Working with a friend on his post 65 plan

[stephenson]

Hi All,

I have urged my friend (best friend from high school) to join and read E-R ...but, I need to get him started.

Some background - he is close to 65, is considering when to stop working as a construction foreman/manager for companies that build large scale facilities, including apartments. He has invested with several financial companies over the years, but doesn't have a pension from any of the companies. He has older kids without strings, and has put most of them through college, including one MD. A great, honest guy who has been working too hard!!

He called me and asked for some specific advice on holdings with one of the companies - LPL Financial ... he had invested through a broker who was a neighbor around 2008. Apparently, they put him in front load funds with 1.5% expenses, including a natural resources fund (70% energy stocks) and a private REIT placement. About half his holdings with LPL were in a bank cash account. BTW - he hasn't heard from the LPL folks in years - and, he hasn't tried to find out much, either - he's just been head down, working.

The natural resources fund has lost 40% of it's value since 2008, and I have no way of knowing at this point what is going on inside the private placement REIT, except there is bad news in the press.

So, without knowing more, I recommended he pull together everything - every fund, every company, ever single account. Put together a spreadsheet or complete list of it all - and, then find a "life coach" of some sort to assess next steps.

I also did a quick assessment and compare showing how front end loads are bad and high fees are bad - as well as providing some self help reading resources.

What would you recommend in his case? (I'll try and get him to read responses)

Thanks!

[calmloki]

We have some $ in the market, but mostly have rentals and do hard money loans. No pensions here and the SS would be awful hard to live on as we weren't high earners - might cover food and some utility bills, but not rent. Do like the medicare though!

The stock market has that real attractive tax structure and you can adjust your annual earnings to maximize tax savings - our income OTOH is interest and rental and taxed at the normal tax rate. Rentals aren't mailbox money, but a beginner in rentals has decades of depreciation they can reduce their taxable income with, then pass the property to heirs tax free at a stepped up basis - free lunch! We, unfortunately (?) have had the rentals so long our depreciation is used up, so all the profit get taxed in full each year. On the good side, everything is paid for, so we feel very secure knowing WE are the captains of how well we do - not some mystery company boardroom crew and financial product salesman. Some work, but might be a good fit for a head down and keep plowing person.

[pb4uski]

Quote:

Originally Posted by stephenson ..... He called me and asked for some specific advice on holdings with one of the companies - LPL Financial ... he had invested through a broker who was a neighbor around 2008. Apparently, they put him in front load funds with 1.5% expenses, including a natural resources fund (70% energy stocks) and a private REIT placement. About half his holdings with LPL were in a bank cash account. BTW - he hasn't heard from the LPL folks in years - and, he hasn't tried to find out much, either - he's just been head down, working. The natural resources fund has lost 40% of it's value since 2008, and I have no way of knowing at this point what is going on inside the private placement REIT, except there is bad news in the press.....

Is this LPL account taxable or tax-deferred? If taxable, then perhaps he can use the 40% tax loss on the natural resources fund to offset gains elsewhere, or to offset ordinary income for up to $3k a year.

Your instincts are correct, he needs to assess what he has and where he is before acting. The unfortunate reality may be that he was taken advantage of and there will be cost/pain to get out and get into something more sensible.

At his age, unless tax efficiency is a big concern, the Vanguard Life-Strategy Moderate Growth fund (a 60/40 fund) may be a solid, one-stop choice. No load and a 0.13% ER with 3/5/10 year returns in the 6-7.4% range.

https://personal.vanguard.com/us/fun...ect=true#tab=0

[stephenson]

Don’t know about all, but the one I saw was IRA.

[joeea]

Quote:

Originally Posted by stephenson So, without knowing more, I recommended he pull together everything - every fund, every company, ever single account. Put together a spreadsheet or complete list of it all - and, then find a "life coach" of some sort to assess next steps. What would you recommend in his case? (I'll try and get him to read responses)

I would avoid the "life coach" - that is a term without real meaning.

Instead, I would suggest that he find a fee-only fiduciary financial adviser. The adviser will sort out the current mess and advise a path going forward.

[stephenson]

Joeea,

I considered that, but felt he would benefit from doing part of this himself - so he doesn't end up in the same position with yet another advisor/broker, etc who might push him in the wrong direction.

[braumeister]

Quote:

Originally Posted by stephenson Joeea, I considered that, but felt he would benefit from doing part of this himself - so he doesn't end up in the same position with yet another advisor/broker, etc who might push him in the wrong direction.

"fiduciary" is the key word there.
Someone who is required to put the client's interests first.

[stephenson]

braumeister,

I'm not sure the folks who set him up in front load funds, with above average costs, and no communications had a legal fiduciary responsibility to him - if they did, they violated it - if they didn't, they are likely unethical - or, simply lazy and bad managers of others' money.

[stephenson]

Found lots of negative, some extreme ...

This great thread on bogleheads .... https://www.bogleheads.org/forum/viewtopic.php?t=213078

[braumeister]

Quote:

Originally Posted by stephenson braumeister, I'm not sure the folks who set him up in front load funds, with above average costs, and no communications had a legal fiduciary responsibility to him - if they did, they violated it - if they didn't, they are likely unethical - or, simply lazy and bad managers of others' money.

Yes, I believe that was the point of joeea's post. Suggest you encourage (maybe help) him to find a fiduciary fee-only planner who can set him straight. Someone who charges just a flat fee, not a percent of assets. There are quite a few good ones out there; you just have to hunt for them.

[stephenson]

OK - but, I would still like him to get into the subject enough to understand WHY his financial planner is doing what they are doing.

[pb4uski]

Why not just steer him to Vanguard? They won't steer him wrong.

[stephenson]

Vanguard would be great ...I’ve told him about bogleheads and provided link.

Have also told him about my very positive experiences with Fidelity.

I recommended: Schwab, Vanguard and Fidelity.

[pb4uski]

^^^^^ good advice

[joeea]

Quote:

Originally Posted by stephenson OK - but, I would still like him to get into the subject enough to understand WHY his financial planner is doing what they are doing.

Skip the "life coach" stuff and give him a good book or two to read and understand.

Then when he is ready suggest that he spend a few hours with a good fee-only CFP.

[stephenson]

Not sure he is doing that much reading right now ...I’m slowly tantalizing him with links to informative articles.

[joeea]

Quote:

Originally Posted by stephenson Not sure he is doing that much reading right now ...I’m slowly tantalizing him with links to informative articles.

Okay, not into reading...

As I suggested earlier he seems to be the exact type of person who could learn a lot from a few hours with a fee-only fiduciary CFP. He could listen, rather than read. And of course any action is optional.

It sounds like you want to be his informal financial adviser (and life coach?). While I understand the commendable desire to help a friend, you might want to think twice. If the market goes down, you could bear the blame. And "if you break it, you own it".

[stephenson]

Nah - zip interest in recommending investments ...lotta interest in getting him going on his learning experience by setting up comparos so he can judge for himself.

Already told him didn’t want to see any more specific info ...

[donheff]

Quote:

Originally Posted by stephenson Vanguard would be great ...I’ve told him about bogleheads and provided link. Have also told him about my very positive experiences with Fidelity. I recommended: Schwab, Vanguard and Fidelity.

Quote:

Originally Posted by stephenson Not sure he is doing that much reading right now ...I’m slowly tantalizing him with links to informative articles.

I would be very cautious. His best bet would probably be moving all of his accounts over to a simple set of index funds at Vanguard, Fidelity, or Schwab but if he does what you say rather than what he has concluded makes sense you are the FA and potentially the target for his frustration when the next downturn cuts his holdings by 30%. As others said, try to help him find a fee only (not just "fee based") fiduciary FA who will look at his holdings and help him organize a plan to convert to a simple index based solution for a flat fee. As you see, I have already constrained the choice of an FA to someone who will advise him on a strategy to move to indexing. The reason I would counsel that is it at least narrows the target to an approach most of us agree is reasonable. Otherwise his selection could end up being a crapshoot. Otherwise he might find himself moving to some other sub-par portfolio with high costs that he doesn't understand.

Tell him to read something like the Bogleheads Guide to Investment or listen to what Warren Buffet says and just do it.

[calmloki]

And since I'm a lone voice on this here;

"Some background - he is close to 65, is considering when to stop working as a construction foreman/manager for companies that build large scale facilities, including apartments".

Stocks and bonds are not the only way to have retirement income and/or store assets. A construction background + foreman experience could make for a person well suited to own and run rental properties profitably.