Financial Planner: thoughts? stories?

[FIREAway]

I made a bunch of money (via stock in a tiny company) in the mid-90's, then lost a bunch of money (along with everyone else) after the high tech bust in 2000. I got rid of the brokerage firm managing my money in 2002, amazed that they lost so much of it, and disappointed in myself for not being more pro-active. I moved it to another financial planner, fee-only, who is doing okay. I wanted someone with a lot of financial experience to make sure my portfolio was balanced, in good funds/stocks, etc.

About 16 months ago another venture I'm involved with repaid a loan and paid out a dividend, giving me about $500k after taxes. I decided to try my hand again at investing and put it in another account for me to manage. I subscribed to a few Motley Fool newsletters (Hidden Gems and Rule Breakers, both high-risk, high-return newsletters) and started following their advice.

At the beginning, it was just some pretty bad luck, of the stocks they selected I happen to pick some real dogs , but over the subsequent months I became more active in research and started picking better stocks from their recommendations. With the recent run-up in the market, the portfolio I manage is looking stellar, one stock up over 100%, 4 over 50% (and, of course, some down 60%, some sold down 50%, etc.) Annual return is running at 20% right now, even carrying a significant margin balance.

So, I'm feeling smug and brilliant with my selections and astute management (please read a bit of sarcastic tone into that!). The portfolio managed by advisor, who takes about 1%, is up about 8%. So I'm tempted to start managing more of my own money (and get rid of that margin!), although I know my risk tolerance is pretty high, possibly too high for my own good.

I remember reading a Washington Post article about a retiree who had started day-trading to boost his reasonably-sized retirement account during the late 90's. Even then I was thinking "This guy is pathetic and living very dangerously." I never saw a follow-up article about what happened to him, but I've seen others where people had to go back to work after making bad retirement decisions. And I don't want to be like that guy! Though I don't do day trading (much).

So, long post, but really wanted to hear people's thoughts and stories on financial planners, especially people who are comfortable and active in managing their own money.

About me: 44, about to get married, hoping to have kids.

Michael

[Mr._johngalt]

Many years ago I "interviewed" several FPs (don't recall why).
I was underwhelmed. Couldn't find one that I would have let
handle my money even if I had been impressed otherwise (I wasn't).
I continue to be amazed at the people I know personally who seem
reasonably intelligent but leave all of their financial fortunes in the
hands of others. There are lots of ways to get educated (this forum
for example), but people don't do it. I'm as lazy as they come but
this (investing) is pretty important stuff, unless you are content to work until you drop.

JG

[FinanceDude]

Well, since I am an advisor, and you asked...............

Your situation is not totally unusual. The fact that you are taking charge of your finances and learning more is commendable. I don't know your total picture, but I personally have a number of clients that manage a more volatile portfolio themselves, and utilize me to be more conservative.

I would think he is buying stocks and things that are "away" from your volatile picks, and they should. 8% before fees is a pretty tame return, perhaps it is TOO conservative for you??

If you were my client, I would want to have a discussion of what you are trying to achieve. Keep in mind that the markets have been pretty favorable for nearly 4 years, but that could turn anytime. Long-term strong returns are harder to achieve than one might think.

I notice you said you have a margin account. Margin is a two-edged sword, in bull markets it can be a valuable tool, in bear markets, it can really tan your hide. Also, I have been watching margin interest rates, and at a lot of borkerage firms, the interest rate is 8-9%..........which is a pretty steep borrowing rate to me.

If you have any questions offline you would like to ask me, or want more info, I would be happy to provide it, and rest assured I'm not soliciting you........

[FinanceDude]

Quote:

Originally Posted by Mr._johngalt Many years ago I "interviewed" several FPs (don't recall why). I was underwhelmed. Couldn't find one that I would have let handle my money even if I had been impressed otherwise (I wasn't). I continue to be amazed at the people I know personally who seem reasonably intelligent but leave all of their financial fortunes in the hands of others. There are lots of ways to get educated (this forum for example), but people don't do it. I'm as lazy as they come but this (investing) is pretty important stuff, unless you are content to work until you drop. JG

Hey, you never interviewed me!!

[REWahoo]

Quote:

Originally Posted by FIREAway ...really wanted to hear people's thoughts and stories on financial planners, especially people who are comfortable and active in managing their own money.

The majority of posters here are of the DIY variety and consider financial planners an expensive and often unwise (sorry FinanceDude) way to grow a nest egg. I suggest you use the search button at the top of the page and plug in "financial planner" (use the quotes) to see some of the many discussions (and horror stories) on the subject.

Bottom line: no one is more interested in your financial well being than you. Managing your own investments is very doable and you sound like the type of person that would be very good at it.

[HFWR]

Many here roll their own, using low-cost index funds in a diversified portfolio, including large and small cap, international, reits, and bonds. Some are more active, but even those seem to limit their putzing to a percentage of the total, say 10%.

How much time do you want to spend? Could be the new wife has other plans for you... :P

[FinanceDude]

Quote:

Originally Posted by REWahoo! The majority of posters here are of the DIY variety and consider financial planners an expensive and often unwise (sorry FinanceDude) way to grow a nest egg. I suggest you use the search button at the top of the page and plug in "financial planner" (use the quotes) to see some of the many discussions (and horror stories) on the subject. Bottom line: no one is more interested in your financial well being than you. Managing your own investments is very doable and you sound like the type of person that would be very good at it.

No harm, no foul. I for one think people have no problem paying a CPA or attorney without a moment's thought because there believe they can't do those things themselves.

Before I became an advisor, I handled my own portfolio for almost 20 years, and did pretty well. I always did things with a broker, because this was pre-Internet, and it was much harder to do research on stocks and things. So I guess I was a DIYer who decided I wanted to do this for a living............strange but true.

I have never used a CPA, even when I ran my own business I did my own taxes. One of my friends is a CPA. For curiosity's sake he asked to see 5 years of my tax filings. After reviewing them, he told me it was as good as any he'd done...........

Maybe I should just sit for the CPA test..........

[retire@40]

Quote:

Originally Posted by FIREAway ...With the recent run-up in the market, the portfolio I manage is looking stellar, one stock up over 100%, 4 over 50% (and, of course, some down 60%, some sold down 50%, etc.) Annual return is running at 20% right now, even carrying a significant margin balance. So, I'm feeling smug and brilliant with my selections and astute management (please read a bit of sarcastic tone into that!). The portfolio managed by advisor, who takes about 1%, is up about 8%. So I'm tempted to start managing more of my own money (and get rid of that margin!), although I know my risk tolerance is pretty high, possibly too high for my own good...

Like I've said before, everyone is a hero when the market is going up. The true test comes when it becomes a bear market. (BTW, I understand the sarcasm in your post).

To compare apples to apples, you have to compare the weighted average beta in your own portfolio to that of your portfolio managed by the FP. For example, my WAB is 0.74 which includes all my investments including cash and excluding residential real estate.

You need to ask yourself how you would feel if you lost 20% instead of earning 20%.

[FinanceDude]

Quote:

Originally Posted by retire@40 Like I've said before, everyone is a hero when the market is going up. The true test comes when it becomes a bear market. (BTW, I understand the sarcasm in your post). To compare apples to apples, you have to compare the weighted average beta in your own portfolio to that of your portfolio managed by the FP. For example, my WAB is 0.74 which includes all my investments including cash and excluding residential real estate. You need to ask yourself how you would feel if you lost 20% instead of earning 20%.

Very good point. The S&P 500 has a beta of 1.0. So if your portoflio is at .74, it has 26% less volatility than the broad markets. Not a bad deal.........

[FIRE'd@51]

Just for comparative purposes:

June 30, 2005 S&P 500 = 1191.33

Oct 31, 2006 S&P 500 = 1377.94

That's a gain of 15.7%. Throw in another 2% or so for dividends, and you have nearly an 18% total return in an index fund. This is the number you should be comparing your risk-adjusted equity returns to.

[LOL!]

We've always been DIY investors. My spouse was in an investment club for many years. We done the whole gamut of stock investing: funds, stocks, IPOs, options, margin, ETFs, warrants, etc.

What I have noticed, is that is it quite a bit different getting a 50% to 100% return on a $2MM portfolio than it is on a $50K stock position. If you think you have found a hot stock or good investment, you just don't bet the farm on it. In the end, you tend to remember all those great winners while forgetting your losers while you are on your way to a slightly better than average total return.

I also found that I needed to select the correct benchmark to compare my returns to. For example, a portfolio of ETFs with allocations to large, small, international, and REITs should not be compared to the S&P500 index when boasting of returns.

When I picked the proper benchmark (e.g. a set of index funds or ETFs with the same asset class weighting as my portfolio), then I found that I was doing about the same as the benchmark. Given that result, I capitulated and just went to using the index ETFs and funds with an eye on managing tax consequences. In the last few years, it hasn't been hard to get more than 20% a year in selected investments.

What has this got to do with a FP? I don't think they can really help anyone who can read and has a mind to use the information they read. So that leaves many people that FPs can help.

[FinanceDude]

Quote:

Originally Posted by LOL! We've always been DIY investors. My spouse was in an investment club for many years. We done the whole gamut of stock investing: funds, stocks, IPOs, options, margin, ETFs, warrants, etc. What I have noticed, is that is it quite a bit different getting a 50% to 100% return on a $2MM portfolio than it is on a $50K stock position. If you think you have found a hot stock or good investment, you just don't bet the farm on it. In the end, you tend to remember all those great winners while forgetting your losers while you are on your way to a slightly better than average total return. I also found that I needed to select the correct benchmark to compare my returns to. For example, a portfolio of ETFs with allocations to large, small, international, and REITs should not be compared to the S&P500 index when boasting of returns. When I picked the proper benchmark (e.g. a set of index funds or ETFs with the same asset class weighting as my portfolio), then I found that I was doing about the same as the benchmark. Given that result, I capitulated and just went to using the index ETFs and funds with an eye on managing tax consequences. In the last few years, it hasn't been hard to get more than 20% a year in selected investments. What has this got to do with a FP? I don't think they can really help anyone who can read and a mind to use the information they read. So that leaves many people that FPs can help.

To sum it up.............DIY, with a dose of caution thrown in..........