I have been pretty lucky in my FA who manages accounts way larger than mine. He is my brother in law, so he allows this minnow to swim in his pool. He basically runs his own fund by pooling a portion of his client money (the ones who opt to participate) into one fund that has its own set of investment rules which are driven by fundamental financial criteria. So here, participants of the fund get broad equity exposure like a mutual fund, except we get the tax benefit of owning individual shares â there is a lot of end of the year selling of loss positions to offset taxable gains with a reinvestment in similar investments of those that were sold. A lot of active money managers work this way. Other portions of his client accounts are then tailored to the risk tolerance/needs of each client. They could be heavy in cash, fixed income, equities or alternative investments.
While I was in IB, I watched the traders on the various floors and sat with a close friend who was a top fixed income trader and another friend who was a successful hedge fund guy. These guys have so much better access to information and ability to react quickly to this information than the Avg Joe investor, that I came to the conclusion that the little guy is playing in a rigged game at least in active trading. So I pretty much just leave that to the professionals. Iâll pick stocks or sectors here and there only because I have a long term conviction on the company or the sector. I set up both of our kids in a Fidelity account with a small advance of their inheritance and told them to research some funds, including indexes, and that they need to start dollar cost averaging in.
There are computer algorithm investment managers (marketed toward investors whose amount of money would not be enough to retain the services of a bespoke human investment manager at a reasonable price) which do this (although through the year, not just at the end). I knew someone who used one and got a very long 1099-B as a result.
@ucbalumnus Good point. I think when we were younger and had less money we went with institutional companies (ML was one). Returns were low. I think our profile matched too many other investors for the FA to notice and match our needs.
I think if I had a smaller portfolio, weâd put it in a low cost ETF and leave maybe 25% outside that to invest in stocks based on what we know and liked.
I guess I hadnât quite thought of it as having a âpersonal fund managerâ but yes that seems to be the result. Weâre happy. So thatâs another reason I hadnât thought of regarding why I donât mind paying for the FA.
My opinion, and I mean my opinion, is that FA are useful if they can keep you from making behavioral mistakes (those stemming from fear, greed, FOMO, etc). The thought that they can do better at picking investments than a monkey with a dart is quaint; if they could, theyâd be billionaires, but how kind of them to put this skill to your uses.
If you can control your own behavioral missteps, no need to redundantly pay someone else to do it. If you canât, pay away, but then listen to the FA.
Dang, youâre good, @NJres!?Not to brag, but Iâm pretty good at buying at the highs too. And selling at the lows. It definitely takes skill and luck. That is, no skill and bad luck.
@IxnayBob FAâs certainly do help people steer clear of risk aversion and other personal $ qualms. But thinking they have no value likely means you havenât used one. After all mutual funds and all of the other financial tools people use including ETFs have a person and team behind them. How is that fully different from a FA who works with you?
Many people are doing calculations, figuring what to add and even when to sell. Unless you are buying a product that reflects the entire market in its entirety ( which is frankly not possible) there are humans involved. Some are indeed monkey like with little monetary sense and others are like Berkshire Hathaway guru Warren Buffet. He doesnât make money 100% of the time but he does make money most of the time. And Iâd have to check but Iâd bet heâs beaten the market over time (and heâs been in bull and bear markets).
I think lots of people have various levels of comfort managing their money. Some have zero interest. Some have a lot.
I wouldnât expect that everyone would do the same things as people have a complex relationship with money. But to say that using an FA is like a monkey throwing a dart shows that youâre likely not willing or able to go that route. Thatâs fine. But there are many people who have done really well using all types of approaches.
And do you think the entire FA industry would exist if they were not adding value? People do check their statements and see how much they are paid.
After all, reaching retirement goals is mainly based on reaching your goals not someone elseâs. My Dad reached his goal with all cash. Weird to me. But thatâs his goal not mine. Heâd never do any stocks/funds but that doesnât mean they donât have a place for someone else.
As far as Warren is concerned, the only individual stock I own any longer is BRK, because I want the kids to enjoy the step up in basis after I die. It has done well for us, years ago more than recently when itâs been a bit ho hum.
As far as people reading their statements is concerned, a rising tide lifts all boats, and it has been difficult to lose money the past decade or two. I donât expect that situation to sustain. I had to explain recently, to a college educated acquaintance, how a lower SS payout for longer compares with a higher payout for shorter; she has some serious health issues and I was trying to explain why, for her, filing early made sense. Do not underestimate innumeracy, even among educated people.
The only change Iâd make to this is to recommend a Total Stock Market Index Fund rather than an S&P 500 (among other things, Tesla is in the one but not the other, and tomorrowâs Tesla is in one and not the other) and, imo even more preferable, a Total World Index Fund. That said, Warren is much smarter than me ?
Lots of folks posting who donât want or need FAâs. Just in case thereâs a few like me here ⊠I have no qualms about sharing the fact that I want an FA, I need an FA, and I am okay with paying my FA for his services.
Just wanted to say âthank youâ to the posters that mentioned âbogleheadsâ. I went to the site and there is a wealth of information about investing and retirement posted there.
For sure, you could make big bucks off of our bad predictions, thatâs for certain!
We went to see a FA about four months ago, and he gave us some great advice about getting a Delaware Statutory Trust (that we ended up investing in). He also ran a financial analysis for us and gave us a bunch of recommendations, that made us think, what?? We already have a pension, so we have a stable income when we retire, but he recommended some annuities that donât pay out for ten years. Wondered why he thought we would want to cash in our 401Kâs at age 60 for annuities that pay big bucksâŠwhen weâre 85, especially since our pension will theoretically cover the bills. I donât get it, he is a very reputable, smart guy. Maybe he didnât understand our goals.
@busdriver11 , when I re-read my post (too late to edit), I realized that it might sound snarky. I promise you it wasnât my intention.
I think that honorable people tend to assume that people they interact with will not allow self-serving interests to sway their recommendations. Even reputable people will often âfool themselvesâ into believing that theyâre acting in the best interests of their clients.
Annuities, and its cousin, whole life policies,are notorious for the commissions they pay to people who can successfully peddle them. If someone is willing to pay a high commission for a product, it should tell you something about how profitable the product is for the seller.
Donât hire an FA because you think they are master stock pickers. I used to to do my own investing but when I went to work for an IB (in M&A), I had to transfer my brokerage account at Fidelity to an FA at my new employer for compliance reasons. What I found is they have better access/more knowledge of products that I had not really considered before, especially on the fixed income side. Investing is not just about maximizing returns over a long period of time. People have different risk tolerances, both emotionally and financially. For some, having a predictable and a relatively secure income stream that yields better than bank/money market rates, is a critical part of their portfolio strategy, especially if they are on a fixed income. As an individual, I am not sure I could easily set up a bond portfolio that is laddered in maturities so as to produce relatively constant current income and no pricing risk since the intent it to hold the bonds to maturity. Another area that my current FA plays in that would be difficult for me as an individual with a full time job elsewhere is using options to generate income and to hedge other positions. People generally assume options trading is a high risk proposition, but in fact they can be a very safe instrument used to reduce volatility in your personal portfolio. Writing a covered call is a simple example â I own IBM at $100, sell an option with a $110 strike at $1. I put $1 in my pocket. If IBM goes over $110 during the option period, I make $10 on the stock, but my further upside is capped. If IBM stays at or below $110, I just made $1 and still own the stock.
Last observation, I agree for the individual investor, picking stocks is like throwing darts, and oftentimes people mistake luck for skill. On the other hand there are some pretty successful hedge funds that consistently make oversized returns. The returns are magnified by leverage (and they blow up spectacularly every once in a while because of that), but someone is exploiting pricing inefficiencies somewhere.
We never had a FA while growing our investments. My husband did a fine job with it. But as we neared retirement, he wanted more guidance , and eventually we opted for a fee-only FA. Itâs not the right choice for everybody, but so far we are happy with it.
Not a snarky post at all, and might be an accurate representation of the issue. If it had been snarky, I appreciate good snark anyways.
The possibility that his goals didnât align with ours makes complete sense. Seemed odd that he appeared so straightforward in many areas of advice, but the annuity recommendations were out of line with the others, unless we hadnât conveyed what we wanted (we were vague). We wonât do anything that doesnât make sense, and donât feel pressured to do so. This was a one time consultation. I know there are some annuities that are considered much better than others, however, I feel that our pension is the same as an annuity, so why not just let the principal on our retirement savings grow until we need to use it?
It does seem, like on Bogleheads, that many support buying an annuity at a later age, like 80+ to ensure you donât outlive assets, but I would not want to lock in an annuity at todayâs rates and, unless there is a reason to accumulate assets tax-free during the time the interest accrues (maybe an early retiree who wants to get ADA subsidies) , you might as well wait and buy an immediate annuity.
