How much to lose in portfolio before firing brokerage outfit?

[Kathryn48]

Hi all,

Just wondering if you have a certain point at which you will fire someone managing your money in terms of percentages.

Since I turned over my portfolio it's dropped 10% (since December). No one likes drops.

Thoughts? Also, if you manage your own, at what point to you bail on a stock or other holding?

[ziggy29]

Well, beyond the likely chorus of replies encouraging you to fire the broker, transfer your assets to something low-cost and learn how to do it yourself, if the losses exceed what would be expected biven your risk profile, it would make me wonder if they were really doing the best thing for my money.

As for bailing out on a holding...if the holding has a strategic portion of my asset allocation, I don't bail on it -- in fact, when it's time to rebalance, I'd buy MORE of what's been declining.

I can't speak to individual stocks since the only stocks I trade any more are ETFs.

[brewer12345]

I would compare your total return to that of a mix of indexes that roughly matches what you own. So if you own a bundle of stocks that equals 60% of your portfolio and a bunch of bonds that equal 40% of your portfolio, compare your portfolio performance to an index that is 60% S&P 500 and 40% Lehman Aggregate Bond index.

[Kathryn48]

Thanks, ziggy29. I wish at this point I'd paid more attention to learning about this stuff. As long as my portfolio was doing well I did not. Now I have to play catch-up and it seems like a lot to have to learn in a short amount of time. I've said it here before, but I am really ticked off they sold my oil stock as that would have prevented such a large drop if they had not. My gut told me not to sell and I was right. Now my gut tells me to fire these guys and take things over myself, but I don't know how to do this. I have a brother who is quite good at investments so maybe I'll just ask him what he's buying or ask him to look over things. Downside to this is I really don't want to share my financial affairs with my brother.

[Kathryn48]

Originally Posted by brewer12345

I would compare your total return to that of a mix of indexes that roughly matches what you own. So if you own a bundle of stocks that equals 60% of your portfolio and a bunch of bonds that equal 40% of your portfolio, compare your portfolio performance to an index that is 60% S&P 500 and 40% Lehman Aggregate Bond index.

Thanks, this points me in the right direction. I'll just ask my relationship officer to do this for me. After all, I'm paying for it.

[samclem]

"Relationship Officer"? Hey, can you order relationships from him/her?

If the "relationship officer" is an employee of your broker, don't expect a spin-free answer.

You said "broker, not "financial advisor", so I assume you are talking about a regular stock broker. You are paying the broker a lot. Be advised that, if this is a "regular" stock broker he has NO fiduciary responsibility to you. None. In fact, if he isn't doing everyhting possible to make money for his company (not you), he is violating the terms of his employment.


You already suspect that something s wrong. It really does not take a lot of skill to handle this stuff yourself. Many people THINK it is hard, because they believe it is possible (but requires special knowledge/tools/trainign, etc) to beat the markets and avoid losses. Once these people figure out that an effective asset allocation, rebalanced a few times per year, does a better job of maximizing returns within a particular risk tolerance, than any active "specialist" they are likely to select, things get a lot simpler.

There's no way to gaurantee that your portfolio won't decline in value occasionally, bu there's no reason you need to pay broker's commissions and other fees that will virtually guarantee worse results than you could get yourself.

[FIREdreamer]

I second Brewer's suggestion. If your portfolio dropped much more than the appropriate index or index mix reflecting your own asset allocation, it's time to consider other options. I would not ask the brokerage firm to do that for you though, it's too easy to fudge the numbers (pick the wrong index and it's easy to make your results look good) and they have a vested interest in making their numbers look as good as possible in order to keep your business. You are going to have to do your homework on this one.

But I have to say that unless you have a pretty conservative portfolio, a 10% drop since December doesn't seem unreasonable. The S&P500, DOW and Russell 2000 stock indexes are down 9-14% YTD. My foreign stocks are all down 10-11% YTD.

[Midpack]

Brewer is right. The fact that your portfolio has lost $ is not, in itself, and indication of your broker's performance. No one can guarantee your equity holdings will go up in all markets. Until you compare your portfolio to comparable benchmarks, you can't assess your portfolio. If you've nearly matched benchmarks and you're unhappy, next place to look is your asset allocation.

Originally Posted by Kathryn48

I wish at this point I'd paid more attention to learning about this stuff.

It's never too late and I'll bet everyone here wished they'd learned about investing and taken over their own investments sooner than they did, whenever they finally did. Most of us made a broker wealthier for some time before we wised up. No one will look out for your interests more than you will. And if you know what you hold and why, you will sleep better at night when things get tough and not get overly giddy (often leading to misplaced confidence in one's own ability) when times are good. Successful investing does not have to be rocket science - but a broker and the industry (including TV, magazines, financial newspapers, etc.) will do their very best to make you think it is. They are after all in the business to make a profit for themselves first and foremost.

Originally Posted by Kathryn48

I have a brother who is quite good at investments so maybe I'll just ask him what he's buying or ask him to look over things. Downside to this is I really don't want to share my financial affairs with my brother.

Interesting, my sister has asked for my advice on investing as well, and I have been reluctant to tell her what to do. I take those opportunities to 'teach her to fish, instead of giving her a fish' by referring her to The Coffeehouse Investor, The Four Pillars of Investing, The Bogleheads Guide to Investing, Commonsense Guide to Investing, etc.

So another vote for educating yourself and taking matters into your own hands.

You can do this...

[Moemg]

I'd look for a simple do it yourself portfolio like the Vanguard Target Retirement while I was learning the basics . Their are some really trustworthy FA's ( like Finance Dude ) and their are some churners who make profit on buying & selling your investments much too often .

[rec7]

Originally Posted by Kathryn48

Hi all,

Just wondering if you have a certain point at which you will fire someone managing your money in terms of percentages.

Since I turned over my portfolio it's dropped 10% (since December). No one likes drops.

Thoughts? Also, if you manage your own, at what point to you bail on a stock or other holding?

What percent do you have in stocks? If it is a 100% that is not to bad. I am down about 3.5% but I am 60/40.

[Kathryn48]

Originally Posted by rec7

What percent do you have in stocks? If it is a 100% that is not to bad. I am down about 3.5% but I am 60/40.

55% and lost 4% (according to their numbers, but after reading this thread I guess I am going to have to do a little homework on my own, which is a good thing, I guess. It's never too late to learn).

[Dawg54]

Originally Posted by Kathryn48

Thanks, this points me in the right direction. I'll just ask my relationship officer to do this for me. After all, I'm paying for it.

As others have said, they will put a spin on it in their favor. Look it up yourself. And if you don't know what your allocation % is......you need to learn a little more about it. Your money manager may have you more tilted towards stocks than you intended. If you do know you want a certain blend, just buy a target fund or balanced fund that closely replicates your intended mix. Much cheaper way to go. Good luck with it all!

[FIREdreamer]

Originally Posted by Kathryn48

55% and lost 4% (according to their numbers, but after reading this thread I guess I am going to have to do a little homework on my own, which is a good thing, I guess. It's never too late to learn).

So if I assume you are 55% stock and 45% bonds, here are a few, crude references (you can refine your calculations to reflect exactly your asset allocation):

Vanguard Wellington (65% stocks / 35% bonds, not an index, a bit more aggressive than your portfolio): -5.8% YTD
Vanguard Wellesley (35% stocks / 65% bonds, not an index, a bit less aggressive than your portfolio): -4.7% YTD

Now let's look at a mixture of 55% Vanguard stock market index and 45% Vanguard total bond market index: -5.5% YTD

So if you lost about 4%, you would definitely be within the range of acceptable returns for your asset allocation.

[rec7]

Originally Posted by Kathryn48

55% and lost 4% (according to their numbers, but after reading this thread I guess I am going to have to do a little homework on my own, which is a good thing, I guess. It's never too late to learn).

They are not doing a bad job return wise. The only thing is if it were me I would not like paying the fee they charge. Like FIREdreamer said "Now let's look at a mixture of 55% Vanguard stock market index and 45% Vanguard total bond market index: -5.5% YTD" This is about the same thing you have but a much cheaper way of doing it. Or you could mix the Wellington and the Wellesley if you like to get that 55% stocks mix. Over the long run you would save alot of money on the fee they charge. If I remember right it would save you about 2,500 each year. Thats 25,000 in ten years that you would save. Remember fees over time add up.

[Nords]

You say you're ready to fire your broker for losing money, but about the only way a broker can guarantee to make you money is through a government bond, an insured CD, or an annuity-- and even those guarantees are imperfect.

You say you're ready to fire your broker for losing money, but the vast majority of investment returns are dependent on asset allocation. If they're holding to an asset allocation that resembles the investor-profile information you gave them, then they're doing their job. Asset allocations have volatility that can be measured, and this 10% loss may be well within normal volatility for "your" chosen asset allocation.

You say you're ready to fire your broker-- how long have they been on the job? More importantly, how much time will you give the next asset manager?

You say you're ready to fire your broker, but you don't seem to be ready to find another money manager and you don't seem to be ready to manage it yourself.

You say you're ready to fire your broker, but one of the first things you do is ask them for information which they'll be able to bias to their advantage.

Maybe it's better to develop an asset-allocation plan and to decide what you want from the next asset-manager relationship before you fire your broker. Figuring out the next step, and trying to find someone who's willing to tackle it, may put the current broker's performance into a different perspective.

How's the reading coming?

[Finance Dave]

Originally Posted by brewer12345

I would compare your total return to that of a mix of indexes that roughly matches what you own. So if you own a bundle of stocks that equals 60% of your portfolio and a bunch of bonds that equal 40% of your portfolio, compare your portfolio performance to an index that is 60% S&P 500 and 40% Lehman Aggregate Bond index.

+1.

If your portfolio loses 10% but the market loses 15%, you should hug your advisor (parenthetically speaking).

[Kathryn48]

Originally Posted by Nords

You say you're ready to fire your broker for losing money, but about the only way a broker can guarantee to make you money is through a government bond, an insured CD, or an annuity-- and even those guarantees are imperfect.

You say you're ready to fire your broker for losing money, but the vast majority of investment returns are dependent on asset allocation. If they're holding to an asset allocation that resembles the investor-profile information you gave them, then they're doing their job. Asset allocations have volatility that can be measured, and this 10% loss may be well within normal volatility for "your" chosen asset allocation.

You say you're ready to fire your broker-- how long have they been on the job? More importantly, how much time will you give the next asset manager?

You say you're ready to fire your broker, but you don't seem to be ready to find another money manager and you don't seem to be ready to manage it yourself.

You say you're ready to fire your broker, but one of the first things you do is ask them for information which they'll be able to bias to their advantage.

Maybe it's better to develop an asset-allocation plan and to decide what you want from the next asset-manager relationship before you fire your broker. Figuring out the next step, and trying to find someone who's willing to tackle it, may put the current broker's performance into a different perspective.

How's the reading coming?

Thanks, Nords. I agree with you. As far as the reading goes, I got the Morningstar Guide to Mutual Funds. Someone said it was a good read. So far so good. I am going to tackle this before the other recommendations in the threads. I have those Suze Orman books to read too. So much reading to get done...

[Midpack]

Originally Posted by Kathryn48

Thanks, Nords. I agree with you. As far as the reading goes, I got the Morningstar Guide to Mutual Funds. Someone said it was a good read. So far so good. I am going to tackle this before the other recommendations in the threads. I have those Suze Orman books to read too. So much reading to get done...

I'd Google Suze Orman before you read them, she is well known for a mix of very good, very bad and sometimes inconsistent recommendations... Still the best reading list IMO Investment Books

[FinanceDude]

Originally Posted by Kathryn48

Thanks, Nords. I agree with you. As far as the reading goes, I got the Morningstar Guide to Mutual Funds. Someone said it was a good read. So far so good. I am going to tackle this before the other recommendations in the threads. I have those Suze Orman books to read too. So much reading to get done...

Burn the Suze Orman books, the heat will help defray energy costs.........