June 3, 2019

Managing Your Own Investments...Is That Wise?

Retirement Financial Planning can be a puzzle

You've heard the line about only a fool has himself as his own lawyer. Of course, there are some situations that require a professional, whatever that might be.

A surgeon if you have a tumor to be removed or fireman to rescue you from a burning building come to mind as good times to get someone else's help.

How about managing your retirement financial future, the protection and growth of your monetary resources? Is that best left to others?  Should we put our ego aside and admit others might have something valuable to offer?

Or, if we have the inclination,  a strong financial background,  and nerves of steel, should we manage our own money, our own future? Besides the cost paid to an advisor or management company, there are decisions made that may not be what leave you feeling comfortable.

I have taken both approaches. When I started making enough money to invest a little and plan for my future, I handled things myself. Of course, in the good old days, everything was much simpler. For most of us, investment options were limited to CDs, bank savings accounts, stocks, and bonds. Even though mutual funds started in 1924, the modern era for investing that way really kicked off in 1975 with the launch of the Vanguard Fund.

As everything became more complicated, the amount of money involved grew, and I had a wife and eventually children to think about, I began to feel uncomfortable. Zero coupon municipal bonds, indexed funds...other choices became available. At that point, I hired an advisor who had come highly recommended by others at work. For a few years things went very well. My savings and investments accounts were growing. I had a Keogh account to build for future retirement needs. 

Then, I received a letter from the IRS, rarely a good thing. I was informed that one of my investments was fraudulent: shares in something had been sold and resold to generate a tax loss. Unfortunately, the shares that were bought and sold had already been bought and sold by someone else. My advisor had involved me in a scam. He certainly didn't do so on purpose, but it is fair to say I lost confidence in his judgment. Also, I lost close to $10,000 in back taxes and penalties.

At that point, I revisited my decision to hand over my financial future to another. However, it was obvious the investment world had started to pass me by. The stakes were higher. And, I was traveling almost constantly so there was little time to focus on all of this. I found a fellow who understood what i wanted to accomplish. He knew how much risk I was willing to take. He sent me background material and suggestions but never executed an order without my approval. It was an excellent relationship. Sure, he made some bad choices that cost me money. But, overall, we both won.

A few years ago he was approaching retirement; I would be assigned to a younger broker/advisor. Not willing to "break" in a new person to my desires, I switched again, this time to someone my parents had used for years. She had produced solid results, in up markets, and down. She understood their risk tolerance and their goals. She was old enough to know her stuff but still a decade away from retirement, so I signed on. It has been a very beneficial relationship.


There is one fellow who is a regular reader who has taken a different tack. He manages his own portfolio. He has the time, the interest, and the knowledge to handle things on his own. I imagine Chuck is already formulating his comment to this post!

I can see advantages to both approaches. I understand the importance of control and hands-on involvement in managing one's retirement investments. Also, I understand the idea that someone who invests other peoples' money for a living can spend time on research and investigation of options.

The experience with the advisor who got me sideways with the IRS taught me to pay attention to what someone else is doing with my money. I remain very comfortable with the broker I have and plan on staying with her.

How about you? Do you handle some or all of your own investments? How has that worked for you? Or, are you in the "let the professionals handle it" camp? Have you ever been burned like I was? 

32 comments:

  1. We manage our own right now. I have always been the one with the advisor...my husband hates to meet new business people.
    I need that one on one contact---and our portfolio is not large enough to get a seasoned advisor. The young ones are nice, but they really want those big portfolios.....I hate it. I need an advisor! I am watching a friend's son grow in the business. He may be my next advisor.
    Having said that, my bad experiences have to do with young ones. The worst?
    I was with Fidelity for 10 years. I was reading an investment paper and saw my fund got a new head. She was purging the old stocks and moving into tech. No warning to investors.
    I called my, rather young, broker (with a picture of his yacht on the wall). He poo poo ed my concerns, but "let" me withdraw my money. It was then I found out it took 24-48 hours to withdraw from mutual funds. By the end of the withdrawal the fund had dropped considerably! Brokers could get big money out faster then the common folk. I am pretty sure my broker got most of his clients out with me (or before me). We lost about a third of our life savings (which took us ten years to write off). The fund, eventually, bottomed out. OW!
    I have a love/hate relationship with this topic....

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    1. You have some rather supportive history for your mixed feelings. Considering computer trading programs can execute millions of transactions in a second, 48 hours to sell mutual fund shares sounds a little fishy.

      Younger advisors have school knowledge but little in the way of actual experience dealing with a very complex subject. Like a surgeon just out of residency, I'd choose someone who had many years of cut and paste practice before being comfortable having them wield a scalpel on me!

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    2. Janette, your comment on your advisor reminds me of the famous investing book "Where Are All the Customer Yachts?"

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    3. Still the rule: "However, unlike equities and other types of securities that trade on the secondary market throughout each trading day, share transactions in a fund are carried out once each day after the market closes at 4 p.m. EST (Eastern Standard Time). With the exception of money market mutual funds, the clearing of a trade transaction is executed over the following one to three business days, depending on the fund company and the type of fund." Investopia May 2019 Some mutual funds take time to get out of. If it is falling fast--you may get hit hard! I learned the hard way.

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  2. Count me in the do-it-yourself camp. I lost a banking position in 1990 when the large federal savings bank I worked for failed, and was gobbled up by an even larger bank in better financial condition. I was 33 and had been faithfully contributing to my 401k, investing in fairly conservative mutual funds with Vanguard through it. Suddenly, I was responsible for what could be life-altering financial decisions when lump sum payments for both my 401k and my bank pension landed in my lap. At that point, I asked a broker friend to park all of it in a conservative and safe investment until I could educate myself. Money magazine became my best friend and John Bogle, founder of Vanguard, became my hero. Although all of our investment decisions were mutually agreed upon, my husband handed the investing reins to me early on in our marriage due to my financial experience and his lack of interest in investing. The happy ending to the story is that we were able to accumulate enough in retirement funds to retire early without sacrificing our plans to travel throughout our nearly 40 years of marriage.

    I am a huge proponent of financial education. Even if I chose to engage a financial advisor, I would want to understand investing enough to be assured that my advisor was making choices that were completely in line with my goals and my risk tolerance. I do understand that there are many different perspectives but, personally speaking, the thought of blindly trusting anyone with my financial future scares me to no end.

    Excellent post, Bob! But I'll bet you knew I'd say that, didn't you?! Have a good week ahead!

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    1. My personality is one that craves control in most areas..just ask my wife! In this case, however, I am aware enough of my own limitations to trust another person to do his or, in this case, her job better than I could.

      I think if I hadn't spent so many years traveling and had spent a normal amount of time at home I would have educated myself to the point where I did the bulk of investing on my own. The Internet has certainly made that process much easier. But, it is too late in the game for me to feel even remotely comfortable doing what my advisor does for me.

      Thanks for the compliment, Mary.

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  3. Who is this Chuck fellow you referred to, Bob? Sounds like someone I would like to meet :)

    Yes, I prefer not to pay an adviser who too often looks at your portfolio from the standpoint of how much he or she can get from it. Have I made mistakes? Absolutely and I wish I could have a do-over on them. But there is just as good a likelihood that over the last 40 years I could have had that or more confiscated by an adviser who might have known less than I.

    When the Madoff Ponzi scheme was exposed much of the money that was invested with him was put there by financial advisors who told their clients they were investing it themselves. For that they were taking 1% or more of the clients assets per year. Doesn't sound like an optimal situation for people like ourselves, and it happens a lot more than people realize. Maybe not as horrible a situation as Madoff but the situation is still ridiculous.

    If people are too afraid to do a lot themselves, a small collection of stock and bond funds or ETFs would let sleep at night. And if you are someone enticed by annuities, buy a good index fund (e.g. Total Stock Market) and ladder yearly CDs. You have done exactly what most annuity providers do without all the fees and contingency costs.

    I was reading your post to Deb this morning and she said "it's you" before I even got to the name. Take care, Bob; hope you and Betty are staying cool. Spending some time here in VA Beach and we are finally cooling for a couple of days. Hoping for the best for you guys and your readers as well.

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    1. Virginia Beach...suddenly that name is in the news and not in a good way. Another horrible mass shooting to deal with.

      Yes, I wrote this post thinking of you and your responses. As I noted to Mary above, if I had not spent 150 days away from home each year I would have been a candidate for do-it-yourself. I know there are fees being paid that may be unnecessary. But, they give me peace of mind and a good investment portfolio that has weathered a lot over the years.

      I have only about 25% invested in equities, so you know I am conservative. Greed (think Bernie Madoff) is the biggest enemy investors face, either from others or their own mindset. Give me a steady 5% instead of a risk 9% any day.

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  4. I am almost completely in the “manage it myself” group. Up to a few years ago I was handling all of my own investment decisions. But I realized that at some point I would probably need to rely on some form of professional advice. I attended a discussion group that was being hosted by one of the brokerage houses that I use and saw a presentation by an investment company that used a similar strategy for selecting stocks that I used. So I opened a modest account to have them manage for me. It is a small account, less than 5% of my investments. It has allowed me to “test drive” using a separately managed account. The results have been positive so far (no down market yet). While I still choose to manage the bulk of my assets, my experience thus far leads me to believe that I could let this company manage a larger portion of my investments in the future if I decide to step away from full control.

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    1. The idea of "test-driving" a company with a small portion of your assets is an excellent idea. Of course, when the next downturn comes most everything will take a hit, whether managed by you or a company. So, that shouldn't determine if you continue with them. But, if you are comfortable now, likely you will be comfortable moving forward. I like your approach.

      One thing no one has mentioned so far but is a point that should be raised: as we age our memory and cognitive abilities will decline. If we are handling our money just fine now, will we be aware when it is time to admit we are slipping a bit? That is a question I don't have an answer for.

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  5. Contrary to previous posts, we employed an independent CFP in 1985, have yet to regret it and are still with that firm. We're enjoying financial freedom in retirement that I don't think I could have designed without help. They kept us to only a 19% loss in 2009 and we've more than recovered nicely. I never had to worry about the ebb and flow of the market and that was a relief. I favor knowledgeable advisors but the skill comes in seeking those out.
















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    1. Not counting the slippage in our house value, we were probably around 20% down after 2008. By 2012 we were ahead of where we were in 2007. Of course, we lost 4 years of growth just to get back to above even, but I have no complaints. Lots of people had a much bigger loss than we did. My agent did what he was hired to do.

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  6. Hi Bob! Count my husband and I in the category of do it yourselfers. Of course we only stick with what we know...which is real estate. When we "Played" at stocks/bonds we did horribly. But since sticking with what we know, we've done very well. And wasn't it Economist Daniel Kahneman (???) or another author who wrote that even though we want an advisor to be more knowledgeable, research shows that overall they aren't much better at "guessing" than we are. After reading that...darn, I wish I could remember the author...it's best to never rely fully on any outside advice completely. Sort of like with doctors...we've learned that you can never turn your health over to one completely. We believe in being our own best advocate with health...and with money! ~Kathy

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    1. Betty and I owned 4 rental homes at one point. We made money on three and lost a bit on the fourth because of damage from a tenant and too quick a flip. I must admit I wasn't fond of being a landlord but it was a good experience.

      Whoever made the statement about allowing someone else to be fully in charge is correct. That "rule" applies to retirement, too. No matter what advice you can collect from others(including me!), this journey is unique and must be eventually crafted by you.

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  7. I used an advisor in N. California in the '90's when I was not confident about investing. At the time, I was newly single and in a business making good money with no time or confidence to take on investments. My former husband worked for a nationally prominent company, and I received some of his stock when we split up. The advisor I was using suggested I sell that stock and reinvest. I had heard rumors the company stock was about to split and mentioned it, but he poohed poohed it and said he hadn't heard that (nor did he seem to know much about that company). So I took his advice and within a week, the stock split. Grrr. Once I took over my own financial management, I bought it back and made quite a bit on it over time.

    I also joined an investment club for a while and we did a lot of research before buying anything. But after the dot com crash and losing five figures on two different stocks, I swore off individual stocks and went to index funds. We do our own investing at this point. DH used an advisor for a year or two in the recent past, and the costs exceeded the gains every quarter but one. So we decided (after reading something similar to Kathy's comment re: advisors being about to guess better than ourselves) that we would handle our own funds.

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    1. There are a lot of "experts" who are self-labeled, like the broker who didn't know about the stock split. Learning who to trust is never an easy task.

      Thanks for mentioning the investment clubs. I know they were quite a thing a decade or so ago, but I haven't much about them recently. Maybe your experience was common. And, now with so much information available on the Internet, what you need to made a wise choice is available to everyone. The trick is still weeding out the good info from the bad!

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  8. My husband & I have an investment firm we have worked with for about the last 18 years. They've done very well for us. Once husband retired, I asked if we still needed to use/pay them. Husband said "as long as they're making us more than we're paying them, we'll stick with them!" And so far so good. On the other hand, my father-in-law handled all of his own investments over his lifetime (for both him & my MIL). He was a supervisor in a large factory, & MIL was a public school secretary. We came to realize how good he was at investing once he died & it was discovered that there was $6M in their estate! Holy smokes! He did use a broker who he'd call & buy/sell with. But he made all the calls. Guess it's all about what you're comfortable with, right?

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    1. Exactly. What arrangement allows you to sleep well at night is the best. Importantly, either choice needs to be revisited on occasion. My experience with three different advisors of the last 40 years has proven that it should never be on automatic pilot.

      $6 million estate? Your FIL was good. It would be interesting to know what his philosophy and approach was.

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  9. When I outgrew savings accounts and term deposits I spent almost two years looking for the right broker. When my first broker retired 31 years later I had met and approved his chosen replacement. Both brokers work within my comfort level and risk tolerance, talked me out of investments I would have later regretted, and make no changes without my approval. Like Anonymous, as long as they are making me more than I am paying I'll stick with them. I am comfortably enjoying early retirement.

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    1. You and I are approaching this area the same way. As long as I remain comfortable with my advisor's efforts and the results are what i consider reasonable, I have too much else to do to spend my time replicating the actions of someone who does this for a living.

      Could I save some money on fees? Sure. Would my overall returns be any better if I took over? Doubtful.

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  10. After my marriage ended when I was 50 I ended up with half of not very much! I was 15 years from retirement (in NZ we get a government pension at 65) but had no savings and a mortgage.

    I took courses in financial planning for retirement to educate myself and in recent years have used the internet to acquire more knowledge. Early on I met with a financial advisor who said my portfolio was too small to interest him! So I have always done it myself and happy with what I achieved before I quit work at 68

    I made a couple of mistakes and learned from them and I share what I have learned with friends and family, always encouraging them to check it out for themselves, to understand their risk profile and to save regularly from early on - something I did not do!

    No one else will have quite the same interest in your money as you do - education is key to making informed decisions whether you do it yourself or use an advisor.

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    1. Your last point is worth repeating: education is key, regardless of who touches your money. In fact, if you don't do your homework you won't be really able to judge of an advisor is better or worse than doing it yourself.

      BTW, I just read a news story that the government of New Zealand is making it official policy to emphasize the happiness of its citizens over economic growth regardless of its impact. If true, I say, Amen!

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  11. Very happy to report Bob that it is indeed true! The budget last week was described as the Wellbeing Budget with the focus on social issues, housing and child poverty. Our Prime Minister Jacinda Adern is a new mother, warm and empathetic and was elected after a campaign focused on kindness and integrity. We are so blessed!

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    1. Yet another reason to visit your incredible country. My wife and I have plans to take a cruise from Honolulu to New Zealand next fall and spend close to a week exploring both islands.

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  12. Bob,
    I'm in the do it yourself category, but I take a pretty simple approach. There are two keys; decide how much risk you want to take, and ignore the 24 - 7 financial noise on cable and the internet. The risk decision is what percentage of your invested assets go into stocks. That money goes into a total market mutual fund or ETF and left alone. The rest of the money goes into CDs or Treasuries with maturities staggered out for 5 years (any brokerage will help you set this up). Then comes the second key point. To ignore the noise, only look at your investments at most once every 3 months. Rebalance if needed. Otherwise enjoy your retirement.

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    1. I like your reference to digital noise, because that is really what it is. The markets react emotionally to every bit of good or bad news (or speculation) instantly. Personally, I couldn't go 3 months without checking on things, but your point is important: rebalance when need to but don't be swept up into today's hot news.

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  13. Well count me in as one who manages our own money.My Wife and I learned very early in our marriage that it was never about how much we made it was about how much we spent. Early in our marriage we got in trouble with $3,000 dollar credit debt and vowed to each other that would never happen again.We instead did without and started to save money on a weekly basis though credit union in the sum of $25.00 a week for emergency funds, granted this was 50years ago.
    When we bought our 1st. home we saved by making macaroni and cheese out of a box as most of our weekly meals. As are income increased we always increased our savings amount.We never spent what we did not have.
    When we both retired at 60 we first made sure we had no debt and no house payment. We were a little lucky that most most purchases we made were with no interest if paid with in a certain time frame, most were paid early.
    As far as investing I promised myself in retirement that I would never have any exposure to any equity that had the potential to lose money. I sleep well at night knowing that it does not matter what the market does tomorrow.( still watch as kids are invested).
    As far as the 4% rule states for the past 8 years we have not exceeded 2% and funds have increased and this included remodeling our 2nd home at retirement. I know one size does not fit all, but it has worked well for us.

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    1. You have checked off all the important boxes: living below your means, saving, avoiding debt, knowing your risk tolerance for investments, delayed gratification.

      Just about perfect from what I can tell. Good job.

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  14. I manage my own. I can't see paying another tax... advisor tax. I have a particular point of view, and I invest that way. I do not want to be harassed by Wall Street's noise.

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    1. An advisor fee is really like a tax, one that can't be deducted anymore. Good point.

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  15. I set up a self-directed RRSP when I got my first career job in my 20’s, and began educating myself about financial management. It was harder back then before the Internet, but I subscribed to “Your Money” magazine, read the financial pages of of the newspaper, went to financial seminars hosted by my banking institution, and joined a women’s investment education group. As my portfolio grew and I became too busy to keep on top of it, I finally started using a financial advisor through my bank. I kept one small pot of money out for myself to “play with.” I currently work with an advisor whom I’ve had for seven years. When I was deciding to retire, he developed a financial plan for me that reassured me that I was financially prepared, and set out a recommended withdrawal rate. He does his research, and I’m happy with his advice.

    Jude

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    1. I remember depending on Money magazine for a lot of my early investment and money management knowledge. I looked forward to its arrival every month. That seems so quaint now, with information a click away.

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