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Sunday, April 19. 2015

Is "professional money management" a rip-off?

Over the years, I am convinced that it is.


I am not saying they are crooks. I'm just asking whether, if you are a reasonably-informed person, they are worth the cost?


John Bogle did not convince me. Reality did. I am a Vanguard guy and I never speak with them. I trust their people with their bond funds more than I would trust myself.


However, help with financial planning is always good.


What's your opinion?

Posted by The Barrister in The Culture, "Culture," Pop Culture and Recreation at 12:21 | Comments (18) | Trackbacks (0)

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If you're an underclassman you don't have to worry about it.

If you're a pleb it starts to become a problem. 401k and mutual funds. Dripping stocks. You probably don't have enough money to invest heavily. Hate to pay those capital gains on those mutual funds so individual stocks seem so much better.

For the ratracer time is an issue and if you don't study your stocks and the market you can make some real boo-boos. Up to $250,000 is investments, you might be able to handle it yourself. Don't put too many eggs in one basket. Diversify, of course. It is hard to work 60-80 hours a week and still be a great money manager unless that is your game. Might need a helping hand when your savings get to the deep end of the money pool--$500,000 and above. You want to make money, not mismanage it. That is not to say that money managers don't make mistakes.

The rentier has a different problem. Money management may just not be their strong suit. They may want to spend that $$$ rather than push it around. If you have millions of $$$, what do you do with it? Tax considerations are a must. Dry as dust, some of that stuff.

I have managed and picked my own investments. I now use a manager that does charge a fee. I can afford it. Can you afford not to have one?

best,

red
#1 tennesseered on 2015-04-19 12:53 (Reply)
Prior to retiring, I started working with an independent financial adviser. His advice has increased my 401K (with my former employer - money's still in there) and IRA by around 8 times the amount I've paid him in the past year. Definitely worth the time and money to me.
#1.1 K C Lockhart on 2015-04-19 13:47 (Reply)
I work for two financial advisors and red's assessment is pretty good. If you are relatively good at managing money, think that you know all you need to know and are satisfied with your options, then go for it. But good financial advisors can be very useful in helping to identify and organize goals, assess situations and research and propose options, plan and organize for the future, and help keep people accountable to their own goals. Many people with lots of money are horrible at managing it, and vice versa. Many people think professional lawyering is a ripoff too.
#2 D on 2015-04-19 13:22 (Reply)
I find them to be a bit of a rip off via fees. We do appreciate our accountant's informed advice re insurance planning, pension planning, and wills.

A friend who is a pro told me that if you buy individual equities you are gambling. You will win one, and lose with the next.

I prefer a mix of everything Vanguard, and never think about it. Well, real estate too.
#3 Bird Dog on 2015-04-19 13:53 (Reply)
Maybe if you have a ton of money, different rules apply.
#3.1 Bird Dog on 2015-04-19 13:56 (Reply)
I am sure that Vanguard is a fine company and I am happy that you are happy with them. I have made money on mutual funds and also lost my arse on them. Don't really care for them.

What is a ton of money?

Them there folks on CNBC, Jimmy Cramer, etcetera, sure want to make it sound like rocketry science, aka aerospace engineering.

Your friend who is a pro that told you that if you buy individual equities you are gambling should have also told you that the purchase of mutual funds and other investments is also gambling. Why do you think there is always the caveat: Past Performance is No Guarantee of Future Results? It is a trigger warning.

Gamble in a casino and you are always facing a negative expectation. Sure, you may win, but the house is always pocketing the vig. Did you know that the only time the house makes money at roulette is when you win? If you don't know this, and most don't, you have no biz in a gambling house. Also know that 7 comes up a lot at the crap table; it must as it is the way of the world. It has kept the neon on The Strip burning brightly for a long time.

Investments are exactly the same. The house is always collecting the vigorish. They don't care if you win or lose. If you win, you collect your profits minus the vig. If you lose, you suffer a loss minus the big. House always wins. They never want to pick at your profit, nor do they ever reimburse you when you lose. I'd bet that Vanguard leaves the lights on at night when nobody is home.

The stock market, over time, is a wager of positive expectation. In order to reduce the cost of gambling one should always pick a casino with the best odds. The same is true of investments if you can get the service you want at that price.

Don't be in a hurry. Don't get in a sweat--if you sweat the investment you don't need to be in it. Buy good stocks that have performed over time that pay a dividend. Wait for growth and collect the divvies while you wait. Buy value and wait for it to appreciate. Don't buy IPOs like Facebook. Still not sure where that is going. Same goes for Krispe Kreme.

Good luck. Ya gotta do something with that money. Can't sit on it--inflation (which, of course, we don't have any of right now--BULLSHIT!) will eat you alive.

mo best,

red
#3.2 tennesseered on 2015-04-19 16:11 (Reply)
I am sure that Vanguard is a fine company and I am happy that you are happy with them. I have made money on mutual funds and also lost my arse on them. Don't really care for them.

What is a ton of money?

Them there folks on CNBC, Jimmy Cramer, etcetera, sure want to make it sound like rocketry science, aka aerospace engineering.

Your friend who is a pro that told you that if you buy individual equities you are gambling should have also told you that the purchase of mutual funds and other investments is also gambling. Why do you think there is always the caveat: Past Performance is No Guarantee of Future Results? It is a trigger warning.

Gamble in a casino and you are always facing a negative expectation. Sure, you may win, but the house is always pocketing the vig. Did you know that the only time the house makes money at roulette is when you win? If you don't know this, and most don't, you have no biz in a gambling house. Also know that 7 comes up a lot at the crap table; it must as it is the way of the world. It has kept the neon on The Strip burning brightly for a long time.

Investments are exactly the same. The house is always collecting the vigorish. They don't care if you win or lose. If you win, you collect your profits minus the vig. If you lose, you suffer a loss minus the vig. House always wins. They never want to pick at your profit, nor do they ever reimburse you when you lose. I'd bet that Vanguard leaves the lights on at night when nobody is home.

The stock market, over time, is a wager of positive expectation. In order to reduce the cost of gambling one should always pick a casino with the best odds. The same is true of investments if you can get the service you want at that price.

Don't be in a hurry. Don't get in a sweat--if you sweat the investment you don't need to be in it. Buy good stocks that have performed over time that pay a dividend. Wait for growth and collect the divvies while you wait. Buy value and wait for it to appreciate. Don't buy IPOs like Facebook. Still not sure where that is going. Same goes for Krispe Kreme.

Good luck. Ya gotta do something with that money. Can't sit on it--inflation (which, of course, we don't have any of right now--BULLSHIT!) will eat you alive.

mo best,

red
#3.2.1 tennesseered on 2015-04-19 16:19 (Reply)
If your time is more expensive than the cost of the portfolio manager, go for the portfolio manager.
If not, do it yourself.

That is, if you have the skills to do it yourself, which may or may not be the case.
#4 J.T. Wenting on 2015-04-19 14:03 (Reply)
It's not rocket science.
#4.1 Bird Dog on 2015-04-19 14:13 (Reply)
So the purpose of the post was to do two minutes hate on financial planners because the wizbangs at Maggie's can do everything better by themselves via Vanguard and their trustworthy accountant?

The advisor I work for didn't get to where she is for over 30 years by not making money for her clients. And they are all over the asset-ownership spectrum.
#5 D on 2015-04-19 14:50 (Reply)
No not hate at all. Just asked for people's opinions.
#5.1 The B on 2015-04-19 17:13 (Reply)
Two elements to wealth: The first is making it and the second is keeping it. Keeping it is the harder of the two.

Look for companies in which senior management has a significant investment financed from their own pocket.

Invest your money in companies led by successful businessmen. If they move, follow them. Trust not in analysts' reading of ratios and spreadsheets etc.

For any stock you will find differing views; some "experts" will be recommending a buy while others will be recommending a hold or a sell. These are curious conclusions as they come from the same data. Different interpretations of goats' entrails or tea leaves may be the explanation.

Do not pursue the GRQs (get rich quickly) investments. This will lead to the GPQs - guaranteed.

Yet again, invest your money in companies led by successful businessmen. Successful companies are not led by failures.
#6 HRT on 2015-04-19 19:24 (Reply)
The trouble with funds, besides fees putting you behind from the start, is that they're obligated to take capital gains, where the individual holder of things is not.

You might prefer not to sell for a long time, and not get taxed.

There's also your goals. If you're rich, the goal is to stay rich, not to get rich.

Mostly, people aren't wanting to hand you money, so getting rich isn't as easy as you'd think without working for it.

Staying rich is a better goal.
#7 rhhardin (Link) on 2015-04-19 21:29 (Reply)
Every time I move toward using a PMM I stop and ask: why don't they join wholly in my/their success and/or failures by charging a % of the gain, but charging nothing if the account loses? I would call this professional incentive and would be far more likely to hire a PMM under those conditions. I dislike the idea of paying 1.5-2% of MY assets to someone without a shared risk. I continue to manage my own money via Vanguard and a MLP at Fidelity. My collective investments are keeping ahead of my MRD so what more can I ask?
#8 Kate C. on 2015-04-20 01:15 (Reply)
Barrister,

My experience is that most people do not have the discipline to trust the money managers at Vanguard (or wherever).

I'm in the business. If someone is trying to woo you with performance, I'd use extreme caution. Of course we try to maximize performance for our clients - under the constraints of risk, markets, needs, etc., but that isn't our primary job. Most of what we do is help clients understand their risk tolerance and manage resources for down the road (retirement, education funding, tax/estate planning, etc). Our firm goes far beyond just picking investment vehicles.

FWIW, about half of our AUM is from highly sophisticated investors that work in finance/equities. They are more than capable of doing it themselves but a) it makes economic sense to outsource it (their earnings on what they do far exceeds the cost of paying us) and b) love the extras that we bring to the table.
#9 Steven_R on 2015-04-20 05:49 (Reply)
I have a PMM for about 3/4 of my 401(k). I pay him 1% a year or $1,000 - based on performance.

I manage the other 1/4 of my 401(k), and all my other assets.

I perform as well, if not better, than the PMM.

It's not rocket science, it's discipline, and it's knowing when to make a decision, then sticking with it unless it's a horrible decision (which you find out pretty quickly most of the time).
#10 Bulldog on 2015-04-20 08:43 (Reply)
Bull markets convince everyone that they are financial geniuses.Proper portfolio construction is almost impossible in today's manipulated rate environment. The stock market's relentless rise is creating a very dangerous situation. Folks are chasing yield. We all know how that plays out.

Don't buy the b/s!
#11 Tom C on 2015-04-20 11:50 (Reply)
Let us know how those Vanguard bond funds do for you in the future. Of course, any you it yourselfer would think they are the place to be invested now.....
#12 Jack on 2015-04-21 00:45 (Reply)

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