Help Me Critique My Broker

[tangomonster]

I know a lot of you are do-it-yourself types and don't get much financial advice. We don't, either, but occasionally we succumb and seek out the "professional advice" of our Fidelity broker for choosing mutual funds. We met with him in July, when he convinced us to get heavily into energy, commodities, and international index/mutual funds.

We called him today to get some more advice for this market. He wants to wait until Tuesday when he will know what Fidelity market research "experts" are saying. But here are some of his gems:

* We can sell most of our mutual funds and keep it in cash until the time seems better for reinvesting---or while we explore what changes we would like to make. He could not explain how this wasn't market timing.

* That no matter what, stocks are crucial to beat inflation.

* That the health care sector will do well if Obama gets in---and he said this after we said we didn't want narrow investments. I do realize that when stocks start to recover, it probably won't be the broad market but just some individual stocks/sectors-----but very few of us are capable of pinpointing what those stocks/sectors will be. And why would health care stocks necessarily take off if Obama gets in? Yes, more people may be insured---but insurance companies may make less of a profit. Health care may need to be delivered more chealy. And regardless of who gets in, the economy is getting to take its toll on people purchasing health care.

*That we should get rid of our international funds because the market may not have bottomed in other countries.

* That we should get rid of energy funds (supposedly both candidates are into alternative energy resources).

My husband is so desperate at this point that he is once again willing to listen to the broker. Would any of you take any of this advice?

 

[REWahoo]

Would any of you take any of this advice?

The only piece of his advice I'm in complete agreement with is this:

* That no matter what, stocks are crucial to beat inflation.

Everything else is suspect.

 

[haha]

My husband is so desperate at this point that he is once again willing to listen to the broker. Would any of you take any of this advice?

My advice is to drink more, talk to brokers less. And, you can quote me.

Ha

 

[tangomonster]

REW, how will stocks be beating inflation if it takes years and years to recover the losses just of the principal, let alone grow?

Ha, maybe a drink would make the broker's advice make more sense---problem is that we may be cutting back on discretionary stuff like booze!

 

[FIREd]

Wow, a lot of terrible ideas here. You should just sit on your hands and do nothing at this point.

 

[WM]

I'm not one of the old-timers around here, but if you're looking for opinions, this all seems like terrible advice.

Of course it's market timing, which is why he couldn't explain otherwise. Even worse, it sounds like he's advising you to sell low, then buy high later. Exactly how is that going to make you better off? At least if he's going to market time, he could be telling you to buy now while it's cheap!

When do you plan on needing this money? I don't have any good ideas for helping your DH not to panic, but wow, following any of this advice seems guaranteed to make things worse.

 

[73ss454]

Get out the dart board.

 

[Meadbh]

No, I wouldn't.

Here's what my advisors have said:

Cover your short-term needs.
Have faith in your long-term financial plan.
Keep your head.

Here's what I've done:
1. Invested 100K in income generating real estate over the past year
2. Deferred new car purchase
3. This month, will decrease DCA into the market by 50%
4. Redirect all other ongoing savings towards cash reserve
5. Stopped obsessing about ER date

If I had a large cash reserve I would be buying.

Que sera, sera.

 

[growing_older]

He could not explain how this wasn't market timing.

Likewise, all this talk of moving from sector to sector is just as much market timing. If you want to be a trader and time which sectors are in favor and which are going out of favor, then be unabashed about it and time away. If you want to be a buy and hold index investor, then forget all this and just pick an asset allocation. If you choose to rely on this broker's research dept for timing advice, then at least understand that's what you are doing. Either way it's your money. Broker just wants the commission.

 

[cute fuzzy bunny]

when he convinced us to get heavily into energy, commodities, and international index/mutual funds.

And you havent learned your lesson yet? He humped you into everything that was already run up. Also known as "buy high"

We can sell most of our mutual funds and keep it in cash until the time seems better for reinvesting

Also known as "sell low"

He could not explain how this wasn't market timing.

Thats because it is market timing.

That no matter what, stocks are crucial to beat inflation.

The only good piece of advice. Other options? You could lose money to inflation and taxes in cash and cd's. You could barely break even with most bonds, after inflation and taxes. You could squeak out a couple of percent using TIPS, providing we dont have a few deflationary years that start eating your returns. Over every 20 year period in virtually every modern economy, the only asset class that has returned better than a percent or two real, taxed return is equities.

but insurance companies may make less of a profit. Health care may need to be delivered more chealy. And regardless of who gets in, the economy is getting to take its toll on people purchasing health care.

Congratulations. You're smarter than your broker. I've been out of the health care sectors for a few years now, for exactly the reasons you've delineated.

That we should get rid of our international funds because the market may not have bottomed in other countries.

Or they may recover faster than our market does.

That we should get rid of energy funds (supposedly both candidates are into alternative energy resources).

So? Lets say every car manufacturer rolls out new models tomorrow that are 4x as efficient as current models, and half of them are electric. Then on Sunday the electric companies announce that they've figured out how to run their plants 24x7 without maintenance to be able to charge up all the electric cars.

How long before a majority of the existing cars, trucks, buses and so forth reach the point where its more economical to scrap them and replace? 3 years? 5 years? 7 years?

Couple that with the fact that none of this stuff will be happening tomorrow or sunday...or next year, or 3 years from now....or....

Oil will be around for some time. Its gotten cheaper and may get cheaper still. But it going to go back up again, probably as early as next year. And it'll keep going up.

 

[REWahoo]

REW, how will stocks be beating inflation if it takes years and years to recover the losses just of the principal, let alone grow?

CFB beat me to a response. What he said.

 

[AzDreamer]

After seeing what brokers try to sell to unsuspecting clients it was easy for me to decide that their help wasn't what I wanted.

I went to the library and looked at Peter Hulber's newsletter. It rates investment newsletters on return relative to risk. I found a newsletter that didn't take on too much risk, had a good long-term record and advice I could easily follow.

I have followed this newsletter for several years and even during times like this I feel my strategy will eventually work. Whether things work out or not I'm still sleeping well at night.

 

[tangomonster]

So what advice are you following from your newsletter, AZDreamer?

CFB, you're right---who's to say internationals won't recover faster than US stocks?

Mead, sounds like you have better advisers than I do! Must not be Fidelity brokers!

And GrowingOlder, I agree---it IS just another type of market timing to get in and out of sectors every three months!

 

[Meadbh]

Mead, sounds like you have better advisers than I do! Must not be Fidelity brokers!

MD Management
MD Financial

and Scotia Private Client
http://www.scotiabank.com/cda/content/0,1608,CID4961_LIDen,00.html

 

[audreyh1]

CFBs answer was great. Show that to your husband! You're broker is obviously an idiot. I think you can at least convince your husband of that from CFBs detailed response.

Audrey

 

[AzDreamer]

So what advice are you following from your newsletter, AZDreamer?

I could tell you what trades I made recently but then you wouldn't know when these purchases should be sold. For you to feel comfortable making your own decisions you'll have to come up with a new way to manage your investments, one that you trust.

My newsletter probably wouldn't pass muster with most other posters here since it believes in active vs passive management. You might try reading about different strategies and picking one you can stick with. They all have their moments, good and bad, but jumping from one way to another when things look bad probably isn't going to work.

 

[Marquette]

Did you all discuss commodities and did you feel comfortable doing it at the time? If you just went along because he talked you into it, then, well, booooo ;-)

 

[tangomonster]

Yup, Marquette, we did talk about commodities and it seemed to make sense at the time....but now nothing makes sense.

 

[Marquette]

Tune the broker out, sit down together, reassess what your goals and risk profile are. If you bought because, at the time, you were looking to chase returns, then you might want to switch to what your broker is recommending as the next hot thing. If you bought them because they made sense as a solid component of your portfolio at $x, then they should still make sense at $y.... unless your goals have changed as well.

I'm a little concerned because it sounds like he's encouraging you to churn.

 

[cute fuzzy bunny]

Makes sense. If he recommended a good asset allocation that worked, they'd figure out pretty quick that they didnt need him anymore.

 

[Zoocat]

No, I wouldn't.

Here's what my advisors have said:

Cover your short-term needs.
Have faith in your long-term financial plan.
Keep your head.

My investment advisor, who manages my family trust, has said basically the same thing. We are 56% in asset funds. We have enough cash assets in the trust to cover 7-8 years of my expenses.

I sold 25% of my personal assets this summer and in Sept ( to tax harvest losses and also because I am a nervous newb not on advice from my advisor) So I have some cash to invest now. I put back in 10% into Vanguard Total Stock Index today and will see what happens in the future. I plan to dollar cost average but if we go down into the 7000's I will invest more.

I am actually really agog at this experience. I feel kind of guilty at how fascinated I am because I know that everyone, including moi, is suffering some really serious losses.