Earlier there were some comments left about the dilemma faced about whether to hire someone to help manage money and whether it becomes necessary at some point as a function of old age or other factors.
Since this addresses what I do for a living, I may be biased. The vast majority of people will not hire someone to help them, this seems quite clear to me.
I don't have a tremendous amount of insight here but I think it really just boils down to a couple of things. The first thing is trust. Not so much trust of not stealing (I don't think theft happens very often and if your assets are custodied at a brokerage firm it won't be a problem) but trust that the person cares about his clients, which is probably a bigger problem than theft, and that once you find someone that does care that they will be around for a while.
One thing that may not be very important is performance. If you have saved enough money and that money captures most of what the market does, you will grow your assets sufficiently enough to pay the bills and keep up with inflation. It is only logical that any adviser will beat the market some years and lag it others. I'm sure there are exceptions on both sides but keeping close with a philosophy that you can be comfortable with is what I think is most important.
I think the last paragraph, while my general take, may not be that simple to do as far as finding someone. I would urge anyone that thinks they want to hire someone to meet as many people as they need to until they find someone they are confident in.
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6 comments:
The scenario is similar to going to the doctor. Folks do not need to go to the doctor every time they get a cold. On the other hand, folks should go in for a regular check up even when they are not sick. If they are sick, they should see the doctor before their regular appointment.
You need a doctor that you trust but you still make the decisions based on the doctor’s advice. You do not take the surgeons advice to do open heart surgery without consulting the cardiologist first. In some cases, one must overrule ones doctor and, in other cases, ones financial adviser.
Reading your blog is just one of the ways that I consult another doctor. I don't always agree with your diagnosis but I am better off to have read it; keep up the good work!
BTW, I hope you have jumped on board AMR or CAL. This airplane ride is the most exciting one I have ever been on.
I think the other issue is returns and fees. Can an advisor consistently do so much better than me that the fees are worth it (when added to trust issues?)
anonymous' question is one that everyone should think about, but the answer will be unique to each person asking it.
As ability diminishes with age, one has to look to others, family trustees, Powers of Attorney, financial advisors, etc. There is no way around it. Its part of the cost. Also, safeguarding assets by separation of custody and control is vital. If the assets are there, it is an investment problem only. But that is only the tip of that iceberg
The risk of outliving your assets is the scary part.
Securing the best use of these assets may need to be addressed as an insurance or risk mitigation problem. Buying into a Continuaing Care Community, Long Term Care insurance, etc. are investment alternatives here.
This is the Matching Assets to Liabilities (ALM) approach to portfolio management, as opposed to the Total Return approach.
ALM is a tough study for individual portfolios. Most of the info available relates to Pension Funds and Banks. And as usual in financial writing, it comes in two forms:
First, academic writing full of Greek symbols, and
Second, The See Dick. See Dick Run, Run Dick Run, type of advice in the popular financial media.
One hopes that you Roger and some of your great posters take up the challange of making Asset Liability Matching meaningful for the rest of us.
Old Geezer
I too am biased here...but one thing no one has mentioned is from a behavioral finance standpoint. I think about the bear market for equities a few years back. What's impossible to quantify, is what would an investor have done to their allocation in mid to late 2002. The data suggests that most investors buy at the wrong time and sell at the wrong time. A good advisor would have a plan set forth and keep an investor on course. After all, they shouldn't be emotionally tied to the assets. For someone charging 1% or so annually, keeping someone invested so they can gain in the recovery would more than make up for YEARS of fees. Just my two cents. Of course if you can separate yourself emotionally...my argument is null. But who can do that honestly after seeing an equity portfolio decline 20-30% for a duration of 3 years?
MF
Excellent point MF. It takes real guts to buy a sector of the market or over weight in a portfolio a sector that has underperformed for years at a time. Think investing in Japan is more popular today or before the huge run it's seen lately?
Three years ago I never heard of average investors buying commodity funds - in the past year they have become a much more talked about thread just because they performed so well.
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