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Old 04-21-2010, 06:32 PM   #61
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One thing I've noticed when discussing investment costs with others is that they think it's "just 1% or 2%" for "professional management". As others here have said, that is just a huge amount of money. If you are going to retire on 4% of your portfolio, you are going to be paying at least 25% of your income, every single year, to this guy.
Say you have $2M to retire on. Well 1% means that you are paying someone $20K a year, on top of your other investment expenses. You pay that $20K no matter how your investments perform, year in and year out.

I think that is what ultimately gets most of us to take a good hard look at what is needed to do it ourselves. And when you see how little effort is needed to invest the money in low-cost conservative funds, the fee becomes laughable!

[And then you really have to trust that, now that someone else has control over your hard earned money, that he is not going to screw you over any way he can. And believe me - they have a lot of ways to catch you in situations that have you paying more fees.]

Ultimately, I bit the bullet because I couldn't imagine handing that kind of money over to a financial "professional" year-after-year. I had met enough "stock broker/insurance agent type" acquaintances of my parents to have a distrustful feeling about them and I knew that no one, absolutely no one would be as careful with my nest egg as I would.

I have since heard so many horror stories that I have felt vindicated many times over.

Audrey
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Old 04-21-2010, 06:40 PM   #62
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I just like to understand all the arguments, and in this case I need to understand them well enough to summarize them for my wife. She seems to feel that the argument that a professional can play this game 2-3% better than an amateur is NOT inherently ridiculous, so I'm just probing into the question a bit more.
One of my favorite summaries of the usefulness of indexing is from Jason Zweig:

I don't know and I don't care - Aug. 29, 2001

It was good enough to convince my wife
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Old 04-21-2010, 07:04 PM   #63
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It is not hard to take care of your finances/investments yourself. There are lots of folks here to help you do it, and to recommend good, reliable books and other resources you can use.
It's easy to park your funds in a few simple funds right now to give you time to learn more, then you can do some more complex maneuvering if you want. But you don't have to--if you simply set up a well diversified portfolio of a few low-cost index funds and rebalance them once per year, you'll be far ahead of most day traders and other folks feverishly trading stocks. And, after a few years of saving all the costs that this Ameriprise bandit wants to charge you, you'll be even farther ahead.
No one here has anything to gain. We have no vested interest in trying to convince you to do things a particular way. Can your Ameriprise friend say the same thing?
It will only take you a few nights to read some of the books that can explain the basics of this stuff. You'll save thousands and your future will be more secure than if you trusted any financial advisor working on commission.
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Old 04-21-2010, 07:10 PM   #64
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I am not a shill for Vanguard honest. However, I want to point out that if you have a large enough portfolio (not unreasonable if it is your retirement nest egg), then Vanguard will do a free financial plan for you including a recommended portfolio, a "personal financial adviser", complementary yearly updates to the plan, and they will even set up automatic transfers to average-in while getting the portfolio up and running. You don't have to do it entirely on your own.

I imagine Fidelity has similar if not better arrangements.
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Old 04-21-2010, 07:16 PM   #65
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One more point, the annual meeting with the pro might seem like he/she manages your money exclusively, but keep in mind you aren't his/her only client. No matter how nice, intelligent, polished they seem, remember they have other clients too.

This was a major reason I do my own taxes (via Turbotax). I used to have an enrolled agent do my taxes but found all I really was, was just another customer among others. Plus I didn't like having to scrutinize what the tax pro did to, yes, correct the pro's mistakes.
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Old 04-21-2010, 09:24 PM   #66
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Lots of excellent points. Thanks!
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Old 04-22-2010, 12:13 AM   #67
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Think about this: if he can REALLY beat the market by 2-3% a year and, during the course of his lengthy career, has demonstrated said ability, why is he marketing to small time retail investors? His proper seat should be at a trading desk of one of the large multinational investment banks or hedge funds (or even mutual funds) and he should be managing billions of dollars at a minimum.
"If he's so smart, why ain't he rich?"

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Let me put it this way: I am an investment professional with ample experience, a CFA charter and a finance MBA from a top 10 school. If I could consistently beat any index by 3% without taking more risk, I would be a billionaire. Maybe Warren Buffet can do it. Maybe. Maybe Bill Gross can do it (maybe). That is about it. Your tinpot Ameriprise guy cannot do it.
IIRC Bill Miller did it for 15 years.

But that 16th year was ugly, and then the recession got going.

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Lots of excellent points. Thanks!
After 6+ years on this discussion board, and dozens of posters asking questions about similar situations, I've learned to look upon your response with some skepticism verging on jaundice & cynicism. Past results are no guarantee of future performance, so to speak, but previous posters expressing similar sentiments have essentially been saying "Thanks, but I don't really believe that it's as bad as you say and we're gonna go with the Ameriprise guy for a while." To which we usually nod our heads and say "Yep, you're gonna have to prove it to your own satisfaction."

Or, as CuteFuzzyBunny used to cite so eloquently, "Hairball."

I like the other poster's metaphor of writing a check to your spouse every year for the amount you'd be paying to the advisor. Or heck, you could do it as an incentive and not just as a metaphor.

Another thought experiment would be asking your spouse if she'd like to pay that amount of money as tuition for one of your kids, siblings, or relatives at a private school or a college. For about 40-50 years.
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Old 04-22-2010, 01:07 AM   #68
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Write a check for 1 percent of your assets and show it to your wife. Ask her if she wants it made out to her or to Ameriprise. Remind her the payment will be repeated every single year. I bet she will come around.
Don't forget to calculate the lost interest (compounded) to that!
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Old 04-22-2010, 09:38 AM   #69
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In a similar vein to Nord's post, I've been approached by a nephew for investment advice and dutifully referred him to the usual references and even bought him the Boglehead's book for Christmas. I was sure I saw him nod his head.

Last weekend I saw him at a family gathering and he proudly told me that he is now investing............. in penny stocks!
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Old 04-22-2010, 10:14 AM   #70
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Ask him to reduce into writing his promised 2-3% out-performance. Either he is a cheat and a liar and a crook, or he will be willing to stand by his word. At a minimum you should get him to agree to refund any fees in excess of 0.25% or so if he fails to outperform over a reasonably long period of time. When he gets done laughing in your face, come back and see us!
You are a lawyer, and think his Compliance Department will let him sign his name to that?
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Old 04-22-2010, 10:21 AM   #71
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In a similar vein to Nord's post, I've been approached by a nephew for investment advice and dutifully referred him to the usual references and even bought him the Boglehead's book for Christmas. I was sure I saw him nod his head.

Last weekend I saw him at a family gathering and he proudly told me that he is now investing............. in penny stocks!
Similar experience here. A friend of a friend heard I had RE'ed at 48 and was living on dividends. He had saved up some $$ and wanted to talk for a few hours. I explained 2 approaches - mine (individual stocks, growing dividend approach, requires an enjoyment of fundamental analysis) and basic asset allocation / rebalancing (low cost index funds). At a later gathering he proudly mentioned the day-trading class he took, expensive software he bought, and big profits he was making. At later gatherings, no mention of results.
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Old 04-22-2010, 04:09 PM   #72
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It can work--for a while. I had a friend with a regular day job who day traded part time and made $60K+ one year, was positive the next year but never wanted to talk about it after that.
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Old 04-23-2010, 12:31 PM   #73
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You are a lawyer, and think his Compliance Department will let him sign his name to that?
Of course not, but that is why asking the question and getting laughed at in response is so critical to persuade the would-be investor that promises of outperformance are nothing but puffery and sales talk if they aren't contractually guaranteed "or your money back".
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Old 04-23-2010, 12:44 PM   #74
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Of course not, but that is why asking the question and getting laughed at in response is so critical to persuade the would-be investor that promises of outperformance are nothing but puffery and sales talk if they aren't contractually guaranteed "or your money back".
Let's just Amerprise is not the gold letter standard for compliance........
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