy up close and personal.

 

The other item for most people....get out of debt. Leverage is a great tool for getting rich or going broke. Don't do it halfway. Be totally leveraged so you can declare bankruptcy or debt-free so you have plenty of money to invest.

 

IF you find a financial advisor that puts your needs first and they are good. Don't let them GO!!! They are worth the money. However, they are also a very rare breed, since the commission schedule put your interests at odds with that of most brokers.

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Two things have always made my brain hurt - health insurance and financial investing! Great huh? Two of the most important things we have to deal with!

 

Solved the first by turning 65 and going on Medicare; solved the second by hooking up with a good financial advisor. Been with him maybe 15 years and he has done a great job for us. In fact I spent 20 minutes on the phone with him this morning - our bi-annual discussion. He has diversified our portfolio to provide the best return with safety and tax advantages. He has changed companies since we first started working with him, he is now with Stifel Nicholas.

 

He set up and income stream for me after I retired that carried us quite well through the Bush Recession. Yes we took a bit of a hit in 2008, but we have much more than recovered and are better off now than we were in 2007.

 

So I agree with Mark, we have been drawing a monthly income for 10 years that allows us to live very comfortably and we have more assets now than when I retired.

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I find it interesting that so many think their money manager is great. What I would really like to know is 4 things.

 

1. What is your percentage mix between stocks and bonds.

2. What is your rate of return for the each of the prior 5 years but especially 2014.

3. Does your manager have you in individual stocks or in mutual funds

and if in funds, are they index or general stock funds?

4. What is the fee if it is a percentage.

 

And above all, what is your definition of great?

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I also find it interesting that many seem happy with their investments and advisers. Studies have shown many are not happy and some advisers seem more interested in their own pockets. I still keep some funds invested in actively managed funds but over the years my index funds have performed as well or better than others. Most of our funds are in low cost index funds now. Using these funds and self directing to avoid fees seems to be working for us but we are not getting rich.

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I find it interesting that so many think their money manager is great. What I would really like to know is 4 things.

 

1. What is your percentage mix between stocks and bonds.

2. What is your rate of return for the each of the prior 5 years but especially 2014.

3. Does your manager have you in individual stocks or in mutual funds

and if in funds, are they index or general stock funds?

4. What is the fee if it is a percentage.

 

And above all, what is your definition of great?

(First off, to answer Kirk's original post: I do the management with help from a Financial Adviser.)

 

What do you mean by "money manager"? A broker? An Financial Adviser?

It's quite possible to not have any stocks and bonds yet be fully invested in preferred debt, real estate, annuities and other financial instruments through an FA.

 

Our first FA covered many details including Living Will, annuities, bonds, health care and commercial properties, long term care needs, Charitable Remainder Trusts and more. That was all great. I fired him.

 

Or current FA does not provide as comprehensive service as our first FA. Our first FA was a learning experience.

 

Both adviser's provide group get-together s for their clients.

It's interesting to meet other investors face-to-face and learn how they invest with the advisers.

 

Some investors go whole hog and give the adviser everything and simply look at monthly income and year end performance.

And the're happy with that.

If you asked them your question posted above, you'd probably get a blank stare.

 

As investors, we're all different.

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Me. I do it all.

Have Vanguard.

Use bogleheads.org Forum for opinions and ideas. Named after John Bogle of Vangard.

Go by Money Magazine 50. Top 50 funds/ ETF. Updated monthly.

And Kiplinger Magazine 25. Top 25 funds/ ETF.

Listen to Bob Brinker on radio.

 

Have tax free muni bonds for income.

Do a 50/50 mix.

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Listen to Bob Brinker on radio.

 

Probably the best thing you can do EVEN IF you have a trusted financial advisor. Great program covers the legal side of investing better than any other program.

 

As I noted before, you will make more money being in the right IRA rather than the investment in the IRA.

 

I always have it on "background" and then start paying more attention when a topic is something I need to be interested in knowing.

 

Don't have to agree with everything he says.....but I disagree with very little of his advice.

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We are invested in a mix of all sorts of investments which changes frequently with no set share of each type of funds but the mix changes as markets and economic conditions change. We joined a pool which our manager watches on a daily basis and in which there are fund changes almost every week. We do a phone review quarterly and face to face annually and I receive email notice of every fund shift or investment sale/purchase. I also receive an updated net fund balance weekly. The rate of return has consistently exceeded those of the fixed fund reports or market yields.

 

Our broker works on a sliding fee that is contingent upon returns to investors. While the investment program we are presently in is relatively new to us, the manager has been our broker now for more than 10 years and has dramatically increased our total fund value.

 

It is hard to stay on top of things unless you treat it as a "job".

Jack is so right about this and I have found a manager who consistently matches or exceeds what I could do and I only watch the markets when I choose to and he does all of the work. I am also getting older and so I consider my time to be too valuable to spend it doing things that someone else can do for me as well or better than I. I also realize that at some point in time, my mental agility is bound to begin to slip and so my risks could become greater with age.

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I don't know what you mean by "critical mass?"

We pay an annual fee of$75, plus a sliding % of growth... Without any growth it is just the $75.

 

Critical mass is a term used by Bob Brinker. It is the amount of money that you need to live independent of a job. You can still work IF you want to, but you have enough money to cover your living expenses without working ANOTHER DAY in your life. So critical mass will vary by lifestyle choices for everybody.

 

For most people on this forum they are at critical mass. That is they are retired and it doesn't sound like anybody is running out of money for living expenses. It is a great concept for those people that are planning for how much they need in retirement. Don't underestimate the amount you need for critical mass. My first computation was 1/5 of what I actually retired in financial assets. I made the mistake of computing critical mass for ME. My wife, has a more expansive definition of critical mass.

 

I have an issue with Bob Brinker and his 50/50 mix of bonds and stocks in retirement. Bonds to me are a horrible investment in most cases. The terms of the bond are always set by the issuer. That is you get a high yielding bond and interest rates drops the issuer just calls your bond and issues new ones at the lower interest rate!!. Don't like a callable bond. Don't like bond funds with the exception of GNMA's. There are some non-callable bonds that I would consider.

 

For Federal retirees and employees check out the G Fund in the Thrift Savings Plan. I replaced my bond investment with the G Fund. High rates of return and NO RISK of principal due to rising interest rates. Currently the G fund is paying the same as a 10-year treasury.

 

I don't have a money manager.

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I am just curious. Who all has critical mass?

If so an easy portfolio would be like the Total Stock Market Fund and the Total Bond Market Fund at Vanguard.

 

For those of you that have money managers, how much does that cost you a year?

The subject really deserves it's own topic and could generate a lot of interesting information.

Hopefully that can be done so that it doesn't get lost under the current topic.

 

Bye the way, Bob Brinker and his "new paradigm" went down the drain in 1999 with the end of the dot com bubble.

He is, in the end, a talk show entertainer just like he was before he started in with money talk.

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We, DH and I, handle our own investments. It doesn't take THAT much time, and we enjoy it. Makes for interesting campfire conversations with our friends, too.

Have we hit critical mass? I sure hope so. we have significantly more now than when we retired 6 years ago. of course, with the market being the way it has been for 2 years, thats pretty easy.

 

We looked at having someone manage it but weren't happy with their ideas so we changed our minds. So I too am curious about people being happy with their managers. I would think it would be hard to judge their effectiveness, except in Jack's case when he set up a shadow account.

 

Sue

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I am curious what you tax liability is at the end of the year? This seems like something where all your investments become short term for tax purposes. Is that right?

No, because the funds are inside of an IRA. If it were a direct income account then it would be taxable income since profits would not qualify as long term capital gains. The account is with Wells-Fargo Advisers but I would suspect that most major brokerage houses would have similar accounts. Ours is part of a combined fund account that totals between $5 - $7 million initially. Like many such account types, there is a minimum investment which is large enough that it would prevent a new IRA from being part of it. Since we are now past our age of required withdrawals (must start in the year that you reach the age of 70.5 years), we do take out taxable funds annually now anyway.

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We looked at having someone manage it but weren't happy with their ideas so we changed our minds. So I too am curious about people being happy with their managers. I would think it would be hard to judge their effectiveness, except in Jack's case when he set up a shadow account.

 

Sue

Having someone manage your money is an interesting experience. Especially if you have done it yourself in the past. What you "think" you would do is sometimes significantly different than what you ACTUALLY do if you manage your funds. Thus the reason I use a shadow account. Yes, it takes work - the same amount of work as if I was actually managing the funds. But it is the only real way to know if you are getting what you are paying for from the money manager.

 

The only thing I will say about performance is that ML has beaten my management EVERY year. And almost always beats the market. One year they did not. But that was contributed to by a decision *I* made....as well as their management. Of course, that is the group I use - all the money managers "do their own thing" to a certain extent. And even within a management group there are various methods of investment. So it is not simple. I've done just the market (market fund) in the past and tried that. Statistically, it is a good way to go. But they (almost) always beat that with active management....even counting the fees. SO for the last 15 years that is what I have done and it has worked for US. But I also don't totally ignore it....I do input my thoughts.

 

ML changes $175 a year for the account, which is waived in our case. And on the managed accounts their fee schedule is 2% and down based on the amount under management. That is just the schedule - I don't know of anyone actually paying the 2%. We pay SIGNIFICANTLY less than that.

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Many studies have shown individual investors too often make emotional decisions at the worst times, buying high and selling low. Studies of 401k investor actual performance show that many investors actually receive far less than the "market performance" of the funds they invest in because they move money around at inopportune times. Of course no one likes to discuss that. So decide your risk tolerances and objectives and choose a path which focuses on them.

 

Different approaches work for different people. I would suggest if you use an "advisor" that you use a fee-based one who acts as a fiduciary. Many advisors do not act as fiduciaries, being held to lower standards. Pushing the firm's favored product du jour (and most lucratively rewarding to firm and advisor) is not how I'd want my advice served up. For many, the best strategy might well be a simple index fund approach, either a balanced fund or a combination of funds if you like to allocate more precisely, with low fees and market performance. If you like to dig into investing, there are many levels of involvement, so pick one.

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